The Affordable Care Act (“ACA”) requires that employer-provided health plans, which are covered by the Employee Retirement Income Security Act (“ERISA”), must provide certain types of preventative care at no cost to the participant.  As this requirement has been developed by the Health Resources and Services Administration, covered plans must offer all FDA-approved contraceptive methods as no-cost preventative care.  In simple language, most employer-provided health coverage must include access to all FDA-approved contraceptive methods at no cost to the participant.

Though there are a few narrow exceptions to this requirement, it applies to most ACA-covered employers except non-profit, religious-affiliated institutions.  Hobby Lobby, a closely-held, for-profit corporation, which has principals who have supported a Christian-based value system within the organization, claimed that the contraception mandate in the ACA violated its right to religious freedom and challenged the mandate’s legality in federal court.  In a closely-held corporation, the same people hold multiple roles and act as shareholders, directors, and officers—no outside investors exist.

The case made it to the United States Supreme Court, which ultimately ruled in Hobby Lobby’s favor on June 30, 2014.

It is important to note that the Supreme Court did not rule that this contraception-mandate provision of the ACA was unconstitutional. Rather, Hobby Lobby argued, and the Court held, that the contraception mandate violated Hobby Lobby’s rights under a different law, the Religious Freedom Restoration Act (“RFRA”).

Under the RFRA, the government cannot “substantially burden a person’s exercise of religion,” unless the government’s action is “in furtherance of a compelling governmental interest” and “the least restrictive means of furthering” that interest.

The five-justice majority first determined that a closely-held, for-profit corporation counts as a “person” under the RFRA, and therefore Hobby Lobby had standing to sue under that statute.  The majority then observed that Hobby Lobby would be subject to severe penalties—potentially hundreds of millions of dollars—if it failed to comply with the contraception mandate.  The majority concluded that the penalties were, therefore, a “substantial burden” under the RFRA.

The majority then assumed, without deciding, that the government had a compelling interest in enforcing the contraception mandate, so that it could proceed to the final issue: whether the contraception mandate satisfied a compelling state interest through the least restrictive means.

The Court held that there were other ways for the government to advance its interest in contraception coverage without placing the burden on Hobby Lobby.  For instance, the Court noted that the government already provided a work-around for religious non-profits (by finding alternate funding for contraception coverage) and therefore could do the same for closely-held, for-profit corporations.

The majority stated repeatedly that its opinion was narrow in that it only applied to four contraceptive methods and only dealt with closely-held corporations.  The four-justice minority disagreed, seeing the potential for a slippery-slope in the future whereby corporations could opt out of laws with which they disagree with relative ease.  Some members of the minority also took issue with the holding that a corporation constitutes a “person” who can possess religious convictions.  The scope of the majority’s opinion will be the subject of much debate in the future.

Here are a few takeaways:

  • The Hobby Lobby case should not be seen as a blueprint for companies wishing to avoid certain aspects of federal law.
  • Employers should continue to comply with federal, state and local laws and consult with counsel regarding any potential claims for exemption under the RFRA.
  • Corporations that express strong religious preferences need to continue to operate cautiously to avoid claims of religious discrimination from their employees and/or the Equal Employment Opportunity Commission (“EEOC”).
  • Hobby Lobby’s well-documented Christian-culture helped it convince the Court that its claimed religious beliefs were bona fide; however, employers who embrace an openly-religious culture—especially one that is centered around one particular faith—may be potentially exposed to discrimination claims under Title VII of the Civil Rights Act.
  • As the media coverage surrounding the Hobby Lobby case demonstrates, a business that attempts to obtain such exemptions can draw attention on a national scale which may distract from the company’s core mission.
  • Finally, employers should proceed cautiously because the scope of the Hobby Lobby decision will not be resolved until other lawsuits have proceeded through the federal courts.  At this stage, there is not enough case-law beyond the Hobby Lobby decision to provide secure guidance that would give one confidence in the outcome of any particular case.

In summary, the Hobby Lobby case was a hot-button, headline-grabbing decision, but it is not one that provides concrete guidance just yet.  Employers should continue to operate as they have with respect to compliance with applicable laws.  Should an employer feel as though its religious rights are being circumscribed in violation of the RFRA, the employer should consult counsel before taking any action.