Supreme Court Case Could Redefine Religious Exemptions

The U.S. Supreme Court is being asked to decide whether a religious nonprofit offering services that are arguably secular should be exempt from paying into a state unemployment system.

At first glance, it sounds niche. But the court’s ruling could redefine how religious exemptions apply in the workplace.

At issue in Catholic Charities Bureau Inc. v. Wisconsin Labor & Industry Review Commission is whether a Catholic Charities chapter that operates under the Diocese of Superior qualifies for a religious exemption under Wisconsin law. The Wisconsin Supreme Court said no.  

While the organization is affiliated with the Catholic Church, its social services — supporting adults with disabilities, for example — arguably aren’t inherently religious. Catholic Charities disagrees, saying that its mission is rooted in faith and that the government shouldn’t be in the business of deciding what counts as “religious enough.”

The Supreme Court heard arguments in the case on March 31. If it rules in favor of Catholic Charities, the decision could change how religious exemptions are applied across the country.

What’s Really at Stake

“If the court finds in favor of Catholic Charities,” said New Orleans attorney Frank Lamothe III, “it has the potential to have far-reaching consequences since it would create the opportunity for bottom-line employers to take advantage of the decision to affiliate with religious organizations to avoid paying unemployment benefits for their workers.”

The concern isn’t that Catholic Charities itself is acting in bad faith — it has its own internal system to cover unemployment — but that other employers might not be so generous. A broad ruling could give cover to businesses seeking to bypass basic employment obligations by claiming religious motivation.

Supporters of Catholic Charities’ position argue that the organization is simply living out its religious mission through service, and that forcing it to participate in Wisconsin’s unemployment system amounts to government overreach. They contend that religious nonprofits should not have to prove their faith-based motivations to the state, and that applying a secular definition of religion risks infringing on First Amendment protections. For them, this case is not about escaping obligations but preserving autonomy.  

If Catholic Charities prevails, “employees would no longer be eligible for unemployment benefits,” according to Victor Forberger, an attorney who filed an amicus brief in support of the state’s position on behalf of the Wisconsin Employment Lawyers Association. He wrote that while Catholic Charities has never paid into Wisconsin’s unemployment system, the broader consequences of the ruling could reach far beyond this one nonprofit.

Forberger, who is based in Madison, Wis., cautioned that this case could be used as a stepping stone toward broader challenges, including whether certain employees should be exempt from Social Security. 

Two-Part Test and HR

Under current law, courts use a two-part test to determine whether a religious exemption applies: Are an organization’s motivations religious, and are its operations religious?  

If the Supreme Court abandons or weakens the two-part test, how will HR departments — let alone courts — determine when an exemption applies?  

Sincerity of belief is hard to measure. Faith, by its nature, is not always tied to operations or job duties. 

“Would we have to create a test to determine if religiosity is enough?” Forberger asked. “You don’t want government determining religiosity.”

These are the questions HR will be left to answer — often without clear legal guidance — if the court rules broadly in favor of Catholic Charities.

The Supreme Court’s ruling may not eliminate the two-part test entirely. But even a narrow decision in favor of Catholic Charities could introduce ambiguity around how it’s applied — and ambiguity is where HR risk lives.

The court is expected to issue a decision by summer. Whether it rules narrowly or broadly, Catholic Charities Bureau Inc. v. Wisconsin Labor & Industry Review Commission may be another step in a larger shift toward expanding religious exemptions in the workplace.

Bryan Driscoll, J.D., is a Las Vegas-based nonpracticing lawyer, HR consultant, and legal content writer specializing in compliance, employee rights, and workplace policy.