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Third Circuit Turns Back For-profit Corporation's Religious Challenge to Contraceptives Mandate
Practical Law Legal Update 0-535-6245 (Approx. 4 pages)
Third Circuit Turns Back For-profit Corporation's Religious Challenge to Contraceptives Mandate
by Practical Law Employee Benefits & Executive Compensation
| Published on 30 Jul 2013 • USA (National/Federal) |
In Conestoga Wood Specialties Corp. v. Sebelius, the US Court of Appeals for the Third Circuit held that a for-profit, secular corporation and its owners could not challenge the Affordable Care Act's (ACA's) contraceptives mandate under the First Amendment and the Religious Freedom Restoration Act (RFRA), because the corporation could not engage in religious exercise.
On July 26, 2013, the US Court of Appeals for the Third Circuit issued a decision in Conestoga Wood Specialties Corp. v. Sebelius, which involved religious freedom challenges to the Affordable Care Act's (ACA's) contraceptives coverage mandate (part of the law's preventive services rules) by a for-profit, secular corporation and its owners. The Third Circuit affirmed the district court's denial of a preliminary injunction and held, on a threshold issue, that the for-profit, secular corporation could not engage in religious exercise under the Free Exercise Clause of the US Constitution and the Religious Freedom Restoration Act (RFRA).
Background
Under the ACA's preventive services rules, non-grandfathered group health plans and insurers must provide first-dollar coverage of contraceptives for women, subject to:
- An exemption for certain religious employers.
- A temporary enforcement safe harbor for certain nonprofit entities with religious objections to covering contraceptives (see Practice Note, Coverage of Preventive Services under the ACA: Contraceptive Coverage).
The safe harbor does not apply to group health plans established or maintained by for-profit secular employers, and employers that fail to comply with the mandate are subject to penalties.
This case involved a religious challenge to the contraceptives mandate by a closely-held, for-profit corporation with 950 employees that was 100% owned by a family that practices the Mennonite religion. The corporation was subject to the mandate beginning in January 2013, when its health plan came up for renewal, and has been complying with the mandate since that time.
In December 2012, the corporation and its owners sought a preliminary injunction against the contraceptives mandate in district court, claiming that the mandate violated the Free Exercise Clause and the RFRA. The district court denied a preliminary injunction because it concluded that the corporation and its owners were unlikely to succeed on the merits of their claims. The corporation filed an expedited motion for a stay pending appeal with the Third Circuit, which was denied. The corporation then appealed the district court's order.
Outcome
Affirming the district court, the Third Circuit held that the for-profit, secular corporation could not engage in religious exercise under the Free Exercise Clause and the RFRA.
Free Exercise Clause
The corporation argued that it could be viewed as exercising religion for First Amendment purposes either:
- Directly, under the Supreme Court's Citizens United decision, in which the Court held that the government could not suppress political speech on the basis of the speaker's corporate identity.
- Indirectly, under a "pass through" method articulated by the Ninth Circuit, under which (as applied in this context) the corporation would be permitted to assert its owners' free exercise claims.
The Third Circuit rejected both theories.
Declining to apply the Citizens United rationale in the free exercise context, the Third Circuit reasoned that it:
- Was unaware of any cases, setting aside recent litigation involving the contraceptives mandate, in which a for-profit, secular corporation was found to have free exercise rights.
- Could not envision a for-profit corporation exercising the inherently human rights protected under the Free Exercise Clause.
Similarly, the Third Circuit rejected the "pass through" theory, reasoning that:
- The theory fails to recognize that, by incorporating a business, a corporation's owners create a distinct legal entity with distinct rights and responsibilities apart from the owners themselves.
- The contraceptives mandate does not actually require the corporation's owners to do anything, but instead requires compliance by the corporation itself.
The Third Circuit concluded that the contraceptives mandate does not require the corporation's owners to take any action, including those that would violate their religious beliefs. Rather, the corporation must fund compliance with the mandate, even though its profits ultimately flow to its owners. Also, the court noted that any fines and penalties for failing to comply with the mandate would be brought against the corporation.
Religious Freedom Restoration Act
Regarding the RFRA claim, the Third Circuit held that because the corporation could not assert a free exercise claim, it similarly could not engage in the exercise of religion. Having concluded that its owners were unlikely to succeed on the merits of their free exercise and RFRA claims, the court affirmed the district court's order denying their preliminary injunction request.
Practical Impact
The contraceptives mandate has already resulted in numerous court decisions, and this opinion will not likely be the final word regarding the constitutional issues implicated by the mandate. In its opinion, the Third Circuit recognized, but expressly disagreed with, a recent Tenth Circuit decision holding that for-profit, secular corporations can assert free exercise and RFRA claims in some circumstances. The Tenth Circuit remanded the case to the district court, which later barred the government from enforcing the contraceptives mandate and related penalties against the for-profit employer in that case. The Third Circuit's opinion may make it more likely that this issue will be reviewed by the Supreme Court.
Also, in related developments last month:
- DOL, HHS and Treasury issued final regulations addressing the contraceptives mandate.
- HHS issued guidance extending the temporary enforcement safe harbor for certain nonprofit entities to plan years beginning on or after August 1, 2013 and before January 1, 2014 (see Legal Update, Final Contraceptive Rules Include TPA Role for Providing Certain Contraceptive Coverage).