Note from the Editor: The Federalist Society takes no positions on particular legal and public policy matters. Any expressions of opinion are those of the author. We welcome responses to the views presented here. To join the debate, please email us at [email protected].

On March 31, the Supreme Court heard oral argument in its first religious freedom case of the term, Catholic Charities Bureau v. Wisconsin Labor and Industry Review Commission. The central question in this case is whether Wisconsin improperly denied Catholic Charities a tax exemption because the organization engages in practices that Wisconsin deemed secular in nature.

Wisconsin, like all states, has a complementary statute to the Federal Unemployment Tax Act, which requires employers to fund its state unemployment program unless religiously exempt. One such exemption exists for nonprofit organizations that are controlled by a church and, relevant here, “operated primarily for religious purposes.” Petitioner Catholic Charities Bureau (“Catholic Charities”), the separately incorporated social ministry arm of the Diocese of Superior, Wisconsin, provides services to the poor and disadvantaged and states that its purpose is to be “an effective sign of the charity of Christ.” Yet Wisconsin denied the organization a religious exemption in 2016 because the state determined that it was not operated primarily for religious purposes. After a series of appeals, the Wisconsin Supreme Court affirmed. Looking beyond what it conceded to be Catholic Charities’ religious motivations, the court decided that Catholic Charities’ failure to engage in “typical” forms of religious exercise rendered its activities “secular” in nature and thus undeserving of the exemption. For example, Catholic Charities offered services to people of all faiths, did not proselytize or provide religious materials to program participants, and did not restrict its employment to co-religionists.

The Parties’ Positions

On appeal to the Supreme Court, Catholic Charities argued that the decision conflicts with the Religion Clauses in three ways: 1) it violates the church autonomy doctrine by punishing Catholic Charities for following Catholic teachings requiring it to separately incorporate its social ministry arm; 2) it entangles church and state by determining that certain Catholic beliefs are not religious; and 3) it discriminates among religions by preferring religious groups that, for example, only employ co-religionists or proselytize. Wisconsin countered that there is no church autonomy violation because the doctrine protects churches against government compulsion relating to decisions affecting faith and doctrine, not minor economic incentives that may impact their corporate structuring choices. Second, there is no risk of entanglement because the state agency could resolve any disputes over employees’ misconduct without being required to interpret religious doctrine. Finally, there is no invidious discrimination because the reason it excluded groups who don’t proselytize was merely that they do not engage in distinctly religious activity that would create difficulty in resolving unemployment disputes.

Skepticism Regarding Denominational Distinctions

During oral argument, most of the justices were openly skeptical of how Wisconsin could make theological distinctions without running afoul of the First Amendment. Chief Justice Roberts, Justice Alito, and Justice Gorsuch repeatedly questioned what Catholic Charities needed to do to avail itself of the exemption. Counsel for Wisconsin responded that tying its services to activities that express and inculcate religious doctrine—proselytization, worship, or religious education—was the key. For example, requiring program recipients to “repent” or say the Lord’s Prayer would be enough. The Court was quick to point out the problems with this approach. Justice Gorsuch commented that it would involve greater entanglement for the state to determine just how much prayer is occurring, while Justice Kagan emphasized that some religious organizations’ doctrine would prevent tying the Lord’s Prayer to the provision of services. While acknowledging that these can be hard questions, especially in the case of church-affiliated organizations engaging in commercial activity, Justice Kagan continued, “I thought it was pretty fundamental that we don't treat some religions better than other religions. And we certainly don't do it based on the content of the religious doctrine that those religions preach.”

Religious “Motivations” or “Activities”?

Justice Jackson appeared more amenable to Wisconsin’s approach. She remarked that the legislative history of the federal statute drew a distinction between organizations devoted to preparing students for the ministry and church-run charitable organizations like an orphanage or a home for the aged, with the latter not qualifying. She inquired whether “operated primarily for religious purposes” should thus be interpreted to require more than just religious motivation and also compel an examination of the religious nature of the organization’s activities. Counsel for Catholic Charities replied that the legislative history is inconsistent with the statute itself, which does not make similar distinctions between religious organizations. He also appealed to constitutional avoidance and the Supreme Court’s support for a broad reading of statutory religious exemptions in Larson v. Valente.

Picking up on Justice Jackson’s concerns, counsel for Wisconsin emphasized that the religious organizations’ “activities” were a critical piece of the inquiry. He likened Wisconsin’s test to both the ministerial exception, which focuses on the activities of the employee in question, and the standard for what constitutes a religious organization under Section 501(c)(3) of the Internal Revenue Code, which also involves examining the activities of the organization in question.

Limits on Religious Exemptions?

Despite their skepticism with Wisconsin’s arguments, Justices Thomas, Kagan, Barrett, and Kavanaugh all inquired regarding whether a state could impose any limits on a religious exemption. Counsel for Catholic Charities replied that the religious applicant’s beliefs must be 1) sincere and 2) religious rather than philosophical. He explained that these types of questions are decided by courts every day and constitute an appropriate check on the availability of the exemption. Justice Barrett asked for a uniform test that could be applied to all organizations to distinguish religion from non-religion. Drawing on the Virginia Declaration of Rights, counsel for Catholic Charities answered that religion is defined by a duty owed to something transcendent or supernatural—which may or may not be God—as well as the means of discharging that duty.

Counsel for Wisconsin, on the other hand, maintained that “sincerity” was not enough to filter out organizations that were not entitled to the exemption. For example, all that the statute requires for the exemption to apply to a church-affiliated hospital is for it to be run by a bishop, even though “99.9 percent of what goes on at that hospital is healthcare.” This is inappropriate, he said, because a church-affiliated organization that is commercial in nature simply does not present the kind of entanglement that the Wisconsin statute was intended to prevent.

Co-religionists

When pressed on the Wisconsin Supreme Court’s emphasis on Catholic Charities’ failure to employ co-religionists, counsel for Wisconsin admitted this was a “marginal factor at best.” He maintained that the decision below could be affirmed even if the Supreme Court discarded that part of its analysis. What it comes down to, he reasoned, is whether the employees are expressing and inculcating religious doctrine. Justice Gorsuch appeared doubtful of this reasoning, given that counsel for Wisconsin had admitted earlier in the argument that Catholic Charities could be exempt by simply incorporating as part of the Catholic Church.

Church Autonomy

Justices Gorsuch and Kagan questioned why Catholic Charities led with its church autonomy argument, both suggesting that the discrimination argument was the simplest way to resolve this case. Counsel for Catholic Charities and the Deputy Solicitor General agreed. Justice Barrett, however, seemed eager to engage on the topic of church autonomy. She observed that there is a difference between telling a church what to do and incentivizing it to do certain things—a point that counsel for Wisconsin made in earnest. She suggested that Catholic Charities’ theory would extend the church autonomy doctrine broadly, and questioned whether it would violate the doctrine for an exemption to be offered only to religiously affiliated non-profit organizations and not religiously affiliated for-profit organizations.

Statutory Case or Constitutional Case?

The Deputy Solicitor General supporting Catholic Charities as amicus was concerned with the Court deciding the case on constitutional grounds because it might call the federal statute into question when Wisconsin was merely misinterpreting its own statute. For his part, counsel for Wisconsin stated that the state was not relying solely on the federal statute, and that there were sufficient independent state grounds for its decision.

A decision is expected by June.