Hobby Lobby, Business Corporations and Religious Liberty

Protected Liberty

Did Not

On Monday the Supreme Court announced its decision in Burwell v. Hobby Lobby Stores, Inc., 573 U.S. _____ (2014).  In an opinion by Justice Alito, pictured above, the Court held that the so-called "contraception mandate" imposed pursuant to the Affordable Care Act imposed a substantial burden on Hobby Lobby's exercise of religion.   The Court also identified a less restrictive means of achieving the very same objective as the mandate, a means that did not require Hobby Lobby to purchase those four contraceptives it declined to provide its employees. As a result, the Court concluded that the Administration's contraception mandate flunked RFRA's demanding test for evaluating regulations that infringe religious liberty.

The Court's decision depended upon two threshold determinations.  First, the Court concluded that for-profit corporations are "persons" within the meaning of the Religious Freedom Restoration Act.  Second, the Court also determined that closely-held firms such as Hobby Lobby are capable of "exercising religion" for purposes of RFRA.  The Court recognized that such corporate religious exercise enhances the religious freedom of individuals, who employ for-profit corporations and other artificial entities, including non-profits, to achieve their objectives in the real world.  The Court saw no reason in law or logic to distinguish for-profit corporations from non-profit corporations or other for-profit enterprises such as partnerships or sole proprietorships.  As the Court explained, modern corporate law empowers business corporations to pursue "any lawful purpose or business," and there is no indication that pursuit of a religious purpose at the behest of shareholders contravenes corporate law principles, even if such pursuit might reduce corporate profits.  Justice Ginsburg, joined on this point only by Justice Sotomayor, opined that individuals who choose to conduct business under the aegis of for-profit corporations thereby forfeit their ability to pursue religious objectives in the commercial context.

This blogger believes that the Hobby Lobby Court's determination that business corporations are RFRA persons was undoubtedly correct.  Indeed, in an essay published this past May, this blogger and co-author Nate Oman reached the same conclusion as the Court, based on a similar rationale.  See Alan J. Meese and Nate Oman, Hobby Lobby, Corporate Law and the Theory of the Firm: Why For-Profit Corporations are RFRA Persons, 127 Harv. L. Rev. Forum 273 (May 20 2014).  In particular, the essay explains that modern corporate law empowers shareholders to employ various tools that induce business corporations to engage in religiously-motivated practices, whether closing on the owners' Sabbath, declining to sell alcohol, or selling only Kosher food.  The essay also explains that state corporate law authorizes business corporations to pursue "any lawful business or purpose."  Thus, when it comes to the capacity to exercise religion, business corporations, particularly those that are closely held, are indistinguishable from sole proprietorships and partnerships.  All such entities are instrumentalities individuals may employ to achieve personal objectives, including religious ones.  Indeed, many scholars and courts have referred to closely held corporations as “chartered partnerships,” “incorporated partnerships,” or “corporations de jure and partnerships de facto.”  It is of course true that business corporations possess limited liability and entity status, legal attributes that distinguish such firms from sole proprietorships.  However, churches, synagogues and mosques also possess entity status, and their members enjoy limited liability.  Even the Obama Administration concedes that such entities are RFRA persons capable of exercising religion.

It is thus no surprise that business corporations, particularly those that are closely held, have been engaged in religiously-motivated practices for decades or more, or that such practices have passed without corporate law objection.   For instance, in 1961, the Supreme Court entertained a free exercise clause challenge to a Massachusetts Sunday closing law by a supermarket located in the Springfield, Massachusetts.  See Gallagher v. Crown Kosher Supermarket of Massachusetts, Inc., et al., 366 U.S. 617 (1961).  The Court reported that: "Appellees are Crown Kosher Super Market, a corporation whose four stockholders, officers and directors are members of the Orthodox Jewish faith."  The Court also reported that the corporate plaintiff did not conduct business "from sundown on Friday until sundown on Saturday" because "the Orthodox Jewish religion requires its members to refrain from any commercial activity on the Sabbath."  While the Court rejected the challenge on the merits by a divided vote, no Justice opined that the corporate plaintiff was legally incapable of exercising religion.  Moreover, so far as we are aware, no scholar or practitioner of corporate law has ever opined that the firm's religiously-motivated business practices contravened corporate law.

For a more detailed summary of this essay, see this post on the blog Conglomerate:   For a summary of reactions to this essay on various blogs and a video summarizing its conclusions, go here.

