Business Transactions, Corporate and Real Estate

For-Profit Companies Find Religion – What’s a Transactional Lawyer to Do?

Last month, the United States Supreme Court ruled in the Hobby Lobby case that closely held for-profit corporations can have “free exercise rights” as “persons” under The Religious Freedom Restoration Act of 1993 (“RFRA”), stating, “…protecting the free-exercise rights of corporations like Hobby Lobby, Conestoga, and Mardel protects the religious liberty of the humans who own and control those companies.” And though the Department of Health and Human Services noted the possibility of disputes among the owners of such companies, the Court noted, “State corporate law provides a ready means for resolving any conflicts by, for example, dictating how a corporation can establish its governing structure.” And therein lies the problem for transactional lawyers in firms that deal mainly with closely held businesses.

Consider an LLC, for which the operating agreement provides the “ready means for resolving any conflicts” among the owners. Does every operating agreement now need a section on the “Company’s Religious Beliefs”? Is it now malpractice not to include such a section? The lawsuit can be easily imagined, “Our lawyer did not tell us that we could resolve such issues in an operating agreement.” Must we now inquire into the religious beliefs of all of the owners of the business to determine what the company’s religious beliefs will be? Most owners likely do not expect their lawyers to pry into their religious beliefs when setting up the company that will run, say, their convenience store. However, I believe the answer to both questions is a definite “Yes”; you must ask, and you must have such a provision.

The likely starting place “default rule” would be “no religion,” i.e., the company will not be driven by religious motives or beliefs of any kind. If the owners then choose to move forward without making any changes to that default rule, the attorney has done his/her job. And if the owners choose to debate that section, that is part of our purpose as transactional attorneys – to make clients consider potential problems before they arise and draft a solution. Of course, if the attorney raises these issues, it is bound to drive other questions, not least of which is “How far can we take these religious beliefs?” Based on the Supreme Court’s opinion, the answer may be “as far as the eye can see.”

The Supreme Court allowed one federal statute –RFRA – to trump a provision of another federal statute – the Affordable Care Act. The RFRA essentially incorporates a “strict scrutiny” test for any law that violates religious beliefs, and virtually nothing survives strict scrutiny. So, suppose your clients want to start a gym called “Darwin’s Fittest” and not employ or serve anyone with a disability, claiming that doing so would violate their religious beliefs in “survival of the fittest.” Does the RFRA trump the Americans with Disabilities Act? God only knows.

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