July 16, 2014
Undertheorizing the Corporation Continued: Hobby Lobby and Employees' Rights
Posted by Eric Orts

Hobby Lobby joins Citizens United as an important Supreme Court decision that rejuvenates interest in the problem of corporate personality.  The essential question in both cases boils down to one of the legal rights of organizations and, in particular, for-profit corporations.  Do corporations have the same rights as ordinary people -- or not?  In Citizens United, the question was whether corporations possess political rights of free speech guaranteed under the First Amendment, and a five-person majority opinion answered strongly "yes."  In Hobby Lobby, the question was whether corporations have religious rights under a federal statute, and the same five-person majority answered "yes."  Four dissenters disagreed in both cases and insisted that these kinds of political and religious rights belong only to individuals.  In the alternative, they argued that regulations applied to corporations affecting political speech and the exercise of religion deserve greater deference than similar laws applied directly to individual people.

Some legal scholars will no doubt moan at the prospect that the legal personality of corporations -- and business firms in general -- has again become problematized.  They may feel that this is an old issue, and new sciences such as economics should by now have freed jurists from arcane debates about the "personality" of organizations -- "as if fictional 'persons' can be real!" they might exclaim with disbelief.  But though some economists may scoff at the idea that corporations can be treated as real "persons," lawyers know that this is done all the time.  Corporations own property, enter into contracts (both internally and externally), and have standing to sue and be sued in court.  At one level, this reality is a matter of convenience:  giving legal purchase on modern organizational complexity.  More deeply, corporations and other fictional "entities" are correctly conceived as constructions of organized people.  And as such, they may properly exert "rights" derivatively on behalf of these people.

Consider an uncontroversial example (at least for most non-Marxist scholars):  If the government passes a law expropriating a company’s property (such as its land, capital equipment, or bank balance), then the company may bring an action for an illegal "taking" without compensation.  Courts look through the "fiction" of the corporation to see the ownership rights of real people at stake:  shareholders or equity partners, creditors, and others with claims on the assets for the firm such as employees, managers, suppliers, and customers.  Everyone agrees that it makes sense for the company as an entity to bring a lawsuit against the government with any recovery to be distributed back into the company’s treasury.

Citizens United and Hobby Lobby are different because they involve a different kind of rights.  Property is natural in the business world, and the rules of engagement are relatively clear.  Political and religious rights pose tougher questions of social boundaries.  And unfortunately, the Supreme Court has not yet dug deeply enough theoretically -- on either side of the divide among the Justices -- to result in satisfactory outcomes.  As I have argued in my recent book Business Persons, the Supreme Court has so far left the concept of corporate personality "radically undertheorized" (p. xv).  Both the majority and dissenting opinions in Citizens United and now again in Hobby Lobby adopt relatively inflexible views:  either a corporation is a "person," and hence gets rights; or a corporation is not a "person," and hence does not.  This is unsatisfactory, because neither side actually inquires closely enough about "who" the corporation really represents in the relevant situation.

The legal theorist H.L.A. Hart is helpful here.  In his inaugural lecture at Oxford University, "Definition and Theory and Jurisprudence," Hart emphasized the importance, when asking about the nature or boundaries of a "corporation," of paying attention to the question being asked.  The answer to "what is a corporation?" changes depending on the context of the question.  Another uncontroversial example regards whether an employee is to be considered as within the boundaries of a corporation or not when making contracts with customers.  In terms of the basic law of agency, an employee acts on behalf of the corporation -- and binds the corporation as an entity -- when entering into sales or other contracts within the scope of his or her employment.  With respect to the distribution of profits to investors, however, employees are usually not considered to be within the corporation, except to the extent that profit-sharing arrangements have been made explicitly by contracting with them.

This lesson in the changeable nature of the composition of corporate personality provides assistance in unravelling cases such as Citizens United and Hobby Lobby.  The mistake in the majority opinion in Hobby Lobby, I believe, is not that the Court allows the corporation to qualify as a "person."  Clearly, and contrary to the dissent's objections, it qualifies as a "person" under the relevant statutes (namely, the Religious Freedom Restoration Act, the Religious Land Use and Institutional Person Act, and the Dictionary Act).  Because the question involves one of religious rights, however, the Court errs when it assumes that only the owners and managers count.  The entirety of the majority opinion examines the dilemma of whether the corporation's owners and managers may be compelled to violate their religious beliefs in providing contraception to their employees, but omits the perspective of the employees.  Since at least the abolition of slavery, it seems wrong to assume that employees would relinquish their own claims to religious freedom in the workplace.  Much has been made in the press of the fact that all five Justices in the majority opinion are Catholic (on a most unrepresentative Court of six Catholics and three Jews).  But one doesn't have to adopt a conspiracy theory to point out a possible bias that may have encouraged these Justices to miss the fact that a woman's right to contraception may also be posed in religious and moral terms.  (As a Unitarian, I can vouch for this fact, but it has been a long time since a prominent Unitarian has served on the Court.  One has to go quite far back in history to find one:  William Howard Taft, Oliver Wendell Holmes, and Joseph Story.  More importantly, this argument was pressed on the Court by in a broad-based, multi-denominational Brief of Religious Organizations as Amici Curiae Supporting the Government, but it was apparently dismissed or at least ignored by majority, concurring, and dissenting opinions in Hobby Lobby.)  One might also follow Brian Leiter here and ask why, at least in this context, the strongly held religious views of employers should trump conflicting non-religious but nonetheless strongly held moral views of women employees.