* * * * *

Human liberty includes the right to collaborate with other individuals in pursuit of common objectives, including religious ones. Society can encourage such liberty-enhancing collaboration by creating legal devices that facilitate such cooperation.  Corporate law is just such a device, and the Hobby Lobby Court bolstered individual liberty by recognizing that, like other artificial entities, business corporations are capable of furthering the religious beliefs of the individuals who create and own them.  

Liberty, Power and Hobby Lobby v. Sebelius

Imposers in Chief

 

 

Understood the Difference Between "Liberty" and "Power"

 

 

Ditto

 

A recent essay in Slate magazine by Dahlia Lithwick takes issues with the Tenth Circuit's decision in Hobby Lobby v. Sebelius, which invalidated, as applied to Hobby Lobby, Inc., regulations promulgated by Secretary of Health and Human Services (HHS) Kathleen Sebelius (pictured above with President Obama)  pursuant to the Affordable Care Act.  The regulations require corporations and other firms with fifty or more employees  to purchase various forms of contraception for their employees, even when purchasing such contraception violates the owners' unanimous and deeply held religious beliefs.  Like several other federal courts, the Tenth Circuit held that coercing the owners of Hobby Lobby, a closely-held corporation owned by five family members, to violate their religious beliefs in this manner contravened the Religious Freedom Restoration Act ("RFRA").   RFRA is a federal statute, the core of which prevents the Federal Government from  burdening religious liberty.    Passed after Employment Division v. Smith, 494 U.S. 872 (1990), which held that generally-applicable and neutral laws do not violate the Free Exercise Clause of the First Amendment, the statute prevents federal agencies from placing a substantial burden on the exercise of religion, even by means of a generally-applicable regulation, unless such a burden is the least restrictive means of accomplishing a compelling state interest.  In short, the statute reinstates, as against federal agencies, the standard articulated by Justices Brennan and Douglas, respectively, in opinions for the Court in Sherbert v. Verner, 374 U.S. 398 (1963) and Wisconsin v. Yoder, 406 U.S. 205 (1972), both of which Smith overruled.    See also Smith, 494 U.S. at 893-900  (O'Connor, J. concurring in the judgment) (endorsing the Sherbert test).   

 

Lithwick's essay repeatedly asserts that firms such as Hobby Lobby are claiming the right to impose their owners' religious beliefs on others by somehow barring their employees from using contraception.  For instance, the subtitle of the essay predicts that: "[t]he Supreme Court will soon decide if CEOs can impose their religious convictions on the people who work for them."    The piece also contends that  "[e]mployees who choose to use contraception (as 99 percent of us will do at some point) shouldn’t do so at the sufferance of their bosses."  The piece also asserts that, under the Tenth Circuit's approach:  "Constitutional protections of a single employer’s individual rights of conscience and belief become a bludgeon by which he [or she] can dictate the most intimate health decisions of his [or her] workers, whose own religious rights and constitutional freedoms become immaterial." (emphasis supplied)  In other words, Lithwick claims that Hobby Lobby's exercise of religious liberty reduces the liberty of some of its employees, with the result that the HHS regulations invalidated in Hobby Lobby actually promote liberty.

If in fact employers were coercively dictating their employees' religious beliefs,  regulations necessary to forbid such coercion would satisfy RFRA's compelling state interest test.  However, Lithwick's colorful rhetoric fundamentally mischaracterizes the question that was before the Tenth Circuit in Hobby Lobby.   For one thing, the court expressly disclaimed any reliance upon the Constitution, choosing instead to ground its decision on RFRA.  (See page 9, n. 2)    More fundamentally, Hobby Lobby's  owners do not seek to impose their beliefs on anyone or otherwise prevent their employees from using contraception.  Nor does the rationale of the Tenth Circuit's decision even remotely threaten such a result.  After all, Hobby Lobby has no power to conscript employees to work for it; nor does it have the power unilaterally to impose particular terms of employment.  Instead, its employees are members of a free society who voluntarily consent to their place and conditions of employment. (Lithwick provides no evidence that Hobby Lobby or other religiously-motivated firms have used fraud, unfair bargaining tactics or coercion to induce employees to work for them.)  In these circumstances, an employer's failure to cover a particular medical service or procedure does not "impose" the employer's convictions (religious or otherwise) on the employee any more than the enforcement of a standard deductible or co-pay is such an imposition.  Invoking such reasoning, an employer could also claim that an employee who declines to work extra hours for no pay "imposes" its will on the employer.  

