Impact of the Supreme Court’s Hobby Lobby Stores Decision

by Dorsey & Whitney LLP
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On June 30, 2014, in Hobby Lobby Stores, the Supreme Court held that corporations are persons for purposes of the Religious Freedom Restoration Act (“RFRA”) and, as a result, if a corporation has a sincerely held religious belief, the federal government implementation of laws must be done through the least restrictive means. The Court indicated that the scope of its opinion was limited; that it was unlikely that publicly traded corporations would be able to assert a religious freedom claim and that there was no evidence that it may be applied to other medical procedures such as vaccinations and blood transfusions. Nevertheless, before an employer acts on the decision, for the reasons outlined below the employer should carefully weigh such action.

Background

Section 2713 of the Public Health Services Act (PHSA), as added by the Affordable Care Act (ACA), requires that group health plans and insurers provide certain preventive services without imposing any cost-sharing. The Department of Health and Human Services (HHS) interpreted this requirement to include contraceptive coverage for women. This requirement was generally effective January 1, 2013 for calendar year health plans. HHS, however, issued regulations providing an exception for certain religious employers. 45 C.F.R. §147.131(a). The regulations also provided an accommodation for religious nonprofit corporations with an objection to the contraceptive coverage requirement. 45 C.F.R. §147.131(b)&(c). If such organization has an insured health plan, the insurer has the responsibility for satisfying the requirement. If the organization has a self-insured health plan, the third-party administrator (TPA) for the health plan has the responsibility for satisfying the requirement.

A number of organizations challenged the requirement, including several closely-held for-profit corporations. In Conestoga Wood Specialties Corp. v. HHS, the Third Circuit held that a for-profit corporation did not have a basis under RFRA to challenge the requirement. 724 F.3d 377 (3rd Cir. 2013). In contrast, in Hobby Lobby Stores, Inc. v. Sebelius, the Tenth Circuit found RFRA protected a for-profit employer. 723 F.3d 1114 (10th Cir. 2013). This split led to the review by the Court.

The Court’s Decision

The Court, in a 5-4 decision, held in Hobby Lobby Stores that corporations with sincerely held religious beliefs did not need to satisfy the contraceptive coverage requirement because the requirement was not being imposed in the least restrictive means. Burwell v. Hobby Lobby Stores, Inc., No. 13-354, 2014 WL 2921709. The Court began its decision by concluding that corporations are persons for purposes of RFRA. Id. at 19-20. The Court noted in a number of places that the corporations at issue in the case are closely-held corporations and that it seems unlikely that publicly traded corporations will often assert RFRA claims. Id. at 29. Finally, the Court concluded the requirement was not being imposed in the least restrictive means and noted the accommodation provided to nonprofit organizations as an example of this. Id. at 43. Based on this, the Court concluded that the federal government could not impose the contraceptive coverage requirement on the closely-held corporations named in the case. The dissent raised a number of concerns, including whether corporations owned by individuals who object to vaccinations and blood transfusions based on their religious beliefs may challenge any requirement that a health plan provide these benefits to employees. The Court's decision is available here.

Points to Consider Before Acting on the Decision

Although the Hobby Lobby Stores decision has received much attention, before acting on the decision an employer should carefully consider a number of points.

ERISA

The Employee Retirement Income Security Act (ERISA) generally applies to employer health plans (excluding governmental and non-electing church health plans). Notwithstanding the Court’s decision, it is unclear whether employers wishing to exclude contraceptive coverage from their health plans will face additional objections. Notably, the Hobby Lobby Stores case arose in the context of government enforcement of large tax penalties, not claims for benefits by individual plan participants. Also, it is possible that new regulations could extend to closely-held for-profit corporations the regulations currently requiring insurers and TPAs to provide contraception coverage for religious nonprofit corporations that object to the requirement. It may be difficult to judge the practical effect of Hobby Lobby Stores until the regulatory dust settles. However, at a minimum, an employer that wishes to follow the decision would have to demonstrate as a factual matter that the employer fits within the framework established by the case (i.e., that the owners have sincerely held religious beliefs and that the requirement was not being imposed in the least restrictive means).

FLSA

The Fair Labor Standards Act (FLSA) was amended by the ACA to add a whistleblower protection for employees reporting violations of the ACA. See 29 U.S.C. § 218C (FLSA § 18C). It is possible that an employee may challenge the exclusion of contraceptive coverage as a violation of the ACA and this could lead to a review the employer’s action. An employee might also bring suit based on this.

State Law

If an employer has an insured health plan, that health plan is subject to state law mandates. These state mandates are not preempted by ERISA (unlike under a self-insured health plan, where state law mandates are preempted). If state law mandates the health plan provide contraceptive coverage, the employer would need to assess the state law.

Looking Forward

It is likely HHS will review the decision and issue new guidance. However, the direction and timing of the guidance is not clear.

It is worth noting the Court stated in Hobby Lobby Stores that the decision should not be read as permitting discrimination on the basis of a protected status, such as race. The majority rejected the dissent’s concern that the decision could be used in this manner. The majority explained that the federal government has a compelling interest in permitting equal opportunity in the workplace and that prohibitions on discrimination are precisely tailored to achieve that goal. Thus, the decision signals that these arguments should not be accepted.

An employer considering the impact of the decision should watch for further guidance.

 

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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