Wednesday, February 26, 2014

More or Less?

As previously noted on this blog, 44 law professors filed an amicus brief in Sebelius v. Hobby Lobby Stores, Inc., outlining several corporate law issues in the arts-and-craft store chain’s request for a religious exemption from complying with contraceptive requirements in the Affordable Care Act.  That brief prompted several responses and sparked a corporate law debate, which is being recapped and weighed in on at Business Law Prof Blog (see earlier thoughtful posts: here, here, and here by Stefan Padfield and Haskell Murray).   

So what is at stake in this case? Religious exemptions for corporations. The role of benefit corporations and other hybrid, triple bottom line entities.  The classic entity theory vs. aggregate theory debate of how do we treat the legal fiction of individuals acting through businesses and businesses acting, in part, on behalf of people.  The role and future of Corporate Social Responsibility generally. Corporate personhood.  Corporate constitutional rights. And existential questions like can corporations pray? You know, easy stuff. 

CSR. Our laws set the floor; they establish the minimum that social actors must do and that other members in our society can expect to receive.  Corporate social responsibility asks companies to do more than their minimum legal obligations and to do so for a host of reasons, some of which may be religious.  The owners of Hobby Lobby can elect a corporate board that will authorize the company to donate to religious charities, to reimburse employees for religious expenses, to provide paid leave for a mission trip, or to not operate on Sundays. (Who here hasn’t craved a chicken biscuit on a road trip only to realize that Chick-Fil-A is closed on Sunday? Just us in the south?). Under what I will call the standard state corporate law regime, corporations can take actions like increasing their use of renewable energy sources, implementing diversity programs for women and minorities, refusing to support tobacco products and other actions that are in line with CSR.  Whether for religious or environmental or other conscience-driven reasons, a corporation may take these actions and the directors of the corporation (under whose governance the acts took place) are protected by the business judgment rule in the event that any shareholder challenges the program or expenditure as a form of waste or conflict of interest. 

Benefit Corporations & Hybrid Entities.  For companies incorporated in states with benefit corporate statutes or laws that recognize hybrid entities interested in seeking (but not always maximizing) profits and other goals, there is even greater protection.  These entities contain provisions in their charters identifying their “other” purpose, the shareholders are on notice of the dual pursuit and the corporate actions are protected by statutes recognizing this charter-based exception to profit maximization.  In the event a shareholder sues for waste or conflicts of interest, not only is the business judgment rule available to protect the corporate actors, but the validity of the corporate action is strengthened by the special legislation. [This in no way captures the full scope of benefit corporation and hybrid entity legislation, but this post is about religious exemptions for corporations, so please excuse the over simplification here.]

Hobby Lobby.  The owners of Hobby Lobby are not asking to do more, rather they are asking to do less.  Hobby Lobby want to provide less than the standards established in the Affordable Care Act, and less than their competitors will be required to provide.  Who would complain if Hobby Lobby failed to comply with the ACA?  The employees without access to contraceptive medicine, and the federal government.  This isn’t about the business judgment rule and whether owners, acting through boards of directors, can run companies in line with their view of religious or social or environmental consciousness.  This case asks can the religious beliefs of owners of a corporation entitle that corporation to do less under the law and as compared to their competitors.  On these grounds, deciding against a religious based exemption for Hobby Lobby does no harm to CSR or benefit corporations. 

The Hypothetical.  If the privately held religious belief of owners can change legal obligations for corporate actors, this could pose a threat to the stability, reliability and uniformity of the floor that the law sets. Poking a hole in the floor for religious exemptions based upon the owners’ religious beliefs may seem like a small concession in the Hobby Lobby case.  If religion is a means to opt-out of regulations and requirements, and if doing so could lower costs, shortcut compliance obligations and otherwise provide a competitive edge there will be robust incentives for businesses to claim such an exception in a likely wide array of issues. 

The Horrible.  The sacred ground of religion has long been an unhappy refuge for arguments in support of racial, gender, religious and sexual-orientation discrimination.  Every major social movement that I can think of has met resistance shrouded in religious beliefs.  The right for women to vote (and the continuing progress towards equality), desegregating schools, the Civil Rights Acts, and our most modern example:  gay rights.  Consider the law that the Arizona Legislature passed last week that would exempt businesses refusing to serve same-sex couples from civil liability on the grounds of a religious exemption.  Substantially similar legislation is pending in Georgia.

Religion, if we have it, should call us to do more and to be better.  As individuals, we may disagree about what “more” and “better” means.  I have no doubt that the owners of Hobby Lobby believe that their stance on birth control is consistent with their view of “more” and “better”.  As individuals, they can express that value in many ways.  As owners of a corporation they can express those values by electing directors that will govern the company and possibly pursue corporate donations to abstinence charities, promote natural family planning among employees via posters in the break room, and other avenues.  The individual values of the owners should not be used to excuse the corporation from compliance with the legal standard.  Individual religious views should not lower the minimum standards for corporate actions in this context, or others.


 -Anne Tucker

Business Associations, Constitutional Law, Corporate Governance, Current Affairs, Religion | Permalink


Excellent post, Anne. What if Hobby Lobby were required to spend whatever the extra money would be on different health care services, above the required standard? I agree with you that corporations should be free to do more and not less, but perhaps, in this case, given the subject matter, they should have a few more options (all costing a similar amount) to accommodate their beliefs. This does not appear to be a case where Hobby Lobby is attempting to get an exception to the law to save money under the cover of religion, though I understand that concern. An option allowing Hobby Lobby to give an extra health care allowance to their employees -- to be spent at their employees discretion (on contraceptives or something else) -- seems to maximize freedom on all sides. As to "compliance with the legal standard," as we all know, it is a rare legal standard that is entirely clear and doesn't have a number of exceptions. There have already been quite a few exceptions with this law, and there are legal standards from outside of this law that will come into play. I look forward to following the development in this area.

Posted by: Haskell Murray | Feb 27, 2014 6:19:24 AM

@Haskell. I understand the temptation to offset the cost of contraceptives. Birth control isn't just about an expense or line item. It is a question of sexual equality and access to health care. Family planning has the potential to impact time on the job, performance and other health issues. As a woman with an infant in my mid-thirties, I have benefited from access to health care that facilitated choices about how and when to start my family. It isn't just about the cost. If it were the ACA would require a minimum amount spent, not that certain health care services be provided. There is more to say on this issue, and others can make this argument better than I can. Perhaps a dedicated post on this issue to come? Regardless, thanks for the good conversation on the issues Haskell.

Posted by: Anne Tucker | Mar 5, 2014 6:05:35 AM

Very thoughtful post, especially the distinction between doing more and doing less. Also, although there is substantial overlap between the Arizona bill and the issue in Hobby Lobby, the procedural differences are revealing (a point I made in my own blog post at I would also add that there is no way of testing the sincerity of one's religious beliefs.

Posted by: Enrique | Mar 8, 2014 6:19:11 AM

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