Last week, the Wisconsin Supreme Court issued its decision in Catholic Charities v. LIRC, 2024 WI 13. At issue in this case was whether the Catholic Charities entities would be exempt from paying any unemployment taxes (and their employees no longer eligible for unemployment benefits when laid off) because the Catholic Charities entities are, like churches themselves, operated for faith-based reasons.

Note: Articles on the decision have appeared in the Wisconsin Examiner, WisPolitics, and Urban Milwaukee.

In general, churches and their affiliated non-profit entities are exempt from income and property taxes. Pursuant to Wis. Stat. § 108.02(15)(h), employment with religious institutions is generally exempted from covered employment and so any “wages” paid these employees are not subject to unemployment taxes. Because these employees of religious institutions are not in covered employment, they also cannot claim unemployment benefits when laid off from these jobs. This exemption exists, in part, to maintain a separation between church and state.

Note: This separation between church and state is extended to ministers and rabbis and other church leaders who are themselves exempt from Social Security taxes. More on this exemption possibly expanding below.

The employees at these Catholic Charities entities, however, are not ministers or priests. They are not even employees of any church organization. Rather, the employees of these Catholic Charities entities at issue in this case provide job placement, job coaching, other services, and even work opportunities to individuals with disabilities or those with limited income through funding either from government grants or private contracts. The employees of these entities and their managers have no religious training or requirements. The church’s own administration of these entities is limited to providing general managerial oversight.

The standard, decades old test in unemployment law for determining whether the religious exemption applies to there entities and their employees is whether (a) there is a religious motivation or purpose behind the organization/employer and (b) the services–the activities of the workers at issue–are primarily religious in nature.

Note: This test is based on federal requirements. See 26 U.S.C. § 3309(b)(1).

The arguments in this case FOR the religious exemption are three-fold:

  1. The statutory exemption applies to any entity that serves a religious purpose, according to the sponsoring religious organization. Whether the services being performed by the employees are religious in nature or not is immaterial to whether the religious exemption should apply.
  2. Constitutional requirements to prevent excessive state entanglement with religious entities and to prevent state limitations on church autonomy here require the religious exemption.
  3. Requiring the employees of the Catholic Charities entities to perform religious work of some kind as part of the charitable services they provide discriminates against religious orders that do not proselytize during their charitable endeavors.

A dozen or more churches and religious entities along with the Wisconsin Legislature filed amicus briefs in this case in support of the religious exemption. Only one group, the Freedom from Religion Foundation, filed an amicus brief pointing out the obvious consequences of these arguments:

If the employers receive an exemption to Wisconsin’s unemployment insurance program, that same exemption would become equally available to the numerous religiously-affiliated hospitals and colleges operated within the State. These institutions include Ascension Wisconsin (the State’s second-largest health system, which has undergone several round of layoffs since reportedly employing more than 21,000 people in 2016), Marquette University (which recently reduced its more than 2,900 employees by roughly 10%), and SSM Health Hospital System (with more than 2,000 employees in Madison, plus six additional locations in Ripon, Fond du Lac, Waupun, Baraboo, Janesville, and Monroe). All of these employees would be at risk of losing their unemployment benefits overnight, if this Court accepts the employers’ argument.

In this case, the employers perform completely secular functions, receive government funding, and do not require employees or program participants to be Catholic (or religious at all). . . . there is nothing religious about the operations of the employers themselves. The only sense in which the employers are “religious” is indirectly, through their parent entity’s affiliation with the Catholic Church. None of these features distinguish the employers from Wisconsin’s numerous other religiously-affiliated nonprofits.

Under the employers’ argument, any religiously-affiliated organization that can draw a connection between its operation and the religious mission of its parent entity would become exempt. Such connections would be trivially easy to make for Wisconsin’s religiously-affiliated hospitals and colleges.

Amicus, Freedom from Religion Foundation at 14-15 (footnotes omitted) (Note: I was consulted by the Freedom from Religion folks for their amicus brief).

In a 4-3 opinion, the Wisconsin Supreme Court applied long-standing statutory requirements and principles to find that the Catholic Charities entities are NOT providing religious services on behalf of their employer and so are not exempt from the unemployment system.

First, the Catholic Charities entities are not statutorily exempt, as they “offer services that would be the same regardless of the motivation of the provider, a strong indication that the sub-entities do not ‘operate primarily for religious purposes.’” Catholic Charities at ¶64.

Second, determining whether the services at issue are religious in nature or not does NOT unnecessarily entangle the state and courts into religious matters. “The Establishment Clause does not treat religion as a third rail that courts cannot touch.” Catholic Charities at ¶81.

Examining both the motivations and activities of the organization requires minimal judicial inquiry into religion, as there is no examination of whether CCB’s or the sub-entities’ activities are consistent or inconsistent with Catholic doctrine. A court need only determine what the nature of the motivations and activities of the organizations are——not whether they are “Catholic” enough to qualify for the exemption.

Catholic Charities at ¶85. The majority opinion explains that for centuries courts have examined the activities of religious entities to determine if they should be exempt from taxes, and courts will continue to do so in unemployment matters. Catholic Charities at ¶¶86-94.

