2B. Does RFRA Allow Exemptions from Burdens Imposed on Corporations?

(For an introduction to this series of posts, see here.)

Much of the recent debate about Hobby Lobby and similar cases has focused on whether RFRA allows exemptions from burdens imposed on corporations. As before, let me approach this question by considering some hypotheticals that don’t invoke the hot political passions generated by the employer mandate, or by questions related to abortion. In all of them, assume that we are in a jurisdiction in which the federal Religious Freedom Restoration Act or one of its state analogs applies.

Let us focus on the three examples mentioned in the preceding post, but tied to closely held corporations. Imagine that a newly enacted law requires all markets to sell state lottery tickets. and say that a particular market is owned by a corporation that is wholly owned by members of a United Methodist family, who believe it’s against their religion for any business that they own, directly or indirectly, to sell lottery tickets. Or imagine the same as to a law requiring all markets to sell beer and wine, and owners of a Methodist or a Muslim family corporation object to this because they think selling wine is sinful. Or say that a law requires all gas stations to operate seven days a week, and say that a particular gas station is owned by a corporation owned by members of a Jewish or Seventh-Day Adventist family, who believe that it is wrong for any business that they own to operate on the Sabbath.

All the store-owning corporations, together with the individual owners of those corporations, sue, seeking an exemption from the lottery ticket mandate, alcohol mandate, or the seven-day-a-week mandate. Should all these claims be rejected, on the theory that (1) corporations lack RFRA rights, and (2) the owners of the corporations can’t raise RFRA claims because the burdens are imposed on the corporations and not on them?

1. Let us begin with the precedents, which turn out to be scanty. The issue is not new, but neither has it been resolved. The one time it came before for the Court was in Gallagher v. Crown Kosher Super Market of Mass., Inc. (1961), a companion to Braunfeld v. Brown (which I discussed in the preceding post). In both Gallagher and Braunfeld, businesspeople sued based on their religious decision to close their stores on Saturdays. As I noted in the previous post, the claims were unusual by today’s standards: there was no law barring Saturday closing, but there was a law mandating Sunday closing, so the challengers were claiming that the law indirectly undermined their bottom line (since they couldn’t be open either day of the weekend), rather than compelling them to do what their religion forbade.

Partly because of that, the Court rejected the claims both of the individual store owners and the corporate store owners, and therefore did not have to decide whether religious exemption claims could be made as to the corporations. (“Since the decision in Braunfeld rejects the contentions presented by these appellees on the merits, we need not decide whether appellees have standing to raise these questions.”) Three Justices, though — Justices Douglas, Brennan, and Stewart, who were hardly corporation-loving extremists — would have ruled for the incorporated market, and thus must have concluded that the corporate ownership of the market was irrelevant.

There are plenty of precedents as to corporations when it comes to the freedom of expression. Some people use Citizens United as shorthand for the proposition that corporations have First Amendment rights, but of course the Court has been treating corporations as having First Amendment rights for many decades. The Court upheld such rights as to a media business corporation in 1936 (Grosjean), and spoke of the free speech rights of a nonmedia business corporation in 1941 (Virginia Electric & Power Co.). The 1941 case was somewhat ambiguous, but later cases routinely cited it for the proposition that employers, clearly including corporate employers, had free speech rights (e.g., Thomas v. Collins (1945)).

There remained some uncertainty about the matter in the 1940s, but then by the 1960s the First Amendment rights of nonmedia business corporations became well-settled, and in First National Bank of Boston v. Bellotti (1978) the Court made this explicit. The debate on the Court since First National Bank of Boston has generally been whether corporate free speech rights can be limited for speech regarding elections, not whether corporations have free speech rights at all — both conservative and liberal Justices have routinely concluded that they do have free speech rights.

