Religious Conduct of Commerce: Unwinding the Hobby Lobby Case

There is a lot of confusion surrounding the Supreme Court’s recent ruling in Hobby Lobby. The libertarian perspective has been discussed elsewhere, but what the Court actually did is not being described accurately despite the fact that they helpfully include a “syllabus” summarizing each ruling for the public. Apparently, some people, including many reporters, can’t be bothered to read even the summary. Therefore in the interest of clarity, I will try to give a brief overview of the case and of the majority’s reasoning in their decision. For the sake of brevity, citations are omitted because they can be found in the actual decision.

First some background. Contrary to what some people have claimed, objections to general laws on religious grounds do excuse you from having to follow them. This wasn’t always the case. In the early 90s, the Supreme Court ruled that “neutral, generally applicable laws may be applied to religious practices even when not supported by a compelling governmental interest” because allowing someone to object on the basis of religion to such laws “would open the prospect of constitutionally required religious exemptions from civic obligations of almost every conceivable kind.” In response, Congress passed the Religious Freedom Restoration Act (RFRA), overturning the Supreme Court’s decision and allowing challenges to neutral laws that burdened religious exercise. Under the RFRA, “[g]overnment shall not substantially burden a person’s exercise of religion even if the burden results from a rule of general applicability.” The people affected by such a burden are entitled to exemption from the rule unless the government “demonstrates that application of the burden to the person– (1) is in furtherance of a compelling governmental interest; and (2) is the least restrictive means of furthering that compelling governmental interest.”

Many people have said that the Affordable Care Act (ACA), i.e. “Obamacare”, requires employers’ group health plans to provide coverage of contraceptives. This is not correct. The ACA merely requires the plans to cover “preventive care and screenings” for women without “any cost sharing requirements.” Congress left it up to the Health Resources and Services Administration (HRSA) to decide specifically what types of care this includes. When the HRSA issued regulations specifying what was required, they mandated that all FDA approved contraceptive methods be covered. They also provided for a religious exemption for religious organizations and non-profit religious corporations. Per the requirements of the RFRA, they apparently would also provide a similar exception to unincorporated for-profit businesses operating according to the owner’s religious principles. They did not provide an exception for incorporated for-profit businesses with corporate policies stating that the businesses would be run according to religious principles. Importantly, granting this exemption does not mean that the employees of these organizations will not have contraceptive coverage. Rather, it means that the insurance companies and ultimately the government will provide this coverage at no cost to the employer or the employees.

Now for the case. Because they were denied an exemption by the HRSA, three corporations, Conestoga, Hobby Lobby, and Mardel, sued under the RFRA claiming that the regulations requiring them to provide contraceptive coverage burdened their owners’ exercise of religion and consequently entitled the corporations to an exemption. Because the RFRA is a federal statute and the requirement to provide contraceptive coverage is merely a regulation, the statute takes precedence. Therefore, if it applies to these cases, the corporations are entitled to an exemption. Because Conestoga is located in Pennsylvania, their case went to the 3rd Circuit. Hobby Lobby and Mardel however are based in Oklahoma, and consequently their case went to the 10th Circuit. These two appellate courts reached opposite conclusions. The Supreme Court then agreed to hear the case to resolve the “circuit split” and ensure a uniform interpretation of the law.

Contrary to what has been widely reported, the central issue in the case was not about corporate personhood, but about whether a corporation can be said to “exercise religion” on behalf of its owners. As we have explained multiple times on this website, a corporation is merely a legal fiction, a type of short-hand that makes explaining the law easier. As justice Alito explained in the majority opinion:

[I]t is important to keep in mind that the purpose of this fiction is to provide protection for human beings. A corporation is simply a form of organization used by human beings to achieve desired ends. An established body of law specifies the rights and obligations of the people (including shareholders, officers, and employees) who are associated with a corporation in one way or another. When rights, whether constitutional or statutory, are extended to corporations, the purpose is to protect the rights of these people. For example, extending Fourth Amendment protection to corporations protects the privacy interests of employees and others associated with the company. Protecting corporations from government seizure of their property without just compensation protects all those who have a stake in the corporations’ financial well-being. And protecting the free-exercise rights of corporations like Hobby Lobby, Conestoga, and Mardel protects the religious liberty of the humans who own and control those companies.

The government’s argument in the case was two-fold. First, business owners who chose to incorporate forfeited their 1st amendment protections under the RFRA and could no longer sue as individuals because incorporation made them legally separate from their businesses. Second, because the corporation itself has no religion to exercise, it cannot sue on behalf of the owners. Thus incorporation of a for-profit company implies that the free-exercise rights of the owners were forfeited. This would mean that owners would face a choice — either they could get the benefits of incorporation, or they could keep the protection granted by the RFRA. As the majority noted, adopting this rule would have widespread consequences. For example, it would mean that Orthodox Jewish store owners would be unable to sue claiming that mandatory Sunday closing laws violated their religious freedom.

Ultimately, the government was asking was for the Court to create a new legal distinction between individuals and non-profit corporations on the one hand and for-profit corporations on the other. The court considered multiple possible arguments for creating such a distinction, but found none of them persuasive in light of existing precedent. The distinction couldn’t be based on either the corporate form or the profit-making object because non-profit corporations and individuals operating as merchants are allowed to bring challenges. Nor could the issue be that for-profit corporations do not have a religious purpose because corporate law allows corporations to be formed for any lawful purpose. And for-profit corporations can and do pursue a multitude of alternative goals. In this particular case, all of the corporations involved had legally-binding policies requiring them to operate according to religious principles. Furthermore, a distinction between non-profits and for-profits would encounter practical problems. Many religious and charitable corporations are technically organized as for-profit corporations in order to be able to lobby and campaign for political candidates. And over half the states specifically allow for special dual-purpose corporations to accommodate such organizations.

Because they could not find a basis for making the distinction that the government wanted and because of the practical problems that such a distinction would create, the Court concluded that the RFRA protects the religious freedom of a corporation’s owners. Consequently, these three corporations were entitled to an exemption on the same basis that a religious non-profit would be.

It should be stressed that many of the issues that are being discussed by people commenting on this case were not decided. For example, the government did not contest the sincerity of the religious beliefs involved. But more importantly, and contrary to widespread misreporting, whether a corporation was a person for purposes of the RFRA was not at issue.

Personhood wasn’t an issue because there is a special law called the Dictionary Act that defines a host of legal terms used in other statutes. Because the RFRA protects “a person” but does not define the word “person”, the Dictionary Act’s definition of “person” is meant to apply. And under that Act, “corporations, companies, associations, firms, partnerships, societies, and joint stock companies” are included in the meaning of “person”. Furthermore, the HRSA even conceded that the definition of “person” within the RFRA included non-profit corporations. And because no known legal definition of “person” includes some corporations but not others, for-profit corporations would also be protected. Therefore the case instead hinged on whether a for-profit corporation could be said to “exercise religion” on behalf of its owners. As discussed above, the idea that a corporation is a legal person is long-established fiction used to protect the rights of the people affiliated with the corporation. So, rather than being about some legally uncontroversial point, the case was about whether a person could exercise their religion via a corporation in the same way that they could exercise it via some other organization.

Hopefully this has shed some light on the case and will help foster constructive discussion about the issues involved.