December 17, 2014

The Hobby Lobby Surprise: Making Money Can Be a Religious Experience

David T. Ball

In Burwell v. Hobby Lobby Stores, 134 S.Ct. 2751 (2014), the U.S. Supreme Court’s second case involving the Obama administration’s Affordable Care Act, the Court considered the fairly novel question of whether for-profit businesses have a right to an exemption from the act’s contraceptive care mandate on the grounds that the mandate conflicts with the business owner’s religious beliefs. Nearly all of the precedent in the Free Exercise accommodation area had involved religious individuals or religious non-profit corporations. The Court surprised some and angered others when it ruled that Hobby Lobby, and other for-profit businesses like it, could claim the right to a legal exemption on religious grounds. 

The Hobby Lobby case arose due to a requirement of 2010’s Affordable Care Act that all group health plans must provide “preventive services” at no cost to the recipient. The legislation did not, however, specify what these required preventive services were to be. So the Obama Administration asked the Institute of Medicine to make a recommendation to the department of Health and Human Services (HHS) as to what should be on the required list for women. 

The Institute of Medicine recommended, despite the objections of certain religious groups, that the list of required no-cost preventive services for women should include certain forms of contraception that some consider to be abortion on religious grounds. These include two types of intrauterine devices, and two forms of emergency contraception: Plan B, or the “morning after” pill, and “ella,” also known as the “week after” pill. HHS accepted the recommendations of the Institute of Medicine, and the requirement was to take effect by January 1, 2013. Other religious groups, including Catholics for Choice, Episcopal Divinity School, Jewish Women International, Methodist Federation for Social Action, Muslims for Progressive Values, and the Planned Parenthood Clergy Advisory Board, supported the HHS decision. 

A number of employers, nonprofit and for-profit, quickly filed suit to enjoin the regulation from being enforced against them. As of October 2014, these included more than 50 religious or nonprofit employers and more than 40 for-profit companies. The first to make it to the Supreme Court were two separate cases brought by Hobby Lobby Stores and Conestoga Wood Specialties. These were brought in the Tenth and Third Circuits, respectively, and decided jointly at the very end of last term (June 30, 2014). 

The combined Hobby Lobby/Conestoga Wood Specialties case was argued under the Religious Freedom Restoration Act (RFRA) and the First Amendment’s Free Exercise Clause. RFRA had earlier been declared unconstitutional as applied to the states in City of Boerne v. Flores, but it remains in effect as to actions of the federal government. Modeled after Free Exercise precedent as it existed before the Supreme Court made a major change in that law in 1990 (Employment Division v. Smith), RFRA requires that any “substantial burden” on the “exercise of religion” must be the “least restrictive means” of furthering a “compelling government interest.” 

The threshold issue for the combined Hobby Lobby/Conestoga Wood Specialties case, though, was whether a for-profit corporation could invoke RFRA’s protections. A 1988 Title VII case decided by the Ninth Circuit Court of Appeals, EEOC v. Townley Engineering and Manufacturing Co., had held that a for-profit employer could not favor Christian employees over an atheist one, despite its owners’ claim that they had made a covenant with God that their business “would be a Christian, faith-operated business.” The Supreme Court’s oral argument in Hobby Lobby, held in March 2014, suggested that this would likely be yet another 5–4 decision on both the threshold issue and the merits under RFRA. 

At the lower level, the Third Circuit, in a divided opinion, denied Conestoga Wood Specialties’ motion for a preliminary injunction, holding that “for-profit, secular corporations cannot engage in religious exercise” within the meaning of RFRA or the Free Exercise Clause. A split between the circuits arose when the Tenth Circuit, in another divided opinion, held that Hobby Lobby was a “person” within the meaning of RFRA, and therefore entitled to bring suit. 

With Justice Alito writing for the majority, the Supreme Court emphatically rejected the argument that a for-profit corporation might not be a “person” under RFRA. Leveraging HHS’s concession that a nonprofit corporation was a person, the Court declared that “no conceivable definition of the term includes natural persons and nonprofit corporations, but not for-profit corporations.” 

HHS’s principal argument, though, was that a for-profit corporation could not engage in the “exercise of religion,” the issue that the Third Circuit had decided in its favor. Justice Ginsburg, the author of the principal dissenting opinion, agreed, arguing that nonprofit religious corporations are different because they are vehicles through which individual religious freedom is exercised. The majority countered, simply, that these for-profit businesses were also vehicles through which their owners, who object to post-conception contraception on religious grounds, exercise their religious beliefs. 

