Seventh Circuit Bars Enforcement of Contraceptives Mandate Against For-profit Corporations

Practical Law Legal Update 4-548-7206 (Approx. 5 pages)

Seventh Circuit Bars Enforcement of Contraceptives Mandate Against For-profit Corporations

by Practical Law Employee Benefits & Executive Compensation

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 exemption and safe harbor do not apply to group health plans established or maintained by for-profit employers.

In the Seventh Circuit cases, two Catholic families and their for-profit, closely-held corporations sought exemptions from the contraceptives mandate in separate district court cases. In both cases, the corporations sponsored employer health plans covering employees and faced potentially significant penalties for noncompliance with the contraceptives mandate. The plaintiffs:

Challenged the mandate under the RFRA, the First Amendment and on other grounds.
Requested preliminary injunctions barring enforcement of the mandate.

In each case, the district court denied the preliminary injunction request, concluding that the plaintiffs were unlikely to succeed on their RFRA claims. Both sets of plaintiffs appealed to the Seventh Circuit and sought injunctions pending appeal. The cases were consolidated on appeal. The Seventh Circuit provisionally held that the RFRA claim was likely to succeed and enjoined enforcement of the mandate pending appeal.

Issues and Outcome

The issues in the consolidated cases were whether:

A secular, for-profit corporation is a "person" under the RFRA.
The contraceptives mandate substantially burdens the free exercise rights of any of the plaintiffs (corporate or individual).

If the court determined that a corporation was a person and the mandate substantially burdened the plaintiffs' free exercise rights, the government was required to justify the mandate under strict scrutiny.

The Seventh Circuit held that:

The corporate plaintiffs are persons under the RFRA, and could invoke the statute's protections.
The contraceptives mandate substantially burdened the free exercise rights of all the plaintiffs (corporate and individual).
The federal government failed to justify the mandate under strict scrutiny.

Following full briefing on appeal, the Seventh Circuit reversed the district courts and remanded with instructions to enter preliminary injunctions barring enforcement of the contraceptives mandate against the plaintiffs.

Jurisdiction

Addressing jurisdictional issues, the Seventh Circuit held that:

The plaintiffs had standing to bring the lawsuit, because, among other reasons, the corporations:
- Faced financial penalties and other enforcement action for failing to provide contraception coverage under their health plans.
- Were closely held, meaning that the mandate's indirect effect on the financial interests of the corporations' individual shareholders was a concrete injury sufficient to support Article III standing.
The Anti-Injunction Act, an Internal Revenue Code rule that prohibits pre-enforcement actions to enjoin the collection of federal taxes, did not apply because the contraceptives mandate was not a tax. Rather, the rule only provides a penalty for noncompliance with the ACA's requirements for group health plans, which include the contraceptives mandate.

Claim Under the Religious Freedom Restoration Act

Addressing the plaintiffs' likelihood of success on the merits of their RFRA claim, the Seventh Circuit held that the term "person" under the RFRA included the two corporations. The court noted that although the RFRA does not define "person," the federal Dictionary Act (which defines terms for purposes of interpreting federal law), included corporations in its definition of "person."

The Seventh Circuit rejected HHS' argument that only religious nonprofit corporations have religious exercise rights under the RFRA and the First Amendment's Free Exercise Clause. The Seventh Circuit reasoned that:

Use of the corporate form did not disable an organization from engaging in the exercise of religion under the RFRA or the Free Exercise Clause.
If Congress intended a nonprofit limitation on the RFRA, it could have created one in the statute's text.

Substantial Burden Analysis and Compelling Interest Test

The Seventh Circuit also concluded that the contraceptives mandate substantially burdened the plaintiffs' exercise of religion, because the corporations would have to pay $100 per day per employee if they did not include coverage for contraception and sterilization services in their health plans.

Because the plaintiffs established a prima facie case under the RFRA, HHS was required to justify its burden on religious practice under strict scrutiny. The Seventh Circuit concluded that:

HHS could not show that the contraceptives mandate was the least restrictive means of promoting the goals of public health and gender equality.
There were other, less burdensome ways to promote these goals (for example, the government could give tax incentives to contraception suppliers to provide contraceptive services to individuals at no cost).

Survey of Contraceptives Mandate Challenges

The Seventh Circuit noted that its analysis was:

Consistent with a recent Tenth Circuit decision addressing a similar challenge to the contraceptives mandate (see Legal Update, Tenth Circuit Permits Injunction in Contraceptives Coverage Challenge).
Different than recent Third and Sixth Circuit decisions on these issues (see Legal Update, Third Circuit Turns Back For-profit Corporation's Religious Challenge to Contraceptives Mandate).

According to the Seventh Circuit, its decision was only partially consistent with the District of Columbia Circuit, which addressed these issues in Gilardi v. Department of Health and Human Services. In Gilardi, the Catholic owners of two closely held, for-profit secular corporations challenged the contraceptives mandate as a violation of their rights under the RFRA. As in Korte, the plaintiffs included not only the individual owners of the corporations, but also the corporations themselves. The district court denied the plaintiffs' request for a preliminary injunction of the mandate. The DC Circuit:

Reversed in part, holding that the plaintiffs were likely to succeed on the merits of their RFRA claim.
Remanded the case to the district court to determine whether the plaintiffs met the other factors for a preliminary injunction.
Affirmed the district court's denial of a preliminary injunction with respect to the corporations themselves, because it concluded that a secular corporation could not exercise religion.

Practical Impact

As the Seventh Circuit acknowledges, its decision is inconsistent with other circuit courts that have addressed similar challenges to the contraceptives mandate (although these cases were also at preliminary stages, procedurally). This creates an uncertain landscape for employers in implementing the ACA, particularly employers with multi-state operations. We should know shortly whether the Supreme Court will decide to hear one or more of the contraceptive mandate cases it has been asked to review, or whether it will refrain from doing so until the challenges are further along procedurally.

Seventh Circuit Bars Enforcement of Contraceptives Mandate Against For-profit Corporations | Practical Law