On the last day of its term, the Supreme Court issued its decision in Burwell v. Hobby Lobby Stores, Inc., No. 13-354 (June 30, 2014) – a highly contentious case about whether closely-held for-profit corporations can be required to provide insurance coverage for certain contraceptives.  Here’s a high-level overview of what employers should know about the case:

The Religious Freedom Restoration Act (RFRA):  The Hobby Lobby case was not a First Amendment freedom of religion case.  Instead, it involved RFRA, a federal statute that prohibits the Government from substantially burdening “a person’s exercise of religion even if the burden results from a rule of general applicability,” unless the Government demonstrates it:  “(1) is in furtherance of a compelling governmental interest; and (2) is the least restrictive means of furthering that compelling governmental interest.”  42 U.S.C. § 2000bb-1(a-b).

The Contraceptive Mandate:  In Hobby Lobby, the plaintiffs challenged the application of a mandate to cover certain contraceptives arising under the Affordable Care Act, which requires certain employers’ group health plans to provide “preventive care and screenings” for women without “any cost sharing requirements.”  42 U.S.C. § 300gg-13(a)(4).  Regulations implemented by the Department of Health and Human Services (HHS) specify that this generally requires employers to provide 20 contraceptives.  The plaintiffs in Hobby Lobby objected to four of those contraceptives on the grounds that they prevented fertilized eggs from developing further by inhibiting attachment to the uterus.

Does RFRA Apply to Closely-Held Corporations?  Justice Alito, writing for the majority, held that RFRA’s use of the term “person” applied to closely-held for-profit corporations and that it was intended to extend rights to corporations to protect the rights of shareholders, officers, and employees.  Justice Ginsburg, writing for the dissent, argued strongly against this interpretation and questioned how the majority could confine its reasoning to closely-held corporations only.

Does the Contraceptive Mandate Substantially Burden Religion?  The majority said yes, reasoning that the contraceptive mandate required the plaintiffs to cover contraceptives that violated their sincerely held beliefs or pay substantial fines.  In dissent, Justice Ginsburg argued that the majority confused the sincerity of the plaintiffs’ belief with the substantiality of the alleged burden.  Justice Ginsburg argued that requiring the plaintiffs to fund general health insurance policies, which may or may not be used for contraceptives based on decisions made by others, was “too attenuated to rank as substantial.”

Does the Contraceptive Mandate Further a Compelling Governmental Interest?  The majority assumed, without deciding, that the contraceptive mandate furthered a compelling governmental interest.  The dissent agreed that it did.

Is There a Least Restrictive Alternative To the Contraceptive Mandate?  This is the issue where the plaintiffs won their case.  The majority held that there was a less restrictive alternative available – specifically, HHS already created an alternative system for non-profit religious organizations, like churches, to opt-out of the contraceptive mandate.  The system allows a non-profit religious organization to self-certify that it religiously objects to certain contraceptives.  If this certification is made, the insurer must then cover the costs of those contraceptives.  See 45 C.F.R. § 147.131.  The majority held that there was no reason the government could not make this option available to closely-held for-profit corporations with religious objections.  Accordingly, imposing the contraceptive mandate on closely-held for-profit corporations violated RFRA because it was not the least restrictive alternative.

Writing for the dissent, Justice Ginsburg argued that there was a valid basis for distinguishing between non-profit religious organizations, which are designed to serve a community of believers, and for-profit corporations, which are not.  Justice Ginsburg further argued that the alternative made available for religious organizations does not accomplish the ACA’s goals of providing employer-based health insurance and minimizing the administrative obstacles that employees may face in getting health insurance from another source.  Justice Ginsburg also worried about the “stopping point” for the majority’s reasoning and whether it would apply to other issues, such as health coverage for vaccines or application of the minimum wage.

Takeaway:  The Supreme Court held in Hobby Lobby that applying the ACA’s contraceptive mandate to closely-held for-profit-corporations violates RFRA.  Given the reasoning employed by the court, it is likely that HHS will issue new regulations allowing closely-held for-profit corporations to self-certify their religious objections to the contraceptive mandate, similar to the current regulations for non-profit religious organizations.  It is also likely that there will be more RFRA lawsuits involving for-profit corporations that will seek to extend the reasoning adopted by the Court in Hobby Lobby to other areas.