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BREAKING LEGAL NEWS: Hobby Lobby and What It Means for Churches and Nonprofits

The Supreme Court recently delivered a decisive, though limited, victory for religious liberty in its decision in Burwell v. Hobby Lobby Stores, Inc. In a 5-4 decision, the Supreme Court held that the Department of Health and Human Services’ (HHS) contraceptive mandate violates the Religious Freedom Restoration Act (RFRA), a statute that was passed with overwhelming bipartisan support in Congress in 1993. Under RFRA, the federal government is prohibited from imposing a substantial burden on the religious exercise of any person, unless it is the least restrictive means of serving a compelling government interest. Although this test is fairly broad in support of religious liberty, since the Supreme Court decision was only based on a statute, the decision could be overturned or substantially undermined if Congress were to repeal or modify RFRA in the future.

What was decided in the majority decision?

The Court began by ruling that the RFRA statute applied both to nonprofit and for-profit corporations.  The majority found no evidence that a corporation could not exercise religion.  In fact, the majority reasoned that the suggestion that RFRA should not protect a corporation just because it was trying to make a profit “flies in the face of modern corporate law.”[1] (at 22-23).

Once the Court determined that a money-making company does have religious liberty rights under RFRA, the Court found it easy to conclude that the contraceptive mandate placed a “substantial burden” on the exercise of religion for the owners of Hobby Lobby.  In keeping with its precedent, the Court refused to ask whether the owners’ beliefs were correct, but simply concluded that their beliefs were honest and genuine after looking at Hobby Lobby’s vision statements, mission statements, business practices, and corporate culture.  Because the mandate would have penalized these beliefs by up to $475 million per year for failing to provide the required coverage, the Court found there was a substantial burden.

Continuing its analysis under RFRA, the Court assumed for the sake of argument that the HHS mandate served a compelling government interest, but found that the mandate was not the least restrictive means to pursue that interest.  For example, Congress could have devised another program for making the contraceptives at issue available, or HHS could allow for-profit entities access to the same accommodation as was created for nonprofit corporations. That accommodation allows an entity objecting to the mandate on religious grounds to avoid directly providing contraceptives in its healthcare plan. Instead, the organization’s insurance provider or third-party administrator would exclude contraceptive coverage from the group healthcare plan, and provide separate payments for required contraceptive coverage, without the organization or its employees bearing the cost.

The Court concluded by holding that the contraceptive mandate violates RFRA, sending the case back to the lower courts to be resolved accordingly.

What does the ruling mean for non-profits, and what does it not mean?

This ruling is specific and narrow.  It applies directly to closely-held (e.g. family-owned) for-profit corporations that have a sincere religious objection to a law like the contraceptive mandate.  The Court declined to rule on any other tangential issues, or to base their holding on any other grounds.  For example, the Court never discussed the First Amendment and did not find that the contraceptive mandate violated the United States Constitution.  This could mean that if Congress ever changed RFRA in the future, this decision could have less of an impact or be invalidated altogether.

Nevertheless, this decision will impact several important areas.

Nonprofits and for-profits should ensure their sincerely-held religious beliefs are clearly stated in their mission statements, bylaws, constitutions, and other documents. Should the corporation ever need to assert its religious exercise rights, having a clear record of its religious belief will be extremely important.

Churches, their integrated auxiliaries, and other religious employers are, and remain, exempt from the contraceptive mandate.[2]

Nonprofits, however, are not so clearly exempt, although this case has revealed some hope for them as well.  The decision has important implications for over 50 pending lawsuits brought by nonprofit religious organizations, such as the Little Sisters of the Poor, who are also challenging the mandate. In two different respects, the Supreme Court strongly signaled that the mandate may be struck down in those cases too. First, it rejected the government’s argument that there was no burden on the Green’s religious exercise simply because only third parties use the drugs. Second, it held that the government could simply pay for contraception coverage with its own funds, rather than requiring private employers to do so.  Both of these arguments could be used to support non-profits who contend that the government’s “accommodation” requiring a third-party to provide contraception drugs is still a substantial burden on religious exercise.

There are a many open questions that will be resolved in the coming months as to the implications of this decision.  For example, it is still unclear whether the accommodation for nonprofits will now be offered as well to for-profits.  If this were done, it is unclear whether such an accommodation would alleviate the substantial burden of the mandate appropriately.

Disclaimer: This memorandum is provided for general information purposes only and is not a substitute for legal advice particular to your situation. No recipients of this memo should act or refrain from acting solely on the basis of this memorandum without seeking professional legal counsel. Simms Showers LLP expressly disclaims all liability relating to actions taken or not taken based solely on the content of this memorandum.  Please contact Robert Showers at hrs@simmsshowerslaw.com, Daniel Hebda at djh@simmsshowerslaw.com or Justin Coleman at jrc@simmsshowerslaw.com  for specific legal advice on this issue for your needs. Simms Showers LLP © 2014

[1] Burwell v. Hobby Lobby Stores, Inc., 573 U.S. _____, at *22–*23 (2014), available at  http://www.supremecourt.gov/opinions/13pdf/13-354_olp1.pdf.[2] HHS also authorized the HRSA to establish exemptions from the contraceptive mandate for “religious employers.” 45 CFR §147.131(a). That category encompasses “churches, their integrated auxiliaries, and conventions or associations of churches,” as well as “the exclusively religious activities of any religious order.” See ibid (citing 26 U. S. C. §§6033(a)(3)(A)(i), (iii)). In its Guidelines, HRSA exempted these organizations from the requirement to cover contraceptive services. See http://hrsa.gov/womensguidelines.

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