Will the Affordable Care Act Prompt More Litigation?

Employee unions provide important protections to public sector workers in California. However, a recent ruling has some commentators worried. Discover why.

Although opinions about the Affordable Care Act may vary, a recent case before the U.S. Supreme Court suggests that the new health care mandate may raise novel questions about a business entity's legal status, classification and employment obligations.

The petitioners in the case, Burwell v. Hobby Lobby Stores, are two closely held for-profit corporations. Each claimed that Christian principles guided their business operations. Consequently, they argued that family-owned corporations should have the right to exercise their religious liberty in declining to pay for the contraceptive coverage otherwise provided in employee health plans under the Affordable Care Act.

Corporations invoking constitutional rights

The corporations invoked various legal authorities in their argument, including the Religious Freedom Restoration Act of 1993 and the First Amendment's Free Exercise Clause. Both protect the religious rights of persons. Yet can a corporation exercise or practice religion in the same way as a person? Does the classification of for-profit or nonprofit change the analysis? Those novel questions were at stake before the Supreme Court.

In the majority opinion, Justice Samuel A. Alito Jr. wrote that the RFRA did apply to the particular corporate petitioners. The Court further determined that the contraceptive coverage imposed a substantial burden on those corporations, thus invoking the least restrictive means test under constitutional law. In that regard, the majority opinion ultimately concluded that there were other, less restrictive ways for Congress to provide female employees with cost-free access to FDA-approved contraceptives.

The consequences of entity classifications

The opinion could have far-reaching implications. As readers know, a corporation is usually regarded as a legal entity distinct from its owner(s). For example, there are various federal and state obligations incumbent upon a business, separate from an individual's legal obligations. Pursuant to federal law, a corporation may have a separate tax identification number and be subject to special taxes. The Affordable Care Act has also brought about some new requirements, as challenged by the Hobby Lobby case.

In Colorado, state law regulates many aspects of local business operations. In addition to providing definitions for various types of business entities -- such as a sole proprietorship, a general partnership, a corporation or a limited liability company -- state law also requires certain filings from local businesses. Colorado law also governs how a business can be formed and registered in the state: Prospective start-ups must check the Colorado Secretary of State's website regarding the availability of their proposed business and trade names.

As corporations continue to adapt to changing legal requirements under the Affordable Care Act and other laws, there may be a need to revise employee handbooks, employment agreements or other employee communications about employer sponsored health care plans. Based on the new Supreme Court precedent, a business may even consider revisiting its legal classification or entity organization model. In those efforts, a law firm that focuses on business and commercial litigation, as well as employment law, can provide valuable counsel.

Keywords: business law, business litigation, employment law, business organization, health coverage