S. Ct. Rejects Wisconsin Unemployment Tax Exemption's Different Treatment of Proselytizing and Non-Proselytizing Religions

The government generally may not "distinguish[] among religions based on theological differences in their provision of services."

From Justice Sotomayor's unanimous (and, I think, correct) opinion today in Catholic Charities Bureau, Inc. v. Wisconsin Labor & Indus. Rev. Comm'n:

Wisconsin, like many other States, exempts certain religious organizations from paying taxes into the State's unemployment compensation system. One such exemption covers nonprofits "operated primarily for religious purposes" and controlled, supervised, or principally supported by a church. Wis. Stat. §108.02(15)(h)(2) (2023–2024). Petitioners, Catholic Charities Bureau, Inc., and four of the entities that it operates, claimed that they qualify for the exemption as religious organizations controlled by the Roman Catholic Diocese of Superior, Wisconsin. The Wisconsin Supreme Court disagreed, holding that petitioners are not "operated primarily for religious purposes" because they neither engage in proselytization nor serve only Catholics in their charitable work….

The First Amendment mandates government neutrality between religions and subjects any state-sponsored denominational preference to strict scrutiny. The Wisconsin Supreme Court's application of §108.02(15)(h)(2) imposed a denominational preference by differentiating between religions based on theological lines….

"The clearest command of the Establishment Clause" is that the government may not "officially prefe[r]" one religious denomination over another. This principle of denominational neutrality bars States from passing laws that "'aid or oppose'" particular religions, or interfere in the "competition between sects." The Establishment Clause's "prohibition of denominational preferences is inextricably connected with the continuing vitality of the Free Exercise Clause," too.

A law that differentiates between religions along theological lines is textbook denominational discrimination. Take, for instance, a law that treats "a religious service of Jehovah's Witnesses … differently than a religious service of other sects" because the former is "less ritualistic, more unorthodox, [and] less formal." Or consider an exemption that applies only to religious organizations that perform baptisms, engage in monotheistic worship, or hold services on Sunday. Such laws establish a preference for certain religions based on the content of their religious doctrine, namely, how they worship, hold services, or initiate members and whether they engage in those practices at all. Such official differentiation on theological lines is fundamentally foreign to our constitutional order, for "[t]he law knows no heresy, and is committed to the support of no dogma."

This case involves that paradigmatic form of denominational discrimination. In determining whether petitioners qualified for the tax exemption under §108.02(15)(h)(2), the Wisconsin Supreme Court acknowledged that petitioners are controlled by a church, … thereby satisfying one of the exemption's two criteria. The court's inquiry instead turned on whether petitioners are "operated primarily for religious purposes." On that criterion, the court recognized that petitioners' charitable works are religiously motivated. The court nevertheless deemed petitioners ineligible for the exemption under §108.02(15)(h)(2) because they do not "attempt to imbue program participants with the Catholic faith," "supply any religious materials to program participants or employees," or limit their charitable services to members of the Catholic Church. Put simply, petitioners could qualify for the exemption while providing their current charitable services if they engaged in proselytization or limited their services to fellow Catholics.

Petitioners' Catholic faith, however, bars them from satisfying those criteria. Catholic teaching, petitioners say, forbids "'misus[ing] works of charity for purposes of proselytism.'" It also requires provision of charitable services "without making distinctions 'by race, sex, or religion.'" Many religions apparently impose similar rules prohibiting proselytization or religious differentiation in the provision of charitable services. Others seemingly have adopted a contrary approach.

Wisconsin's exemption, as interpreted by its Supreme Court, thus grants a denominational preference by explicitly differentiating between religions based on theological practices. Indeed, petitioners' eligibility for the exemption ultimately turns on inherently religious choices (namely, whether to proselytize or serve only co-religionists), not "'secular criteria'" that "happen to have a 'disparate impact' upon different religious organizations." Much like a law exempting only those religious organizations that perform baptisms or worship on Sundays, an exemption that requires proselytization or exclusive service of co-religionists establishes a preference for certain religions based on the commands of their religious doctrine. {Decisions about whether to "express and inculcate religious doctrine" through worship, proselytization, or religious education when performing charitable work are, again, fundamentally theological choices driven by the content of different religious doctrines. A statute that excludes religious organizations from an accommodation on such grounds facially favors some denominations over others.}

The Court thus held the law was unconstitutional unless it passed "strict scrutiny," which is to say was "closely fitted to further" "a compelling governmental interest." And the law failed that test:

Wisconsin … argues that the law serves a compelling state interest in "ensuring unemployment coverage for its citizens." Yet the State fails to explain how the theological lines drawn by §108.02(15)(h)(2) are narrowly tailored to advance that asserted interest, particularly as applied to petitioners. Indeed, petitioners operate their own unemployment compensation system for employees, which provides benefits largely "'equivalent'" to the state system. Furthermore, Wisconsin does not suggest that organizations like Catholic Charities, which decline to proselytize and choose to serve all-comers, are more likely to leave their employees without unemployment benefits. Nor could it: The record is devoid of such evidence.

The distinctions drawn by Wisconsin's regime, moreover, are vastly underinclusive when it comes to ensuring unemployment coverage for its citizens. Wisconsin exempts over 40 forms of "employment" from its unemployment compensation program. Notably, those exemptions cover religious entities that provide charitable services in a similar manner to petitioners (that is, without proselytizing or denominational differentiation), but are exempt because the work is done directly by the church itself or its ministers, rather than by a separate nonprofit organization controlled by the church. That underinclusiveness leaves "'appreciable damage to [the State's] supposedly vital interest unprohibited'" and therefore belies the State's claim of narrow tailoring.

Second, the State argues that the Wisconsin Supreme Court's interpretation of §108.02(15)(h)(2) is "narrowly tailored to avoid entangling the state with employment decisions touching on religious faith and doctrine." When an organization's employees "express an[d] inculcate religious doctrine through worship, proselytization, and religious education," the State explains, "misconduct disputes could often force the state to decide whether employees complied with religious doctrine."

Yet the State again fails to demonstrate that §108.02(15)(h)(2) is "closely fitted to further" that anti-entanglement interest. To the extent the State seeks to avoid opining on employee compliance with religious teachings, it does not explain why it declined to craft an exemption limited to employees who are in fact tasked with inculcating religious doctrine. Instead, the exemption here functions at an organizational level, covering both the janitor and the priest in equal measure.

That overinclusiveness pervades Wisconsin's exemption regime more broadly, too. Recall that Wisconsin exempts from its unemployment compensation system all "church[es] or convention[s] or association[s] of churches" without differentiating between employees actually involved in religious works, for whom the anti-entanglement concern is relevant, and other staff. The State itself concedes, as it must, that this regime contains "an element of over-inclusivity." At bottom, then, the poor fit between the State's asserted anti-entanglement concern and the line it has drawn among religious organizations cannot be described as narrow tailoring….

Justice Thomas wrote a concurrence that focused on a different feature of the Wisconsin Supreme Court's decision.

Justice Jackson wrote a concurrence that focused on the Federal Unemployment Tax Act, which authorizes the Wisconsin law involved in this case; she reasoned that FUTA's religious organization exemption is constitutional, and that the problem wasn't with the text of the exemption but with the Wisconsin Supreme Court's interpretation of the exemption. As I read her analysis, FUTA and statutes based on it should be read to provide only a narrow exemption for "church-run nonprofits that have service to the church itself as their main objective" (such as organizations that train clergy or members of a religious order) and not to cover "general charitable organizations affiliated with a church," such as "[a] church-related 'orphanage' or 'home for the aged'":

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.

Eric Rassbach argued on behalf of Catholic Charities Bureau.