The Ninth Circuit issued three opinions in Spencer v. World Vision, Inc., No. 08-35532, on August 23, 2010 (full opinion available here). World Vision, Inc. (“WVI”) terminated a number of employees when it learned they did not subscribe to certain Christian beliefs. The Western District of Washington granted summary judgment in favor of WVI, based on its argument that it qualifies for the religious exemption from Title VII, and so is permitted to discriminate on the basis of religion. The exemption applies to any “religious corporation, association, educational institution, or society.” See 42 U.S.C. § 2000e-1(a). This statutory language is subject to wildly varying interpretations.
Judge O’Scannlain’s Opinion and Judge Kleinfeld’s Concurrence both affirmed summary judgment. Judge Berzon disagreed in her dissent, opining that WVI does not fall into the religious exemption. All three Judges enunciated separate tests to determine whether an entity qualifies for the exemption, leaving lower courts – not to mention entities withreligious affiliations – with more questions than answers.
A. District Court’s “[H]odgepodge of [C]onstitutionally [Q]uestionable [I]nquiries” Uniformly Rejected
The District Court adopted a Third Circuit test – from LeBoon v. Lancaster Jewish Community Center Association, 503 F.3d 217 (3d Cir. 2007) – explaining that the Ninth Circuit precedent was, in its view, inapplicable. In so doing, the District Court discounted EEOC. V. Kamehameha Schools/Bishop Estate, 990 F.2d 458 (9th Cir. 1993) and EEOC v. Townley Engineering and Manufacturing Company, 859 F.2d 610 (9th Cir. 1988). In Townley, the Ninth Circuit decided that a for-profit manufacturer of mining equipment did not qualify for the exemption, even though its employees were required to attend devotional services during the work day. Townley, 859 F.2d at 619. The Townley court utilized a fact-sensitive inquiry into whether the entity was “primarily religious or secular,” weighing all significant religious and secular characteristics. Id. at 618, n. 14. The Kamehameha court reaffirmed Townley, noting the exemption should be construed “narrowly.” Kamehameha, 990 F.2d at 460. In that case, the Ninth Circuit held that two private educational institutions did not qualify for the exemption, after considering the schools’: (1) ownership and affiliation; (2) purpose; (3) faculty; (4) student body; (5) student activities; and (6) curriculum. Id. at 461-63.
The District Court instead relied on LeBoon, which set forth a nine-factor test: (1) whether the entity operates for profit; (2) whether it produces a secular product; (3) whether the entity’s articles of incorporation state a religious purpose; (4) whether it is owned, affiliated of financially supported by a church or synagogue; (5) whether a formally religious entity participates in management; (6) whether the entity holds itself out to the public as secular or religious; (7) whether the entity includes prayer or worship in its activities; (8) whether it includes religious instruction, if an educational institution; and (9) whether its membership is made up of coreligionists. LeBoon, 503 F.3d at 226. The Third Circuit used these factors in LeBoon to conclude that a Jewish community center was a religious organization qualifying for the exemption. Id. at 226-230.
Judge O’Scannlain’s Opinion delineated why the LeBoontest should not be used, and Judge Kleinfeld agreed in his Concurrence. First, the Opinion rejected the “membership” prong in LeBoon, reasoning that it could encourage organizations to discriminate in hiring in order to boost their chances to obtain the exemption. Second, many of the factors necessitate inquiries that violate both the Free Exercise and the Establishment Clauses. Most problematic, according to Judge O’Scannlain, is the inquiry into whether the products or services are religious or secular. This type of inquiry results in government entanglement in religious affairs, and it could chill the free exercise of religious activity. The factor related to affiliation with or financial support from a “formally religious” is also challenging. This factor could favor institutions that claim a denominational affiliation over those that do not, causing potential discrimination amongst religious institutions (i.e. a house of worship versus an independent religious organization, a well-established religious organization versus a new one). The Opinion and the Concurrence agreed that the LeBoon test is unworkable.
B. The Opinion’s Three-Part Test (for a Non-Profit)
Judge O’Scannlain announced the following approach to determining qualification for the religious exemption by a non-profit organization: (1) the entity is organized for a self-identified religious purpose (evidenced by founding documents); (2) it is engaged in activity consistent with and in furtherance of that purpose; and (3) it holds itself out to the public as religious. Judge O’Scannlain defended his standard, emphasizing that it is based on neutral factors. While it seems that under this test, all non-profit organizations could qualify for the exemption if they put the right language in their Article of Incorporation, the third prong acts as a bit of a safeguard and keeps the exemption “narrow.” Requiring an organization to hold itself out as religious may serve as a market check, because a religious affiliation could dissuade some people from engaging in business with the entity.
