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  • Hobby Lobby Decision: Closely Held Corporations Not Required to Provide Contraceptive Methods that Violate Owners’ Sincere Religious Beliefs

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Hobby Lobby Decision: Closely Held Corporations Not Required to Provide Contraceptive Methods that Violate Owners’ Sincere Religious Beliefs

Submitted By Firm: Holland & Hart LLP

Contact(s): Bradley T. Cave, Judith A. Biggs, Roger Y. Tsai, Scott E. Randolph

Author(s):

Rebecca Hudson

Date Published: 6/30/2014

Article Type: Legal Update

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In a 5-4 decision, the U.S. Supreme Court ruled today that the contraceptive mandate under the Affordable Care Act (ACA) substantially burdens the exercise of religion and violates the Religious Freedom Restoration Act (RFRA) as applied to closely held for-profit corporations, such as Hobby Lobby. Burwell v. Hobby Lobby Stores, Inc., 573 U.S. ___ (2014). The Court found that even if guaranteeing cost-free access to contraceptive methods is a compelling governmental interest, the Government failed to show that the contraceptive mandate is the least restrictive means of achieving that interest. To narrow the effect of its decision, the Court states that its holding should not be read as invalidating all insurance-coverage mandates or as giving employers authority to illegally discriminate against individuals as a religious practice.

ACA Contraception Coverage At Issue

Under the ACA, employers' group health plans must furnish no-cost preventive care and screenings for women. The Department of Health and Human Services (HHS) was tasked with specifying which types of preventive care must be covered under that provision. In its regulations, the HHS generally requires nonexempt employers to provide coverage for 20 contraceptive methods that are approved by the Food and Drug Administration. Religious employers, such as churches and religious nonprofit organizations with religious objections to providing contraceptive coverage are exempt from the contraceptive mandate. For such entities, the insurance issuer must exclude contraceptive coverage from the employer's group health plan and instead, pay plan participants separately for contraceptive coverage.

The owners of Hobby Lobby Stores, Inc., a closely held for-profit corporation, sued HHS and other federal officials and agencies on grounds that providing four contraceptive methods under its health plan violates its sincere religious beliefs that life begins at conception. They, as well as the owners of two other closely held for-profit corporations, sought an injunction that would prevent them from having to comply with the regulations mandating they provide those four contraceptive methods to participants through their group health plan. In particular, they alleged that the HHS mandate violated the RFRA, which prohibits the federal government from placing a substantial burden on the exercise of religion unless its action constitutes the least restrictive means of serving a compelling government interest, and the Free Exercise Clause. After lower courts denied each company a preliminary injunction, the companies appealed in their respective jurisdictions. In one case, the Third Circuit affirmed the denial of the injunction while in the Hobby Lobby case, the Tenth Circuit reversed. The Supreme Court agreed to hear the combined cases to resolve the disputed results.

RFRA Applies to Closely Held For-Profit Corporations

HHS argued that a for-profit corporation could not "engage in religious exercise" and therefore, was not protected by the RFRA or the Free Exercise Clause. The majority of the Supreme Court disagreed. It ruled that the RFRA provides broad protection for religious liberty and that owners of closely held companies do not lose that protection when they choose to organize their businesses as corporations rather than sole proprietorships or general partnerships. The RFRA's definition of "persons" covered by the Act includes corporations. The majority stated that protecting the free exercise rights of corporations like Hobby Lobby protects the religious freedom of the people who own and control such companies.

The Court declined to decide whether the RFRA would apply to publicly traded corporations, such as IBM or General Electric. It stated that the cases before the Court involved only closely held corporations, each of which was owned and controlled by members of a single family with undisputed religious beliefs. The majority discussed, however, that it seemed unlikely that corporate giants would assert RFRA claims as it was unlikely that unrelated shareholders would agree to run a corporation under one set of religious beliefs.

Contraceptive Mandate "Substantially Burdens" the Exercise of Religion

After determining that the RFRA applied to closely held for-profit corporations, the Court examined whether the HHS contraceptive mandate "substantially burdens" the exercise of religion. The majority had "little trouble concluding that it does." The Court found that the HHS mandate forces these companies to provide methods of birth control that may result in the destruction of an embryo, in violation of the owners' sincere religious beliefs. The companies would face millions in fines if they offered group health plans that did not comply with the contraceptive mandate and dropping coverage altogether could subject them to severe penalties as well. Consequently, the mandate imposes a substantial burden on the owners' exercise of religion.

Mandate Is Not Least Restrictive Means of Guaranteeing Cost-Free Contraception

The Court assumed that the government's interest in guaranteeing cost-free access to the four challenged contraceptive methods was a compelling government interest but it ruled that the government failed to show that the contraceptive mandate was the least restrictive means of achieving that goal. The Court pointed to alternative means of accomplishing the goal, such as the government paying the cost of providing the four contraceptive methods to women who were unable to obtain coverage due to their employers' religious objections, or extending the HHS accommodation that already applies to employees of non-profit employers with religious objections to the contraceptive mandate. Given other options that might meet the governmental interest with less restrictions on religious freedoms, the Court held that the HHS mandate violated the RFRA. In so ruling, the Court did not need to reach the Free Exercise Clause argument.

Will This Decision Open the Door to Discrimination As a Religious Practice?

The principal dissenting opinion, written by Justice Ginsburg, argued that the majority's ruling would open the flood gates to employers seeking to avoid other insurance-coverage mandates or would result in discrimination against individuals on the basis of religious objections to existing laws. The majority, however, countered that argument by writing that its decision "provides no such shield" to employers who cloak discrimination as a religious practice" to escape legal sanction." It also made clear that the decision concerned only the contraceptive mandate and "should not be understood to hold that an insurance-coverage mandate must necessarily fall if it conflicts with an employer's religious beliefs." Coverage for vaccines or blood transfusions, for example, may be supported by different compelling interests and involve different arguments related to the least restrictive means of meeting such interests. Therefore, the majority believes that fears of a wholesale objection to legal obligations on religious grounds is unfounded. Although it is unclear how the decision will extend to entities dissimilar to the closely held corporations, an employer must show it has a sincere religious belief in order to avail itself of the HHS contraceptive mandate. Further guidance is welcome to determine the manner in which employers can claim such an accommodation.

The majority opinion was written by Justice Alito who was joined by Chief Justice Roberts and Justices Scalia, Kennedy and Thomas. Justice Ginsburg was joined in her principal dissent by Justice Sotomayor and in most part, by Justices Breyer and Kagan, who also filed a separate dissent.

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