Nationwide, legal battles rage over the ability of secular, for-profit corporations to raise religious freedom objections to government regulation. At the center of the controversy lies the Affordable Care Act’s requirement that employer-based insurance cover contraception. It might be tempting to see these cases as limited to contraception, or even religion. But the litigation has potentially widespread reach into doctrines of corporations, employee benefits, and antidiscrimination.
In my article, Contraception and the Birth of Corporate Conscience, I argue that courts increasingly rely on a new and dangerous doctrine of “corporate conscience” to excuse secular, profit-making businesses from compliance with law. Many of these courts find that the corporation and its owners are coextensive (others conclude that corporations themselves exercise religion). They then decide that requiring the corporation to cover contraception or face financial consequences constitutes a substantial burden on the religious freedom of the owners of the corporation. I contend that these courts fundamentally misunderstand health benefits and social insurance, and disregard the purposes of incorporation.
Professor Stephen Bainbridge recently expressed skepticism that any doctrinal change is underway and took issue with my statement that the “corporation as shareholder alter ego” rationale deals a blow to the foundation of corporate law. He claims endowing corporations with their shareholders’ religious beliefs is just another instance of the doctrine of reverse veil piercing. He endorses the courts’ approach as veil piercing “to vindicate important rights.”
But veil piercing has been exceptional. It has concerned assets, rather than private beliefs. That challengers to the contraceptive mandate claim “important rights” cannot be determinative. The owner of a small, closely held corporation cannot assert a Fifth Amendment claim against self-incrimination to refuse to produce documents in a criminal case against the corporation, notwithstanding the importance of the right.
Bainbridge himself has previously argued against the veil piercing doctrine. He doesn’t explain why it should now become the rule in the contraceptive cases, permitting shareholders to regularly and successfully pierce the veil to advance their individual religious beliefs. Indeed, in reading his article on the mandate, I was struck by the apparent rarity of courts’ reverse veil piercing to benefit the shareholder (the cases he cites involve the peculiar context of family farms and homestead rights).
The separateness of corporations matters in doctrine. Hobby Lobby is Hobby Lobby, even when the Green family no longer owns it. It is a separate legal entity with different rights and obligations. The Greens ostensibly chose this business form for its many benefits, including limiting their own liability.
Courts in the contraceptive litigation join what were two or more separate legal entities into one, concluding that “the corporation should be deemed the alter ego of its owners for religious purposes.” They treat liability for failure to comply with the ACA’s requirements, which belongs solely to the company, as a burden on its shareholders’ religious beliefs. If these decisions do not undermine corporate doctrine altogether, they nonetheless deal a blow to the corporation itself. Hobby Lobby no longer is a legal entity separate from its owners, nor is its owners’ liability limited.
Bainbridge says that courts should set aside concerns like mine to vindicate the free exercise rights of shareholders and exempt their for-profit corporations from the contraceptive mandate. This result is unfounded in religious liberty doctrine.
Our legal system has had little tolerance for objections to social insurance regulation—especially when they come from business entities, incorporated or not. Like employer-based insurance under the ACA, social security, unemployment insurance, and worker’s compensation all require employers to administer and pay premiums. All, like most federal regulations, have significant exemptions (based on the size, sector, or religious nature of the employer, to name a few). Yet, each and every one has withstood religious liberty challenges.
Faced with an Amish employer’s claim that administering and contributing to social security violated his religious freedom, the Supreme Court set out the general rule: when religious adherents choose to enter into commercial activity, they must abide by regulation and cannot superimpose their own values on the statutory scheme. As the Sixth Circuit said in denying an exemption from worker’s compensation requirements “where [religious] beliefs clash with important state interests in the welfare of others, accommodation is not constitutionally mandated.” The government’s compelling interests in comprehensive social insurance, public health, gender equality, and religious liberty for all individuals justify any burden that participation in insurance entails for employer religious exercise.
Exempting employers from the contraception mandate (or other social insurance) would instead permit corporate owners to interfere with their many employees’ religious beliefs. Bainbridge dismisses this concern: “On every issue of moral concern, the shareholders’ collective will is determinative …. When have employees ever had a voice in any issue of corporate social responsibility? After all, he who pays the piper, calls the tune. So Sepper’s argument … has no traction. None.”
We can agree that owners make business decisions—within regulatory limits. But preventive healthcare coverage is not employer largesse. It’s employee protection. And concern for employee beliefs has had traction in free exercise doctrine. As the Supreme Court said in rejecting a religious liberty challenge to social insurance, giving an employer an exemption “operates to impose the employer’s religious faith on the employees.” For the same reason, state courts have required even religious corporations to comply with state contraceptive mandates.
If we were to accept the determinacy of “shareholders’ collective will” in opposition to government regulation, closely held corporations could set wages below the minimum, withhold social security payments, and refuse worker’s compensation plans. After all, as Bainbridge says, the employees could always exit. These are precisely the arguments that the courts consistently rejected in litigation against social insurance. They should continue to reject them here.