In the case of Texas & New Orleans Railroad Company et al. v. Brotherhood of Railway & Steamship Clerks et al., 1929, the U.S Supreme Court was asked to determine whether a state law could regulate labor relations in interstate commerce industries such as railroads. The dispute arose when the Texas and New Orleans Railroad Company fired several employees who were members of the Brotherhood of Railway and Steamship Clerks for participating in union activities. The workers argued that their dismissal violated a Louisiana statute which prohibited employers from firing or discriminating against employees due to their membership or participation in labor organizations. The court ruled unanimously that federal law preempted state regulation on this matter, thus invalidating Louisiana's statute as applied to railroad companies engaged in interstate commerce. It held that Congress had exclusive jurisdiction over interstate commerce under Article I, Section 8, Clause 3 (the Commerce Clause) of the Constitution; therefore states cannot interfere with it through legislation unless expressly permitted by Congress.

In the dissenting opinion for Texas & New Orleans Railroad Company v. Brotherhood of Railway & Steamship Clerks, Justice Holmes argued that the majority's decision to uphold a state law prohibiting railroad companies from deducting union dues from employees' wages was incorrect. He believed this ruling interfered with private contracts and violated the Fourteenth Amendment’s due process clause. Holmes asserted that if an employee voluntarily agreed to have their employer withhold union dues from their paycheck, then it should be allowed under contract law principles. Furthermore, he contended that such agreements were beneficial as they promoted labor peace by ensuring unions had adequate funding while also reducing administrative burdens on workers who would otherwise need to pay these fees directly themselves.