How Did Hobby Lobby Bring a Civil Rights Claim And What’s a Closely-Held Corporation, Anyway?

Hobby LobbyMost of us generally understand that the Bill of Rights and civil rights legislation stemming from it applies to protect individuals against governmental overreach, whether that be in the form of an attempt to suppress our speech, religious freedom, right against unreasonable search and seizure, or other civil rights. And most of us understand a corporation to be a legal entity that is separate from its owners/shareholders.

So, how did Hobby Lobby, which is a corporation, successfully assert a right under the Religious Freedom Restoration Act – a civil rights statute?

The answer to that question lies in the peculiarities of closely-held (or close) corporations, which are far more closely associated with their individual owners than corporations with more shareholders. When many people hear the term “corporation,” they immediately think of large amorphous entities that have many shareholders, employees, and perhaps locations. However, there are a large number of corporations (recent statistics suggest 90% of U.S. corporations) that are “closely held,” which means they have far fewer owners than the large amorphous corporations that may come to mind when we hear that term. As the Supreme Court put it in its decision, “the free-exercise rights of closely held corporations thus protects the religious liberty of the humans who own and control them.” 

The reason closely-held corporations are so closely-connected with their individual owners is because, by definition, there are very few owners.  Often, these people are family members, but that is not a requirement in any jurisdiction I’m aware of (if it is a requirement in your favorite jurisdiction, let me know). What is required is that there be very few owners. This differs from the vast majority of publicly-traded corporations, which can have dozens, hundreds, thousands, or even millions of owners called shareholders.

Other restrictions and requirements may also apply to closely-held corporations, including the method of valuation for tax purposes and certain restrictions on transfer of the stock of the corporation. State laws vary, as do the bylaws of the corporations, so it is not possible to state with certainty the constraints applicable to all closely-held corporations, but these are some of the key differences between closely-held corporations and other corporations.

In the Hobby Lobby case, the U.S. Supreme Court held that protecting the free-exercise rights of closely-held corporations protects the religious liberty of those who own and control the companies, rejecting the argument that owners of companies forfeit protections afforded to them as individuals when they organize as corporations.  The Court also stated that corporate law, which is almost exclusively governed by state law, can resolve the conflicts between the rights of business owners of such corporations and the rights of those companies’ employees and others.

What does the Hobby Lobby decision have to do with your business?

Probably not much, but here are a few things:

1. Only if your corporation is closely-held is it even relevant.  If it is not, nevermind the decision – it does not affect you right now and is unlikely to lead to other decisions that will affect you.

2. If your corporation IS closely-held AND the owners have a religious objection to funding certain contraceptives (only 4 of the 20 contraceptives covered by ObamaCare were at issue), you may well opt out of funding them.

3. Otherwise, be aware that nothing has changed regarding religious accommodation or discrimination. Your rights as an owner are protected, but so are your employees’. There is nothing in this decision that would allow you as the owner of a closely-held corporation (or any business entity, for that matter) to discrimination against employees under the guise of a religious belief or practice.  In addition to protecting the rights of Hobby Lobby’s owners, the Court held that “the Government has a compelling interest in providing an equal opportunity to participate in the work force without regard to [a protected class], and prohibitions on [discrimination] are precisely tailored to achieve that critical goal.”

The bottom line is that the Supreme Court has now held that owning a for-profit corporation with very few shareholders, particularly one organized specifically as a “closely held” (or close) corporation, can allow owners the ability to retain and enforce rights based upon their personal beliefs, much like not-for-profit corporations have been able to do for many years.  Whether that is a good, bad, or neutral thing I leave to the reader. This is just what it is.

– Amy Salberg, Esq., B2C Lawyer

fine printMy own fine print: There is no legal advice contained in this post. Legal advice entails applying the law to specific facts. I don’t know what your facts are and any resemblance to them here is purely coincidental. Instead, this post is meant to provide general information, which may or may not be complete and accurate. If you need legal guidance, please feel free to contact me using the contact information on my firm’s web site – www.salberglaw.com.

 

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