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Big Win for Religious, Closely-Held Corporations Under Obamacare

The U.S. Supreme Court released one of its biggest decisions since it struck down the Defense of Marriage Act one year ago, captioned Burwell v. Hobby Lobby Stores, Inc., 189 L. Ed. 2d 675 (U.S. 2014).  In the first decision of its kind, the Court held closely-held corporations can exercise religion, are afforded religious freedom under the law, and are therefore not required to pay for employees’ birth control in the face of religious objections.  To understand this, we need to turn back over 200 years.

Since its adoption in 1791, the First Amendment to the U.S. Constitution has guaranteed citizens the right to exercise religion, among other rights.  The Religious Freedom Restoration Act (“RFRA”) was passed in response to a 1990 case involving two American Indian drug rehab counselors who ingested peyote as part of their religion and were fired.  The firing was upheld by the Court under the logic that religious exemptions that conflict with valid law could create a disastrous outcome.  RFRA sets forth the test to determine when a rule of general applicability may be imposed on an individual who claims a religious exemption.  Under RFRA, the government is prohibited from “substantially burdening” a person’s exercise of religion even if the government’s rule is one of general applicability (such as laws prohibiting the use of peyote) unless the government can demonstrate that the burden on the person 1) is in furtherance of a compelling government interest and 2) is the least restrictive means of furthering that interest.  So what does this have to do with Hobby Lobby?

The Patient Protection and Affordable Care Act of 2010 (“ACA”) requires, among other things, certain employers to furnish health plans which include “preventative care and screenings” for women without “any cost sharing requirements.”  The federal Department of Health and Human Services (“HHS”) passed regulations implementing this section of the law including a mandate requiring employers provide coverage of twenty birth control methods approved by the Food and Drug Administration (“FDA”).  Following this regulation, the owners of three closely-held corporations filed suit asserting the regulation violated their religious beliefs.  The companies included Hobby Lobby, a Southern Baptist-owned craft store with 13,000 employees; Mardel, a Southern Baptist-owned seller of religious books with 400 employees; and Conestoga Wood Specialties, a Mennonite-owned cabinet-making business with 950 employees.

The owners objected to four specific kinds of birth control they believe end pregnancies rather than prevent them, including two kinds of “morning-after-pills” and two intrauterine devices. None of the owners had any objection to the sixteen other FDA-approved methods of birth control covered under HHS’s regulation.

The Court tackled a number of issues in the opinion.  The first major issue was whether a closely-held corporation was a “person” under RFRA and entitled to religious liberty.  The Court determined that because the law is broad, it includes corporations.  It reasoned that to exclude corporations from this protection, when corporations are obviously run by people who may have religious beliefs, would not be logical.  Second, the Court held for-profit companies can engage in the “exercise of religion” and are not required to focus solely on making profit.  Rather, they may engage in many acts whereby they exercise their religion.  Third, the Court was persuaded the mandate imposed a substantial burden on the companies because noncompliance could result in millions of dollars of penalties under the ACA.  Fourth, the Court held there was a compelling government interest in creating the mandate but the mandate failed the least-restrictive method test.

The Court cited an alternative method that was not as restrictive.  It stated HHS already provides an accommodation to nonprofit religious organizations under the ACA who object to providing coverage of contraceptives services.  Such organizations must certify they oppose coverage of some or all contraceptives mandated to be provided at no cost to employees under the ACA regulations; once the organizations do so, the insurance issuer or third-party administrator must exclude contraceptive coverage from the group health insurance provided and must separately provide payment for those services without imposing any of those costs on the employer, the plan, participants, or beneficiaries.  A copy of the certification must be sent to both the government and the insurance company or third-party administrator.  HHS determined the cost to insurance companies and third-party administrators for providing these services is less than or equal to the cost-savings from these contraceptive services.  (A copy of this certification form may be viewed at: http://www.dol.gov/ebsa/pdf/preventiveserviceseligibleorganizationcertificationform.pdf.)

The Court stated that HHS did not put forth arguments on why this kind of accommodation could not be made available to for-profit companies which hold religious beliefs.  The Court reasoned the government’s objective would be met because employees would still receive the services.  The Court suggested HHS implement a system like the current reasonable accommodation for nonprofit religious organizations but left it open to HHS to ultimately decide this issue.

Needless to say, this opinion is a huge victory for corporate religious freedom and may open the door to many other challenges to various laws including the ACA on the basis of religious freedom.  In her dissent, Justice Ginsberg stated this ruling opens the door to other groups who may ask for accommodations such as “religiously grounded objections to blood transfusions (Jehovah’s Witnesses); antidepressants (Scientologists); intravenous fluid and pills coated with gelatin (certain Muslims, Jews, and Hindus); and vaccinations (Christian Scientists, among others) . . ”

The Court majority was very careful to narrow its holding to closely-held corporations.  The Court stated it would be difficult for large publicly-held corporations where shareholders do not even know each other, to assert they are running the company pursuant to certain religious beliefs.  However, it left open the possibility there may be cases where a publicly-held company could exercise sincere religious beliefs.  If you are a large employer with a religious objection to providing certain coverage under the ACA, you should seek the advice of competent counsel.

Brody and Associates regularly advises management on complying with state and federal employment laws.  If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.965.0560.