Wolters Kluwer Lecture Series: The Controversy of the Hobby Lobby Decision

On September 16, 2014, the DePaul Health Law Institute welcomed Nicole Stone and Danielle Capilla of Wolters Kluwer, to discuss the United States Supreme Court’s decision in Burwell v. Hobby Lobby Stores.

[1]The speakers discussed the background development of the decision through the two cases, Hobby Lobby Stores, Inc. v. Sebelius [2] Conestoga Wood Specialties, Corp. v. Sec’y of the United States HHS [3], which the Supreme Court merged together for its decision. Stone and Capilla followed with a discussion on the Supreme Court’s holding, the immediate effects of the decision, and its potential future implications.

The claims originated when businesses and owners objected to regulations promulgated by the Health Resources Services Administration [4] of the Department of Health and Human Services (“HHS”) under the Patient Protection and Affordable Care Act’s (“PPACA”) preventative services mandate. [5] The preventative services mandate required certain businesses to cover contraceptives in their employee’s benefits packages, [6] or pay a $100 penalty per employee. [7] Emergency birth control and intrauterine devices were primarily the two types objected to, as some religious employers believed that these contraceptives amounted to abortion. The owners of Hobby Lobby Stores, Inc. and Conestoga Wood Specialties Corp., two for-profit corporations, claimed the mandated coverage violated the Religious Freedom Restoration Act (“RFRA”). RFRA prohibits the government from substantially burdening a person’s exercise of religion, unless the action imposing the burden 1) is in furtherance of a compelling governmental interest; and 2) is the least restrictive means of furthering that interest. [8]

Hobby Lobby sought to enjoin enforcement of the mandate, claiming that it violated RFRA by imposing a “substantial burden” on the company by forcing them to supply the challenged contraception to employees. The HHS regulations provide an exemption for non-profit religious employers, allowing them to opt-out of the mandate for religious purposes, and have the insurers or administrators of the health plan to cover the contraceptive costs. [9] Hobby Lobby and Conestoga fall outside the safe harbor because they are for-profit entities. The U.S. District Court for the Western District of Oklahoma denied Hobby Lobby’s original claim on the grounds that RFRA did not consider corporations as persons, because corporations cannot exercise religious freedoms. [10] Hobby Lobby then argued that the mandate violated the owner’s religious freedoms. [11] The U.S. Court of Appeals for the Tenth Circuit also denied the injunction, finding that the mandate was not a substantial burden on the corporation’s exercise of religion, and clarified that the burden fell upon the employees of the corporation. [12]

Conestoga Woods made similar arguments in the U.S. District Court for the Eastern District of Pennsylvania. The court originally granted a temporary injunction, but ultimately denied it. [13] Conestoga appealed to the U.S. Court of Appeals for the Third Circuit, which affirmed the lower court’s denial of the injunction. [14] The court stated that the ACA applies generally to all employers, and does not target religious beliefs, but rather was intended to further gender equality and preventable healthcare.

By the summer of 2013, both the U.S. Circuit Courts of Appeals for the Tenth and Third Circuits had denied the requested injunctions, and both held that RFRA did not protect the religious beliefs of corporations. Hobby Lobby requested an en banc hearing, which was granted by the Tenth Circuit. The Tenth Circuit reversed its previous denial of the injunction, holding that corporations in fact persons under the RFRA, and that the mandate constituted a substantial burden upon the corporation’s exercising their religious beliefs. [15] On remand, the U.S. District Court for the Western District of Oklahoma granted the injunction, [16] thus creating a circuit split between the Tenth and Third Circuits, making it likely that the Supreme Court would grant certiorari for these cases.

In September of 2013, the Solicitor General and the Director of HHS filed claims in the United States Supreme Court arguing that: (1) RFRA did not apply to corporations because there was no evidence that Congress intended to do so; (2) if the RFRA apply to corporations, the burden from the mandate is not substantial; and (3) if the burden was found to be substantial, the mandate passes heightened scrutiny because PPACA is the least restrictive means in furthering the government’s compelling interest in providing women with access to contraception. The Supreme Court granted certiorari in November of 2013, and joined the Hobby Lobby and Conestoga Wood cases [17]

A number of briefs were filed in the Supreme Court. The White House filed a statement claiming that they believed that the mandate was lawful and essential for women’s health. The Democratic Party filed briefs on behalf of the Senate and House of Representatives, arguing that the Tenth Circuit’s holding that corporations were persons under the RFRA was contrary to the legislative intent and history of RFRA. The Republican Party also filed a brief that focused on the RFRA’s definition of person, and argued that it encompassed corporations because there was no carve-out exception or no distinction for un-protected persons, and it did not distinguish between those who engage in commercial activity or non-profit activity.

There were several critical issues presented by the case. One issue was the distinction between non-profit and for-profit entities, namely the fact that the mandate creates specific exceptions for non-profit entities, but not for-profit entities. Another was the slippery-slope concern of the extension of RFRA challenges to other medical procedures that may go against a religious employer’s beliefs, such as vaccinations or blood transfusions, or employment situations such as employing homosexuals or providing maternity benefits for pregnancies outside wedlock. Another issue was a corporation’s ability to exercise religious activities and whether the actual burden of the mandate really fell upon the corporations or upon its employees. The final issue was whether the fee imposed for non-compliance constituted a tax or merely a penalty. Some briefs argued that this would not be a substantial burden because companies would be saving money by not offering the contraceptive coverage, so the tax was merely balancing the company’s choice in incurring costs. This is known as the “pay or play” concept in which companies will compare the costs of offering coverage, to the savings and penalty imposed from not offering the coverage.

In July of 2014, the United States Supreme Court held that RFRA’s definition of “person” did encompass closely held corporations, and thus extended the religious exemption to for-profit companies. [18] Although the 5-4 decision penned by Justice Alito found that the aims of the mandate were a compelling interest, [19] the Court held that the means were not narrowly tailored, because the government could have offered this coverage on its own through other government plans without requiring employers to cover it. [20] Justice Ginsburg argued in her dissent that the interests of third parties, namely the employees of the companies, would now be burdened by having their employer’s belief imposed upon them. [21] In his concurring opinion, Justice Kennedy attempted to temper the slippery-slope concerns that RFRA would be extended to other medical procedures and situations by claiming that the majority’s holding only covered contraception and not other medical procedures, and that the RFRA could not be used to circumvent anti-discrimination laws. [22]

In the aftermath of the Hobby Lobby decision, HHS announced a proposed rule suggesting two potential definitions for a closely held corporation. [23] In addition, HHS also issued an interim final rule that extended the opt-out exemption for non-profit religious corporations to certain for-profit corporations on religious grounds. [24]

Danielle Capilla and Nicole Stone are senior writer analysts in the Health Law division of Wolters Kluwer Law & Business, a leading global provider of intelligent solutions for legal and business professionals. They are based in Riverwoods, Illinois.

If you missed the lecture, you can view the recording HERE!