Hobby Lobby, Corporate Law, and the Theory of the Firm: Why For-Profit Corporations are RFRA Persons

Abstract

In Sebelius v. Hobby Lobby Stores,Inc. the Obama Administration contends that for-profit corporations are not “persons” under the Religious Freedom Restoration Act (“RFRA”) and thus cannot avail themselves of RFRA’s protections. In a brief amicus curiae, 44 scholars of corporate and criminal law have elaborated on this contention. In particular, these scholars claim that fundamental features of corporate law prevent shareholder religion from “passing through” the corporate veil and thus dictating corporate policy. The scholars also claim that recognition of corporate religious exercise would encourage intra-corporate disputes about religious identity, thereby resulting in litigation and discouraging investment.

This essay argues that the scholars and the Administration are mistaken. We make three basic claims. First, corporate law does not discourage for-profit corporations from advancing religion. On the contrary, corporate law is enabling and largely contractual, as implied by the modern theory of the firm. Thus, several aspects of corporate law empower shareholders to induce firms to pursue religious objectives. This is particularly so in closely-held firms, which courts and scholars have dubbed “chartered partnerships,” “incorporated partnerships,” and “corporations de jure and partnerships de facto.” Second, such businesses are common in the real world, and their existence does not undermine the goals of corporate law. Indeed, the scholars’ brief does not identify a single instance in which a dispute over corporate religious identity led to corporate law adjudication. Nor would it undermine such goals to grant these firms religious exemptions from otherwise neutral laws in appropriate cases. Third, given the plausible reasons for protecting religious exercise by for-profit corporations, there is no reason to reject the most natural reading of RFRA’s text, illuminated by the Dictionary Act, namely that “person” includes private corporations of all kinds. This does not mean, of course, that every RFRA claim by a for-profit corporation should be successful. RFRA, however, does not assign the task of weeding out undesirable religious exemptions to the definition of “person.”

Keywords: Hobby Lobby, Religious Freedom Restoration Act, RFRA, Corporations, Corporate Law, Theory of the Firm, Closely Held Corporation, Patient Protection and Affordable Care Act, Contraception Mandate

JEL Classification: D21, D23, G30, K22, L21