987 N.W.2d 778
Wis. Ct. App.2023Background
- Catholic Charities Bureau (CCB) and four separately incorporated sub-entities (BCDS, BRI, DSI, Headwaters) are diocesan social‑service organizations that provide community rehabilitation, job training, support services, and other charitable programs.
- The sub-entities are separately incorporated, receive most funding from government contracts/private sources (not the Diocese), do not require employees or clients to be Catholic, and do not engage in worship, evangelizing, or religious instruction for program participants.
- CCB asserts exemption from Wisconsin unemployment tax under Wis. Stat. § 108.02(15)(h)2. (excludes service for a nonprofit “operated primarily for religious purposes” and supported by a church).
- Administrative history: DWD denied exemption → ALJ granted exemption → LIRC reversed the ALJ → Douglas County circuit court reversed LIRC → this appeal to Wisconsin Court of Appeals.
- Core legal dispute: whether “operated primarily for religious purposes” looks to the church’s motive, the nonprofit’s activities, or both; and whether First Amendment concerns constrain that inquiry.
- Court of Appeals held that the reviewing body must consider both the nonprofit’s professed religious motive and the nature of its activities, and that CCB and its sub-entities fail the test (services are primarily charitable/secular), so no exemption.
Issues
| Issue | Plaintiff's Argument (CCB) | Defendant's Argument (DWD) | Held |
|---|---|---|---|
| Whose purpose controls: nonprofit or church? | Focus on church’s religious motive in operating the nonprofit; church motive should govern. | Focus on the nonprofit’s own purposes and operations; statute targets employees of the nonprofit. | Nonprofit’s purpose controls; must assess the employing organization, not the church alone. |
| What to examine: motive, activities, or both? | Exemption should turn on religious motive/reason (sincere religious purpose). | Exemption should depend on the nonprofit’s activities (whether services are primarily religious). | Both must be considered: examine the nonprofit’s professed motive and whether its actual operations are primarily religious. |
| Ambiguity and statutory construction | (Argued ambiguity in different parts) | Statute aligns with FUTA and should be narrowly construed to protect coverage. | Phrase is not ambiguous when read as a whole; interpret narrowly (exceptions to coverage construed strictly). |
| First Amendment (Free Exercise & Establishment/entanglement) | Activity-focused inquiry burdens religious practice of ecumenical charity; review should respect sincerely held beliefs. | Activity-focused test avoids inquiry into doctrine and excessive entanglement. | No Free Exercise violation; neutral, objective inquiry into motives and activities avoids forbidden doctrinal inquiry and entanglement. |
Key Cases Cited
- Kalal v. Circuit Court for Dane Cnty., 271 Wis. 2d 633, 681 N.W.2d 110 (Wis. 2004) (text and context govern statutory interpretation).
- Operton v. LIRC, 375 Wis. 2d 1, 894 N.W.2d 426 (Wis. 2017) (unemployment statutes construed liberally to provide coverage).
- United States v. Dykema, 666 F.2d 1096 (7th Cir. 1981) (tax law inquiry may survey activities objectively; considering activities does not violate the First Amendment).
- Coulee Catholic Schools v. LIRC, 320 Wis. 2d 275, 768 N.W.2d 868 (Wis. 2009) (assess whether an organization’s mission is religious in both statement and practice; ministerial‑type analysis).
- Princess House, Inc. v. DILHR, 111 Wis. 2d 46, 330 N.W.2d 169 (Wis. 1983) (exceptions to unemployment coverage construed narrowly; remedial statute interpreted liberally).
- Living Faith, Inc. v. Commissioner, 950 F.2d 365 (7th Cir. 1991) (an organization’s assertion of religious purpose is relevant but not dispositive; operations may control).