Wake a lawyer suddenly, and even startled out of a sleep, he or she will certainly be able to rattle off the reasons why a decision about corporate form is important. Among these are taxation, the potential for personal liability, ease of formation, duration and transferability of interest.
This week, the Supreme Court added a new one. Apparently, closely held corporations owned and controlled by members of a single family, who have sincere religious beliefs (unlike publicly traded corporations, partnerships, LLCs, or businesses owned by insincere cads) have a more limited duty to comply with employee benefit laws, at least as far as these relate to insurance coverage for contraception.
The floodgates will open! Consider the plight of the poor business owner, tormented by the thought that a black sheep daughter may become an atheist, thereby burying the business with ruinous insurance costs.
That’s ridiculous, of course. But so is the majority’s insistence that the decision is so narrowly focused as to be about nearly nothing except to a handful of business owners who had the foresight to organize in a particular fashion and who subscribe to a particular belief about four particular forms of birth control and who have sincere religious qualms on that particular basis. There’s lots of howling about sex and religion and politics right now — more heat than light. However, one thing is clear. Burwell v. Hobby Lobby changes the relationship between employers and employees and not in a way that favors employees.
Does Hobby Lobby Affect Only Employers Who Are Closely Held Corporations?
That is not completely clear. Closely held corporations are those in which five or fewer individuals own more than 50 percent of the outstanding stock, and which are not personal service corporations. This small group of shareholders, often family members, usually also control the operating and managerial policies of the firm.The holding in the case is not explicitly limited to closely held corporations:
We hold that the regulations that impose this obligation [HHS regulations imposing the contraceptive mandate] violate RFRA [Religious Freedom Restoration Act], which prohibits the Federal Government from taking any action that substantially burdens the exercise of religion unless that action constitutes the least restrictive means of serving a compelling government interest.
The discussion of Hobby Lobby's corporate structure goes only to the issue of how and in what circumstances a business can have an interest in the exercise of religion.
If only closely held corporations are enough like religious non-profits to have a religious interest, then it sounds like small ball. It’s not. Over 90 percent of all businesses in the United States are closely held, including giants like Cargill, Mars and Publix Supermarkets. Nearly 52 percent of American employees work for closely held corporations.
If the Supreme Court's decision is not limited to closely held corporations or to the four named forms of contraception, then the lid is really off.
The Affordable Care Act requires employers with 100 or more full-time employees to offer them health insurance in 2015. In 2016 that threshold will drop to 50 employees. Even smaller employers are affected under other provisions. More to the point, however, the health insurance coverage must meet certain minimum standards. These are set out in Health and Human Service regulations and include access to contraception with no cost sharing.
Employers are generally anxious about the cost of providing health insurance. Contraceptive coverage is not popular with others for specific religious reasons. Employers who do business as closely held corporations now have an avenue to challenge that portion, and they are poised to move. Other challenges may follow.
The Next Wave
Prior to Monday’s decision, more than 50 for-profit companies and 59 non-profits had filed lawsuits against the ACA’s contraception mandate. The majority of these rulings were stayed by courts pending the Hobby Lobby decision. Those stays will be lifted now.
Nor does it appear that the challenges will be limited to contraception or to the ACA. As reported in The Atlantic, a group of religious leaders sent a letter to the White House on Tuesday urging the administration to consider a religious exemption to an upcoming executive order banning federal contractors from discriminating on the basis of sexual orientation or gender identity. The organizer of the letter reportedly made specific reference to the Hobby Lobby decision as the reason for the White House to reconsider its position.
However the challenges shake out, Hobby Lobby is not a small decision. For some, it may be an opportunity to re-visit the issue of whether an employer-based healthcare system really makes any sense. In the short term, however, employees, especially those who work for family owned businesses, must be vigilant about changes to healthcare policies.