Unemployment insurance seems unlikely territory for a disagreement over religious freedom. But a Wisconsin dispute before the U.S. Supreme Court could have far-reaching effects on how Catholic nonprofit organizations function, observers say.

Oral arguments in the case, Catholic Charities Bureau Inc. v. Wisconsin Labor & Industry Review Commission, are set for 10 a.m. Monday in Washington.

At issue is whether a charitable organization created by a Catholic diocese and overseen by a Catholic bishop can claim a religious exemption provided by state law, or whether a state agency can determine instead that the charitable organization doesn’t qualify for the exemption because its activities don’t meet the state’s standards for being “religious.”

“It’s a lot bigger than just unemployment insurance. Here, the court has to figure out a basic rule about religious exemptions,” said Christopher Lund, a professor at Wayne State University Law School in Detroit and a religious-liberty expert.

“Can the government exempt some kinds of religious organizations from rules without exempting others? If the answer is Yes, then there’s a risk that some religious organizations will be, in fact, favored over others. If the answer is No, then there’s a risk that government won’t be able to give special protections to different kinds of religious organizations,” Lund told the Register by email. “There are difficulties either way.”

Religious? Or Just Charitable?

Catholic Charities Bureau Inc. was formed by the Diocese of Superior in 1917 to provide charitable services to people in northern Wisconsin. The organization seeks to help poor people, the elderly, the disabled, and victims of disaster, both on its own and through several affiliates.

The state’s unemployment-compensation program began in 1932, during the Great Depression, according to court papers.

Nowadays, Wisconsin charges employers a tax on the first $14,000 they pay each employee, with the money earmarked for the state’s unemployment-insurance fund, which provides payments to qualifying workers who lose their jobs without being fired for cause. State law provides an exemption from the tax for employers that are a “church,” “a convention or association of churches,” or “an organization operated primarily for religious purposes.”

Catholic Charities Bureau has been making unemployment-insurance tax payments to the state since 1972, when a state agency determined that its purposes were “charitable,” “educational” and “rehabilitative,” but not “religious,” according to court papers.

But in 2016, Catholic Charities Bureau asked for a religious exemption from the tax, after an affiliate not involved in the current case won an exemption from a state trial court. Catholic Charities Bureau and four related entities — all affiliated with the Diocese of Superior and under the authority of the bishop there — say they want to provide unemployment insurance for their employees, but through a fund created by the state’s diocesan bishops, which they say is more efficient — and presumably cheaper.

A state agency denied the request, and most state courts since then have upheld the denial, including the state’s highest.

In March 2024, the Wisconsin Supreme Court ruled against Catholic Charities, 4-3, along the court’s sharply divided liberal-conservative lines, with liberals voting against Catholic Charities and conservatives voting for it. The court found that Catholic Charities in the Diocese of Superior is “not operated primarily for religious purposes within the meaning of” state law.

Lawyers for Becket law group, which is representing Catholic Charities Bureau in the case, said the Wisconsin Supreme Court demonstrated what they called a “crabbed understanding of religion” in a brief for the U.S. Supreme Court.

“This is therefore a simple case. Wisconsin has denied Catholic Charities a religious exemption that the state freely extends to other religious organizations based on the absurd view that Catholic Charities’ aid to the needy isn’t actually religious at all,” Catholic Charities’ lawyers wrote. “The Religion Clauses of the First Amendment do not allow such a remarkable conclusion. Instead, the Clauses work in tandem to protect a sphere of autonomy for religious organizations, to prevent entanglement of church and state, and to prohibit government discrimination among religious organizations.”

The lawyers continued: “Wisconsin’s effort to pick and choose among religious groups — and carve out works of mercy from the realm of the ‘religious’ altogether — thus violates the Constitution three times over.”

Lawyers for the state agency said the state Legislature is entitled but not obligated “to create a targeted religious accommodation” from unemployment insurance “for certain employers,” but that neither Catholic Charities Bureau nor its related entities “engages in distinctively religious activities” or claims “a religious objection to contributing to unemployment insurance.”

The state’s lawyers also argued that allowing certain religiously motivated organizations (such as a diocese) but not others (such as a charitable organization created by a diocese) doesn’t violate the First Amendment of the U.S. Constitution, which guarantees “the free exercise” of religion while also prohibiting government from making “an establishment of religion.”

“If the First Amendment did not allow religious accommodations to be tailored to particular religious groups on a nondenominational basis, legislatures (and courts) would have to choose between exempting all religious groups or none at all. Such a rule would threaten the entire project of fitting religious accommodations to the problems they seek to solve,” the state’s lawyers wrote in their brief.

Flock of Friends

The Wisconsin unemployment-insurance case has drawn friend-of-the-court briefs from religious groups and religious-liberty organizations on behalf of Catholic Charities Bureau and from secularist groups on behalf of the state.

The Trump administration’s Office of Solicitor General and U.S. Department of Justice filed a brief, arguing that the court should rule in favor of Catholic Charities to protect religious liberty.

On the other side, the Freedom From Religion Foundation argues in its brief that the state should prevail and suggests that if Catholic Charities wins there is no legal principle that would prevent religiously affiliated hospitals (most of which are Catholic) from also seeking similar exemptions.

As the Register has reported, in recent years, a majority of justices on the U.S. Supreme Court have tended to take an expansive view of religious liberty, though justices sometimes prefer to issue narrow rulings.

Lund, who filed a friend-of-the-court brief in the Wisconsin case on his own behalf, charts a possible middle way for the high court, recommending that the justices state clear principles for determining what activities should qualify as “religious” when it comes to religious exemptions in law and then sending the case back to lower courts to determine if Catholic Charities rightly qualifies for such an exemption in Wisconsin.

Those principles, he wrote in the brief, should declare “that religious exemptions cannot discriminate against particular religious faiths, whether in purpose or effect,” and “that religious exemptions can give greater protection to religious roles and institutions that are at the core of free exercise” of religion.

“The court needs to stay on a narrow path and not drift too far in either direction,” Lund told the Register. “The court needs to affirm that religious exemptions can distinguish between religious organizations.

“But the court also needs to lay out guard rules about when such distinctions might cross the constitutional line.”

A decision in the case is expected by June or early July.