Religious Institutions Update: December 2012

Timely Topics

Although the most significant changes for large employers are still to come, implementation of the Patent Protection and Affordable Care Act (ACA) (Public Law 111-148) is in full swing. Already, employers must offer nursing mothers a reasonable unpaid break each day for up to one year, and a private place so they can express breast milk (Subtitle C, Sec. 4207). Employers with fewer than 50 employees are exempt if they can show that the requirement will cause them undue hardship.

The so-called "play or pay" mandate becomes effective on January 1, 2014 for all non-exempt or grandfathered employers with 50 or more full-time employees (defined as those working more than 30 hours per week). If they fail to provide coverage, these employers must pay $2,000 per year per employee (excluding the first 30 employees if at least one employee receives subsidized coverage). Even employers that offer coverage but not “affordable health coverage” must pay a penalty of $3,000 per full-time employee who receives a government subsidy, up to a limit. Employers must offer a voucher for health insurance to some other lower-income employees.

The types and cost of health insurance are also changing in reaction to the ACA. Many religious institutions are familiar with the "contraceptive coverage" mandate, the subject of several pending lawsuits (including some discussed below). Besides these changes, insurers can no longer impose aggregate lifetime limits on the care provided for essential health benefits or preexisting condition exclusions on enrollees up to the age of 18, and may not rescind coverage except in extreme instances (e.g., fraud). Health plans that offer dependent coverage must cover children up to age 26 unless the children are eligible for other employer-provided health coverage.

Expansion of Medicaid under the ACA from the current median eligibility of 63 percent of the federal poverty line for working parents to 133 percent will also affect insurance. When the Supreme Court upheld the ACA it gave states an alternative: they can refuse to participate in the expansion without losing all of their Medicaid funds. Most states are scrambling to decide whether to approve the Medicaid expansion and how to implement state health benefit exchanges, the main portals through which people without employer-sponsored health insurance will be able to go to find a health plan.

It is not too soon to plan how your organization will adapt to and implement the ACA or evaluate the extent to which it may or could qualify for an exemption. A religious employer may qualify as exempt if it: (1) has the inculcation of religious values as its purpose; (2) primarily employs persons who share its religious tenets; (3) primarily serves persons who share its religious tenets, and (4) is a church, its integrated auxiliaries, and conventions or associations of churches, as well as the exclusively religious activities of any religious order.

Also in effect is a broader "temporary enforcement safe harbor" for organizations (potentially including nonreligious ones): (1) which are organized and operated as a nonprofit entity, (2) which maintain a health plan that from February 10, 2012, and onward has not provided contraceptive coverage "because of the religious beliefs of the organization"; (3) which will ensure that its employees receive specific notice that the health plan, because of the temporary enforcement safe harbor, does not cover contraceptive services; and (4) which complete a self-certification form and makes that form available to its employees.

Key Cases

Court Denies For-Profit Corporation Injunction against Contraceptive Coverage Mandate

In Hobby Lobby Stores, Inc. v. Sebelius, No. CIV-12-1000-HE, 2012 WL 5844972 (W.D. Okla. Nov. 19, 2012), the court denied the plaintiffs' motion to enjoin enforcement of Department of Health and Human Service regulations interpreting the Affordable Care Act (ACA) to require all health insurance plans and policies, unless grandfathered or otherwise exempt, to comply with the contraceptive coverage mandate, starting with the plan years beginning on or after August 1, 2012. 75 Fed. Reg. 41726, 41729. Hobby Lobby's insurance policies have long excluded pregnancy-termination drugs as well as contraceptive devices that some consider to be abortifacients. The company argued that it could incur penalties of about $1.3 million a day unless it complies with the ACA. The court decided that Hobby Lobby Stores and Mardel, Inc., as privately-held for-profit corporations, lack constitutional free exercise rights and are not "persons" within the meaning of the Religious Freedom Restoration Act (RFRA).

The court declined to decide whether the individual plaintiffs can establish free exercise violations by reason of restrictions or requirements imposed on the corporations they own or control. Instead, the court ruled that the ACA is a neutral, generally applicable law and subject only to rational basis scrutiny, so that infringement of their constitutional rights is permitted because plaintiffs did not argue that the mandate had no legitimate government interest or that the regulations are not rationally related to protect that interest. Furthermore, the court ruled that the mandate imposes no substantial burden on the individual plaintiffs, because the burden was too indirect and impersonal. As the court wrote, "The mandate in question applies only to Hobby Lobby and Mardel, not to its officers or owners. Further[more], the particular 'burden of which plaintiffs complain is that funds, which plaintiffs will contribute to a group health plan, might, after a series of independent decisions by health care providers and patients covered by [Hobby Lobby's] plan, subsidize someone else's participation in an activity that is condemned by plaintiff's religion.'"

