February 24, 2017

Former employees of religious hospital systems have urged the U.S. Supreme Court to uphold circuit court rulings that their former employers are subject to the Employee Retirement Income Security Act, arguing that the businesses are run as hospitals not churches, so they don’t qualify for a religious exemption.

California’s Dignity Health, Illinois’ Advocate Healthcare Network and New Jersey’s Saint Peter’s Healthcare System have failed to prove that they shouldn’t be treated as secular businesses or how administrative letters from agencies like the Internal Revenue Service granting such exemptions should be allowed to count as legal precedent, the employees said in a Feb. 16 brief.

“No one would mistake petitioners’ hospital systems for churches,” the brief states. “Their operations are in all significant respects identical to the operations of their non-profit (and, to a great degree, for-profit) competitors. They impose no religious test or requirements on their patients or employees. There is no indication that churches provide them with financial support or guarantee their debts. Nonetheless, petitioners each claim that their plans are ERISA-exempt ‘church plans.’”

The justices agreed in December to take the case and oral arguments are set for March 27.

Dignity is the country’s fifth-largest health care provider, as of 2012, and the Archbishop of San Francisco in 2011 said when the organization restructured the next year it wouldn’t be recognized as Catholic and that it would be run as a secular nonprofit health care system, the employees said. The Diocese of Phoenix has also called the organization secular.

Advocate is the largest health care provider in Illinois and is not owned or financially supported by the two churches it claims to be associated with: the Evangelist Lutheran Church and the United Church of Christ, the brief states. The religious ownership of Saint Peter’s has been disputed and the hospital has generally been subject to ERISA plans, the employees said.

None of those businesses fall under the ERISA exemption, especially given the purpose for which the exemption was created, “which was to protect the confidentiality of a church’s books and records, especially as they related to the employment of clergy and others,” the respondents argued.

The hospitals have argued that federal agencies have long considered them exempt, but the employees say that argument doesn’t hold up. For example, the IRS memorandum that started such exemptions doesn’t explain its reasoning, address the legal and practical issues it creates and “directly controverts the statutory text,” the brief states.

The hospitals are challenging rulings from the Third, Seventh and Ninth Circuits. The federal government in January spoke out in their favor, citing decisions like the IRS' to show such exemptions are already in practice. The feds argued that although Congress originally outlined a narrow definition of “church plan” in its 1974 exemption language, it later amended the statute to allow the employees of a religious hospital or other church-affiliated nonprofit organization to be covered by an exempt church plan.

The employees are represented by Lynn Lincoln Sarko, Matthew Gerend, Laura R. Gerber, Ron Kilgard and Laurie Ashton of Keller Rohrback LLP, Karen L. Handorf, Michelle C. Yau, Julie G. Reiser and Mary J. Bortscheller of Cohen Milstein Sellers & Toll PLLC and James A. Feldman of the University of Pennsylvania Law School.

The cases are Saint Peter’s Healthcare System et al. v. Laurence Kaplan, case number 16-86, Advocate Health Care Network et al., case number 16-74, and Dignity Health et. al. v. Starla Robbins, case number 16-258, in the Supreme Court of the United States.

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