Catholic Charities Bureau, Inc., et al., v. Wisconsin Labor & Industry Review Commission, et al.

LII note: The U.S Supreme Court has now decided Catholic Charities Bureau, Inc., et al., v. Wisconsin Labor & Industry Review Commission, et al.

    Issues

    Does Wisconsin violate the First Amendment’s religion clauses by denying a religious organization a tax exemption available under the state’s unemployment compensation system to organizations that are church-controlled and operated for primarily religious purposes?

    Oral argument:
    March 31, 2025
    Court below:
    Wisconsin Supreme Court

    This case asks the Court to determine whether Wisconsin violates the Constitution’s First Amendment by denying a particular religious organization a tax exemption under Wisconsin’s unemployment compensation system. Catholic Charities argues that the Wisconsin Supreme Court’s interpretation and application of the statute to deny the organization an exemption violates the First Amendment’s Establishment and Free Exercise Clauses. Specifically, Catholic Charities argues that the court’s decision violates the church’s autonomy, entangles the state in religious matters, and discriminates among religions for their church organizational structure and their distinct religious beliefs and practices. Wisconsin, on the other hand, maintains that the exemption and its interpretation effectuate no constitutional violations. Wisconsin argues that the exemption and the court’s interpretation do not infringe on the church’s autonomy, do not cause the state to become excessively entangled in religion, and do not discriminate among religions. This case directly calls for a balancing of church and state interests while also having implications for both charities and unemployment insurance on a large scale.

    Questions as Framed for the Court by the Parties

    Whether a state violates the First Amendment’s religion clauses by denying a religious organization an otherwise-available tax exemption because the organization does not meet the state’s criteria for religious behavior. 

    Facts

    In 1932, Wisconsin passed the nation’s first unemployment compensation statute, Wisconsin Statute § 108.02(15).  The statute implemented unemployment compensation coverage for unemployed workers. Generally, all work for a public, private, or nonprofit employer falls under the statute’s definition of employment, requiring that the employer pay into the unemployment system subject to certain exemptions. One such exemption is referred to as the “religious purposes” exemption. Set forth in Wisconsin statute § 108.02(15)(h), the religious purposes exemption does not require payment from churches or organizations that are “operated primarily for religious purposes” and controlled or operated by a church.

    Each Roman Catholic diocese in Wisconsin has a social ministry arm called Catholic Charities. At issue in this case is the Catholic Charities arm of the Diocese of Superior, and four of its sub-entities (collectively “Catholic Charities”). Catholic Charities proclaims in its mission statement to have been providing services to the poor and disadvantaged as a part of the Diocese of Superior’s social ministry since 1917. The four separately incorporated sub-entities, which operate specific service programs, involved in this case are Barron County Developmental Services, Inc., Black River Industries, Inc., Diversified Services, Inc., and Headwaters, Inc. The Diocese of Superior’s bishop serves as Catholic Charities’ president and controls Catholic Charities and the sub-entities.

    In 1972, Catholic Charities submitted a form that described its operations as “charitable,” “educational,” and “rehabilitative,” but not “religious.” Based on that form, the Wisconsin Department of Industry, Labor, and Human Relations determined that Catholic Charities was subject to the unemployment compensation statute—in other words, it was not entitled to the religious purposes exemption. Catholic Charities has been contributing to the Wisconsin unemployment system since then. In 2016, after one of Catholic Charities’ other sub-entities not involved in this case was determined to be exempt from contributing to the state unemployment system, Catholic Charities sought the same determination from the Wisconsin Department of Workforce Development (DWD).

    DWD denied the request, explaining that Catholic Charities did not qualify for the exemption because it did not establish that it is operated for primarily religious purposes. Catholic Charities appealed DWD’s decision and won. However, DWD petitioned the Labor and Industry Review Commission (LIRC) for review. LIRC reversed, agreeing with DWD. LIRC reasoned that Catholic Charities is a separate legal entity that provides secular services and engages in non-religious activities, and so it is not operated primarily for religious purposes and is not entitled to an exemption. After several appeals with varying outcomes, the case came before the Wisconsin Court of Appeals, which reinstated LIRC’s determination. Catholic Charities petitioned the Wisconsin Supreme Court for review. 

