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From Health Law Daily, June 30, 2014

Closely-held ‘corporate Christians’ win crusade against contraceptive coverage

By Michelle Oxman, JD, LLM, Sheila Lynch-Afryl, JD, MA, and Danielle Capilla, JD

In a 5-4 decision, the Supreme Court ruled that HHS regulations requiring employer-sponsored health plans to include all FDA-approved contraceptives among the preventive services covered without cost sharing could not be applied to for-profit corporations with religious objections to some of the contraceptive methods. The Court ruled that the regulations violate the Religious Freedom Restoration Act (RFRA), which requires that federal government requirements that substantially burden religious freedom must serve a compelling interest and be the least restrictive means of furthering that interest. The Court rejected the government’s arguments that the corporate employers were separate from their owners and that for-profit organizations do not “exercise religion” (Burwell v Hobby Lobby, June 30, 2014, Alito, S).

Barbara Green, co-founder of Hobby Lobby, said in a statement, “Today the nation’s highest court has re-affirmed the vital importance of religious liberty as one of our country’s founding principles. The Court’s decision is a victory, not just for our family business, but for all who seek to live out their faith.”

The Rev. Barry W. Lynn, executive director of Americans United for Separation of Church and State, which filed a friend-of-the-court brief in the case, said, "The justices have set a dangerous precedent. While the Obama administration may arrange for the government to provide contraceptives, a future administration could easily take that away. In years to come, many women may find their access to birth control hanging by a thread.”

The preventive services coverage requirement. The Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) amended Public Health Service Act sec. 2713 to require employer-sponsored health insurance plans to cover the preventive services rated A or B by the United States Preventive Services Task Force and any additional preventive services for women recommended in comprehensive guidelines issued by the Health Resources and Services Administration (HRSA). As Wolters Kluwer has reported, HRSA added all FDA-approved contraceptives to the list based upon the recommendations in a report by the Institute of Medicine. HHS adopted the HRSA list in a Final rule in August 2011.

The RFRA issues. Hobby Lobby, Inc. owns a national craft store chain. Conestoga Wood Specialties, Inc. (Conestoga) owns a for-profit business manufacturing wood parts that are incorporated into the products of others. Both Hobby Lobby and Conestoga are closely-held corporations owned by members of one family. The Greens, owners of Hobby Lobby and a chain of Christian bookstores called Mardel, are Christians who believe that both emergency contraception and two intrauterine devices (IUDs) cause abortion, so that coverage violates their beliefs. The Hahns, owners of Conestoga, believed that two forms of emergency contraception approved by the FDA cause abortion, so that coverage violates their Mennonite beliefs. The corporations and their individual shareholders sought injunctions against the enforcement of the contraceptive coverage mandate against them.

In both cases, the government argued that the rights of the individuals to free exercise of religion were not violated because the mandate applied to the corporations, not to them as individuals, and a fundamental principle of the law of corporations is that they are legal “persons” separate and apart from their owners. Further, the government argued, for-profit corporations do not exercise religion; they do not pray, perform sacraments, or have religious beliefs. Therefore, the corporations must be bound by the law just like any other employer of their size.

The lower court decisions. Initially, the district court in Oklahoma denied Hobby Lobby’s request for an injunction, and the district court in Pennsylvania denied Conestoga’s request. Both courts accepted the government’s argument that for-profit corporations do not exercise religion. Therefore, neither court found that the plaintiffs were likely to succeed on the merits. On appeal, the Tenth Circuit reversed and directed the district court to enter the injunction in favor of Hobby Lobby. The Third Circuit upheld the denial of the injunction requested by Conestoga.

The Solicitor General filed a petition for writ of certiorari for the Hobby Lobby case, asking the Supreme Court to determine whether the RFRA allows a for-profit corporation to deny its employees the health coverage of contraceptives to which the employees are otherwise entitled by federal law, based on the religious objections of the corporation’s owners. Conestoga also sought review in the Supreme Court, and the cases were consolidated.

Corporations as separate persons. The majority opinion rejected the government’s argument that closely held corporations’ legal obligations were separate from those of the owners. It framed the government’s position as forcing the owners of family businesses to choose between protection of their right to practice their faith in the operation of their business and the advantages of incorporation. The court reasoned that the corporate form exists to protect the human beings who create them and the corporation acts only through those human beings.

The application of RFRA. The Court found that the language of the RFRA referred to “persons” but did not define the term. Therefore, the Court determined that the definition in the Dictionary Act in the U.S. Code applied “unless the context suggests otherwise.” That definition included corporations as well as partnerships, individuals, and other entities, and it did not distinguish between for-profit and other corporations.

HHS argued that the RFRA was intended to restore the state of the law as it existed before Employment Division, Dept. of Human Resources of Oregon v Smith, 494 U.S. 872 (1990). It relied on the findings in RFRA, which cited specifically to two Supreme Court decisions. Wisconsin v Yoder (406 U. S. 205 (1972)) had upheld the right of Amish parents to keep their children out of public school, and Sherbert v Werner (374 U. S. 398 (1963)) held that the state could not deny unemployment compensation to a former employee who was terminated because she would not work on the Sabbath. Both of these cases involved religious practices of individuals.