Court Enjoins Contraceptive Coverage Mandate Applied to Closely Held For-Profit Corporation

In Tyndale House Publishers, Inc. v. Sebelius, No. 12-1635 (D.D.C. Nov. 16, 2012), the court granted a preliminary injunction to a closely held, for-profit religious publishing company against enforcement of the ACA’s contraceptive coverage mandate. Tyndale House Publishers, Inc. is a for-profit Christian publishing company employing 260 full-time employees. It provides them with health insurance through a self-insured health plan that omits coverage of abortions and of drugs (e.g., Plan B or ella) or devices (e.g., intrauterine devices) that can cause the demise of an already fertilized human embryo. Tyndale is 96.5 percent owned by the Tyndale House Foundation, a nonprofit religious entity which distributes profits to various charities, the Tyndale Trust, which holds 84 percent of the voting shares, and a trust benefiting the founder's widow and children, all of which adopted identical statements of faith and agreed to the same health plan limitations. The Tyndale plaintiffs alleged that the contraceptive coverage mandate violated their beliefs and rights under RFRA and the First and Fifth Amendments.

Rather than decide whether for-profit corporations can exercise religion within the meaning of RFRA and the Free Exercise Clause, the court determined that, because Tyndale as a closely held corporation that "'does not present any free exercise rights of its own different from or greater than its owner's rights,'" it has "'standing to assert the free exercise rights of its owners'" including a nonprofit religious entity. Accord Legatus v. Sebelius, 2012 WL 5359630 (E.D. Mich. 2012). Alternatively, the court determined that Tyndale has standing to assert its owners' free exercise rights under third-party standing doctrine.

Next, the court ruled that the plaintiffs demonstrated that the regulations substantially burdened Tyndale's exercise of religion because it is subject to suit and financial penalties, and could ultimately be required to close if it refuses to observe the contraceptive coverage mandate. If a plaintiff demonstrates a substantial burden on its religious exercise, RFRA requires the government to demonstrate that it has a compelling governmental interest justifying the burden. The court rejected both interests the government claimed for lack of any evidence that mandatory insurance coverage for the specific contraceptives to which the plaintiffs object furthered them, or that granting the plaintiffs' requested exemption would impede them. The court observed that the harm of granting the exemption to the plaintiffs could not be material inasmuch as the defendant had already excluded 191 million employees from the contraceptive coverage mandate through grandfathering and various exemptions.

Qualified Immunity Granted for Placing Children with Foster Parents Who Engage in Religious Practices at Odds with Their Upbringing

In BK v. Toumpas, No. 09-cv-94-JL, 2012 WL 5511392 (D.N.H. Nov. 14, 2012), the court ruled that the director and employees of the New Hampshire Department of Health and Human Services and its Division for Children, Youth and Families are entitled to qualified immunity against the plaintiff's claim that they violated the free exercise rights of parents by placing their children with foster families who engaged in religious practices at odds with their religious upbringing. The parents were Hindu. The foster parents included a minister who took the children to Christian religious services and served beef to them. The court observed that the Supreme Court has never considered whether the Free Exercise Clause prevents states from placing children with foster families whom state officials know, or have reason to know, will subject the children to practices at odds with their religious upbringing, and that lower courts had merely decided that placing the majority of foster children in institutions run by religiously affiliated agencies could run afoul of the Establishment Clause without reference to the free exercise rights of the parents of the children. Consequently, the court ruled that the defendants did not have fair warning that their conduct violated the plaintiff's rights.

Statute Criminalizing Clergy Sexual Conduct Constitutional, But Applied Unconstitutionally

In State v. Wenthe, No. A12-0263, 2012 WL 5896779 (Minn. App. Nov. 26, 2012), the court held Minnesota's third-degree criminal sexual conduct statute, which criminalizes clergy sexual conduct that occurs during the course of a meeting in which the complainant seeks or receives spiritual counsel, does not violate the Establishment Cause on its face because it enunciates secular standards. The court relied on prior state criminal and civil case law interpreting the statute for this conclusion. Despite the statute's facial validity, the court ruled that excessive evidence regarding religious doctrine or internal Roman Catholic Church practices elicited during the application of the statute to obtain a conviction violated the Establishment Clause. The religious evidence included: (1) evidence regarding the power imbalance between priests and parishioners; (2) the Roman Catholic Church's official policies regarding pastoral care; (3) the church's doctrines and concerns about sexual conduct involving priests; (4) the church's response to the allegations of the priest's misconduct; and (5) the religious training the priest received. The court concluded "the evidence on religious topics in this case ... pervaded the entire trial." It observed that "the secular reality" of the complainant's "quest for spiritual counsel could have been established without detailed reference to her understanding regarding the spiritual authority of priests, the degree of appellant's impropriety, and the role of the Roman Catholic Church in connection with his misconduct." Therefore, the court ruled that the conviction was in violation of the Establishment Clause.