Neither does the examination of the services at issue somehow violate church autonomy. The Catholic Charities entities contend “that viewing their motives and activities separate from those of the church penalizes their ‘choice to be ‘structured as separate corporations’–a religious decision grounded in church policy and internal governance.” Catholic Charities at ¶99. Yet, no state law or practice prevents any of the Catholic Charities entities from engaging in activities that are primarily religious in nature. Because the Catholic Charities entities are not doing anything that is overtly religious, under the law they are the same as an actual, non-religious entity. As a result, there is no alleged violation of church autonomy.

Note: This lack of religiosity in their services makes sense. Few people would partake of a “charity” if they were subject to religious proselytizing and tests for using that “charity,” and so the religious purpose at issue with these Catholic Charities entities of providing support for the less fortunate would be undermined by overt religious messaging. This “choice” is transformed into alleged discrimination against the Catholic Church for having to make this choice.

Third, the Catholic Charities entities’ claim of being discriminated against them also fails for the majority. The entities complain that they are being treated as taxable entities because they have chosen not to be overtly religious in their activities. For the majority, this claim is a non-starter, as there is no evidence in the record to show that the Catholic Church has been limited in some way by unemployment taxes (and eligibility for its employees) from exercising its religious faith. Catholic Charities at ¶¶103-7.

In a LONG and bitter dissent, Justice Grassl Bradley solidifies her position as the Jim Jordan of Wisconsin justices. She accepts all three claims for the religious exemption and decries what she understands to be legally and factually wrong reasoning in the majority opinion that all but declares an anti-Catholic bias for disagreeing with her.

The majority’s misinterpretation of the exemption renders the statute in violation of the First Amendment of the United States Constitution as well as the Wisconsin Constitution. By focusing on whether a nonprofit primarily engages in activities that are “religious in nature,” the majority transforms a broad exemption into a denominational preference for Protestant religions and a discriminatory exclusion of Catholicism, Judaism, Islam, Sikhism, Hinduism, Buddhism, Hare Krishna, and the Church of Latter Day Saints, among others. The First Amendment forbids the government from such discrimination and commands neutrality among religions in the provision or denial of a government benefit.

Catholic Charities at ¶113. The dissenting opinion goes on for nearly another 100 paragraphs and 70+ pages. During oral argument and throughout this dissent, every observation or comment from Justice Grassl Bradley drips with the admonition that discrimination against the Catholic Church is occurring here through the alleged “second-class” treatment of these Catholic Charities entities. They have to be exempt, according to Justice Grassl Bradley, because they are church-affiliated, and it is discrimination to hold otherwise.

Chief Justice Ziegler joins the dissent but for the most caustic paragraph. Justice Hagedorn, while agreeing with the statutory argument and the principle that remedial statutes like unemployment law should no longer be understood or interpreted as remedial, cannot join in the diatribes of Justice Grassl Bradley.

Note: All three dissenting justices adopted the position of a few US Supreme Court justices that remedial statutes like unemployment law should no longer be considered remedial when interpreting these laws. This change is an about face from the Wisconsin justices’ expansive understanding of unemployment eligibility in Operton v. LIRC, 2017 WI 46, 375 Wis.2d 1, 894 N.W.2d 426.

As noted already, this case should have been a simple and straight forward application of long understood principles. But, the US Supreme Court has of late prioritized Christian exceptionalism in legal matters. Exemptions from discrimination law for religious/Christian reasons have been expanded, see 303 Creative LLC v. Elenis, 600 U.S. 570 (2023), Kennedy v. Bremerton School District, 597 U.S. 507 (2022), and religious entities now get access to government funds regardless of their religious activities, see Trinity Lutheran Church of Columbia, Inc., v. Comer, 582 U.S. 449 (2017).

There really is no factual or legal support for any of the statutory or Constitutional claims being made here. But, the discrimination claim treads new ground and may well find support at the US Supreme Court. This argument transforms faith-based activities of any organization into religious activities, and there is seemingly no stopping point in what can be considered as religious activities.

The claim here turns a customer/clientele issue about what the people seeking charitable services want into a problem of state action about a government entity “discriminating” against a religious entity. It is a remarkable switch in focus that has far reaching consequences beyond just unemployment law. Where the issue of a religious entity having access to non-religious government funding was discrimination in Trinity Lutheran Church, now the application of a tax to the secular activities of a religious entity is also discrimination.

For a court to find a religious exemption on faith-based preferences alone, pretty much all general state tax and workplace law is under the microscope. Not only could religious entities performing non-religious services exempt themselves from unemployment taxes (and their employees from unemployment benefits), but this reasoning could be extended to Social Security benefits and all other employment taxes and workplace regulatory efforts. There is only a small leap from the ministers and rabbis currently exempt from Social Security taxes to making all employees of all religious entities exempt from all workplace regulations and laws, especially when the scope of the religious exemption is based on little more than the faith of that entity.

A petition for review to the US Supreme Court in this case is a given. Should Supreme Court review be accepted, the attorneys for the Commission and the Department should expect a very difficult time, as the angry dissent by Justice Grassl Bradley will now be the starting point for further analysis.

That is shame and maybe even a tragedy. For decades, the basic requirement of paying unemployment insurance for employees of all stripes and persuasions went without question. The Covid-19 pandemic demonstrated throughout the nation (not so much in Wisconsin, unfortunately) that unemployment benefits are the most effective and far reaching economic stimulus available. So, unemployment should remain fully funded and available to everyone. The effort in this case is to limit the scope and impact of unemployment by carving out major exceptions to its coverage. Such an outcome could have lasting and unsettling consequences to this economic engine.