On June 5th, the US Supreme Court issued a unanimous opinion that reversed the Wisconsin Supreme Court to find that the state court had violated the establishment clause of the First Amendment by explicitly imposing “a denominational preference by differentiating between religions based on theological lines.” By distinguishing between religious bodies that engage in proselytizing with their charitable activities and the Catholic Church that does not engage in proselytizing with its charitable activities, an illegal distinction had been made in support of one kind of religion over another.

This focus on proselytizing was a major issue (and not disputed at all) during oral argument. The Becket Fund for Religious Liberty had focused mightily on proselytizing in its briefing, and both counsel and the justices continued that focus at oral argument. For these petitioners, state agencies and governments could only determine religious exemptions based on the stated motivations of those religious entities. Any examination of what the religious entities did, for the petitioner, was completely unnecessary.

It was that last part of the argument that received a great deal of questioning from the justices, as they wanted to know where the line stopped on this religious motivation test being proposed. Could a vegetarian religion make its restaurant employees exempt? And, would the nurses and janitors at a hospital owned by a church be excluded from receiving unemployment benefits because care for the sick served a faith-based purpose? Counsel for the Becket Fund would not offer up any such limitation in response to these questions other than for the courts to look at religious traditions to determine how “sincere” the faith-based motivations are (something courts are loath and ill-equipped to do).

Counsel for Wisconsin then stepped into a “proselytizing” buzz saw, as the justices hammered away at how and why the state thought it could distinguish between one kind of religious faith over another. Needless to say, it did not go well.

With the issue framed in this way, the basic facts of the case were lost. So, a review of those basic facts is needed.

First, the Catholic Charities entities at issue in this case paid NO unemployment taxes. Rather than being a contributory employer who pays an insurance premium/tax, Catholic Charities was a reimbursable employer. That reimbursable status meant that Catholic Charities paid dollar-for-dollar for the unemployment benefits of its former employees. But, Catholic Charities had not paid ANY unemployment benefits in the past decade or more because none of its employees had ever claimed unemployment benefits.

Second, these Catholic Charities entities were NOT funded by any church monies. Rather, three of these four entities received all of their funding from the state of Wisconsin or federal sources, and the fourth entity received its funding from the state of Wisconsin, federal sources, and private foundations.

Third, the work being performed by these entities had no religious component or purpose. The workers of these entities provided job training and daily living services, job placement, job coaching, work placement, and similar assistance as well as Head Start home visitation services to individuals with disabilities and those with limited income.

Finally, the connection between these entities and Catholic Charities was nothing more than administrative — umbrella — oversight by Catholic Charities. Rather than have separate management at the top of each entity, Catholic Charities provided centralized administrative oversight for managing the state and federal (and also private foundations for one entity) grants that funded these entities. If Catholic Charities did anything else is unknown, as such information is not in the hearing record.

But, at oral argument, several of the justices either commented or asked questions about how priest and nuns working at soup kitchens were somehow running afoul of Wisconsin’s unemployment tax (despite there being no priests and nuns, no soup kitchens, and no unemployment taxes at issue in this case).

In this light, it is no surprise that the very first sentence of the opinion is factually wrong as applied to the petitioner Catholic Charities:

Wisconsin, like many other States, exempts certain religious organizations from paying taxes into the State’s unemployment compensation system.

But, the Catholic Charities entities at issue in this case paid NO unemployment taxes. So, there were no “taxes” at stake in this case, and the only real issue here was the theoretical unemployment eligibility of the secular employees of organizations performing non-religious activities only affiliated with a religious organization for administrative purposes.

With such basic facts missing from the case, the reasoning played out for a government agency “applying” its law in way that favors one religious entity over another. And, so the court ruled in a straight-forward way that state agencies cannot favor one kind of religion over another. Because Wisconsin distinguished between religious bodies that proselytize and those that do not proselytize in violation of the First Amendment, the Catholic Charities entities had been discriminated against for their religious beliefs and their employees could not be considered subject to Wisconsin unemployment.

Note: Only Justice Thomas in a concurrence would have adopted a broad exemption for any religiously connected entity based entirely on its faith-based motivations for that activity. For Justice Thomas, religious entities should be entirely exempt in any form from any governmental restriction, and the government is constitutionally required to defer to whatever those religious entities claim about their faith-based operations.

Overall, this case mostly signifies how much basic knowledge about standard New Deal legislation and programs has been lost in the decades since. The US Supreme Court’s focus on a forest of religious issues led it to miss the trees of services being provided that have no connection to anything actually religious.