    In reviewing LIRC’s decision, the Wisconsin Supreme Court concluded that Catholic Charities is not entitled to an exemption under the Wisconsin statute because its activities are secular in nature, and it does not operate for a primarily religious purpose. The court also considered Catholic Charities’ constitutional claims that the statute, as applied to it, violates church autonomy, causes the state to become excessively entangled with religion, and discriminates against religious entities with complex government structures and different service beliefs, all in violation of the Establishment Clause and Free Exercise Clause of the First Amendment.  The court rejected each claim.

    On August 9, 2024, Catholic Charities petitioned the Supreme Court of the United States to hear this case. The Supreme Court granted certiorari on December 13, 2024. 

    Analysis

    CHURCH AUTONOMY AND STATE ENTANGLEMENT GUARANTEED BY THE FIRST AMENDMENT

    Catholic Charities argues that Wisconsin’s interpretation of § 108.02(15) to exclude it from the religious purposes exemption violates the First Amendment’s religion clauses because it allows the state to interfere with internal church government and impermissibly entangles the state with religion.  This interference, Catholic Charities argues, violates the principle of church autonomy, which arises out of the Constitution’s guarantee that religious bodies shall be independent of secular control and have the power to decide their own matters of church government, faith, and doctrine. Specifically, Catholic Charities contends that the principle protects against government interference with the church’s government and organizational structure, or its polity.  Catholic Charities argues that Wisconsin’s determination penalizes the Catholic Church for its polity that makes Catholic Charities, its social ministryarm, a separate corporation. . To support this assertion, Catholic Charities explains that if it were a part of the Catholic Diocese, rather than a separate body, then it would qualify for the exemption.  Catholic Charities also argues that Wisconsin violates the principle of church autonomy by interfering with its decision to serve and hire non-Catholics and not to proselytize while serving.

    Catholic Charities also claims that Wisconsin violates the First Amendment by allowing its court to engage in excessive government entanglement with religion.  Asserting that the Constitution does not allow the government to second-guess sincere religious beliefs, decide religious questions, or meddle in religious organizations’ internal affairs, Catholic Charities contends that Wisconsin does exactly this when deciding which activities are considered religious and which are not. Catholic Charities urges that entanglement concerns peak when a court scrutinizes “whether and how a religious entity pursues its mission.” Catholic Charities argues that Wisconsin impermissibly decides questions of religion and incorrectly interprets Catholic beliefs, relying on religious stereotypes to impose requirements that contradict true Catholic beliefs.  Catholic Charities contends that Wisconsin’s approach crosses the line into impermissible entanglement. It suggests that a constitutionally permissible alternative is for courts to consider the sincerity and religiosity of a claimant rather than examining whether certain activities are “inherently religious.”

    Wisconsin’s Labor and Industry Review Commission and Department of Workforce Development (collectively “Wisconsin”) counters that denying Catholic Charities an exemption under Wisconsin statute § 108.02(15) does not violate the Constitution’s religion clauses because the application of the statute does not cause the state to infringe on church autonomy or excessively entangle the state in religion.  Wisconsin explains that the principle of church autonomy protects against government compulsion and argues that there is no such state compulsion in this case. Rather, Wisconsin urges that the statute only creates a marginal and incidental economic incentive by requiring Catholic Charities to pay into the unemployment system. Such marginal incentive, Wisconsin argues, comes nowhere close to the compulsion necessary to run afoul of the Constitution. Wisconsin suggests that the marginal economic effect could incentivize Catholic Charities and the Catholic Church to restructure if desired, but that the statute does not compel restructuring and so does not impose on the church’s autonomy. Wisconsin further explains that the principle of church autonomy only protects against government compulsion over decisions that affect church government, faith, or doctrine. Wisconsin rejects Catholic Charities’ contention that church polity falls under this principle, arguing that such an understanding goes beyond case precedent.

