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The Contraceptive Mandate and Corporate Personhood

2:16 PM, Dec 3, 2013 • By JIM SWIFT
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The Supreme Court has agreed to hear two challenges to the constitutionality of the HHS mandate that employer-provided health insurance cover certain reproductive services free of charge even over the employer’s religious objections. Of the many who will be closely watching the high court’s decision, an inner circle consists of the plaintiffs in the 44 suits brought so far by for-profit businesses—plaintiffs like the Gilardi brothers of Sidney, Ohio.

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Sidney (population 21,000) is the seat of rural Shelby County, known for growing soybeans and making Honda engines and the iconic Airstream travel trailers used by celebrities. The town is the birthplace of scientist Paul Lauterbur, whose work toward MRI imaging won him a Nobel Prize. He is Sidney’s most famous son.

It’s a town where drivers still pull over out of respect when a funeral procession passes, since they probably knew, or at least knew of, the deceased.

And like much of the Interstate 75 corridor in western Ohio, Sidney is predominantly Christian. The Catholic church is its largest denomination. So it’s not surprising that the Gilardi brothers are practicing Catholics. For the last decade, some of their trucks have carried the sign “It’s not a choice, it’s a child.”

Frank and Phil Gilardi are big employers in town, heirs of an entrepreneurial tradition. Their grandparents ran a roadside produce stand that grew into a popular restaurant selling pizza and other Italian fare. As a side-business, Gilardi’s sold pre-made salads to other restaurants. The brothers’ own companies—Fresh Unlimited, which processes and packages produce, and Freshway Logistics, which provides delivery and other services for its clients—employ nearly 400 people.  

That means the Freshway companies must comply with the requirement, laid down by the Department of Health and Human Services pursuant to the Affordable Care Act, that all employer-provided health insurance policies cover contraception, sterilization, and abortifacient drugs without co-pay. The Gilardi brothers say that as a matter of conscience, they cannot buy such insurance for their workers, though the penalty for noncompliance is a fine of $100 per employee per day—over $14 million a year for the Freshway companies. With the help of the pro-life public interest law firm American Center for Law and Justice, the brothers sued in U.S. District Court in January. They lost in District Court, but the U.S. Court of Appeals for the District of Columbia gave them a partial victory on November 1.

In Gilardi v. U.S. Department of Health & Human Services, the brothers sued both as individuals and as the Freshway companies. They contend that the HHS contraception mandate violates the Religious Freedom Restoration Act of 1993 (RFRA), under which federal government actions that substantially burden anyone’s First Amendment right to free exercise of religion are subject to “strict scrutiny” and are permissible only if (1) they are necessary for “furtherance of a compelling government interest” and (2) they are the “least restrictive means” of furthering that interest.

The appeals court sided with the brothers in ruling that the mandate, indeed, “trammels the right of free exercise—a right that lies at the core of our constitutional liberties—as protected by the Religious Freedom Restoration Act.” At the same time, however, the D.C. appeals court found no body of Supreme Court precedent adequate to support the Gilardis’ contention that “secular corporations,” like individuals, enjoy a right to free-exercise.

This very question is now before the High Court. As the petition for a writ of certiorari states in the recently accepted case of Sebelius v. Hobby Lobby Stores, Inc.:

The question presented is whether RFRA allows a for-profit corporation to deny its employees the health coverage of contraceptives to which the employees are otherwise entitled by federal law, based on the religious objections of the corporation’s owners.

Corporations, of course, are “persons” for many legal purposes. They can sue and be sued. They pay taxes, are subject to regulation, and can enter into and enforce contracts. Corporations can purchase firearms. They have the right to free speech, as the Supreme Court recently reaffirmed in its controversial decision in Citizens United. But the line has yet to be clearly drawn for a corporation’s claim to free exercise of religion.

Corporate personhood may not be a new concept, but precedents regarding it have been slow to materialize, even as legal provision for how companies can organize has changed rapidly. “S corporations” are a relatively recent innovation. Subchapter S of the tax code was created in 1958.

The Freshway companies are closely held S corporations, of which Frank and Phil Gilardi are equal owners. They own the companies as individuals and pay their corporate taxes on their personal tax returns, at their individual income tax rates, as required by the IRS. But the government would draw a sharp distinction, insisting—as it has throughout the HHS litigation— that the mandate applies strictly to corporate entities, not the individuals who own them.

But can it be that the Gilardis’s right to free exercise of religion hinges on how they chose to structure their businesses? Even Judge Janice Rogers Brown of the D.C. Circuit Court of Appeals, who was not prepared to assert the corporate right to free exercise, called the government’s position: 

perplexing because we do not believe Congress intended important statutory rights to turn on the manner in which an individual operates his businesses. The government’s logic is also quite troubling because it would eventually reach First Amendment free-exercise cases. ... Thus, if the government is correct, the price of incorporation is not only the loss of RFRA’s statutory free-exercise right, but the constitutional one as well

Just a week after Rogers’s court handed down its decision in Gilardi , the Seventh U.S. Circuit Court of Appeals blocked the contraception mandate in another case, Korte v. Sebelius, on the grounds that it placed a “substantial burden” on the religious rights of two companies in violation of RFRA. Citing the example of a Kosher deli, Judge Diane Sykes wrote:

If the government’s view is correct, commonplace religious practices normally thought protected would fall outside the scope of the free-exercise right. The Jewish deli is the usual example. On the government’s understanding of religious liberty, a Jewish restaurant operating for profit could be denied the right to observe Kosher dietary restrictions. That cannot be right. There is nothing inherently incompatible between religious exercise and profit-seeking.

The Supreme Court’s verdict on the underlying issue should be known by next summer. If the justices grant companies free-exercise rights, the Gilardi brothers will enter legal history, at least as a footnote. Even if that doesn’t happen, they’ll be remembered in Sidney as principled men who fought for their beliefs and appealed their fight to the highest court in the land. That may not be any Nobel prize, but it’s something.

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