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The Contraceptive Coverage Dilemma with Corporations

Written by Zana Tomich on August 28, 2013 Category: Employment Law

                                             Can Corporations Engage In Religious Exercise?                                                                                                                                               Kate Brink

As the U.S. Supreme Court has recognized, the free speech rights secured by the First Amendment extend to corporate entities. See Citizens United v. Fed. Election Comm’n, 558 U.S. 310, 365 (2010). However, Citizens United is silent as to whether the First Amendment rights guaranteed by the Free Exercise clause also extend to corporations. As a result, an interesting question has arisen: whether private corporations are capable of engaging in “religious exercise” in order to be exempt from the Affordable Care Act's contraceptive coverage mandate.

In 2010, Congress passed the Patient Protection and Affordable Care Act (“ACA”), which is more commonly known as “Obamacare.” Under the ACA, employers with fifty or more employees must provide their employees with a certain level of health insurance, which includes coverage of FDA-approved contraceptive methods, sterilization procedures and other reproductive education and counseling. The contraceptive coverage mandate (“Mandate”) exempts certain religious organizations, including nonprofit religious hospitals and schools. Unless an employer or plan is exempt, the ACA guidelines went into effect for plan years beginning on or after August 1, 2012. The Mandate carries with it an employer penalty of $100 per day per offending employee for employers who fail to comply.

The issue of whether a private, for-profit corporation has the ability to engage in “religious exercise” was recently considered by the Tenth Circuit in Hobby Lobby Stores, Inc. v. Sebelius, 2013 U.S. App. LEXIS 13316 (10th Cir. June 27, 2013). Hobby Lobby, a national craft store chain, is a closely held business run by the Green family according to specific Christian principles. Id. at *5-6. Hobby Lobby challenged the requirement that it comply with the ACA’s Mandate, particularly with respect to abortifacients, and also sought a preliminary injunction to prevent the federal government from enforcing the Mandate. The corporation had until July 1, 2013 to comply with the Mandate or else it would be subject to significant monetary penalties and potential regulatory and civil actions. Id. at *15.

In a lengthy opinion, the Tenth Circuit determined that Hobby Lobby had demonstrated a likelihood of success on its claims that the Mandate violated its free exercise rights under the RFRA. Five out of eight judges held that corporations have First Amendment rights to the free exercise of religion, noting that “it is beyond question that associations—not just individuals—have Free Exercise Rights….” Id. at *40. The court also noted that individuals may incorporate for religious purposes and still maintain their Free Exercise rights, and other unincorporated individuals may seek a profit while also retaining their Free Exercise rights. Id. at *42. The Fifth Circuit also found a connection between the exercise of religious beliefs and the pursuit of profit. As the court explained, “a religious individual may enter the for profit realm intending to demonstrate to the marketplace that a corporation can succeed financially while adhering to religious values.” Id. at *46. The court also determined that the Mandate imposed a substantial burden on Hobby Lobby’s religious beliefs, in violation of the RFRA. Id. at *63. The case was then remanded to the district court for a determination as to whether an injunction should issue.  Id. at *80.

One month later, the Third Circuit decided essentially the same issue but held that corporations do not have free exercise rights under the First Amendment. See Conestoga Wood Specialties Corp. v. Sec’y of U.S. Dep’t of Health and Human Svcs., 2013 U.S. App. LEXIS 15238 (3d Cir. July 26, 2013). Conestoga Wood Specialties is a company wholly owned by the Hahn family, who claimed that the Mandate, particularly its requirement that employers offer emergency contraception drugs, violated their Mennonite beliefs. Id. at *9-10. Conestoga became subject to the Mandate when its policy was renewed on January 1, 2013, and throughout the pendency of the litigation Conestoga complied with the Mandate. Id. at *10.

The district court initially denied the plaintiffs’ preliminary injunction, finding that they were not likely to succeed on the merits of their claims. Noting that the issue of “whether a for-profit, secular corporation is able to engage in religious exercise under the Free Exercise Clause of the First Amendment and the RFRA” was apparently one of first impression, the Court held that the Third Circuit determined that such entities cannot engage in religious exercise and affirmed the district court’s denial. Id. at *7. The Court reasoned that certain constitutional rights enjoyed by individuals, such as the privilege against self-incrimination and the right to privacy, “are unavailable to corporations and other organizations because the ‘historic function’ of the particular guarantee has been limited to the protection of individuals.” Id. at *15 (citing United States v. White, 322 U.S. 694, 698-701 (1944)). In addressing whether the Free Exercise clause has been historically applied to corporations, the Court referenced the complete absence of case law supporting the notion. The lack of case law was all the more significant given the numerous Supreme Court cases that addressed the free speech rights of corporations. Id. at *18. The Court further noted that “the law has long recognized the distinction between the owners of a corporation and the corporation itself. A holding to the contrary — that a for-profit corporation can engage in religious exercise — would eviscerate the fundamental principle that a corporation is a legally distinct entity from its owners.” Id. at *32. The Third Circuit specifically rejected the reason of the Tenth Circuit in Hobby Lobby. Id. n. 7.

Based on this newly developed circuit split, the issue is likely to catch the attention of the U.S. Supreme Court. Don’t be surprised if the issue reaches the Court for clarification at some point in the near future, possibly as early as the coming term.

The full text of the Conestoga opinion is available here.
The full text of the Hobby Lobby opinion is available here.

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