    Wisconsin additionally argues that its inquiry into whether activities are religious does not create an entanglement issue prohibited by the First Amendment. Wisconsin asserts that entanglement of the state in religion is unconstitutional only when it is excessive. Excessive entanglement, it argues, typically occurs when the state is engaged in official, continued surveillance. Wisconsin contends that a one-time examination to determine whether Catholic Charities qualifies for the exemption does not rise to the level of continued, excessive entanglement. In fact, Wisconsin claims that the religious exemption serves a disentangling purpose; exempting religious organizations spares the government from having to review employment decisions that would demand inquiry into religion. Further, Wisconsin contends that Catholic Charities misunderstands the exemption, urging that it does not turn on whether the organization engages in “typical religious activities.” Wisconsin also suggests that Catholic Charities’ proposed “motive-only” test might create its own constitutional concerns by granting religious organizations a benefit over secular ones.

    DISCRIMINATION AMONG RELIGIONS

    Catholic Charities argues that Wisconsin unconstitutionally discriminates among religions by denying it an exemption because of the manner in which it provides services and its complex polity.  Catholic Charities asserts that Wisconsin denied its exemption because of the way it provides its services: though consistent with the Catholic Church’s teachings, the services are not “typical” religious activity.  Catholic Charities maintains that Catholic teaching does not allow for proselytization and demands that charity work be done for all people of all religions, not just Catholics.  Catholic Charities argues that Wisconsin used these characteristics against it, determining that Catholic Charities was not engaged in religious activities, despite its activities directly conforming with Catholic teachings. Catholic Charities contends that Wisconsin draws forbidden distinctions between religious organizations when it assesses a religious organization’s activities as it did here.  Catholic Charities additionally asserts that Wisconsin’s decision not to exempt it discriminates against religious groups, like the Catholic Church, that have complex polities.  Catholic Charities says that the Catholic Church organizes its service arms as separate bodies because it is called to do so by Catholic teachings.  Catholic Charities argues that refusing to grant an exemption because the religious organization is incorporated separately from its church discriminates by imposing a penalty on the Church’s religiously motivated structural decision.  Catholic Charities asserts that in order to justify the discriminatory application of its statute, Wisconsin must satisfy strict scrutiny, meaning the statute must be narrowly tailored to further a compelling state interest. Catholic Charities argues that Wisconsin has no legitimate interest in drawing distinctions between religious groups based on their beliefs about how to service the underprivileged and that the statute is underinclusive.

    Wisconsin counters that it does not unconstitutionally discriminate among religions because its exemption involves drawing distinctions within permissible, constitutional bounds. Wisconsin argues that the First Amendment allows legislatures to limit the accommodations that they grant to apply only to groups that face a religious liberty problem. Here, Wisconsin contends the exemption is designed to cater only to those religious employers whose participation in the unemployment system would compel the state to answer questions of faith and entangle itself with religion. According to Wisconsin, Catholic Charities presents no such problem. Wisconsin further contends that Catholic Charities fails to demonstrate a clearly identifiable burden–an element that is essential to the success of its discrimination claim. Wisconsin urges that Catholic Charities has not argued that the economic expense of reimbursing the Wisconsin unemployment system creates any imposition on its faith. Wisconsin also contends that because the exemption is meant to be an accommodation only for those religious organizations that pose an entanglement problem, it cannot be an identifiable harm to Catholic Charities to deny it an accommodation for a problem it does not have. Wisconsin additionally argues that strict scrutiny is not implicated in this case, but it assures that the religious purposes exemption would still satisfy a heightened level of scrutiny. The exemption would satisfy heightened scrutiny, Wisconsin argues, because the state has a compelling interest in ensuring unemployment coverage for its citizens, and the exemption is drawn narrowly so as to avoid entangling the state with any employment decisions based on religion.

