Blurring Lines between Churches and Secular Corporations: The Compelling Case of the Benefit Corporation’s Right to the Free Exercise of Religion (With a Post-Hobby Lobby Epilogue)

By: Marc A. Greendorfer

This article examines the unanswered questions from the Supreme Court’s decision in Burwell v. Hobby Lobby Stores, Inc. In that case, the litigants challenged regulations denying for-profit, closely held corporations the Free Exercise protections enjoyed by religious nonprofit corporations. The Supreme Court decided the case on narrow grounds, namely, the Religious Freedom Restoration Act. Because the Supreme Court did not reach the underlying question of whether for profit corporations have Free Exercise rights, uncertainty remains as to the scope of corporate Free Exercise protections. The creation of the benefit corporation, a for-profit corporate form with governance features resembling those of non-profit entities, has left existing First Amendment treatment of for-profit corporations at odds with the principles underlying First Amendment treatment of non-profit entities. This article presents a critique of the federal courts’ failure to adapt to changes in corporate law, in particular, the evolution of the benefit corporation.

Building on points raised by Judge Kent A. Jordan’s dissent in a lower court proceedings in Hobby Lobby (and acknowledged by Justice Samuel Alito in his majority Supreme Court opinion), this article first provides an overview of the existing for-profit/non-profit divide in First Amendment jurisprudence and then summarizes the revolutionary changes that have occurred in state (and, in particular, Delaware) corporate law relating to the formation and governance of corporate entities. This article argues that these changes blur First Amendment lines between for-profit and non-profit entities. This article also examines the governance features of benefit corporations in light of First Amendment precedent and argues that the rationale underpinning the provision of First Amendment protections to non-profit entities applies with equal force to benefit corporations.

This article further argues that because benefit corporations are relatively new legal entities that are not available in all states, courts should extend these First Amendment protections to any for-profit corporation that is a de-facto benefit corporation. Finally, this article provides an analysis of Justice Alito’s decision in Hobby Lobby and proactively proposes a response to those who have called for an amendment to the Religious Freedom Restoration Act as a way to overturn the decision in Hobby Lobby. This article was originally written as the foundation for an Amicus Curiae brief filed by the author with the United States Supreme Court on January 23, 2014, in support of the non-government parties in Hobby Lobby. While Sections 1-IX of this article were drafted prior to oral arguments at the Supreme Court, Section X was drafted after the decision was published.