“This case is not complicated.” That was the opening line from counsel for Catholic Charities Bureau during oral arguments before the U.S. Supreme Court. On June 5, 2025, the Court unanimously agreed. It held that the Wisconsin Supreme Court violated the First Amendment’s Establishment Clause by denying Catholic Charities Bureau (CBB) and its affiliated nonprofit organizations a religious exemption from state unemployment compensation taxes.
Background
Every Roman Catholic diocese in Wisconsin has a Catholic Charities entity that functions as the diocese’s social ministry arm. CBB serves as the social ministry arm of the Diocese of Superior in Wisconsin, operating since 1917 to provide services to the poor and disadvantaged as an expression of the Catholic Church’s mission. CBB is controlled by the bishop of the Diocese; the bishop serves as CCB’s president and appoints its membership.
CCB oversees various sub-entities, including Barron County Developmental Services, Diversified Services, Black River Industries, and Headwaters, Inc., which offer a range of social services such as job training, placement, and daily living assistance for individuals with disabilities.
While CCB oversees these sub-entities and provides management services, the sub-entities themselves are primarily funded through government contracts and do not receive direct funding from the Diocese. Neither employees nor service recipients are required to be of any particular faith, and the programs do not provide religious training or attempt to promote the Catholic faith. Thus, while CCB and its affiliates are motivated by Catholic teachings to serve those in need, their activities are primarily charitable and secular in nature.
In 2016, CCB sought a religious exemption from Wisconsin’s unemployment insurance contributions, claiming that CCB and its affiliates were “operated primarily for religious purposes” under state law.
Previous Rulings
The Wisconsin Department of Workforce Development (DWD) denied the exemption. After several appeals and reversals, the case made its way to the Wisconsin Supreme Court.
On appeal to the Wisconsin Supreme Court, CBB argued that it was exempt under the Wisconsin statute because the proper consideration was whether it operated primarily for a religious motive or reason. Conversely, the State argued that whether CCB was operated primarily for religious purposes depended on whether its activities were primarily religious in character.
Ultimately, the Wisconsin Supreme Court affirmed the denial, concluding that the reviewing body must consider both the nonprofit’s motives and activities. Despite CCB’s religious motivations, the Wisconsin Supreme Court concluded that its activities were primarily charitable and secular and thus did not qualify for the exemption. In reaching its decision, the Wisconsin Supreme Court emphasized that the CCB did not “attempt to imbue program participants with the Catholic faith nor supply any religious materials to program participants or employees.”
Supreme Court’s Decision
CCB appealed to the U.S. Supreme Court, arguing that the Wisconsin Supreme Court decision violated the First Amendment of the U.S. Constitution because it forced state agencies and courts to second-guess the religious decisions of religious bodies. CCB argued that denying the exemption meant that CCB must pay unemployment taxes with money that could otherwise help the needy. The Supreme Court agreed.
Writing for the Court, Justice Sotomayor emphasized that the First Amendment prohibits the government from favoring certain religious denominations over others. Laws that impose denominational preferences must satisfy strict scrutiny, meaning that the law must be must be narrowly tailored to serve a compelling state interest.
Here, the Wisconsin courts had concluded that CCB was not operated primarily for religious purposes because it did not try to proselytize (i.e., try to convert the people they served to Catholicism) or limit services to only Catholics. By conditioning eligibility on whether an organization engaged in proselytization or served only members of their own faith, the Wisconsin Supreme Court effectively favored some religions over others. According to the Supreme Court, this kind of theological line-drawing constituted a textbook example of denominational discrimination and triggered strict scrutiny.
In applying the strict scrutiny framework, the Supreme Court concluded that the State’s interest in ensuring unemployment coverage for workers did not justify excluding CBB from coverage, which already operated its own robust unemployment system. Nor did the State explain how the exemption, which applied inconsistently across similar religious entities, was narrowly tailored to avoid entanglement in religious questions. In fact, the Supreme Court found the law both underinclusive and overinclusive—exempting some organizations regardless of religious function while excluding others based solely on organizational form.
The Court concluded that by conditioning the exemption on specific religious practices, the State had unconstitutionally favored certain forms of religious expression over others. The Court reversed and remanded the case for further proceedings.
Liebert Cassidy Whitmore attorneys are closely monitoring developments in relation to this Special Bulletin and are able to advise on the impact this could have on your organization. If you have any questions about this issue, please contact our Los Angeles, San Francisco, Fresno, San Diego, or Sacramento office.
Cath. Charities Bureau, Inc. v. Wis. Lab. 605 U.S.___ (2025).