As previously noted, the Wisconsin supreme court decision was a rather perfunctory application of a standard issue in federal unemployment law. With that decision now reversed, the question now is how far this US Supreme Court decision will reach in determining whether other religious organizations and their employees are exempt from unemployment taxes and benefits, respectively.

Religious organizations in Wisconsin and in nearly every other state will now be challenging their status under the unemployment law of those states as well as the relevant federal law. As noted in several amicus briefs, a broad-based exclusion of religious employers and their employees from unemployment coverage would have led to “at least $26.4 million in federal benefits during the pandemic” being lost to Wisconsin workers and to at least 787,000 health care employees losing unemployment benefits nationwide.

Justice Jackson’s concurrence may provide the answer in how to respond to these challenges. She turned her focus to the federal law, 26 USC § 3309(b)(1), on which Wisconsin’s state law was based, and concluded that this federal statute’s two-part test was simply whether the entity was engaged in (a) religious (b) activities.

In my view, however, neither Wisconsin’s motivations-plus-activities reading (the how) nor the Government’s [and petitioner’s] motivations-only interpretation (the why) accurately captures what Congress intended when it devised §3309(b)(1)(B) to allow an exemption for church-affiliated entities that are “operated primarily for religious purposes.” I think, instead, that §3309(b)(1)(B) relates solely to what the entity does.

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[The federal law described a divinity school, a novitiate, and a training house for a religious order as exempt from unemployment under this provision, but that a church-affiliated orphanage or a home for the aged would not be exempt.]

A novitiate, for instance, is an entity that trains and houses novices who are deciding whether to pursue a life in a religious order or priesthood. Indeed, what unites all three “exempt” entities is what they do: preparing people for religious life and for service to the church, i.e., they all serve religious functions. By contrast, the nonexempt category consists of general charitable organizations affiliated with a church. A church-related “orphanage” or “home for the aged” is not “operated primarily for religious purposes”—at least within the meaning Congress intended that phrase to carry. H. R. Rep., at 44; S. Rep., at 49.

Through the Reports’ examples, Congress thus clarified that it does not matter how or why the entity goes about its work. All that matters is what it does. As such, orphanages, nursing homes, and charities like them —i.e.,entities whose “purpose” is to care for children or tend to the elderly—do not exhibit what Congress considered to be “religious purposes” under this exemption. And that is true regardless of whether religion motivates the entity’s work.

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Church-related nonprofit employers care for the sick, feed the hungry, and improve the world in countless ways. Most do this—no doubt—for religious reasons. All do this thanks to their employees’ labor. As I read §3309(b)(1)(B), evaluating whether a church-affiliated nonprofit “operate[s] primarily for religious purposes” is not a matter of assessing the sincerity or primacy of its religious motives. Instead, as with so many other interpretive issues, determining what the religious-purposes exemption means involves attempting to discern what Congress was trying to achieve. Here, Congress sought to extend to most nonprofit workers the stability that unemployment insurance offers, while exempting a narrow category of church-affiliated entities most likely to cause significant entanglement problems for the unemployment system—precisely because their work involves preparing individuals for religious life. It is perfectly consistent with the opinion the Court hands down today for States to align their §3309(b)(1)(B)-based religious-purposes exemptions with Congress’s true focus.

Going forward, states and unemployment agencies need to highlight the following evidentiary issues concerning the activities at issue in these unemployment cases.

  • Establish the status of the religious entity at the onset of the case and include records of the claim-filing history of its employees. Employer UI account information over several years must be included in the hearing record to demonstrate what exactly is act stake as to unemployment benefits outside of any theoretical possibility.
  • If a non-profit, establish how the entity is funded. Actual grant requests and reports should be part of the hearing record. The flow of money for funding the operations of the entity needs to be an explicit part of the hearing record. How ALL of those funds are spent also need to detailed.
  • If for-profit (as there is nothing in the reasoning in the US Supreme Court opinion to distinguish between non-profit and for-profit), profit and loss statements with ALL expenses and income must be included in the record.
  • Detail the work activities of the employees at issue in the case. Job descriptions as well as actual testimony from those employees should be part of the record.

Summary or conclusive evidence on these issues must be avoided. In Wisconsin’s Catholic Charities, administrative heads and religious leaders testified in broad strokes with very little detail, and so the record over what those entities and their employees did was very bare bones (in contrast, hours and hours of the testimony taken concerned the religious mission of the Catholic Church — an issue largely not in dispute).

Whether this evidence of the actual activities of these organizations and their employees will matter in these future cases remains to be seen. But, at the very least, a factual record with this evidence will present firmer ground on which to decide what exactly are “religious” activities in these future cases.