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Proposed religious freedom bills could create unintended risks for companies

Several states reverse course after national uproar

Proposed religious freedom bills could create unintended risks for companies

States' recent efforts to pursue legislation protecting companies from doing business against their religious beliefs could backfire, and the bills if enacted could broaden companies' exposure to legal liabilities.

Legislators in more than a dozen states have introduced such measures since the beginning of the year, largely in response to the spreading legalization of same-sex marriage. None of these bills has been enacted into law.

Supporters of the so-called religious-freedom bills say they are designed to protect businesses with religious objections to same-sex marriage from being compelled to provide services or accommodations that conflict with their beliefs, citing a handful of recent lawsuits in various states against Christian-owned florists, bakeries and photography studios that refused service to gay and lesbian couples.

However, legal experts say many of the proposed bills around the country could leave companies open to civil lawsuits. In particular, many of the proposed laws are worded in ways that would permit employees to sue their employers for burdening their religious beliefs, even if the burdensome action was taken in compliance with separate employment rights and non-discrimination laws, experts say.

“It certainly puts the employer in a very hard spot, especially when you consider that most companies are operating on limited margins and can't afford to deal with this kind of litigation,'' said Michael Newman, a Los Angeles-based partner at Barger & Wolen L.L.P.

From an insurance perspective, the proposed laws could represent a potential spike in employment practices liability claims, said Bertrand Spunberg, senior vice president and executive risk practice leader at New York-based underwriter Hiscox USA.


“If I were to speculate, if these laws were to pass, I think it's reasonable to expect that they would be tested in court and, at least for a time, we would see an increase in EPL claims on that front,” Mr. Spunberg said. “Unfortunately, until these theories are tested, it will be very difficult to get an idea of the potential severity.”

Arizona came close when its legislature recently passed legislation igniting a national firestorm the past couple of weeks as the governor considered the measure.

Last week, Arizona Gov. Jan Brewer vetoed the proposed amendment to the state's Religious Freedom Restoration Act that would have allowed businesses and their employees to use their religious beliefs as an affirmative defense or cause of action in civil lawsuits between private parties.

In a letter to state legislators explaining her veto, Gov. Brewer said the bill was “broadly worded and could result in unintended and negative consequences.”

“The legislation seeks to protect businesses, yet the business community overwhelmingly opposes the proposed law,” Gov. Brewer said, referencing the dozens of national companies — including Delta Air Lines Inc., AT&T Inc., Marriott International Inc., Apple Inc., PetSmart Inc. and Microsoft Inc. — that criticized the proposed amendment, which they said would discourage tourism and economic growth in Arizona.

Already, federal and state anti-discrimination laws protect employees from harassment and adverse employment actions based on religious biases, and those laws also shield employers from liability as long as reasonable steps have been taken to accommodate an employee's religious beliefs.

By contrast, under bills like those considered in Arizona and other states, employers would face a significantly higher legal standard in justifying employment actions that infringe on an employee's religious beliefs, experts say.


“If an employee were to sue under one of these proposed laws, the employer would have to show that their action against that employee was in furtherance of a compelling governmental interest, and I'm not sure how employers are supposed to do that,” said Jane Ann Himsel, an Indianapolis-based shareholder at law firm Littler Mendelson P.C.

“You can see some instances where an employee may try to establish a claim of wrongful termination based on the argument that public policy provides this heightened protection of religious beliefs,'' Mr. Newman of Barger & Wolen said. “The hardest of all the potential scenarios is where employers would have to sort out a dispute between employees, where you would have two different sets of religious beliefs colliding with each other,” he said.

The national outcry over Arizona's proposal prompted lawmakers pursuing similar legislation in a number of other states to drastically change their proposals or abandon them altogether.

In Ohio, state Reps. Tim Derickson and Bill Patmon said in a joint statement last week they would withdraw their bill amid concerns it would permit private businesses to invoke religion as a justification for ignoring Ohio state laws governing commercial entities, including anti-discrimination, employment practices and consumer protection statutes.

Meanwhile, legislators in Oklahoma and Mississippi scrambled to amend proposals similarly to Ohio and Arizona legislation.

“I think that in their haste, the state legislators sponsoring these bills haven't really thought through the implications for business interests in their states,” said Eunice Rho, advocacy and policy counsel at the Washington-based American Civil Liberties Union. “If states have any interest in attracting big employers and growing their local economy, they'll recognize that this kind of legislation is an unfortunate trend and a real threat to the business community.”