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Posted on Wednesday, July 02, 2014

Supreme Court Allows Closely-Held Corporations to Opt Out of Obamacare Birth Control Mandate

On June 30, 2014, the Supreme Court ruled in a 5-4 decision that closely-held for-profit corporations may opt out of regulations issued under the Patient Protection and Affordable Care Act (ACA) mandating insurance plan coverage for certain contraceptive drugs.
Three corporations brought the action under the Religious Freedom and Restoration Act of 1993 (RFRA), which prohibits the Government from substantially burdening a person’s exercise of religion unless the government shows that such a burden is the least restrictive means to further a compelling governmental interest.  In Burwell v. Hobby Lobby Stores, Inc., the Court not only considered the legality of the contraceptive mandate under the RFRA analysis, but also addressed whether a for-profit corporation has standing as “a person” under the statute.
Writing for the majority, Justice Alito ruled that the contraceptive mandate was unlawful under the RFRA and constituted a substantial burden on a corporation’s right to conduct business in accordance with its religious beliefs. The Court concluded that, in enacting the RFRA, Congress intended to provide broad protection to the exercise of religion, including religious exercises practiced by the natural persons associated with closely-held corporations.  The majority noted that the legal fiction in which a corporation is considered a person for certain purposes is really intended to provide protection for the natural persons associated with that company since corporations, “separate and apart from the human beings who own, run, and are employed by them, cannot do anything at all.”  Extending the scope of protection offered by the RFRA is therefore intended to benefit the human beings comprising the corporation, rather than the intangible entity itself.
In her dissenting opinion, Justice Ginsburg disagreed that a for-profit corporation qualified as a “person” under the RFRA because a corporation is artificial and has no conscience, and therefore cannot practice religion.   The dissent noted that religious entities and other nonprofits are exceptions to this principle because they “exist to serve a community of believers.”  For-profit companies, on the other hand, are likely composed of workers of diverse religions and are motivated by commercial profit. In the dissent’s view, upon incorporating a for-profit business and escaping personal liability for its obligations, the owners essentially sever their right to contest government regulation of that business based upon their religious beliefs.  Justice Ginsburg expressed further concern that providing for-profit closely-held corporations a cause of action would proliferate RFRA claims by encouraging “corporations of any size, public or private…to seek religion-based exemptions from regulations they deem offensive to their faith.”
Although the majority only considered whether a closely-held for-profit corporation could constitute a person, Justice Ginsburg’s observation that the ruling would likely proliferate claims from corporations of all sizes is worthy of note.  Despite tailoring the language of its holding to closely held corporations, the Hobby Lobby decision technically does not preclude the extension of RFRA protection beyond the close corporation context.  The majority expressly acknowledged this possibility by refusing to interpret “person” to include natural persons and “some but not all corporations.”  Furthermore, although the holding centers upon four specific contraceptive drugs, the majority does not suggest that these are the only medical treatments and procedures mandated by the ACA which may be actionable under the RFRA.  Perhaps mandatory insurance coverage for vaccinations and blood transfusions will be next on the chopping block.  Since the decision is not constrained within Obamacare regulation, maybe religiously inclined businesses will seek to opt out of anti-discrimination regulations.  The Hobby Lobby decision ultimately provides corporations carrying out business in a manner reflecting sincere religious beliefs with the means to challenge any number of government regulations that burden its operation.
David Moon is a summer intern with Berenzweig Leonard, LLP.  He can be reached at dmoon@berenzweiglaw.com.

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