The Supreme Court appears likely to side with a group of Catholic charities over an exemption from Wisconsin’s unemployment insurance program, but the justices did not signal in oral argument on Monday how broad its potential decision would be. While the case only concerns one state, the court’s eventual ruling could have broader ramifications for how other states and the federal government offer tax exemptions to religious nonprofit groups.
Wisconsin enacted its unemployment insurance program in 1932 in the depths of the Great Depression. As in most other states, the payments are funded either by regular contributions from employers or, in the optional case of some nonprofits, by reimbursing the state when the group lays off employees. Unemployed Wisconsinites are ineligible for benefits if they were laid off for factors like “misconduct,” which is adjudicated by the state.
The system allows certain religious organizations to claim an exemption from making payments into the unemployment fund. According to the state, the exemption is designed to prevent situations where the state would be adjudicating internal church workplace disputes, which may involve theological or doctrinal questions. To that end, the exemption covers “a church or convention of churches” as well as any “duly ordained, commissioned, or licensed minister of a church” who employs people to specifically further their ministry.
The third part of the exemption is much less narrow. Also covered is any organization “operated primarily for religious purposes” that is “operated, supervised, controlled, or principally supported by a church or convention or association of churches.” So what counts as an organization that is operated “primarily” for religious purposes? Catholic Charities Bureau, Inc. says it falls under the exemption. (For clarity’s sake, I’ll refer to the organization just as “Catholic Charities,” even though it is only one star in the much larger galaxy of Catholic charities in general.)
Catholic Charities is incorporated separately from the Diocese of Superior, which is part of the church’s formal hierarchy and closely works with the nonprofit group. Its charitable work, which is largely focused on helping people with physical and mental disabilities, is conducted through four other separate nonprofit groups with which it collaborates and coordinates. Catholic Charities had participated in the unemployment benefit system since its incorporation in the 1970s, but it began to seek the exemption in 2016.
The state Labor and Industry Review Commission denied the exemptions, arguing that the group’s activities did not serve a “primarily religious” purpose under the state law in question. Catholic Charities and its allies sued in state court, arguing that the agency’s denial of the exemption violated the First Amendment’s Religion Clauses. The Wisconsin Supreme Court sided with the state. It held that while Catholic Charities was obviously affiliated with the local Catholic diocese, it was a legally distinct entity and had to make a freestanding claim for exemption.
Catholic Charities also argued that its work was done for a “religious purpose.” The state supreme court countered that while it took that claim at “face value,” the claim alone was insufficient to qualify for the exemption. It agreed with the state’s finding that Catholic Charities was essentially providing a secular service and that its activities did not feature any of the usual hallmarks of religious activities: worship, proselytization, religious education, liturgical ceremonies, pastoral counseling, theological training, or so on.
Eric Rassbach, who argued on behalf of the nonprofit groups, told the justices that this was a straightforward case. “The Wisconsin Supreme Court got it wrong when it interpreted a state-law religious exemption to favor what it called ‘typical’ religious activity and when it held that helping the poor can’t be religious, because secular people help the poor too,” he told the justices at oral arguments on Monday. “To resolve this case this court need do nothing more than say that the Constitution doesn’t allow courts to do that.”
Crafting a ruling, however, may be more complicated for the justices in practice. In normal circumstances, interpreting a state law would have minimal effects on other state laws because lawmakers rarely draft identical statutes. Catholic Charities Bureau v. Wisconsin Labor and Industry Review Commission is the rare exception. Wisconsin’s religious-purpose exemption uses identical language to the Federal Unemployment Tax Act, which shapes unemployment-insurance programs nationwide. Forty-six other states have adopted that common statutory language either wholesale or in large part.
As a result, if the Supreme Court sides with Catholic Charities on constitutional grounds, it could have much broader implications for unemployment benefit programs outside of Wisconsin. The Catholic Healthcare Association of the United States, for example, consists of more than 2,400 hospitals and healthcare facilities in every state. Protestant denominations are also affiliated with thousands of nonprofit organizations that provide charitable services. Most importantly, the court’s test could influence how states and lower courts deal with tax and regulatory exemptions for religious nonprofits in contexts beyond unemployment insurance.
Colin Roth, who argued for Wisconsin, defended the state’s approach and hinted that the state supreme court’s ruling was being misunderstood. “Wisconsin’s search for worship, proselytization, and religious education, much like the ministerial exception, thus does not decide what is religious in the abstract, nor does it discriminate among denominations,” he told the justices. “Instead, these activities are what reasonably limit the exemption to the employers most likely to pose entanglement problems.”
He warned against adopting the test sought by Catholic Charities that would look only to the nonprofit’s stated motive when handing out the exemption. “It would leave potentially over 1 million employees nationwide without unemployment coverage, like nurses and janitors at religiously affiliated hospitals, even though the state can virtually always determine their benefit eligibility without confronting religious doctrine,” he argued.
The state faced an uphill battle as most of the justices appeared to agree that Wisconsin’s doctrinal scrutiny was unwarranted, however. “The reason why we’re so worried about entanglement is because it gets us enmeshed in the content of religious doctrine,” Justice Elena Kagan told Roth. “But your way of doing it basically puts the state on the side of some religions with some doctrine versus other religions with a different doctrine.”
As a result, the court spent most of the arguments trying to figure out ways to cabin their eventual decision. The Trump administration filed a friend-of-the-court brief that argued in favor of resolving the case in Catholic Charities’ favor on statutory grounds and urged the justices to avoid “serious constitutional questions.” Justice Amy Coney Barrett asked Curtis Gannon, who argued on behalf of the Justice Department at the court’s invitation, if they could find a way to distinguish between how the Wisconsin Supreme Court interpreted the Wisconsin law and how other courts could interpret the federal law that influenced it.
“If we did that, why would it necessarily call the federal statute into question?” Barrett asked Gannon. “Because couldn’t we just say Wisconsin has interpreted its statute this way, drop a footnote, you know, the Solicitor General of the United States has represented that the federal government statute is interpreted differently?”
Another concern among the court’s members was avoiding a ruling that required courts to delve into deeper philosophical and theological questions. “If we go this route, what counts as religious?” Kagan asked Gannon. “I mean, no judges like to say, ‘I’m sorry, you’re not sincere here.’” Chief Justice John Roberts also raised a hypothetical where a vegan restaurant could claim it was promoting non-meat dinners out of a religious obligation, and thus seek exemptions to various state taxes and regulations.
Some of this is familiar terrain for the justices. In multiple decisions over the last decade, the court—and especially its conservative majority—has confronted what it perceived to be unfair treatment of religious groups by state legislatures and agencies, especially when it came to doling out taxpayer funds. The conservative justices have consistently ruled in favor of expanded exemptions for religious groups and narrowing the grounds on which states can limit them. It is little surprise that Catholic Charities appears set to prevail in this case; the justices have until the end of term in June to figure out just how to give them that victory.
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