Court Remands Question whether Navy Discriminates against Non-Liturgical Protestant Chaplains

In In re Navy Chaplaincy, No. 12-5027, 2012 WL 5378960 (D.C. Cir. Nov. 2, 2012), the court of appeals reversed in part and affirmed in part the district court for denying the motion for injunction sought by non-liturgical Protestant Navy chaplains (i.e., Baptist, Evangelical, Pentecostal and Charismatic) on their claims of religious discrimination. First, the court reversed the district court's ruling that they lacked standing. It found that the plaintiffs' allegations were sufficiently non-speculative to support standing, because they challenged specific promotion policies and procedures that the Navy acknowledged based on statistical evidence of discrimination. Second, the court found that the district court failed to make factual findings supporting its determination that the chaplains were unlikely to succeed on the merits of their claim that selection boards discriminate against them when making promotion decisions on the basis of their religious denominations in violation of the Establishment Clause and the Fifth Amendment Equal Protection Clause. It vacated the denial of their preliminary injunction and remanded the case for further proceedings. But the court affirmed the district court's ruling that the chaplains were unlikely to succeed on the merits of their claim that the Navy impermissibly delegated governmental authority to religious entities by permitting chaplains who were biased against the plaintiffs' denominations to make promotion decisions without effective guarantees that the authority would be exercised in a secular manner. The court ruled that the promotion board did not operate under a standardless delegation of authority, but pursuant to secular, neutral standards established by Congress and the Navy.

Receptionist States Claim against Church and Bishop for Hostile Work Environment

In Slaughter v. Word of Faith Int'l Christian Center, No. 3:11cv354-DPJ-FKB, 2012 WL 5612373 (S.D. Miss. Nov. 15, 2012), the court refused to dismiss a church receptionist's hostile work environment claim against the church and its bishop. The claims was based on allegations that the church bishop frequently propositioned the plaintiff, winked at her, blew her kisses and kissed her on the side of the head and once on the mouth, hugged her, offered and gave unwelcome gifts, orchestrated private moments together, and grabbed her by the hips and pulled her close to him, allegedly stating "you know what I want." The court denied the church's Ellerth-Faragher affirmative defense for lack of evidence that it exercised reasonable care to prevent and correct promptly any sexually harassing behavior. The church required the plaintiff to work under and report to the alleged harasser's spouse who asked her to "keep it quiet." Although it had an employee handbook with anti-harassment statements, the record was unclear "as to when and precisely what [the church] provided and conveyed to its employees." The court did not sustain plaintiff's quid pro quo sexual harassment claim for lack of any causal relationship between the harassment and adverse employment action. The court also rejected plaintiff's negligent hiring, supervision and retention claim because there was no proof that the church was actually or constructively on notice of the bishop's reputation for sexual harassment or of his reputation itself. In addition, it rejected her claim for intentional infliction of emotional distress because the conduct alleged was not extreme enough, and rejected her claim for negligent infliction of emotional distress because she failed to plead any physical injury or physical manifestation of injury resulting from her emotional distress.

Religious Institutions in the News

The Church of England decided against allowing women bishops. http://world.time.com/2012/11/21/the-church-of-england-votes-against-women-bishops/; http://www.nytimes.com/2012/11/22/world/europe/church-of-england-rejects-appointing-female-bishops.html?_r=0; http://www.latimes.com/news/world/worldnow/la-fg-wn-church-of-england-votes-against-women-bishops-20121120,0,1823773.story

The Freedom from Religion Foundation has sued the Internal Revenue Service for failing to challenge the tax-exempt status of churches involved in politics. http://ffrf.org/images/uploads/legal/FFRFvShulmanComplaint.pdf

Florida’s Blaine Amendment survived an effort to repeal and replace it. http://religiousfreedomnews.org/discriminatory-blaine-amendment-survives-florida-election-20121109

Florida Christian College entered into a settlement agreement with the State Board of Education enabling it to join the Florida Resident Access Grant (FRAG) program. http://www.adfmedia.org/files/FCCsettlement.pdf

The Commission on Accountability and Policy for Religious Organizations released its report on "Enhancing Accountability for the Religious and Broader Nonprofit Sector." http://religiouspolicycommission.org/CommissionReport.aspx

To ensure compliance with Treasury Regulations (31 CFR Part 10, §10.35), we inform you that any tax advice contained in this correspondence was not intended or written by us to be used, and cannot be used by you or anyone else, for the purpose of avoiding penalties imposed by the Internal Revenue Code.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.