Why conservatives should be worried about Hobby Lobby winning

Lynne Raimondo Author, Dante's Poison
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Can for-profit corporations claim protection for their religious beliefs under the First Amendment?

That was only one of the questions raised last week during the oral argument in Sebelius v. Hobby Lobby Stores, the latest challenge to the Affordable Care Act to reach the Supreme Court. For court watchers, it was an edge-of-your-seat reprise of  2012’s face-off between former U.S. Solicitor General Paul D. Clement, representing the petitioners, and current Solicitor General Donald B. Verrilli, Jr., appearing on behalf of the Obama administration. But while the constitutionality of the ACA is no longer in doubt, cases like Hobby Lobby show the battle over health care is only just beginning.

The lead plaintiff in Hobby Lobby, a privately-held chain store with 500 outlets and some 13,000 employees, brought suit challenging the ACA’s contraceptive mandate, which requires all for-profit employers to cover contraceptive services in their health plans. Hobby Lobby didn’t object to paying for all forms of contraception. Its problem was with Ella, Plan B and certain IUDs, which Hobby Lobby’s Christian owners, the Green family, consider a form of abortion. The ACA exempts religious nonprofits from the contraceptive mandate, but not for-profit employers.

Unlike in 2012, the argument before the Court was less focused on the Constitution than a federal law, the Religious Freedom Restoration Act, passed by Congress in 1993. Under the RFRA, regulations imposing a “substantial burden” on the free exercise of religion must demonstrate a “compelling government interest” to withstand challenge. Hobby Lobby argued that the ACA’s contraceptive mandate imposed just such a burden, forcing it to chose between providing abortion coverage for its employees or paying a $26 million dollar fine.

During the argument, five of the justices — Roberts, Scalia, Alito and Kennedy and (presumably) Thomas — seemed sympathetic to that view. But while some conservative commentators were quick to applaud, they may wish to consider the effect of a victory for Hobby Lobby on their other core constituency — business.

One of the most basic principles of corporate law is that a for-profit corporation has a legal identity of its own, separate and distinct from its shareholders. As the Supreme Court has said, this separateness is deeply ingrained in our economic and legal systems. Writing a century ago, Justice Holmes observed that a main purpose of the corporate entity is to set up a “non-conductor” or firewall between a company and its owners. This firewall, often referred to as the “corporate veil,” is what enables a corporation’s shareholders to avoid personal responsibility for its debts.

Businesses both large and small benefit from the corporate veil. Except in cases of misconduct or fraud, it shields shareholders from losing anything more than their original investment in the company. When a corporation cannot pay its bills, only its creditors bear the loss, whether the corporation has one shareholder or a thousand. The corporate veil thus encourages both passive investment and entrepreneurial risk-taking.

The problem with the position taken by the petitioners in Hobby Lobby is that it erodes this fundamental principle. The religious beliefs asserted by Hobby Lobby are those of its owners, the Green family. The Greens have no responsibility under the ACA, and are not personally being forced to pay for the contraceptive mandate. The law places that obligation solely on the company. In essence, the Greens want to have their cake and eat it too. And once the door is opened to this sort of reverse attack, it’s easy to envision further chipping away at the corporate veil down the road.

What other negative consequences for business might we expect? Plenty according to an amicus curiae briefs filed with the court by forty-four corporate and criminal law professors, who argue, among other things, that a victory for the petitioners in Hobby Lobby would invite costly intra-corporate disputes over whose religious views should prevail. As Justice Sotomayor asked during the argument, how do we determine a corporation’s religious beliefs? By a vote of its shareholders? What about the religious beliefs of the minority? Resolving such questions will almost certainly clog the courts with litigation over what, if any, religious identity a corporation should have.

In addition, recognizing religious freedom claims for for-profit corporations would create a competitive advantage for those companies that claim to have religious beliefs over those that don’t. As the law professors point out, the courts would quickly become embroiled in questions of whether a given corporation is invoking religion in good faith, or simply to obtain an exemption from the law. By the same token, corporations charged with the maximizing profits for their shareholders would have to give serious consideration to adopting some form of religious identity in order to remain competitive.

While it may seem tempting to equate a victory for Hobby Lobby with the advancement of a conservative agenda, granting religious freedom rights to for-profits promises to create a whole new set of headaches, both for companies and the courts. Let’s hope the Supreme Court can find a better middle ground.