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October Term, 2013

June 30, 2014

Today the Supreme Court issued two decisions, described below, of interest to the business community.

Religious Freedom Restoration Act—Protection Of Religious-Exercise Rights Of For-Profit Corporations and Their Owners—Standard For Finding A Substantial Burden On Religious Exercise And Determining The Least Restrictive Means Of Furthering A Compelling Government Interest

Burwell v. Hobby Lobby Stores, Inc., No. 13-354, and Conestoga Wood Specialties v. Burwell, No. 13-356 (previously described in the November 26, 2013, Docket Report)

The Religious Freedom Restoration Act of 1993 prohibits the federal government from taking any action that “substantially burden[s] a person’s exercise of religion” unless that action is “in furtherance of a compelling governmental interest” and “is the least restrictive means of furthering that compelling governmental interest.” 42 U.S.C. § 2000bb-1. The Act was originally passed in reaction to Employment Division v. Smith, 494 U.S. 872 (1990), in which the Supreme Court held that laws of general applicability that infringed on a person’s exercise of religion would no longer be subject to the demanding “strict scrutiny” form of judicial review.

Today, in Burwell v. Hobby Lobby Stores, Inc., No. 13-354, and Conestoga Wood Specialties v. Burwell, No. 13-356, the Supreme Court held that regulations promulgated under the Patient Protection and Affordable Care Act requiring employers, including closely held, for-profit corporations, to provide health-insurance coverage for certain forms of contraception in violation of the sincerely held religious beliefs of those closely held corporate employers violated RFRA.

The closely held corporate parties, Hobby Lobby Stores and Mardel in No. 13-354 and Conestoga Wood Specialties Corp. in No. 13-356, sought preliminary injunctions barring the enforcement of the Affordable Care Act’s contraception-coverage requirement based on their owners’ religious objections to four of the mandated contraceptives. The Tenth Circuit held that Hobby Lobby and Mardel were likely to succeed on the merits because they were “persons” for the purposes of RFRA and the contraception mandate is not the least restrictive means of advancing the government’s compelling interest in providing free contraception for women. On remand, the district court found that the companies had satisfied the remaining requirements and entered a preliminary injunction. In contrast, the Third Circuit held that closely held, for-profit corporations were not persons under RFRA and that Conestoga Wood could not assert a RFRA claim on behalf of its owners. The Third Circuit also rejected Conestoga Wood’s parallel free-exercise claims under the First Amendment. Thus, a preliminary injunction was not entered to bar the enforcement of the mandate against Conestoga Wood, and its insurer included the contested coverage over the company’s objections.

In a majority opinion written by Justice Alito, the Supreme Court affirmed the Tenth Circuit’s judgment and reversed the Third Circuit’s judgment. The Court first determined that RFRA’s protections apply to closely held, for-profit corporations. Such companies are “persons” as defined in the Dictionary Act, and that law provides “a quick, clear, and affirmative answer” to the scope of RFRA’s coverage, the Court held. Prior precedents established that nonprofit corporations and individuals engaging in for-profit activities were both protected by RFRA, so neither corporate nor for-profit status could be a basis for distinguishing the corporate parties from other protected persons. The Court also rejected the government’s arguments that the application of RFRA was limited by pre-Smith Free Exercise Clause jurisprudence and that corporations should not be protected because it would be difficult to determine the sincerely held beliefs of public corporations.

Because the corporate parties are persons under RFRA, the Court next addressed whether they were substantially burdened by the contraception mandate. Recognizing that the corporate parties would face “severe” financial penalties if they elected to provide no health insurance instead of providing insurance that included the contested forms of contraception, the Court held that the mandate imposed a substantial burden. The Court rejected the argument by amici that the potential penalties were less than or equal to the cost of providing health care because that argument ignored the corporate parties’ religious beliefs that they should provide health insurance to all their employees and failed to account for all the potential business costs of not providing insurance. The Court refused to consider whether providing insurance coverage for contraception was too attenuated to infringe on sincerely held beliefs because “it is not for us to say that their religious beliefs” that providing the contested contraception coverage is immoral “are mistaken or insubstantial.”

Finally, the Court assumed that providing free access to the challenged contraceptives is a compelling government interest. But the Court held that the contraception mandate was not the least restrictive means of advancing that interest. The Court observed that the government could pay for the contraceptives directly, but declined to rely on that option to find that the existing regulation failed the least-restrictive-means test. Because HHS had already established an accommodation for nonprofit organizations with religious objections, “HHS itself has demonstrated that it has at its disposal an approach that is less restrictive than requiring employers to fund contraceptive methods that violate their religious beliefs.” That same accommodation, the Court held, could simply be extended to for-profit businesses such as the plaintiffs in these cases. The Court expressly limited its holding to the contraception mandate because other federal requirements “may be supported by different interests” and “may involve different arguments about the least restrictive means of providing them.” The Court did not reach the First Amendment religious-exercise claims raised in Conestoga Wood.

