In a highly anticipated decision, the United States Supreme Court has broadened the scope of religious exemptions from certain state regulations. In Catholic Charities Bureau, Inc. et al. v. Wisconsin Labor and Industry Review Commission et al.,1 Catholic Charities claimed a religious exemption from Wisconsin’s unemployment compensation tax.
Background
Wisconsin exempts from its unemployment tax system non-profit organizations that are “operated primarily for religious purposes” and “operated, supervised, controlled, or principally supported by a church or convention or association of churches.”2 Wisconsin’s exemption is substantially similar to the religious exemption under the Federal Unemployment Tax Act and the unemployment tax statutes of approximately 40 other states.
Catholic Charities provides a wide range of charitable services to communities across Wisconsin, under the supervision of the Roman Catholic Diocese of Superior Wisconsin. The Bureau’s stated mission is to “carry on the redeeming work of our Lord” by “providing services to the to the poor and disadvantaged,” thereby seeking to “be an effective sign of the charity of Christ.”
Wisconsin’s Supreme Court determined that Catholic Charities did not qualify for the religious exemption because it was not “operated primarily for religious purposes.” The Wisconsin court noted that Catholic Charities does not conduct worship services, religious outreach, ceremony, or religious education. It does not limit its services to persons of the Catholic faith. Nor does it require its employees to be Catholic. Catholic Charities employees receive no religious training or orientation and are prohibited from using Catholic Charities’ services as a means to proselytize. Accordingly, the Wisconsin court concluded that Catholic Charities’ activities were “secular in nature” rather than religious.
Supreme Court Ruling
The United States Supreme Court reversed the decision of the Wisconsin court, holding that Wisconsin’s denial of Catholic Charities’ claim of religious exemption violated the First Amendment to the Constitution. The majority opinion held that Catholic Charities’ decision to avoid proselytization, offer services to persons of all faiths, and avoid religious indoctrination of its employees were denominational preferences that express the Catholic church’s theological approach to charity. The majority opinion concluded that, by denying the religious exemption on this basis, Wisconsin discriminated against Catholic Charities on the basis of its religious affiliation. The majority then concluded that Wisconsin could not justify this discrimination because its position did not serve a compelling state interest and was not narrowly tailored to fit that interest.
Practical Implications
The Supreme Court’s decision has implications that extend beyond state unemployment taxes. For example, Roman Catholic Diocese of Albany v. Harris3 involves a New York State insurance regulation that allows insurers to omit coverage for elective abortion services from group insurance policies sold to “religious employers.” To qualify as a “religious employer,” the regulations require that the employer serve and employ “persons who share the religious tenets of” the employer. The Supreme Court’s decision in Catholic Charities Bureau, Inc. v. Wisconsin expressly rejected these criteria, and the Supreme Court has remanded Roman Catholic Diocese of Albany v. Harris to the New York Court of Appeals for further consideration consistent with its decision in Catholic Charities Bureau, Inc. v. Wisconsin.4
The Supreme Court’s decision broadens the scope of what constitutes a “religious organization” to include faith-based organizations that provide social and charitable services rather than providing purely religious services. Thus, church-affiliated organizations that provide social services in the areas of health, housing, or education or that serve the aged, developmentally disabled, and other populations may now qualify as exempt from state regulations that include religious exemptions.
Faith-based social welfare and charitable organizations should review their eligibility for religious exemptions from state regulation. The insurance regulation at issue in Roman Catholic Diocese of Albany v. Harris provides one example. New York State also provides a religious exemption from Charities Bureau registration and annual reporting.5 Courts have also recognized a religious exemption for religious organizations for hiring practices that could otherwise be considered discriminatory.6
If you have any questions regarding the content of this alert, please contact Ray McCabe, partner, at rmccabe@barclaydamon.com, or another member of the firm’s Corporate Practice Area.
1605 U.S. (2025), Sup. Ct. No. 24-154. The named plaintiffs were Catholic Charities Bureau, Inc., and four of its affiliates that provide social welfare services in Wisconsin. For ease of reference, this alert refers to Catholic Charities Bureau, Inc. as the “Bureau” and the Bureau and its affiliates collectively as “Catholic Charities.”
2Wis. Stat. §108.01(15)(h).
3Sup. Ct. No. 24-319.
4Sup. Ct. No. 24-319, Order of June 16, 2025.
5New York State Executive Law Section 172-a.
6See Rweyemamu v. Cote, 520 F.2d 198 (2nd Cir. 2008).