    Discussion

    CHURCH VS. STATE INTERESTS

    The World Faith Foundation (“WFF”), in support of Catholic Charities, argues that Wisconsin’s approach to its unemployment tax violates church autonomy and will undermine the church’s ability to employ workers, direct their member’s faith, and provide charity outreach to the community.  WFF asserts that church autonomy plays an important role in how religious bodies define themselves and their directives. WFF further argues that this failure to adhere to strict church autonomy allows the government to discriminate between religions by declaring one religion’s practices to be religious in nature while declaring another’s practices to be secular in nature. By The Hand, in support of Catholic Charities, expresses discrimination concerns with Wisconsin’s approach because the limited set of recognized religious activities, like worship services and teaching the faith, will favor Protestantism over minority religions like Catholicism, Judaism, Islam, and more.  The Christian Legal Society, Campus Crusade for Christ, Inc, the National Association of Evangelicals, and ReJoyce in Jesus Ministries, in support of Catholic Charities, worry that this violation of church autonomy would extend well beyond religious charities to a wide variety of religious organizations, including religious medical centers and religious educational institutions. 

    The Freedom from Religion Foundation, in support of Wisconsin, counters that Wisconsin’s exemption preserves church autonomy by leaving the religion’s sacred matters untouched and respected.  Also supporting Wisconsin, the Service Employees International Union and the American Federation of State, County, and Municipal Employees (collectively “Service Employees”) go further by arguing that states must have the leeway to inquire into religious assertions.  They assert that Catholic Charities’ position has no logical stopping point and would require states to treat all organizations associated with a religion as falling within religious exemptions. If faced with this “all-or-nothing choice,” they assert that states will react by cutting back religious exemptions altogether. The International Municipal Lawyers Association, in support of Wisconsin, notes the expansive impact this issue could have and worries about the precedent set for future cases, like a religiously affiliated convenience store claiming exempt status on their beverage sales. It also worries about the potential tax implications for municipalities.

    CHARITY AND UNEMPLOYMENT CONTRIBUTIONS

    The First Liberty Institute, in support of Catholic Charities, argues that this case reaches beyond the mere ability to receive a government benefit, but also has implications for the success of many charitable organizations.  To illustrate its point, it highlights temporary shelters operated by churches that received zoning citations after the city determined that they were not related to the church’s activities, along with a soup kitchen that was cited for improper commercial operations after the city determined that it was not undergoing protected religious exercise. The First Liberty Institute asserts that the government’s ability to determine if a charitable ministry is religious threatens the ministry’s right to survive. The Wisconsin Catholic Conference, in support of Catholic Charities, also notes the Catholic Church is already involved in assisting the unemployed through the Church Unemployment Pay Program (CUPP).  It contrasts the CUPP with Wisconsin’s unemployment program, arguing that the church’s program is particularly necessary because the inefficiencies in Wisconsin’s program leave unemployed people insufficiently compensated.

    The Economic Policy Institute and six other organizations (“Economic Policy Institute et al.”), in support of Wisconsin, counter that voluntary programs like the CUPP are insufficient because former employees cannot rely on such a program for funds because, unlike state unemployment, CUPP is not required to pay out funds. Economic Policy Institute et al. also argue that the withdrawal of employers from state unemployment programs will detrimentally affect the federal government’s supplemental funding of those state programs. Noting the extent of the potential impact on unemployment benefits, the Freedom from Religion Foundation explains that six of the ten largest health systems would be eligible for exemption, totaling over 787,000 employees. Service Employees argue that all employees deserve unemployment benefits, regardless of their employers’ religious affiliations, because unemployment is equally harmful to the workers of religious and secular organizations alike.

    Conclusion


    Gregory Jameson and Kayla Espinoza

    Sarah Stevenson-Peck

    Additional Resources