This having been said, the free speech cases are not directly applicable to religious exemption cases. For instance, free speech rights are justified partly based on the interests of individual listeners, not just the corporate speakers; that doesn’t necessarily carry over as to religious exemption cases. And indeed the Court has at times treated corporate rights differently in different constitutional areas. So the corporate speech line of cases is not necessarily helpful here.

2. We should never make the mistake of actually believing our legal fictions. The law often labels corporations “persons,” and that is a useful label. But it is a legal fiction. We use it because it is convenient, but we should not forget that corporations really aren’t people. As some critics of the corporate religious exemption claims point out, corporations cannot believe; they cannot pray; they have no souls to be saved or damned.

At the same time, if we see through the fiction of the “corporation” when it comes to rights, we should do the same when it comes to burdens. If you and your sister co-own a corporation that owns a market, and you believe it wrong for lottery tickets to be sold on your property, saying “there’s no burden on you, because only the corporation is required to sell the tickets” is a legal fiction, too. When people consider their moral or religious obligations, they don’t (I hope) let such fictions affect their sense of their duties. Neither should the legal system let such fictions obscure the burden that legal commands can impose on the owners of closely held corporations.

Indeed, all the talk in recent years of “corporate social responsibility” reflects this. I doubt that anyone thinks that “corporate social responsibility” stems from the social or moral obligations of a fictional legal entity as such. Rather, the theory is that the owners and managers of a corporation have moral duties to make sure that the corporation is run in an ethical, “responsible” way (with what constitutes ethical of course turning on the views of the person making the social responsibility arguments).

The moral obligations of human beings, the argument goes — correctly, at that level of generality — do not stop when the legal fiction of the corporation intervenes. Corporate owners can’t say, “Hey, it wasn’t me who created these social harms, it was the corporation that I own.” The same, I think, applies when we analyze the religious burden on owners when a law prevents them from doing what they see as part of their religious social and moral responsibility. Cf. Steven J. Willis, Corporations, Taxes, and Religion: The Hobby Lobby and Conestoga Contraceptive Cases Part IV.D.1.

So to determine the proper scope of corporations’ religious freedom rights (or other rights, such as free speech, constitutional property rights, or freedom from self-incrimination) one needs to go behind the legal fiction. One needs to ask: to what extent does government action with respect to a corporation burden the rights of real people?

Often the answer is “a lot.” Consider, for instance, the Takings Clause and the property component of the Due Process Clause. If the government takes a corporation’s property without due process or without just compensation, it is in reality hurting the corporation’s owners, by reducing the value of their asset (the shares in the corporation). If I own 25% of a corporation with a value of $10 million, and the government takes a $1 million piece of land from that corporation, that’s the economic equivalent of the government’s taking $250,000 from me.

Moreover, the rationales behind the constitutional prohibitions apply as much to takings of corporate property — once one recognizes that the takings harm individuals — as to takings of individual property. Both kinds of taking involve the government imposing burdens on a few that should justly be borne by society generally. Both involve the risk of the government wastefully taking too much property, since goods that are underpriced are overconsumed.

And having the claim be brought by the corporation would be more practical than insisting that the claim be brought by the shareholders. The corporation can sue just as one plaintiff, rather than having to join all the co-owners. Giving the compensation to the corporation will also fairly compensate the shareholders. Indeed, considerations such as this are precisely why the law has found it so useful to employ the legal fiction of the corporation being an artificial “person,” whether as to property law, tort law, contract law, or constitutional law.

Likewise, the Court’s conclusion that corporations have free speech and free press rights make similar sense. (Again, note that the controversy in Citizens United was over how far these rights extend, not over whether the rights exist.) Corporations are associations of human beings. The speech of corporations is valuable to human beings as listeners. The ability to speak through a corporation is valuable to human beings as speakers. It is valuable to people who pool their resources using a nonprofit corporation, such as the ACLU or the NRA. It is valuable to people who run and fund newspapers.

