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Do For Profit Corporations Have Religious Rights?

Do for profit corporations have religious rights? The answer to this question depends on what jurisdiction you are in. But perhaps not for long, as two petitions are currently pending at the U.S. Supreme Court, with responses due on October 21, 2013.

Why does it matter?

Certain for profit corporations are arguing that they have religious rights under the 1st Amendment that would be violated if they are forced to provide contraceptive coverage as mandated by the Patient Protection and Affordable Care Act (ACA).

Under the ACA, employment-based group health plans covered by the Employee Retirement Income Security Act (ERISA) must provide certain types of preventive health services, including FDA approved contraceptive methods. Four of the twenty approved methods can function by preventing the implantation of a fertilized egg. The remaining methods function by preventing fertilization.

Exemptions do exist under the ACA for religious employers, grandfathered plans, and employers with less than 50 employees, if such an employer does not provide an employer sponsored health plan. The government has also proposed an accommodation for certain other non-profit organizations, including religious institutions of higher education.

Certain for profit corporations asserting a conflict with the religious beliefs of their owners do not fit under any of these exemptions and are filing suit seeking to avoid this mandate.

The consequence for failing to provide coverage as required is steep -- $100 per day for each "individual to whom such failure relates." 26 U.S.C. section 4980D(b)(1).

But does the mandate conflict with these corporations' religious rights? Can corporations even have religious rights?

10th Circuit Finds Corporation Have Religious Rights

In Hobby Lobby Stores v. Sebelius, the 10th Circuit Court of Appeals found that corporations do in fact have religious rights under the Religious Freedom Restoration Act of 1993 (RFRA).

In that case, David and Barbara Green, and their children, alleged that they run two for-profit corporations, Hobby Lobby, a craft store chain, and Mardel, a Christian bookstore chain, as closely held family businesses and they operate them according to a set of Christian principles. The Green's claimed that regulations implementing the ACA force them to violate their sincerely held religious beliefs by requiring them to provide certain contraceptive services as part of their employer-sponsored health care plan, specifically those methods that prevent implantation.

Non-compliance with the mandate would impose substantial penalties on the companies. With over 13,000 employees, it would amount to more than $1.3 million per day, or close to $475 million per year. If Hobby Lobby and Mardel simply dropped the health care coverage for their employees, they would face approximately $26 million per year in penalties pursuant to the fine of $2,000 per employee per year.

The RFRA provides, as a general rule, that the "Government shall not substantially burden a person's exercise of religion." Writing for the majority, Judge Tymkovich concluded that for-profit corporations can be "persons" exercising religion for purposes of the RFRA.

The Court found that the First Amendment logic of Citizens United v. Federal Election Commission, 558 U.S. at 342–55, where the U.S. Supreme Court recognized a First Amendment right of for-profit corporations to express themselves for political purposes, applied. "We see no reason the Supreme Court would recognize constitutional protection for a corporation's political expression but not its religious expression."

Troubling to the Court was that under U.S. Supreme Court precedent, an individual operating a for-profit business retains Free Exercise protections, so it was difficult for the Court to see how an individual who incorporates, even as the sole shareholder, would not have the same Free Exercise protections, even though he or she engages in the exact same activities as before.

Ultimately the Court concluded that because the contraceptive coverage requirement places substantial pressure on Hobby Lobby and Mardel to violate their sincere religious beliefs, their exercise of religion is substantially burdened within the meaning of RFRA. Additionally, the Court determined that even if the government had presented a compelling interest in public health and gender equality, it had not adequately explained how granting Hobby Lobby an exemption would undermine those interests when Hobby Lobby was asking to be excused from four contraceptive methods out of twenty.

On remand, the lower court granted Hobby Lobby's request for an injunction, which precludes enforcement of the contraceptive mandate for now, although the government has appealed.

3rd Circuit Holds that a For-Profit Corporation Cannot Engage in Religious Exercise

In Conestoga Wood Specialties Corp. v. Sebelius, decided July 26, 2013, the 3rd Circuit Court of Appeals came to a very different conclusion. In that case, the Court concluded that a for-profit, secular corporation cannot engage in the exercise of religion and therefore cannot assert a claim under the RFRA, and the individual owners of the corporation do not have viable claims because the mandate is imposed on corporation. Conestoga, like Hobby Lobby, challenged the contraceptive mandate regulations on the grounds of the RFRA and the Free Exercise Clause of the 1st Amendment. Conestoga is a for-profit corporation, owned by the Hahn's, who practice the Mennonite religion. The corporation manufactures wood cabinets and has 950 employees. The Hahn's object to two drugs that must be provided by group health plans under the contraceptive coverage mandate that may "cause the demise of an already conceived but not attached human embryo."

The Court considered the argument of Citizens United and recognized that there was a long history of recognizing the free speech of corporation. However, it found that there was not a similar history of courts providing free exercise protection to corporations.

Writing for the majority, Judge Cowen wrote: "We simply conclude 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."

Because the corporation cannot engage in the exercise of religion, it could not make a claim under the RFRA, said the Court.

6th Circuit Holds that a For Profit Corporation is Not a Person under the RFRA

On September 19, 2013, yet another circuit court issued an opinion on this issue. In Autocam Corp v. Sebelius, the 6th Circuit Court of Appeals rejected the challenge of Autocam Corporation to the contraceptive coverage mandate.

Autocam is a for profit corporation owned by the Kennedy family, who are Roman Catholic. The company engages in manufacturing in the automotive and medical industries. They too object to the mandate on the basis that compliance will violate their religious beliefs.

The 6th Circuit rejected the Kennedy's individual claims on standing grounds because shareholders of a corporation cannot bring claims intended to redress injuries to a corporation, even when the corporation is closely held. Because the mandate is imposed on the corporation, the owners' individual claims must fail.

As to Autocam, the Court determined that Autocam was not a "person" capable of "religious exercise" as intended by RFRA. The Court also rejected the idea that Citizens United should apply to free exercise claims, noting that the Free Exercise Clause and the Free Speech Clause of the 1st Amendment have been interpreted in very different ways.

On to the U.S. Supreme Court

According to the ACLU, there are 38 cases currently pending around the country, in which for-profit corporations are challenging the contraceptive mandate based on the religious beliefs of their owners.

The U.S. Supreme Court acknowledged that this is an issue of first impression for the Court when Justice Sotomayor heard Hobby Lobby's application for an injunction back in 2012, prior to the 10th Circuit's recent decision. In denying the injunction at the time, Sotomayor wrote, "This court has not previously addressed similar RFRA or free exercise claims brought by closely held for-profit corporations and their controlling shareholders."

Now that the Hobby Lobby case has wound its way back to the Supreme Court, and with the split among circuits on how to answer this question, it now appears that the Supreme Court will soon have to address this issue of first impression. Whether or not the Court will apply the logic of Citizens United to these claims remains to be seen.

The government filed a petition for writ of certiorari in the Hobby Lobby case on September 19, 2013. Conestega filed a petition for writ of certiorari in their case, also on September 19, 2013. Responses in both cases are due on October 21, 2013.

These two cases are ones to watch for businesses. In the meantime, the choice remains to either abide by the mandate or pay the fines.

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