Also on June 5, 2025, the Supreme Court issued another unanimous opinion that every HR professional and business owner with a religious affiliation should understand. Catholic Charities Bureau v. Wisconsin Labor & Industry Review Commission addressed whether a religious nonprofit still qualifies for a state unemployment tax exemption when its services are charitable but not overtly religious. Wisconsin said no. The Supreme Court disagreed.
The Court’s Decision
Under both federal and Wisconsin law, religious organizations that are (1) operated primarily for religious purposes and (2) controlled by a church are exempt from paying into the state unemployment system. That’s not new.
Catholic Charities Bureau (CCB) met those requirements on paper. It’s the official social ministry arm of the Diocese of Superior, Wisconsin. Its mission is deeply rooted in Catholic teachings—feeding the hungry, housing the homeless, caring for people with disabilities.
But unlike some faith-based groups, CCB doesn’t evangelize. It doesn’t restrict services to Catholics. It hires people from any background.
The state denied CCB’s exemption, claiming its services were “primarily charitable and secular.” In other words, CCB looked too much like a public service agency and not enough like a religious ministry. Because it didn’t preach or convert, the state ruled it wasn’t “religious enough” to qualify for the exemption.
In a 9–0 decision, the Court reversed Wisconsin’s ruling. Writing for the Court, Justice Sotomayor held that the state had violated the First Amendment by drawing distinctions between religious groups based on how they express their faith. The government, she said, had imposed a “denominational preference”—treating some religious practices as more valid than others. That kind of line-drawing triggers strict scrutiny, the highest level of constitutional review.
Sotomayor was blunt: the state cannot condition tax exemptions on theological choices. Whether a charity chooses to proselytize, restrict services to co-religionists, or serve the general public without evangelizing—those are religious decisions, and the government has no business ranking them.
Two Concurring Opinions
Justice Thomas: Church Autonomy
Justice Thomas focused on church autonomy. He argued that courts shouldn’t dissect how a religious institution structures itself. Catholic Charities and its affiliates were clearly under church control, and that should have been the end of it. States don’t get to second-guess how the Diocese delegates its charitable work or whether separate incorporation changes the religious character of the ministry.
Justice Jackson: Functional Analysis
Justice Jackson took a different tack, grounded in statutory interpretation. She emphasized that FUTA’s exemption depends on an organization’s function—what it does—not its internal motivation or theology. If the work aligns with the religious purpose and the group is church-operated, it qualifies.
What HR Needs to Know
The Supreme Court expanded which religious nonprofits can qualify for unemployment tax exemptions. The key shift is that your organization doesn’t need to evangelize or offer overtly religious services to potentially get religious tax exemptions under the law. If your work is grounded in faith—even if it looks secular from the outside—it likely counts.
That matters for HR and leadership teams making compliance decisions. Whether you’re running a food pantry, disability program, or housing ministry, the services you offer don’t have to be explicitly religious. What matters is that they’re rooted in your religious mission.
Expanded Exemption Scope
The most immediate takeaway is that religious nonprofits can still qualify for unemployment tax exemptions even if their services look secular on the surface. That includes housing programs, food assistance, disability support, and other public-facing work. What matters is whether those services are grounded in religious mission, not whether they involve scripture or conversion.
The Court recognized that faith-based organizations express their religious identity in more than one way. A nonprofit that feeds the hungry because it’s a Gospel mandate doesn’t lose its religious character just because it doesn’t hand out Bibles with every meal.
Theological Neutrality Is Now Law
This decision reinforces a principle that’s been building in recent years: the state cannot favor one expression of religion over another. Wisconsin’s denial was based on Catholic Charities not proselytizing and not limiting services to Catholics.
That means government agencies can’t judge which religious practices are serious or authentic. Whether your organization evangelizes, stays neutral, or centers its mission on social justice—those are theological choices, and the First Amendment protects all of them.
Narrow Decision, Wide Ripples
To be clear, the Court didn’t hand religious employers a blank check. This case was specifically about unemployment taxes. But even a narrow decision can have big consequences.
When a religious nonprofit opts out of the state unemployment system, it doesn’t mean employees are left with nothing—but it does mean the employer becomes responsible for providing some form of alternative coverage. That might be a church-run unemployment program or a self-funded plan. Either way, it’s no longer regulated by the state.
That shift removes oversight. And with less oversight, there’s more room for delay, denial, or outright abuse. Workers may not know where to file a claim. They may not get clear answers. They may not get benefits at all.
Still Murky: What Counts as a Theological Choice?
The Court was clear that proselytizing—or choosing not to—is a theological decision. But it stopped short of defining where theology ends and ordinary business begins.
What about hiring practices? What about serving certain populations but not others? What about requiring adherence to specific conduct codes?
Those questions weren’t answered, and that ambiguity is going to invite more litigation.
Conclusion
The Catholic Charities decision is a major moment for faith-based employers, expanding religious protections while also raising new compliance questions. HR professionals in religious nonprofits should review their tax filings, employment practices, and coverage plans in light of this ruling—and consult legal counsel to stay ahead of what’s next.
Need help interpreting how this ruling affects your organization? Bryan J. Driscoll has decades of experience advising religious employers on employment law, nonprofit compliance, and First Amendment protections. Contact me today for guidance tailored to your mission and legal obligations.
