Corporate Piety and Impropriety

The following post comes to us from Amy J. Sepinwall, Assistant Professor of Legal Studies and Business Ethics at The Wharton School, University of Pennsylvania. It is based on her recent article, “Corporate Piety and Impropriety: Hobby Lobby’s Extension of RFRA Rights to the For-Profit Corporation,” which is forthcoming in the Harvard Business Law Review and available here

Do for-profit corporations have rights of religious freedom? And are the owners of a corporation permitted to “reverse pierce” the corporate veil to exercise their constitutional rights even while claiming the protections of the veil to limit their liability for the corporation’s wrongs? The Supreme Court, in Burwell v. Hobby Lobby, answered both questions in the affirmative, holding that the Religious Freedom and Restoration Act (RFRA) applied to for-profit corporations, and grounding the extension of RFRA rights on the free exercise rights of the corporation’s owners. Because the Court went on to find that the Affordable Care Act’s “contraceptive mandate” failed RFRA’s test for establishing when a neutral law of general application may burden religious exercise, the Court concluded that Hobby Lobby was entitled to an exemption. The Court thus ruled that Hobby Lobby – a family-owned corporation consisting of 575 craft stores, and employing about 30,000 people – did not need to offer health insurance coverage for the forms of contraception its owners found objectionable.

In this way, Hobby Lobby expanded corporate rights in a manner that corporate law scholars have deemed “unprecedented” and fundamentally inconsistent with the basic principles of corporate law. In a forthcoming article in the Harvard Business Law Review, however, I argue against the tide of critical commentary. Drawing on insights about corporate personhood and corporate constitutional rights that I develop elsewhere, I offer a qualified defense of the decision. In particular, I argue that the Court was right to reject the notion that corporations can exercise religion, and right to hold that we should nonetheless confer free exercise rights upon the corporation as a way of protecting the free exercise rights of the corporation’s members. At the same time, however, I aim to show that the theory upon which these arguments rely provides resources for cabining Hobby Lobby’s application to other bids for religiously-based exemptions.

Some commentators criticize Hobby Lobby for construing for-profit corporations as entities that can practice religion; for expanding the notion of corporate personhood; for carrying forward Citizens’ United’s assertions of corporate constitutional rights; and for allowing corporate owners to assert their constitutional rights through the corporate form, even while the corporate veil protects the owners from incurring the corporation’s liabilities. They worry also that Hobby Lobby will open the door to other religiously-based exemptions from healthcare coverage that the Affordable Care Act requires – such as blood transfusions in the case of corporations owned by Jehovah’s Witnesses, or any form of medicine other than faith healing for corporations owned by Christian Scientists. On the other side, critics contend that the decision did not go far enough. According to them, Hobby Lobby ought to have recognized that there is no principled distinction between non-profit and for-profit corporations when it comes to religious exercise: If churches can practice religion, then so too can Chick-Fil-A, or Hobby Lobby, or perhaps even Wal-Mart and other publicly traded companies.

I argue that some of this commentary rests on mistaken readings of Hobby Lobby, and much of it rests on confusion about what the corporation is, what capacities it enjoys, and what rights its owners can claim. More specifically, I contend that the decision did not proclaim that corporations are persons, capable of exercising religion. Nor should it have done so. Thus I argue that no corporation can “be” religious, or exercise religion. No corporation, then, is entitled to a religious accommodation in its own right.

This brings us to the rights of the corporation’s members. We grant rights of religious freedom to churches and other non-profit corporations organized to serve religious ends as a way of protecting the free exercise rights of these corporations’ individual constituents. But this rationale, critics contend, does not apply to the for-profit corporation, which is not organized to serve religious ends. I take up the claim that limited liability disqualifies the owners of for-profit corporations from seeking to assert their rights of religious freedom through the corporate form. I argue that because the corporate veil is a legal construct, it is for the law to decide just what it does, and does not, block. In particular, constitutional rights of the corporation’s core members may well lie beyond the veil’s coverage.

I contend further that the whole concept of reverse veil piercing, or a “values pass through,” is tendentious. The idea that recognizing the owners’ constitutional rights requires that we “pierce” the corporate veil suggests that, as a default matter, the veil does in fact occlude the owners’ constitutional rights. Their rights may be protected, then, only if the default is altered in a way that rends the veil and thereby allows the owners’ rights to poke through. At least in the wake of Hobby Lobby, though, we might reject the idea that we deviate from the default when we allow the corporation to protect the constitutional rights of its members. Instead, we can conceive of the veil in the first instance as providing nowhere near as much coverage as those who argue from limited liability would contend.

In sum, a corporation’s individual members ought, all else being equal, to be permitted to have their corporation reflect their conscientious commitments. Importantly, though, all else is not always equal. Some exemptions would impose significant costs on third parties. Where they do, the presumption in favor of a religious exemption should give way. I argue in an article forthcoming in the University of Chicago Law Review that RFRA doctrine does not currently contemplate third-party interests, and I propose ways in which these interests might inform a court’s decision about whether to grant an exemption to the employer who objects to some legal requirement on religious grounds. The law should not require religious employers to betray their convictions while they are on the job, but nor should third parties be made to disproportionately bear the costs of religious accommodations. Hobby Lobby struck the right balance, I conclude, because the government already had an arrangement in place through which the company’s female employees (or the female dependents of covered employees) could access contraception at no cost either to Hobby Lobby or the women themselves. We should not expect other bids for corporate religious exemptions to be resolved so tidily. In particular, due attention to third-party costs going forward should forestall the most troubling bids for religious exemptions.