 

To be sure, some employment agreements may appear less than voluntary.  For instance, a particular firm might be the only employer in a small, remote town.  Or, an employee may have remained so long at a particular firm that his or her skills may be useless elsewhere, with the result that he or she has no meaningful choice but to remain at the same employer.  In such cases the employer in question could have market power in the labor market, power that it could use to pay unduly low wages or foist on employees terms of employment that would not survive in a more competitive environment.  Even in such circumstances, however, a failure to pay for contraception would not "impose" the firm's beliefs upon its employees.   After all, failure to pay for someone else's contraception is just that; a failure to pay.  Hobby Lobby has not sought to prevent employees from using their own incomes to purchase contraception, or anything else for that matter.  Indeed, firms that do not  provide such coverage will incur slightly lower costs, realize a slightly larger net marginal product from each employee and thus pay slightly higher wages, wages that employees can use to purchase whatever they wish, including contraception.  (This is true, it should be noted, even if a firm possesses market power.  Such firms cannot both use the same power to reduce wages and impose inferior benefits.  They must choose one or the other.)  Hobby Lobby's employees remain perfectly free to purchase their own contraception.  Treating such employees as victims of coercive interference with their own liberty, religious or otherwise, stretches such concepts well beyond any useful meaning.  One might just as well claim that a Progressive employer "dictates" employees' beliefs and reduces their liberty when he or she refuses to provide free parking because he or she has a religiously-grounded objection to global climate change and commuting by car. 

Indeed, Lithwick's claim of religious coercion proves far too much.  After all, if Hobby Lobby is dictating its employees' beliefs, then so too is every firm and individual that declines, because of religious beliefs, to purchase contraception (or anything else) for someone else.  Assume for a moment that some pharmacists provide free contraception to their customers, perhaps as a loss leader, to lure them away from competing pharmacists.  Assume further that other pharmacists decline to adopt such a strategy because of their religious beliefs.  Under Lithwick's reasoning, those pharmacists who decline to subsidize their customers' use of contraceptives are "dictating" these customers' beliefs and interfering with their liberty, even though the customers remain perfectly free (as do Hobby Lobby's employees) to purchase contraceptives at market prices.  Such a claim of coercion refutes itself and incorrectly equates individual liberty with a legal right to extract financial resources from others. 

Lithwick's argument exemplifies what F.A. Hayek once characterized as the unfortunate tendency to redefine liberty as an individual's "power to do certain things," or "the effective power to do what we want," without external constraint.  See  Friedrich H. Hayek, The Constitution of Liberty, 16-20 (1960). Redefined in this way, such "positive liberty" often consists of the power to coerce others to subsidize the individual's chosen activities, whether parking or contraception.  This redefinition deprives the term "liberty" of any useful meaning, transforming normative questions about the proper scope of liberty into a policy choice between the wants and desires of competing individuals, each of whom can claim that a choice in his or her favor enhances (his or her) "liberty."  Even slave owners could (and did) claim that slavery enhanced their liberty, by increasing the slave owner's material welfare at the tragic expense of those unjustly enslaved.  Lincoln, of course, properly rejected this definition of liberty and the concomitant equation of "liberty" with power over others, calling such "liberty" the alleged right of "some men to do what they please with other men, and the product of their labor."  (See Address At A Baltimore Sanitary Fair, April  1864).  He instead preferred the right "of each man to do as he pleases with himself, and the product of his labor."

No doubt Lithwick, too, would sincerely reject the slaveowners' claim, although without invoking Lincoln's straightforward distinction between negative and positive liberty.  Still, her argument diverts attention from the real source of coercion in this context.  After all, as the Tenth Circuit held, the regulationsc hallenged in Hobby Lobby coerce some employers to violate their own religious beliefs.  That is, it is the Obama Administration, and not Hobby Lobby, that seeks to impose its views on others.  Legislative imposition of views is not ipso facto inappropriate; by its nature, laws "impose" some view on others.  However, regulations that require individuals to violate their sincerely held religious beliefs are prima facie violations of RFRA.  As shown above, such regulations do not enhance anyone's liberty, but instead extinguish it.  Absent identification of some other compelling state interest, RFRA's protection for liberty must prevail.