From Motivation to Function: The Supreme Court’s Denominational-Neutrality Test for Religious-Employer Exemptions

1. Introduction

On 5 June 2025 the United States Supreme Court delivered a unanimous opinion in Catholic Charities Bureau, Inc. v. Wisconsin Labor and Industry Review Commission, 605 U.S. ___ (2025). The dispute concerned Wisconsin’s decision to deny Catholic Charities Bureau (“CCB”) and four diocesan social-service entities an exemption from unemployment-insurance taxation. Wisconsin law exempts organisations that are

“operated, supervised, controlled, or principally supported by a church,” and
“operated primarily for religious purposes.”

The state courts concluded that CCB failed the second limb because the charities neither proselytised nor limited services to Catholics. Writing for a unanimous Court, Justice Sotomayor held that conditioning the exemption on such theological distinctions violates the First Amendment by preferring some religious practices over others. The Court therefore reversed the Wisconsin Supreme Court and remanded the matter.

This decision establishes a clear constitutional rule: when a statute differentiates among religious organisations on doctrinal lines—such as whether a charity evangelises—strict scrutiny applies, and the statute will likely fail. Below is a structured commentary on the judgment, its reasoning, and its likely ripples across First Amendment, labour, and tax jurisprudence.

2. Summary of the Judgment

Denominational Neutrality. The Court reaffirmed that the Establishment Clause forbids governmental “denominational preferences,” citing Larson v. Valente, 456 U.S. 228 (1982).
Strict Scrutiny Triggered. Because Wisconsin’s interpretation preferred religions that proselytise or serve only co-religionists, it drew “inherently theological lines,” mandating strict scrutiny.
State’s Justifications Failed. Wisconsin asserted interests in (a) protecting workers’ unemployment benefits and (b) avoiding entanglement in religious disputes. The Court found the statutory scheme under- and over-inclusive respectively, and therefore not narrowly tailored.
Holding. The application of Wis. Stat. §108.02(15)(h)(2) to CCB violates the First Amendment; decision reversed and remanded.
Concurrences.
- Justice Thomas (joined by himself): The Wisconsin court also erred under the church-autonomy doctrine by treating CCB as a secular corporation separate from the Diocese, ignoring ecclesiastical governance.
- Justice Jackson: FUTA’s “religious purposes” exemption turns on what an entity does (religious function), not why; the Wisconsin test of motivation was mistaken.

3. Detailed Analysis

3.1 Precedents Cited and Their Influence

Larson v. Valente (1982) – Core foundation for strict scrutiny when laws “prefer one religion over another.” The Court relied on Larson’s footnote 23 to clarify that it is the facial denominational distinction, not merely disparate impact, which triggers strict scrutiny.
Gillette v. United States (1971) – Wisconsin invoked Gillette to argue only “invidious discrimination” should prompt strict scrutiny. The Court distinguished Gillette: there, the conscientious-objector exemption was facially neutral because it applied “equally to members of all religions.”
Fowler v. Rhode Island (1953) – Cited as a classic example of impermissible theological line-drawing (treating Jehovah’s Witness services differently).
Reed v. Town of Gilbert (2015) – Used to illustrate how under-inclusive tailoring undermines claims of compelling interest.
Watson v. Jones (1872) & Epperson v. Arkansas (1968) – Invoked for the broader proposition that civil authority must remain neutral in religious matters.

3.2 The Court’s Legal Reasoning

Step One – Identify Theological Line-Drawing.
The Wisconsin Supreme Court’s test—proselytise or limit services to adherents—hinges on religious doctrine. By making eligibility contingent on these practices, the state effectively preferred denominations that evangelise over those that do charitable works without overt preaching.
Step Two – Apply Larson Strict Scrutiny.
Once a denominational preference is present, the burden shifts to the State to prove the distinction is narrowly tailored to a compelling interest. Ordinary rational-basis review was unavailable.
Step Three – Evaluate State Interests.
- Ensuring unemployment coverage. Under-inclusive because the statute already exempts churches, ministers, and numerous other employments; over-inclusive because CCB provides its own unemployment scheme.
- Avoiding entanglement. Poor fit: statute exempts organisations wholesale rather than particular positions that might raise doctrinal questions (e.g., ministers vs. janitors); existing rules already permit adjudication of secular misconduct without theological inquiry.
Conclusion – Statute Fails Strict Scrutiny.
Wisconsin could not justify why an entity’s choice to evangelise (or not) is a necessary proxy for either asserted interest.

3.3 Anticipated Impact

State Exemption Schemes. Over 40 States replicate FUTA’s religious-employer exemption. Agencies must now ensure their interpretive tests do not hinge on proselytisation, worship frequency, exclusivity of service, or other doctrinal factors.
Charitable Organisations. Faith-based charities that serve all comers—often under government contracts—are shielded from losing religious exemptions simply because they implement a “no-proselytising” ethic.
Future Litigation Horizons.
- Church Autonomy Claims. Justice Thomas’s concurrence emboldens litigants to deploy church-governance arguments where States rely on corporate separateness to deny exemptions.
- Function vs. Motivation Tests. Justice Jackson’s concurrence invites re-evaluation of statutory language referencing “religious purposes” across federal and state codes.
- Neutrality Principle Reinforced. Government programmes (school-choice, social-service grants, zoning) must craft criteria in secular terms; doctrinal proxies run constitutional risk.
Employment Law. The decision may influence how “ministerial exception” and “church autonomy” doctrines intersect with tax and labour regulation, particularly for large healthcare and educational systems.

4. Complex Concepts Simplified

Denominational Preference: When a law explicitly benefits or burdens some religious traditions more than others—e.g., favouring religions that baptise infants versus those that do not.
Strict Scrutiny: The toughest constitutional test. The government must show (1) a compelling interest and (2) that the law is narrowly tailored—i.e., the least restrictive means—to achieve that interest.
Proselytisation vs. Evangelisation: Proselytisation involves active attempts to convert others; evangelisation can simply be joyful witness or sharing of faith. Catholic teaching permits the latter but cautions against coercive proselytising.
Church Autonomy Doctrine: First Amendment principle shielding internal governance of religious institutions (choice of ministers, doctrine, polity) from civil court interference. Justice Thomas emphasised this in his concurrence.
Under-inclusive / Over-inclusive: An under-inclusive law omits substantial portions of the problem it claims to address; an over-inclusive law sweeps in actors unrelated to that problem—both flaws undermine “narrow tailoring.”

5. Conclusion

Catholic Charities Bureau crystallises and extends the principle that eligibility for governmental accommodations cannot depend on the presence or absence of specific religious practices. The Court’s unanimous voice signals a robust, cross-ideological commitment to denominational neutrality. Going forward, legislative drafters and administrative interpreters must anchor exemptions in secular, objectively verifiable criteria—not in assessments of preaching style, evangelistic fervour, or membership exclusivity. Simultaneously, Justice Thomas’s separate opinion reminds States that ecclesiastical bodies—not civil courts—define their own internal boundaries, while Justice Jackson’s concurrence reorients the statutory inquiry from motive to function.

For faith-based charities, the ruling safeguards their religious identity even when they embrace universal service and eschew proselytisation. For the law, it provides a clearer map: when theological differences become statutory criteria, the strict-scrutiny alarm sounds—and, as Wisconsin learned, the government usually loses.