Polsinelli - Labor and Employment


June 2014


Breaking News: SCOTUS Rules Today Closely Held Corporations Not Required to Provide Contraceptive Coverage







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Julius W. Hobson, Jr.




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Alan D. Wheat




Kenny C. Hulshof




William W. Sneed




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Breaking News: SCOTUS Rules Today in Sylvia Burwell, Secretary of Health and Human Services, et al. v. Hobby Lobby Stores, Inc., et al., the Federal Government cannot require closely held corporations to provide contraceptive health insurance coverage if such coverage violates the corporations' religious beliefs.

The Patient Protection and Affordable Care Act (ACA) requires specified employer-sponsored group health plans to provide preventive care and screenings for women without any cost sharing requirements. However, Congress delegated to the Executive Branch the responsibility for promulgating regulations implementing this provision of the ACA. The case arose after the Department of Health and Human Services, through the Health Resources and Services Administration (HRSA), proposed regulations which exempted religious organizations but not for-profit businesses. Hobby Lobby, organized under Oklahoma state law, and Conestoga Wood Specialties, organized under Pennsylvania state law, are for-profit corporations. The owners alleged that the regulations violated their religious beliefs.

In a 5-4 decision, the United States Supreme Court today ruled that HHS cannot, through regulations, require closely held corporations to provide contraceptive services against their religious beliefs. A majority of the Court said the regulations violate the "Religious Freedom Restoration Act of 1993" [RFRA] (Public Law 103-141, 107 Stat. 1488, codified at 42 U.S.C. § 2000bb through 42 U.S.C. § 2000bb-4.

RFRA states the "Government shall not substantially burden a person's exercise of religion even if the burden results from a rule of general applicability." It provided an exception if two conditions are both met. The Government may substantially burden a person's exercise of religion only if it demonstrates that the application of the burden to the person—"(1) is in furtherance of a compelling governmental interest; and (2) is the least restrictive means of furthering that compelling governmental interest." The Court ruled the Federal Government failed to meet this test. It is important to note the decision does not affect the ACA statute. Rather it is directed at the regulations issued by HHS, concluding they violate the RFRA. The RFRA was enacted to prevent laws that substantially burden a person's free exercise of his/her religion. It was introduced in 1993, by Representatives Howard McKeon [R-CA] and Dean Gallo [R-NJ]. It passed the U.S. House of Representatives by voice vote and the Senate by a vote of 97-3. It was signed into law by then President Bill Clinton on November 16, 1993.

The decision is narrowly written to apply only to closely held corporations. What is a closely held corporation? According to the Internal Revenue Service, a closely held corporation is one that:

  • Has more than 50% of the value of its outstanding stock owned (directly or indirectly) by 5 or fewer individuals at any time during the last half of the tax year; and
  • Is not a personal service corporation.
  • The definitions for the terms "directly or indirectly" and "individual" are in Publication 542, Corporations. A closely held corporation is subject to additional limitations in the tax treatment of items such as passive activity losses, at-risk rules, and compensation paid to corporate officers.

Justice Alito delivered the opinion for the Court with Chief Justice Roberts, and Justices Scalia, Kennedy, and Thomas concurring. Justice Kennedy filed a concurring opinion. Justice Ginsburg filed a dissenting opinion, in which she was joined by Justices Sotomayor, Beyer and Kagan. Justices Beyer and Kagan filed a dissenting opinion.

There are two points which require mentioning. First, Hobby Lobby continues a trend by the Roberts Court in delineating the rights of corporations. In Citizens United v. Federal Election Commission [130 S. Ct. 876 (2010)], the Court, overturned the Federal Election Campaign Act prohibition on corporations using general treasury funds for political advertisements saying corporations have First Amendment rights (speech). While the Hobby Lobby decision is not directly based on the First Amendment, it is clearly falls within the same area. Second, Hobby Lobby is certainly not the end of legal challenges to the ACA. Other cases are making their way through the judicial system. In addition, though the opinion was written in a narrow fashion covering contraceptive health insurance coverage, it is almost certain there will be further challenges based upon religious freedom under the RFRA.

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* Law360, March 2014
** The American Lawyer 2013 and 2014 reports







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