Author: David B. Weisenfeld, XpertHR Legal Editor

December 16, 2013

The Supreme Court has agreed to decide whether employers may refuse to provide contraceptive coverage to their employees on religious grounds. The November 26 announcement that the Court will hear arguments in Sebelius v. Hobby Lobby Stores and Conestoga Wood Specialties Corp. v. US Department of Health and Human Services, means the justices will weigh in on a key provision of the Affordable Care Act (ACA).

While the Obama administration has granted a religious exemption to the ACA's mandatory insurance coverage provision for contraceptives, it has said commercial corporations may not similarly opt out of providing such coverage. The cases present distinct but challenging issues that have divided the nation's courts.

Hobby Lobby Lobbies for Religious Relief

The Hobby Lobby case raises the question of whether the Religious Freedom Restoration Act (RFRA) covers for-profit, secular corporations, thereby allowing an employer to deny its employees the health coverage of certain contraceptives to which the employees are otherwise entitled under the ACA.

Hobby Lobby Stores is a closely-held family business with about 13,000 employees nationwide. The company's owners believe human life begins at conception and object on religious grounds to providing coverage for any FDA-approved contraceptives that would prevent implantation of a fertilized egg.

A failure to comply with the ACA's mandate would have left the company with the choice of facing possible fines of $1.3 million per day or dropping employee health insurance altogether at what it said would be a cost of $26 million per year.

The Denver-based 10th Circuit Court of Appeals granted Hobby Lobby a preliminary injunction in June 2013 to prevent the law's contraceptive coverage mandate from applying to the employer. The court reasoned that for-profit corporations can be considered "persons" exercising religious rights for purposes of the RFRA.

If the Supreme Court agrees, other employers may be able to reject any sort of health coverage citing religious objections. But Minneapolis employment attorney Daniel Prokott, of Faegre Baker Daniels, is not so sure.

"If the Supreme Court concludes that for-profit corporations are 'persons' under the RFRA, I do not believe that will immediately have a significant impact on employment or employee benefit matters outside of the specific contraceptive mandate being challenged," Prokott said. "The overwhelming majority of employers will not be impacted." As a result, Prokott does not think this case poses the potential of a significant increase in challenges to other federal employment laws.

Free Exercise of Religion Challenge

The Conestoga Wood Specialties Corporation case poses a different question. In that case, the employer claims the ACA's contraceptive coverage mandate interferes with its free exercise of religion under the First Amendment. The Philadelphia-based 3rd Circuit Court of Appeals rejected that argument, finding that for-profit corporations do not have free exercise rights.

Prokott says it would be quite significant if the Supreme Court were to reverse that ruling. "How could General Motors exercise religion? Can a corporation have a religious belief?"

Ultimately, the Minneapolis employment attorney says the decision will hinge on whether the Supreme Court believes the rationale in its 2010 Citizens United decision for extending free speech rights to corporations under the First Amendment supports extending the Free Exercise Clause to for-profit corporations.

Consequences of Limiting ACA Coverage

If the Supreme Court were to hold that the employers in both cases should have some limited exemption from the ACA's contraceptive mandate, Prokott notes that employees of those companies would have to buy the objected-to contraceptives with their own money. "They would be in essentially the same legal position as all employees are today, before the contraceptive mandate kicks in," he said.

While an argument date has not yet been scheduled, both cases are likely to be heard in late March with decisions expected by the end of the Court's term in June 2014.