A new Supreme Court case about religion has a hidden trap for workers

One of the Supreme Court’s very first actions after Republicans gained a 6-3 supermajority on its bench was a revolutionary decision expanding religious institutions’ right to seek exemptions from state laws. Since then, the Court has fairly consistently favored Christian litigants who seek such exemptions, or who raise other religious liberty-related claims (though it has not always shown the same sympathy to Muslims with similar claims).

That history means it’s hard to think of a litigant that’s more likely to win the sympathy of most of the justices than Catholic Charities, the party at the center of Catholic Charities Bureau v. Wisconsin Labor & Industry Review Commission. Catholic Charities seeks an exemption from Wisconsin’s law requiring employers to pay taxes that fund unemployment benefits. The Court announced Friday it will hear Catholic Charities.

It is likely that the Court will side with Catholic Charities. The more important question is how the Court might write an opinion ruling in Catholic Charities’ favor, as a too broad opinion could potentially have dire consequences — giving at least some companies legal grounds to mistreat workers, and to pick and choose which laws apply to them, and which don’t.

What’s the legal issue in Catholic Charities?

Like every other state, Wisconsin taxes employers to fund unemployment benefits for workers who lose their jobs. Wisconsin, however, exempts employers that are controlled by a church, and that are “operated primarily for religious purposes,” from these taxes.

Wisconsin’s state supreme court recently ruled that this “religious purposes” exemption applies only to employers that primarily engage in religious activities, such as holding worship services or providing religious education. The court found it does not apply to organizations, like Catholic Charities, that provide secular services like job training or feeding the poor — even if the organization is motivated by religion to provide these secular services.

Notably, Catholic Charities has paid these unemployment taxes since 1972.

Catholic Charities’ lawyers claim that this distinction between religious and secular services violates the First Amendment’s religious liberties protections in various ways. Among other things, they claim that Wisconsin discriminates against religions, like the Catholic Church, that believe in an obligation to “serv[e] those in need without proselytizing,” and that Wisconsin’s law interferes with the church’s right to manage its own affairs.

Are these good arguments? Not really. Wisconsin isn’t discriminating against the Catholic Church. Wisconsin will allow any religious institution, be it Catholic, Protestant, Jewish, Muslim, Buddhist, Hindu, or Satanic, to be exempt from unemployment tax if it hosts worship services or if it teaches lessons about a holy text. It similarly will not give this exemption to one, regardless of its faith, that performs secular charity work.

Nor is Wisconsin interfering with the church’s religious freedoms. The state is not trying to influence the church’s internal affairs in any significant way. The Supreme Court has held that the government should stay out of “strictly ecclesiastical” matters, such as a fight over which of two religious leaders was properly appointed as an archbishop. But Catholic Charities does not involve such a matter of internal church governance, it involves the state’s decision to tax both secular and many religious employers, in order to pay unemployment benefits.

And, again, it’s notable that Catholic Charities has complied with Wisconsin’s tax law since 1972. The fact that it now seeks an exemption after decades of compliance suggests that preexisting law does not favor the church’s position — and that the church’s lawyers now think they can win cases that would have lost before less sympathetic panels of justices.

Two ways that the Supreme Court can rule in favor of Catholic Charities

In the likely event that the Supreme Court does rule in Catholic Charities’ favor, there are two ways it can get there. One would be a narrow decision that applies to a small subset of employers. The other could potentially overrule a pair of decades-old precedents, and risks severely disrupting the balance of power between workers and employers.

If the Court wants to issue a narrow opinion favoring Catholic Charities, it could rule that its decision applies only to organizations engaged in charitable work, and make it clear the ruling does not apply to any group engaged in commercial activity. Failing to do so could create a situation like the one the Court tried to avoid in Tony and Susan Alamo Foundation v. Secretary of Labor (1985).

In that case, a religious foundation operated a long list of commercial businesses, including “service stations, retail clothing and grocery outlets, hog farms, roofing and electrical construction companies, a recordkeeping company, a motel, and companies engaged in the production and distribution of candy.” These businesses were staffed with “associates” who were not paid cash wages or a salary, but instead were only provided with in-kind benefits like food, clothing, and shelter. The federal government sued this foundation, alleging that it was in violation of federal minimum wage, overtime, and workplace recordkeeping laws.

A unanimous Supreme Court rejected the foundation’s claim that it was exempt from these laws because it objected to them on religious grounds. Among other things, the Court warned that the foundation’s business competed with other, secular businesses in the marketplace, and that permitting the foundation to pay “substandard wages would undoubtedly give [the foundation] and similar organizations an advantage over their competitors.”

In United States v. Lee (1982), the Supreme Court expressed similar concerns about a religious employer who sought an exemption from paying Social Security taxes. Indeed, Lee announced a blanket rule establishing that “when followers of a particular sect enter into commercial activity as a matter of choice, the limits they accept on their own conduct as a matter of conscience and faith are not to be superimposed on the statutory schemes which are binding on others in that activity.”

The Catholic Charities case is distinguishable from both Alamo Foundation and Lee because it does not involve a religious organization engaged in commercial activity. Catholic Charities is a legitimate charity which does a great deal of beneficial work for the needy. It is not a business that operates hog farms or sells candy.

So a win for Catholic Charities could just be a win for religious organizations without commercial interests that want to avoid unemployment taxation. To get to that result, the Court just needs to follow the line these older cases draw between institutions engaged in “commercial activity,” which could not claim religious exemptions from laws governing that activity, and institutions engaged in more traditional charitable work.

However, there is a chance the Court ignores this line in favor of the legal reasoning that drove a more recent decision: In 2014, the Supreme Court held that private, for-profit businesses may, in some instances, seek religious exemptions from federal business regulations.

That case was Burwell v. Hobby Lobby (2014), in which the Court decided that private businesses, whose owners object to some forms of birth control on religious grounds, are exempt from federal rules requiring employers to cover contraception in their employees’ health plans. The Court has only grown more conservative, and more friendly to Christian litigants seeking religious exemptions, since Hobby Lobby. So it is far from clear that this Court will hew to the rule against permitting business to seek exemptions that can distort the market that was announced in Lee.

It is possible to distinguish Hobby Lobby from Catholic Charities, because Hobby Lobby arose under a federal statute that gives particularly strong religious liberty protections to people impacted by a federal law. Catholic Charities, by contrast, asks whether the Constitution allows a religious employer to seek an exemption from a state law.

In any event, if the Court winds up handing down a narrow decision holding that legitimate charities like Catholic Charities, which are directly affiliated with a church, are entitled to certain religious exemptions, then that’s hardly the end of the world. Such a decision would likely only impact a relatively small number of workers, and it would only impact workers who voluntarily chose to do charitable work.

Still, the shadow of Hobby Lobby looms large over this case. And this Supreme Court often hands down haphazardly reasoned opinions that cause needless disruption to settled areas of law. So there’s at least some risk that the Court will hand down a decision that fundamentally undermines much of American labor and employment law by allowing commercial businesses to exempt themselves from a wide range of laws intended to protect their workers.