What Employers Need to Know About the Hobby Lobby Decision

The U.S. Supreme Court closed out its 2014 term dramatic fashion as it handed down a 5-4 decision in favor of Hobby Lobby in the controversial Burwell v. Hobby Lobby Stores case.

The ruling set off a barrage of strongly worded articles, blog posts and comments, including the Court’s own majority and dissenting opinions. Given the politically and morally charged nature of the case that hit on topics including the Affordable Care Act (ACA), religious freedom, women’s health, contraception, and separation of church & state just to name a few, the resulting controversy was virtually inevitable.

But over a week later, while the debate rages on and both the Obama administration and congressional Democrats work to close the gap in contraceptive coverage for female employees immediately affected by the ruling, let’s take a step back and take a look at the basics of what the decision says and what it means for employers.

The decision in a nutshell

The Hobby Lobby decision allows closely held for-profit businesses to opt out of the ACA mandated contraceptive coverage for their female employees based on the religious objections of the company’s owners.

To whom does this decision apply?

“Closely held” for-profit businesses are the group to whom the decision applies. However, the definition of “closely held” is somewhat unclear. The most commonly cited definition is provided by the IRS, which includes “firms in which 50% of stock is owned by five or fewer people.” According to the Harvard Business Review (HBR), this definition includes 90% of U.S. firms, but others have pointed out that the 90% figure fails to exclude employers with fewer than 50 employees to whom the ACA mandate never applied in the first place.

What was the legal basis for their decision?

The Court’s decision was based not on the First Amendment’s guaranteed right to religious freedom, but rather on the 1993 Religious Freedom Restoration Act (RFRA). The Court agreed with Hobby Lobby’s argument that being forced by the government (in the form of the ACA mandate) to provide free contraceptive coverage to their female employees through their health insurance plans for four specific types of birth control violated the RFRA by placing a “substantial burden” on their sincere religious beliefs against use of these types of contraceptives.

A for-profit entity, they argued, was in fact covered under the RFRA’s definition of “persons” whose religious liberties the law was passed to protect. Additionally, the Court noted, the ACA contraception mandate was not the “least restrictive” method available to provide female employees the desired coverage. In fact, a work-around has already been set up for non-profit employers objecting to the contraceptive mandate and the Court suggested a similar structure could be put in place to cover employees at for-profits with religious objections as well.

So are employers choosing to drop coverage?

While there are some employers who have already made the decision to drop contraceptive coverage from their health insurance plans, health care coverage remains a key benefit desired by employees from their employer. In terms of being able to recruit and retain top talent, HBR suggests that most employers, even if they are closely held, are unlikely to risk losing out on talented employees based on religious objections to certain kinds of health care coverage, contraceptive or otherwise.

Are there additional legal implications related to other parts of the ACA or other types of religious objections that employers might invoke based on this decision?

Although there is some disagreement over the scope of the decision (even from Justice Ginsburg in her dissent), most legal experts suggest that the ruling is quite narrow in its language which will limit future claims. For the time being this implies that the religious freedom claims apply only to this specific case of contraceptive coverage and the ACA mandate. The majority opinion spells out several specific medical procedures that they would not exempt from coverage on religious grounds, including vaccinations and blood transfusions. They also note that that this ruling should not be viewed as an open invitation to invoke religion in order to justify blatant discriminatory practices by employers against their employees.

What does this all mean moving forward?

What is clear now is that many pending cases related to religious freedom will likely be pursued, although legal experts anticipate that many of these claims will not be as successful as the Hobby Lobby case. Again, the specificity of the circumstances laid out in the majority opinion may limit the application of the reasoning from this decision to other cases; however, as with any body of law, the full implications cannot be predicted or fully understood until additional cases are brought to help clarify the ambiguities and intent of the text more explicitly.

For detailed legal analysis, access to the full opinions, and a breakdown of the decision as it was announced from the bench, visit SCOTUS blog.