The Supreme Court’s Hobby Lobby Decision Carries Broad Implications for Employers

by Cozen O'Connor
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The U.S. Supreme Court this week issued its long-awaited decision in Burwell v. Hobby Lobby Stores, Inc., regarding the ability of for-profit corporations to refuse to abide by regulations that require them to provide cost-free contraception to their female employees. The Court ruled in favor of Hobby Lobby, holding that the regulations imposing the contraception mandate of the Affordable Care Act violated another federal law, the Religious Freedom Restoration Act (RFRA).  Although the Court seemed to emphasize the limited nature of its holding, this case has broad implications for all corporations and all types of government regulations.

In its appeal, Hobby Lobby (a closely held, family-owned, for-profit corporation) argued that the regulations requiring companies to provide cost-free contraception to female employees in its insurance plan violated RFRA. The RFRA requires the government to meet a high burden whenever a law or regulation imposes a substantial burden on a person’s exercise of his religion.

The Court was faced with four substantive questions: (1) could Hobby Lobby be a “person” covered by RFRA; (2) if so, could Hobby Lobby exercise religion; (3) if so, were the regulations a substantial burden on the company’s exercise of religion; and, (4) if so, did the regulations serve a compelling governmental interest in the least restrictive way? The Court answered the first three questions affirmatively, establishing the ability of a for-profit corporation to be covered by the RFRA and to exercise religion. The Court answered the last question in the negative, finding that the government did not use the least restrictive means of accomplishing its interest of providing cost-free contraception under the Affordable Care Act. Thus, the Court struck down the regulations.

In answering the first three questions, the Court evaluated the purpose of RFRA, finding that Congress intended to offer broad protection for religious liberty and that the existing statutory definition of person specifically included corporations. The Court rejected the argument that a corporation could not exercise religion, citing the following rationale: corporations are made up of individuals who can exercise religion, RFRA already covers nonprofit corporations, and the for-profit nature of a corporation does not substantively change the analysis. The Court suggested that large corporations would not exercise religion and that, even if they wanted to, existing state laws on corporations provide for rules on how corporations make major decisions.

In holding that the regulations at issue did not use the least restrictive means to accomplish their goals, the Court’s opinion pointed out numerous other ways to accomplish the government’s objective of providing cost-free contraceptive care to women.  For example, the Court suggested the government could pay for the contraception mandate directly, thus sparing the corporations from the burden on their religious exercise. The Court also repeatedly noted the existing exemption for non-profit religious organizations, finding no reason why this accommodation could not be extended to for-profit, closely held corporations and that such an extension would both accomplish the government’s objective and respect free-exercise rights of the corporations.

At first blush, the Court’s ruling is limited to closely held corporations. (Although undefined by the Court, the IRS defines a closely held corporation as one where five or fewer shareholders control 50 percent  or more of the available corporate stock.) But the dissent suggested that the majority’s rationale would extend to all corporations, not just closely held ones. The Court also emphasized that its holding regarded only the contraception mandate of the Affordable Care Act and did not apply generally to other insurance coverage mandates that might conflict with an employer’s religious beliefs. Justice Ginsburg’s dissent suggests that there was no rationale limiting the Court’s holding to just this mandate. The Court stated that its holding would “provide[] no … shield” to companies that discriminated in hiring under the guise of religious freedom. However, Justice Ginsburg’s dissent suggests that the majority’s decision could allow companies to do just that. The Court also emphasized that its holding did not apply to tax laws that require all people to pay taxes, declaring that “allowing taxpayers to withhold a portion of their tax obligations on religious grounds would lead to chaos.”

This case has broad implications for employers throughout the country. First, closely held corporations now have a specific exemption from one of the Affordable Care Act’s mandates. Second, other corporations now have an avenue — RFRA — by which to assert objections to insurance mandates or other workplace laws that they feel would cause a substantial burden on their religious exercise. As long as such a belief is sincerely held, the courts will not question its reasonableness or evaluate it substantively. Third, although the RFRA does not apply to the states, several states have adopted their own mini-RFRA laws that could apply to other state laws where an employer operates. Finally, corporations should be aware that the Court’s decision was based on a statute (the RFRA) and not the Constitution — thus, Congress can change the underlying statute and provide for different rights for corporations than the Supreme Court determined exist today.

Although corporations should tread lightly given the limited nature of the Court’s opinion, additional cases that attack other aspects of the Affordable Care Act or other laws can be expected. One important feature of the RFRA is that it applies to every federal law previously passed (other than federal employment discrimination laws) or passed in the future unless the future law specifically excludes RFRA. Another important feature is that a religious belief does not have to be integral to a faith in order to qualify for protection; it need only be sincerely held. New religions can avail themselves of the RFRA just as established faiths already have. Given these considerations, we can expect to see a series of new RFRA-based challenges to a wide variety of workplace laws in the future.

The Court’s opinion is available here.

 

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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