For-profit corporations. All parties agreed that the RFRA had been properly applied to churches organized as nonprofit corporations. The majority referred to them as nonprofit corporations and held that there was no basis for distinguishing among nonprofits or between nonprofits and for-profit corporations.

Compelling interest test. The RFRA requires that the federal law serve a compelling interest and provide for the least restrictive means of accomplishing that interest. The Court declined to rule on whether the government’s interest was compelling because it found that the agency did not use the least restrictive means to accomplish its goal. The agency had created an exemption for religious institutions, as defined in the tax code, and it had created an “accommodation” for certain related nonprofit entities, whereby the insurer administered the contraceptive benefit separately (76 FR 46621, August 3, 2011). The majority saw no reason why a similar accommodation could not be made for the for-profit plaintiffs.

Justice Kennedy’s concurring opinion stressed that the majority was ruling only on the contraceptive coverage mandate and that the logic of the case should not be extended to other medical procedures to which employers might object, such as blood transfusions. In addition, the RFRA could not be used as a back-door means to evade antidiscrimination laws.

The dissents. Justices Ginsburg, Sotomayor, Breyer, and Kagan dissented, guided largely by their concern for women’s health issues, as embodied in the Women’s Health Amendment to the ACA, which required coverage of preventive services specific to women. The dissent, written by Justice Ginsburg, accused the majority of stepping into a “minefield … by its immoderate reading of RFRA” and characterized the majority’s decision, one of “startling breadth,” as allowing commercial enterprises to “opt out of any law (saving only tax laws) they judge incompatible with their sincerely held religious beliefs.”

Incidental effect. The dissent concluded that any Free Exercise Clause claim the plaintiffs assert is foreclosed by the Supreme Court’s decision in Smith. In Smith, two members of the Native American Church were fired from their jobs after ingesting peyote at a religious ceremony. The Court in that case held that no First Amendment violation occurs when prohibiting the exercise of religion is an incidental effect of a generally applicable and otherwise valid regulation. Justice Ginsburg asserted that the ACA’s contraceptive coverage requirement applies generally, is “otherwise valid,” and “trains on women’s well-being,” not on the exercise of religion, such that the effect it has on such exercise is incidental.

Interests of third parties. Justice Ginsburg also cited the rule that accommodations as to religious beliefs must not significantly impinge on the interests of third parties. According to the dissent, the exemption sought by the plaintiffs would override the “significant interests” of the corporations’ employees and dependents and “deny legions of women who do not hold their employers’ beliefs access to contraceptive coverage that the ACA would otherwise secure.”

RFRA claim. The dissent criticized the majority’s view of the RFRA. Justice Ginsburg reasoned that the RFRA reinstated the law as it was before Smith; however, the majority saw the RFRA as setting a new course departing from pre-Smith jurisprudence. The RFRA applies to government actions that “substantially burden a person’s exercise of religion.” Justice Ginsburg contended, however, that there is no support for the idea that free exercise rights apply to a for-profit corporation. While religious organizations exist to serve a community of believers, no religion-based criterion can restrict the work force of for-profit corporations, which use labor to make a profit, not perpetuate religious values. For this same reason, Justice Ginsburg disagreed with the majority’s suggestion that the accommodation afforded to nonprofit religious-based organizations be extended to commercial enterprises.

Justice Ginsburg further found that the connection between the families’ religious objections and the contraceptive coverage requirement is too attenuated to be considered “substantial,” as required by the RFRA.

Breyer and Kagan. Justices Breyer and Kagan agreed with the dissent’s conclusion that the challenge to the contraceptive coverage requirement failed on the merits but asserted that it was unnecessary to decide whether for-profit organizations may bring claims under the RFRA.

Further response to verdict. Lori Windham, senior counsel for The Becket Fund for Religious Liberty and counsel for Hobby Lobby, said “This ruling will protect people of all faiths. The Court’s reasoning was clear, and it should have been clear to the government. You can’t argue there are no alternative means when your agency is busy creating alternative means for other people.” According to the Beckett Fund, over 100 cases against the mandate have been filed, almost equally divided between for profit and not-for-profit companies.

Louise Melling, deputy legal director of the American Civil Liberties Union, which also filed a friend-of-the-court brief, said that “for the first time, the highest court in the country has said that business owners can use their religious beliefs to deny their employees a benefit that they are guaranteed by law.”

The case numbers are 13-354 and 13-356.

Attorneys: S. Kyle Duncan (The Becket Fund for Religious Liberty) for Hobby Lobby Stores, Inc., Mardel, Inc., Conestoga Wood Specialties Corporation. Donald B. Verrilli, Jr. for Sylvia Burwell, Secretary, U.S. Department of Health and Human Services, Thomas Perez, Secretary, U.S. Department of Labor, Jacob Lew, Secretary, U.S. Department of the Treasury.

Companies: Hobby Lobby Stores, Inc.; Mardel, Inc.; Conestoga Wood Specialties Corporation; U.S. Department of Health and Human Services; U.S. Department of Labor; U.S. Department of the Treasury

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