Justice Kennedy, who provided the critical fifth vote for the majority opinion, wrote a concurrence emphasizing that the availability of a preexisting accommodation for nonprofit organizations confirms that the contraception mandate is not the least restrictive means available. He explained that the government had already accommodated the religious objections of nonprofit organizations “by requiring insurance companies to cover, without cost sharing, contraception coverage for female employees who wish it. That accommodation equally furthers the Government’s interest but does not impinge on the plaintiffs’ religious beliefs.” He concluded that “RFRA is inconsistent with the insistence of an agency such as HHS on distinguishing between different religious believers—burdening one while accommodating the other—when it may treat both equally by offering both of them the same accommodation.”

Justice Ginsburg dissented, in an opinion joined by Justice Sotomayor in its entirety and Justices Breyer and Kagan except with respect to Justice Ginsburg’s conclusion that for-profit corporations may not bring claims under RFRA. Justice Ginsburg argued that “Congress enacted RFRA to serve a far less radical purpose” than envisioned by the majority’s decision that RFRA departed from pre-Smith law. Applying free-exercise doctrine as they believed it existed before Smith, the four dissenting Justices would have held that the contraception mandate did not impose a substantial burden because the connection between the individuals’ beliefs and the mandate “is too attenuated to rank as substantial.” The Justices also criticized the majority for discussing two alternatives to the contraception mandate as justification that it was the least restrictive means available without committing to either option. Justices Ginsburg and Sotomayor also would have rejected the corporate parties’ claims because “[u]ntil this litigation, no decision of this Court recognized a for-profit corporation’s qualifications for a religious exception.”

Although the Court limited its decision to only the contraception-coverage requirement, today’s decision is of interest to all for-profit business organizations that may seek to exercise religious beliefs that conflict with federal statutes or regulations that are not sufficiently tailored with respect to the government interest they serve, and to corporations that compete with businesses that invoke RFRA to obtain exemptions from generally applicable regulatory requirements.

Any questions about this case should be directed to Andrew J. Pincus (+1 202 263 3220) in our Washington office.

First Amendment—Compelled Association—Medicaid Providers

Harris v. Quinn, No. 11-681 (described in the October 1, 2013, Docket Report)

The First Amendment, as incorporated by the Fourteenth Amendment, prohibits States from abridging the rights to free speech or association. Today, in a 5-4 decision, the Supreme Court held in Harris v. Quinn, No. 11-681,that the First Amendment prohibits States from requiring personal-care providers under an Illinois Medicaid program to pay fees to a union that the personal-care providers do not wish to join or support.

Both the majority opinion, written by Justice Alito, and the dissenting opinion, written by Justice Kagan, focused on the Court’s prior decision in Abood v. Detroit Board of Education, 421 U.S. 209 (1977). There, the Court held that States may require public employees to pay a union fee to cover costs of the collective-bargaining process even if those public employees do not want to join or support the public-sector union. The majority in Harris severely criticized the Abood decision and held that Abood applied only to “fully-fledged public employees”; but it stopped short of overturning Abood. The majority ruled that Abood did not apply to “partial-public employees, quasi-public employees, or simply private employees,” and thus did not cover the personal-care providers under Illinois’ Medicaid program, who are, for most purposes, employed by their patients rather than by the State. Having concluded that Abood did not govern, the majority held that “generally applicable First Amendment standards” applied and that the union fee was unconstitutional because it did “not serve a compelling state interest . . . that cannot be achieved through means significantly less restrictive of associational freedoms.”

Justice Kagan, joined by Justices Ginsburg, Breyer, and Sotomayor, dissented, arguing that Abood should control as long as the employees are at least jointly employed by the government, and therefore that Illinois should be permitted to require personal-care providers to pay a collective-bargaining fee to the union.

The issues in this case are important to businesses and labor unions that are involved in providing care under Medicaid. Many States require collectivization of personal-home-care providers, and the union fees for many of those programs may now be challenged. More broadly, the Court’s decision calls into question any collective-bargaining fee requirement for employees who do not work fully and directly for the federal or state government. In addition, given the Court’s express disapproval of Abood, the Court may decide to overrule Abood in a future case presenting the question whether a government can require even full-fledged public employees to pay collective-bargaining fees to a public-sector union that the employee does not wish to join or support.

Any questions about the case should be directed to Richard Katskee (+1 202 263 3222) in our Washington office.

Mayer Brown's Supreme Court & Appellate practice ordinarily distributes a Docket Report when the Supreme Court grants certiorari in a case of interest to the business community and a Docket Report-Decision Alert when the Court decides such a case. We hope that you find the Docket Reports and Decision Alerts useful. We welcome feedback on them, which should be addressed to the general editors, Richard B. Katskee (at rkatskee@mayerbrown.com or +1 202 263 3222) and Brian D. Netter (at bnetter@mayerbrown.com or +1 202 263 3339)

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