Washington University law professor Elizabeth Sepper has posted Contraception and the Birth of Corporate Conscience (July 8, 2013), to SSRN: http://ssrn.com/abstract=2289383. There's a do not cite caption on the paper, but since it's been posted to SSRN for the whole world to see, I'm going to cite it anyway.
Here's the abstract:
Corporations — for-profit and non-profit, religiously affiliated and secular — have filed approximately sixty lawsuits challenging the Affordable Care Act’s requirement that employee health insurance plans cover contraception mandate. In this paper, I contend that a dangerous doctrine of "corporate conscience" may be born of the contraception controversy. Already, a number of courts have indicated a willingness to accept that artificial business entities incorporated for secular, profit-making aims have religious beliefs and consciences that excuse them from compliance with law. Their reasoning repudiates longstanding foundations of corporate law. It transforms conscience, which is inherently human, into the province of business entities.
Drawing on health law and policy, I argue that these courts fundamentally misunderstand the nature of health benefits. Health insurance is a form of compensation, earned by and belonging to the employee like wages. By neglecting this economic reality, courts draw incorrect conclusions about the responsibility, legal and moral, of employers for the contents of their employees’ insurance plans, and thus about the burden that any regulation imposes. Moreover, courts fail to recognize that the role the ACA ascribes to private employers bears striking similarity to other comprehensive social insurance schemes, all of which have faced and survived challenges based on free exercise. Any employer responsibility for employer-based insurance should be analyzed under this precedent.
Finally, I suggest that "corporate conscience" would destabilize the rights of employees far beyond the context of contraception. Religiously affiliated commercial actors already assert rights to defy health and safety laws, pay women less, and fire pregnant women. If secular employers succeed in their challenge to the contraception mandate, gender equality and religious freedom will be at risk in all workplaces.
I don't have a dog in the fight over the health law policy issues (okay, I think Obamacare is a crock, but that's neither here nor there), but I defintely have a puppy in the corporate personhood argument.
Sepper opines that:
In addition to prioritizing the institution above the individual, the new corporate conscience would tear apart the distinction that constitutional and statutory law has drawn between secular for-profits and religious commercial organizations. ...
Treating corporate free exercise as derivative of the owners’ beliefs does not solidify the doctrinal move toward for-profit conscience. Corporations, as conglomerate entities, exist indefinitely and independently of their shareholders. They carry out acts and affect individual lives, and have an identity that is larger than their constituent parts. Walmart is Walmart, even when Sam Walton resigns.
Notice that last sentence. It's a clever rhetorical argument, but it's also inapt. Walmart is a public corporation. As far as I know, no public corporation has raised one of these lawsuits against Obamacare. And that's critical.
Back to Sepper:
The very goal of the corporate form is to separate the person from the entity, shielding the person from obligation and liability and ensuring the entity focuses on profit maximization. ...
While corporate law makes clear that corporations and their shareholders are separate and apart, in the current context courts advance a concept of the corporation as a means by which individuals express moral judgments about contraception. ...
This “corporation as shareholder alter ego” rationale deals a blow to the foundation of corporate law. ... Allowing owners to subvert the corporate form, by contrast, represents an enormous shift in corporate law.
And that's where she veers off course, because--as regular readers know--there is a corporate law doctrine that does exactly what Sepper claims corporate law does not do; namely, the reverse veil piercing doctrine. As I explained in Using Reverse Veil Piercing to Vindicate the Free Exercise Rights of Incorporated Employers, The Green Bag, Vol. 16, No. 3, Spring 2013:
Reverse veil piercing (RVP) is a corporate law doctrine pursuant to which a court disregards the corporation’s separate legal personality, allowing the shareholder to claim benefits otherwise available only to individuals. The thesis of this article is that RVP provides the correct analytical framework for vindicating certain constitutional rights.
Assume that sole proprietors with religious objections to abortion or contraception are protected by the free exercise clause of the First Amendment and the Religious Freedom Restoration Act (RFRA) from being obliged to comply with the government mandate that employers provide employees with health care plans that cover sterilizations, contraceptives and abortion-inducing drugs. Further assume that incorporated employers are not so protected. This article analyzes whether the shareholders of such employers can invoke RVP so as to vindicate their rights.
At least one court has recognized the potential for using RVP in the mandate cases, opining that these cases “pose difficult questions of first impression, including whether it is “possible to ‘pierce the veil’ and disregard the corporate form in this context.” The court further opined that that question, among others, merited “more deliberate investigation.” This article undertakes precisely that investigation.
Invoking RVP in the mandate cases would not be outcome determinative. Instead, it would simply provide a coherent doctrinal framework for determining whether the corporation is so intertwined with the religious beliefs of its shareholders that the corporation should be allowed standing to bring the case. Whatever demerits RVP may have, it provides a better solution than the courts’ current practice of deciding the issue by mere fiat.
I admit that RVP has demerits, especially in its outsider RVP form, but it's hardly fair to call it "a blow to the foundation of corporate law," let alone "an enormous shift in corporate law." In the present context, moreover, RVP is being used to vindicate important rights--not to frustrate the legitimate claims of creditors.
Back to Sepper:
If the few owners of companies can impose their beliefs on their many employees, they have say in moral decisionmaking far disproportionate to their numbers.
Yeah, but so what? Owners of a close corporation always have a "say in moral decisionmaking far disproportionate to their numbers." On every issue of moral concern, the shareholders' collective will is determinative (at least in close corporations; in public corporations, of course, it would be the board of directors whose will is dispositive). When have employees ever had a voice in any issue of corporate social responsibility? After all, he who pays the piper, calls the tune. So Sepper's argument about employees has no traction. None.
To put it another way, in Albert Hirschman's famous formulation only shareholders have voice rights; the employees' sole option is exit.
In addition, Seppers' concern for emplyees is undercut by the Obamacare legislation itself. After all, the government has already allowed exemptions for grandfathered plans, employers with fewer than 50 employees, “member[s] of a recognized religious sect or division thereof” who have religious objections to the concept of health insurance, or religious employers [as defined in the regulations].” As Judge Walton observed In the Tyndale case, a “law cannot be regarded as protecting an interest of the highest order ... when it leaves appreciable damage to that supposedly vital interest unprohibited.” In other words, if the government's purported interest in insuring the employees of for profit close corporations owned by persons of faith is so strong, why did the government exempt employees of all those other firms?
Courts therefore should not allow Sepper's concerns prevent them from vindicating the free exercise rights of shareholders of close corporations.
Update: Sepper responds here. Some quick thoughts:
- She claims that "veil piercing has been exceptional." Actually, Bob Thompson's empirical study (76 Cornell L. Rev. 1036) found that courts pierced in 40% of reported cases. Granted, there are all sorts of issues like selection bias and so on, and my general skepticism of empirical research, but it suggests that veil piercing isn;t all that exceptional, especially in the sort of close corporations at issue here. To be sure, RVP is pretty rare, but it's been on the books for a long time and is hardly the dramatic break with precedent Sepper claimed it would be.
- She claims that piercing "has concerned assets, rather than private beliefs." Well, maybe, but RVP has always been mainly about policy. Courts often use RVP to advance important policy interests. I realize that free exercise rights no longer have as much traction as they once did among the increasingly secularized elites that dominate the legal profession and the courts, but for better or worse those rights are enshrined in the constituton and health care isn't.
- And that's why I don't buy her argument about employee interests.