The ability to speak through a corporation is likewise valuable to people who pool their resources to form a business corporation, when those people’s agents lobby on behalf of the corporation (which is to say the corporation’s owners), or advertise the corporation’s products. (Commercial advertising is less protected than other speech, but not because of the corporate source of the advertising; private individuals’ advertising, such as advertising by sole practitioner lawyers, is also less protected.) And it is valuable to people who pool their resources to form a business corporation, when those people’s agents speak out against ballot measures that they think are bad for the owners’ interests, or against candidates or parties whose election they think would be bad for the owners’ interests. So burdens on the speech of corporations burden the rights of individuals to pool their resources in a way that facilitates speech.

Do restrictions on corporations sometimes burden the religious practice of individuals? Sometimes, the answer is uncontroversially yes. Churches don’t believe or pray, either, but restrictions on churches interfere with the ability of individuals to participate in collective religious exercise.

Likewise, though for a different reason, with closely held corporations. If such a corporation is required to do something, the owners of the corporation may believe that this is obligating them to participate in that thing — as a matter of reality and of moral and religious obligation, setting aside the legal fiction. If they so believe, and they believe that this violates their religious beliefs, then the law substantially burdens their religious beliefs, even though it does that through imposing an obligation on a corporation. They face the same choice that sole proprietors or partners face: violate their religious obligations, violate the law and face the penalties for violating the law, or sell off their share of the business, which may be a very grave financial burden.

(For a slightly different approach, see my colleague Stephen Bainbridge’s Using Reverse Veil Piercing to Vindicate the Free Exercise Rights of Incorporated Employers. I agree with a good deal of what Steve says, but I focus on the religious beliefs of the owners of the corporation, and think it is not relevant whether, for instance, “the corporation’s articles of incorporation include a statement of purpose referencing religious beliefs and goals,” or “religious practices such as devotions, prayer, scripture reading, or worship services [are] routinely made a part of corporate meetings.”)

The matter is different, I think, with regard to shareholders in publicly traded corporations. Generally speaking, a public company stockholder could sell his stock with little cost, so the law won’t impose a substantial burden on him. To be sure, little cost isn’t no cost; but here is where the substantial burden requirement comes into play. (I realize that some people own stock through retirement funds and other mechanisms in which divestment is difficult; I’m inclined to say that this shouldn’t change the analysis, partly because such difficulty usually stems from private contractual constraints and not governmental obligations, but this is one area where my thinking is especially tentative.)

The matter may also be more complicated when only a minority of shareholders believes that having the corporation obey a particular law causes them to violate their religious beliefs, though of course that problem arises not only for corporations but also for common-law partnerships. I’m inclined to say that the application of the law could indeed burden the minority shareholders’ religious views. (The majority shareholders’ voluntary decision to do the same thing, uncoerced by the law, would not constitute such a burden — the corporate bylaws or partnership agreement will likely constitute an agreement by the minority shareholders to let the majority shareholders take actions in the corporation’s or partnership’s interests.) But often, as in Hobby Lobby, the religious objections will be shared by all the shareholders in a closely held corporation, or at least by the majority shareholders.

3. We can now return to the text of the RFRA. RFRA speaks generally of the rights of “persons,” and the Dictionary Act provides that, “unless the context indicates otherwise,” the word “person” “include[s] corporations … as well as individuals.” The context of RFRA — religious freedom — does indicate that the underlying rights being protected must be the rights of human beings, who can actually feel religious obligations.

But this context is quite consistent with the normal legal practice of protecting corporate rights as a means of protecting the underlying rights of human beings. When it comes to closely held corporations, letting the corporation stand in for its owners — when the owners object that a law requiring the corporation to do something will require them to violate their own religious beliefs — makes good sense.

And even if the courts conclude otherwise, and say that the corporation cannot itself bring the religious exemption claim, the owners should be free to raise their own claims. If we see through the legal fiction of the corporation in concluding that corporations lack RFRA rights, then we should likewise see how obligations imposed on a closely-held corporation can oblige its owners to be complicit in what they see as sinful behavior.