Posted by: readerjohn | January 13, 2013

Corporate Freedom of Religion?

I’ve been doing quite a bit of Tweeting and Facebook posting, as well as a couple of blogs (here and here), on various business challenges to the “employer contraceptive mandate” of the PPACA, a/k/a Affordable Care Act or “Obamacare.” I’ve been doing so because of important – and vexing – questions of religious freedom.

I’ve been a bit of a religious freedom head case all my adult life. Forty years ago or more I was reading the Seventh Day Adventists’ “Liberty” Magazine and writing letters to its editor. That was before my delayed law school entrance at age 30. (By the time I got my B.S., I’d been in school away from home, living in dorms or boarding houses, for nine years. I was ready to move on to “life.”)

In law school, I took a special religion clause elective class in Summer School, being edged out for the “A star” (the top A) by my friend Joe Rebone.

I take free exercise of religion very seriously, coming about as close to an absolutist position as one can coherently come without countenancing anarchy. I’m not a relativist – I’m a firm believer in capital-O Orthodox Christianity – but I give wide latitude to people’s right to be wrong, expecting in return that they’ll not try to harm me for calling them Krustians, Happy Clappies, Moralistic Therapeutic Deists, Gnostics, Dualists, Nominalists and other loathsome or risible things.

But even I pause at the idea that corporations and LLCs have a right to freely exercise religion — which comes into play when a smaller, or closely-held, business entity objects to buying contraceptive coverage for its employees on religious grounds. That’s the “vexing” part of these cases, and courts have split.

Personally and politically, I think the contraceptive mandate is sheer political pandering and a gratuitous insult to the kinds of folks who would almost certainly not vote for Obama.

First, it’s not insurance. It’s pre-payment of predictable “medical” expenses. But to talk much about that opens a can of worms because that’s exactly what “traditional” employer-provided health insurance has been since World War II. (For more on that topic, check this podcast.)

Second, to put it bluntly, young single women and single moms are disproportionately Democrat, compared to married women with children, who trend Republican. And the “Pro Choice” lobby is overwhelmingly Democrat, and loves slipping a wedge into the door, to be pounded on later to open it further. I don’t know how consciously the pandering to them figured in the initial passage of ACA, but the Julias of this world, dependent on government at all stages of life including their choice to have children out of wedlock, became a conscious target in the re-election campaign.

But legally, that doesn’t get us very far. Bad policy and political pandering isn’t necessarily unconstitutional.  Elections matter.

Nevertheless, a program like this that’s generally “constitutional albeit stupid and odious” (I just made up that category) might be unconstitutional as applied to particular employers. Howard Friedman, author of the Religion Clause blog, recently stepped out of his role as neutral chronicler to do some substantive commentary on the topic for Religion Dispatches:

Can business owners assert that their free exercise is being burdened when the coverage mandate is imposed not on them, but on their business? Does the for-profit corporation or LLC have religious beliefs of its own? Does General Motors practice religion? If not, do smaller corporations exercise religion? Or are the small businesses really asserting the religious rights of their owners?

It might seem strange to claim that a corporation (or an LLC) has religious freedom rights separate from those of the “real people” who own or manage it. An Oklahoma federal district court, rejecting a challenge by Hobby Lobby Stores to the coverage mandate, thought it was, finding:

General business corporations do not, separate and apart from the actions or belief systems of their individual owners or employees, exercise religion. They do not pray, worship, observe sacraments or take other religiously-motivated actions separate and apart from the intention and direction of their individual actors. Religious exercise is, by its nature, one of those “purely personal” matters… which is not the province of a general business corporation.

Hobby Lobby appealed, but the 10th Circuit Court refused to enjoin enforcement while the appeal is pending. So did Supreme Court Justice Sonia Sotomayor. Neither resolved the question of whether the business entity itself has religious rights.

However, in other ways, corporations often do have constitutional rights. A corporation cannot be convicted of a criminal offense without the protections given by the Constitution to criminal defendants. And in the famous 2010 Citizens United case, the Supreme Court held that corporations have the same First Amendment rights of political speech that “real people” do. If the First Amendment has been interpreted to guarantee a corporation’s free speech rights, does it also have free religious exercise rights guaranteed by the same Amendment?

This idea—that a corporation and its owners should be treated as the same person—is a well-known concept in corporate law, commonly referred to it as “piercing the corporate veil.” Most of the time, lawyers warn their corporate clients to do everything possible to avoid this “piercing,” since the doctrine is usually invoked when creditors of a business are making claims against the personal assets of a company’s shareholders, seeking to recoup their losses from an insolvent business by going after its owners. There is a vast amount of case law on when a court should allow “piercing the corporate veil” to reach shareholders’ personal assets, often focusing on abuse of the corporate form, misleading of creditors, or lack of corporate formalities. Business lawyers look to whether the corporation is the mere alter egoof its owners and routinely advise their corporate clients to emphasize the corporation’s separate existence from its owners.

However, the pleadings filed in many of the contraceptive mandate challenges purposely blur this line, collapsing the beliefs of the business with its owners, inviting “piercing.” As the district court concluded in a challenge brought by Tyndale House, a for-profit publisher of Bibles and Christian books:

when the beliefs of a closely-held corporation and its owners are inseparable, the corporation should be deemed the alter-ego of its owners for religious purposes.

Courts that have allowed businesses to assert the religious exercise rights of their owners have rarely, if ever, referred to the “piercing” cases brought by corporate creditors against business owners. This omission hides the unintended consequences that may be in store for small business owners who identify too closely with their business firms. These owners may be unaware of the new personal liability for business debts—including liabilities to the government—that they are risking by equating themselves with their business for purposes of religious expression. They may be inadvertently inviting the government to hold them to their word—that they and the business are one—when it comes to other matters as well.

I have become uncomfortable with the idea of corporations insofar as they are used to insulate owners from the consequences of reckless, high risk and speculative ventures whereby the owners hoped to “make a killing.” Any time a corporation goes broke, it saddles its creditors with the loss (unless it’s Too Big to Fail, in which case it saddles all of us with the loss, as its executives laugh all the way to the bank). I know one roofer wiped out by the bankruptcy of a large department store chain after he replaced one of their roofs on his own nickel, for instance. If he was smart, and he too was incorporated, he may have saddled his own creditors in turn.

This is exactly what corporations and limited liability companies are supposed to do in the case of honest failure. But after the last few years, “honest failures” barely are visible in the thicket of moral hazard.

Yet some pious business people have chosen to do business in those liability-limiting forms. Their seeking both to limit liability while claiming that the business entity is really them for purposes of free exercise of religion is both dubious (whence numerous losses as well as wins so far on contraceptive mandate challenges) and dangerous if successful, as Professor Friedman outlines.

If you’re even a bit of a religious freedom head case, stay tuned. This probably is going to some interesting and unanticipated places.

* * * * *

Some succinct standing advice on recurring themes.


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