The majority then turned to the obvious difference: the difference in purpose between a for-profit business and a religious nonprofit organization. Asking “what about the profit-making objective?” the Court turned to precedent: the 1961 decision in Braunfeld v. Brown, a case in which Orthodox Jewish (for-profit) shop owners objected to Pennsylvania’s Sunday closing law on the grounds that the law put them at a competitive disadvantage with other stores, which could stay open on Saturday while the Jewish-owned shops were closed for religious reasons. The Court rejected their request for an exemption to the Sunday closing law, which the majority in Hobby Lobby cited as support for the position that for-profit business owners can “exercise religion”: “In Braunfeld, 366 U.S. 599, we entertained the free-exercise claims of individuals who were attempting to make a profit as retail merchants, and the Court never even hinted that this objective precluded their claims.” 

But the merchants in Braunfeld had brought their case as individuals, and they owned their businesses as sole proprietorships. The Court thus had to address the more precise issue at hand: whether corporations themselves could be plaintiffs in a case based on religious exercise, rather than the individuals who own the corporations. The Court again addressed the issue in terms of whether a meaningful line can be drawn between nonprofit corporations, which can bring religious exercise claims, and for-profits. Making money, the Court observed, need not be the sole objective of a for-profit corporation: “While it is certainly true that a central objective of for-profit corporations is to make money, modern corporate law does not require for-profit corporations to pursue profit at the expense of everything else, and many do not do so.” It is common for for-profit corporations to make charitable donations, for example. “If for-profit corporations may pursue such worthy objectives, there is no apparent reason why they may not further religious objectives as well.” The Court also mentioned that more than half of all states now recognize the “benefit corporation,” whose purpose is both to benefit society and to generate a profit for its owners. 

A glimpse of the scope of the Court’s ruling becomes visible here. The Court noted, in passing, that for-profits may pursue objectives other than profit-making “[s]o long as its owners agree.” Both Conestoga Wood Specialties and Hobby Lobby are closely held family businesses, and the relatively few individuals in the ownership group share the same religious beliefs regarding contraception. It is difficult to imagine that a majority of a publicly held for-profit corporation’s shareholders would take a firm stand on such a divisive issue. 

Between the two extremes of a family business and a publicly traded corporation, it is difficult to predict which other types of for-profit corporations might attempt to invoke religious rights. The manufacturing firm that attempted to claim the religious organization exemption from Title VII in EEOC v. Townley was, like Conestoga Wood Specialties and Hobby Lobby, a closely held corporation, 94 percent of whose shares were owned by its founders, a husband and wife. Most commonly, faith-based for-profit corporations are owned by members of a single family or by two individuals whose faith is the bond between them. HHS raised the specter of “divisive, polarizing proxy battles over the religious identity of large, publicly traded corporations such as IBM or General Electric,” but the Court was not concerned: “the idea that unrelated shareholders . . . would agree to run a corporation under the same religious beliefs seems improbable.” In any event, the Court noted, “The companies in the cases before us are closely held corporations, each owned and controlled by members of a single family. . . .” 

Having resolved the threshold question in favor of for-profit corporations potentially having religious rights under RFRA, the Court turned to the first element of a RFRA claim: whether the Affordable Care Act’s contraceptive mandate “substantially burdened” those rights. The companies’ only alternatives were to offer group health insurance that excluded contraceptive coverage, which would cost Hobby Lobby $475 million per year and Conestoga Wood Specialties $33 million per year, or to drop employee health insurance, which would cost Hobby Lobby $26 million per year and Conestoga Wood Specialties $1.8 million per year under the Affordable Care Act. “These sums are surely substantial,” the Court ruled. Some of the amicus parties contended that the cost to the companies of dropping health insurance altogether would actually be less than the cost of providing that insurance, but the Court rejected this argument too, stating that this would have still burdened the companies by putting them at a competitive disadvantage in terms of attracting and retaining good employees. 

HHS then raised the point that the connection between what the companies were required to do (provide health care coverage that includes optional no-cost contraceptives) and the result to which they object (the destruction of a fertilized embryo) “is simply too attenuated.” This argument was at odds, the Court noted, with HHS’s decision to exempt churches from this coverage requirement based on the same purportedly attenuated connection. The Court then buried this argument by labeling it a “religious and philosophical question”: the owners’ belief “implicates a difficult and important question of religion and moral philosophy, namely, the circumstances under which it is wrong for a person to perform an act that is innocent in itself but that has the effect of enabling of facilitating the commission of an immoral act by another.” HHS, the Court concluded, had no right to conclude that the owners’ religious belief regarding this question is flawed, and under well-established Religion Clause jurisprudence neither do the federal courts. “[I]t is not for us to say that their religious beliefs are mistaken or insubstantial.” The Court’s role is limited to determining whether the belief is honestly or sincerely held – and there was no dispute that it is. 

The Court did not to reach the RFRA element of whether the HHS requirement served a “compelling state interest,” because HHS was not able to show that the requirement is the “least restrictive means” of promoting the interest asserted by HHS in ensuring no-cost access to all FDA-approved contraceptives. “The least-restrictive-means standard is exceptionally demanding” under RFRA, and the Court gave several reasons why it was not met. 