Justice Ginsburg's dissent also seems to miss the basic point urged by Hart's analysis, that is:  "who" qualifies as the corporation with respect to this question of the exercise of religious rights?  Ginsburg fails to think very deeply about the nature of the firm, repeating Justice Marshall’s ancient adage from the Dartmouth College case of 1819 that a corporation is "an artificial being, invisible, intangible, and existing only in contemplation of law."  And she follows Justice Stevens' nominalist dissent in Citizens United which asserts that corporations "have no consciences, no beliefs, no feelings, no thoughts, no desires."  (Slip Op. at 14) (Ginsburg, J., dissenting).  This view of the corporation is outdated and unrealistic.  Ginsburg's opinion overlooks the main question (though there are hints at times that she gets it; see id. at 32, noting that employees may "hold other beliefs").  With respect to religious rights, employees should count as part of the firm too.  They too are "persons" with religious rights.  Missing or at least not fully appreciating this point, Ginsburg's opinion too easily concedes that the rights of owners and managers in closely held corporations matter more than those of employees.  At one point, Ginsburg refers to the “significant interests of the corporations’ employees and covered dependents.”  (Id. at 8) (emphasis added).  Not only does this construction imply that employer owners have rights potentially superior to employees' interests; it also assumes that employees are seen as somewhow external to the "corporation" rather than, in this context and for this purpose, as internal members of it.  (See also id. at 17 n.17, 24-26 (referring to employees' "interests" rather than "rights")).

A deeper theoretical understanding of business firms will be needed to resolve hard cases that are likely to follow Hobby Lobby.  Easier cases concern small firms composed entirely -- inclusive of owners and employees (or perhaps at least the vast majority of employees) -- of those embracing a single religion and who are affected adversely by a discriminatory law.  The cases of Braunfield v. Brown (1961)and Gallagher v. Crown Kosher Super Market (1961) challenging Sunday closing laws on First Amendment grounds provide illustrations.  (It is interesting to note that "liberal" Justices such as Brennan and Douglas stood on the side of religious claims of business firm owners in these cases, which reveals that the question of the legal personality of firms in the context of religious rights is not a simple ideological one.)  In a small family-owned business in which owners and employees share a religion, there is no problem in theory with allowing a for-profit enterprise to invoke religious rights against a Sunday closing law (when the Sabbath falls instead on Saturday for the members of the firm).  Ginsburg’s dissent is wrong, then, to rely on a strict separation between “non-profit” and “profit” enterprises.  (Slip Op. at 14-19.)  A for-profit enterprise may sometimes embrace religious values as Justice Alito insists.  Justice Ginsburg is also wrong to suggest some relevant difference between a “sole proprietorship” and a corporation (id. at 19) given the widespread reality of one-person corporations.

Nevertheless, the precedents of Braunfield and Gallagher, though useful in arguing in favor of standing for business firms to maintain claims asserting religious rights, are inapt for resolving Hobby Lobby (and the companion case of Conestoga Farms decided at the same time on similar facts as Hobby Lobby).  The reason is that the number of employees in Hobby Lobby had grown at the time of the litigation to 13,000 employees (and in Conestoga Farms to 950).  At some point, a business firm -- even if founded with strong religious principles -- grows to a point at which it must act in a "public" forum and comply with broad-based legal rules designed to prevent discrimination in employment, not only with respect to religious affiliation but also other characteristics such as race or gender.  It is unlikely that Hobby Lobby will unleash a raft of religiously inspired employment discrimination.  (Ginsburg's dissent worries that such a parade of horribles will occur, but I believe that the majority opinion and Kennedy's concurrence suggest that this parade will not take place.  See also my Wharton colleague Amy Sepinwall's post on this issue.)  The exact number of employees that convert a private firm to having a "public" face in this respect is not set in stone.  And so it makes sense to rely on relevant statutes to provide reasonable estimates.  The current number under the most relevant anti-discimination statutes for most private businesses is fifteen employees.  Perhaps fifteeen employees would be a good limit to set for the scope of Hobby Lobby going forward if the religious and moral rights of employees are to be given due credit, though establishing this limit may require a statutory amendment or Supreme Court adjustment to the Hobby Lobby precedent.

There are no doubt going to be some difficult cases of line-drawing in the Hobby Lobby line of cases in the future.  At some point, business firms act in a "public" manner that requires them not to discriminate against their employees (or their customers) on the basis of religion, even if their own religions may counsel a different course.  As John Rawls has noted, religions express "comprehensive" views of the world, but in order for decent multicultural societies to evolve, prosper, and remain at peace, a "public" world of order and religious tolerance must hold sway and provide balance.  My own view is that the religious moderation expressed in Justice Kennedy’s concurrence, as well as the emphasis on the "least restrictive alternative" test in Justice Alito’s majority opinion, will mute the impact of Hobby Lobby.  Statutory amendments and administrative regulations are likely to be adopted to protect the rights of women employees to have access to all methods of legal contraception, and the First Amendment will not be invoked against them.  The majority and concurring opinions appear to have left plenty of room for these options.

Even though it is flawed and in my view wrongly decided, we may at least be thankful that Hobby Lobby (as well as Citizens United) invites us to think more seriously and deeply about the nature of business corporations and other firms -- and the important role that they play in our lives.  We create them as useful fictions that become real in everyday practice.  And we should remember that if we don't like how they have evolved, we can change the rules.  And in this last respect, Justice Alito's realistic opinion – referring to the role of values such as environmental sustainability in business firms as well as the advent of benefit corporations that pursue hybrid profit and non-profit purposes (Slip Op. at 23-25) -- is superior to the flat-surfaced nominalism of Justice Ginsburg's dissent.

 

 

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