Applying these factors to WVI, the Opinion decided that WVI should qualify for the exemption. Judge O’Scannlain noted the threshold inquiry was satisfied – the IRS classifies WVI as a non-profit, tax-exempt entity. He concluded the other three factors were met as well. First, the Articles of Incorporation, bylaws and mission statement all make explicit references to WVI’s Christian missionary purpose, as well as specific Christian beliefs (i.e. the Bible is the Word of God’ there is One God in three persons: Father, Son, and the Holy Spirit; and the belief in Jesus Christ). Second, WVI continues to fulfill this religious purpose with its humanitarian work, including by way of strengthening Christian leadership, raising awareness of humanitarian needs to American churches and providing the opportunity to learn about the Christian faith to those who are interested. Third, there is significant evidence that WVI holds itself out to the public as religious, including its logo of a stylized cross, the statement of faith in every communication going out to the public, and the religious statements on its website.
C. The Concurrence Agreed with the Three-Part Test, but Added a Factor
The Concurrence immediately expressed the source of its disagreement: the Opinion’s “test is too inclusive, and [the Dissent’s] test is too exclusive.” The Concurrence devoted the majority of its opinion to bashing the Dissent. In general, the Dissent argued that the exemption should be extremely narrow, and should only apply to churches and synonyms for churches. Judge Kleinfield in the Concurrence stressed that the Dissent ignored some of the statutory language in coming to this conclusion – namely, the phrase “educational institution.” The Concurrence also denounced the Dissent for narrowing the exemption to such a degree that it would eviscerate the purpose of it: to protect the free exercise of religion. In expounding on this theory, the Concurrence pointed out a number of religious traditions that would not fall into the Dissent’s list of acceptable religious practices, such as Quaker meetings, Santeria animal sacrifices, and Mother Theresa’s humanitarian mission.
Nor is Judge O’Scannlain entirely correct, in the view of the Concurrence. Judge Kleinfeld renounced the Opinion’s focus on non-profit organizations. The Concurrence believed that the Opinion’s test will result in the exemption not applying to small religious organizations that do not incorporate. On the flip side, the Concurrence also disapproved of the non-profit requirement because it could “allow non-profit institutions with church affiliations to use their affiliations as a cover for religious discrimination in secular employment.” The Concurrence offered a solution to this potential issue. Judge Kleinfeld suggested that courts utilize the Opinion’s three-factor test, but instead of simply assessing whether the entity was organized as a non-profit, they should look to how the entity charges. If the entity “engages primarily or substantially in the exchange of goods or services for money beyond nominal amounts,” it should not qualify for the religious exemption.
D. What Happens Now?
Perhaps courts (and entities attempting to determine their exemption status) should first look to the three factors in the Opinion—the stated purpose of the entity; whether the entity is following through on that purpose; and whether the entity holds itself out to the public as religious. If all three of those factors are met, then the profit structure can be analyzed. Small entities that are not organized in a corporate structure should likely not be discounted from the exemption solely because they are not non-profits. There should be a fact-sensitive inquiry into whether their products and/or services are free or discounted. Nor should non-profits be categorically accepted at face value. However, in all likelihood, if the IRS has condoned the non-profit classification, and there does not seem to be salaries out of line with the type of work done by employees, the entity is probably not operating for the purpose of making money. All in all, a combination of the Opinion’s and the Concurrence’s tests seems to be a rather safe, all-encompassing approach.
 The Opinion differentiates situations in which the religious or secular classification is not contested. Then, courts may rely on the parties, and need not engage in “constitutionally precarious inquiries.”
 The Concurrence also criticized the Dissent for ignoring the statutory definition of religion, which includes “all aspects of religious observance and practice,” because that definition is irreconcilable with the Dissent’s proposition that religion is limited to what people do in church (worship, study religion and disseminate religious doctrine).
 As discussed above, the Opinion’s third prong of holding the organization out to the public as religious may alleviate this potential issue. However, the Opinion does not provide any solace for those small religious entities that have not organized as a non-profit.