First, if as the Court assumed the Affordable Care Act will cost the federal government more than $1.3 trillion in the next decade, one less restrictive and “straightforward way of doing this would be for the Government to assume the cost of providing the four contraceptives at issue” rather than requiring the companies to do so. Here, HHS’s emphasis on the “compelling” nature of its interest worked against it: “If, as HHS tells us, providing all women with cost-free access to all FDA-approved methods of contraception is a Government interest of the highest order, it is hard to understand HHS’s argument that it cannot be required under RFRA to pay anything in order to achieve this important goal.” (Emphasis in the original.) 

Second, HHS had already created an accommodation for nonprofit organizations with religious objections: these organizations’ insurers are required to absorb the cost, or if the organization is self-insured its third-party administrator receives a reduction in the fee paid by insurers to participate in the federally facilitated exchanges. Not even the dissent had a counter-argument to this point, the Court declared: “The principal dissent identifies no reason why this accommodation would fail to protect the asserted needs of women as effectively as the contraceptive mandate, and there is none.” Emboldened, the Court even went so far as to claim that its approach would be more protective of women than the dissent’s preference to enforce the mandate: “the dissent would effectively compel religious employers to drop health-insurance coverage altogether, leaving their employees to find individual plans on government-run exchanges or elsewhere. This is indeed ‘scarcely what Congress contemplated.’” 

Third, the Court limited its ruling to the beliefs and interests at issue, in response to HHS’s argument that such a result would “lead to a flood of religious objections regarding a wide variety of medical procedures and drugs. . . .” Other coverage mandates, the Court clarified, could involve different governmental interests that could not so easily be advanced through less restrictive means. The Court gave the example of Lee v. Weisman, where the Court rejected an Amish employer’s religious objection to withholding Social Security taxes on the ground that “there simply is no less restrictive alternative to the categorical requirement to pay taxes. . . . [A]llowing taxpayers to withhold a portion of their tax obligations on religious grounds would lead to chaos.” 

Under RFRA, the Court concluded, the contraceptive mandate may not be applied to for-profit companies whose owners object on religious grounds. Having reached that result under RFRA, the Court declined to reach the question of whether the mandate as so applied would also violate the First Amendment. 

Justice Kennedy’s concurring opinion reveals that his decisive fifth vote was based on the inability of HHS to explain why it could exempt religious nonprofits but not for-profits. He barely touched the threshold question, asserting only that one’s religious beliefs may broadly impact one’s manner of conducting oneself “in the political, civic, and economic life of our larger community.” 

Considering the entire sweep of the majority opinion, it seems clear that once the for-profit business owners were found to be entitled to bring a claim that their “exercise of religion” had been violated, the rest of the decision followed in the wake of the Court’s resolution of this threshold issue. HHS had exempted other employers (religious nonprofits, plus those employers whose plans were grandfathered under the law because their coverage had not been changed since the adoption of the Affordable Care Act), which made it extremely difficult to argue that a few more (50-some for-profit companies have brought suit) could not also be exempted without causing the entire statutory scheme to collapse. 

As for the Court’s decision on the threshold issue, it definitely surprised many, and angered some. Recently, there has been a strong upsurge in terms of religious individuals and organizations seeking to run their businesses according to their beliefs. Their right to do so must be balanced against the right of their employees to be excused from mandatory participation in workplace religious activity, but this protection is already in place under Title VII precedent. 

Ultimately, Supreme Court decisions that split hairs in terms of what is and is not religious (for example, its decisions about when a crèche or a cross on public property violates the Establishment Clause) are greater cause for concern, for they confound legal scholars and confuse the public. By resolving the threshold question in favor of broad RFRA protection, the Court was able to move past the otherwise inevitable hair-splitting to the well-established elements of a RFRA claim: the substantiality of the burden, the compelling-ness of the governmental interest, and the possibility that a less restrictive means of advancing that interest may be available. 

The majority opinion leaves one with the conclusion that drawing a line between for-profit and nonprofit businesses under RFRA cannot be logically defended without injecting one’s own values (for example, that faithfulness and moneymaking are two entirely separate dimensions of human existence) into the equation. RFRA and the First Amendment offer a robust set of jurisprudential tools that enable the Court, and society, to avoid such subjective, apparently arbitrary, distinctions. The Hobby Lobby decision appropriately employed them. These tools are available to the lower courts if, as some anticipate, more for-profit businesses assert religious exemption claims.

David T. Ball

David T. Ball is of counsel with Rosenberg & Ball Co., LPA in Granville, Ohio, with a practice focus on the legal needs of religious institutions and leaders. He is a past co-chair of the ABA Religious Organizations Subcommittee.