By Edward H. Warner

Yesterday (March 25, 2014), the Supreme Court heard oral arguments in Sebelius v. Hobby Lobby Stores, Inc. (“Hobby Lobby”) and Conestoga Wood Specialties Corp. v. Sebelius (“Conestoga”), two consolidated cases which challenge requirements under the Affordable Care Act (“ACA”). Specifically, each case involves private companies that challenge the federal health care law’s mandate that employee health plans provide no-cost coverage for birth control products. Why do they challenge the mandate? Because the owners’ faith-based beliefs are in opposition. While ordinarily corporations are separate entities from their owners, these owners will confront that theory by asserting that their personal religious principles shape their businesses. The Court will have the difficult task of determining whether profit-making companies are “persons” entitled to First Amendment Protections and the right to exercise religious freedom under the Religious Freedom Restoration Act (“RFRA”).

Why is business structure relevant?

One factor that the Court will likely consider is the business corporate structure. The corporate form offers several advantages to owners, not the least of which is limited liability. Fundamental to owner’s limited liability is that a corporation remains a separate entity, with distinct rights and obligations from the owner. This separateness has resulted in at least two U.S. Circuit Courts of Appeals decisions stating that the separate corporate entity is not a “person” capable of religious exercise in the sense that RFRA intended. These decisions will make it hard for the company’s lawyer to argue that the owner’s religious beliefs and religious exercise is the same as that of the company’s.

How is the Court likely to rule?

There are many moving parts in the case; however, the Court’s ruling ultimately depends on whether it is willing to grant an exemption and extend religious rights to for-profit corporate entities. The Supreme Court has already extended free speech rights to corporations in its 2010 decision in Citizens United. The two current cases before the Court represent the federal circuit split on the religious rights issue. If the Court agrees with the original Hobby Lobby decision from the Tenth Circuit Court of Appeals, then the Court will hold that even profit-making businesses can act according to faith-based beliefs, and these beliefs may control enforcement of the birth control coverage mandate. If, on the other hand, the Court agrees with the Conestoga decision from the Third Circuit, First Amendment religious rights of the owners will have no bearing on the company’s compliance with the mandate. The latter holding would confirm the narrow view that when owners choose the corporate form for their business entity, they create an entity that stands apart from their personal beliefs and interests.

What are the legal implications of this ruling?

One thing is for certain, if the Court rules that these companies are exempt from the ACA’s contraceptive mandate, it will be a profound constitutional shift. A corporation will no longer just be a separate entity; it will be a “person,” with its own religious beliefs. Such a ruling would further extend the Court’s holding in Citizens United.

If you wish to listen to the Supreme Court oral arguments online, you may do so once they are posted at the link here.