The Curious Contours of Contractual Freedom

Freedom of contract is not sacrosanct in American legal culture. What is sacrosanct is non-discrimination along several definite lines – most importantly, religion, race, and gender. Sometimes these norms conflict, as in the multitude of laws governing employment and labor. But sometimes they overlap – particularly on the question of freedom of religion, which (unlike most of the other categories) has no significance except so far as it is actively exercised.

This overlap leads to strange contours of law. Take, for example, the Georgia town which prevented the opening of a mosque. Given that religious discrimination in zoning laws is explicitly prohibited at the federal level, this vote will almost certainly be overturned. What will not be overturned is the thousands of otherwise similar zoning ordinances in cities across the country which impair livelihoods in a way that doesn’t turn on religion.

Or take Hobby Lobby’s recent challenge to Obamacare. Constitutionally, since Wickard v. Filburn, it matters not a whit that the law proscribes millions of contracts and mandates the consummation of millions more. What got the law before the Supreme Court was the fact that a few of these contracts violated a religious belief.

This is not at all to minimize the importance of freedom of conscience. It rightly offends the sense of justice to compel someone to act against his conscience, or to discriminate against him based on that conscience. But in the case of Hobby Lobby, along with many others, the result is a sweeping and intrusive law with tiny and specific carveouts to avoid impinging on a few contracts that overlap these sacrosanct categories. Should the compulsion of those left under the law not also offend our sense of justice? Should the necessity of such ad hoc exemptions in healthcare, tax law, and zoning ordinances not also offend our sense of justice?

Because freedom of contract is only sacrosanct where it overlaps with these particular categories, race, gender, religion, and a variety of smaller categories all constitute very effective shields against regulation. The specific exemptions each of them receives should be evidence enough of that. So those who stand to gain the most from circumventing such regulations flock under the cover of these privileged categories of contract.

As it turns out, the U.S. has one of the largest non-profit sectors in the world. And organizations involving these sacrosanct dimensions – religion, race, gender, and speech (another sacrosanct legal norm) – are predominantly concentrated in the nonprofit sector. Hobby Lobby, in fact, is quite the exception in this regard.

This does not imply the insincerity of those taking advantage of this protection. The privileges to be had lead people to accumulate human capital along those lines, or attract people who have already done so. Knavery should thus be distinguished from charlatanism; one can be an extremely sincere knave. While there are obvious examples of charlatanism under this sort of protection (e.g. Scientology), and other borderline cases (the NAACP or the army of employment and discrimination lawyers), the largest draw will be mere knaves, at least on the margin. So given the millions of people who hold sincere religious beliefs, or have sincerely invested in some issue involving one of the privileged dimensions, we would expect many of them to protect their contracts under the exemptions carved out – as we indeed see in the multitude of nonprofit advocacy groups and organizations.

Consider the advantages that the nonprofit form holds for someone wishing to protect his contracts in this way. First, the nonprofit form is a credible signal: “I’m not in this for the money!” Most people would consider it in poor taste, at best, to make huge profits from an organization dealing with race or religion. Megachurch pastors, for example, are widely regarded as bordering on charlatanism. But for the majority of nonprofit entrepreneurs, their sincerity in belief is what makes the regulatory exemptions more valuable than the profit they would forgo. And second, the nonprofit form is itself an additional legal privilege, mostly in the form of tax benefits.

The fact is, the usual Toquevillian conceit about Americans and their love for civil society is entirely unnecessary (and probably untrue these centuries after his writing) to explain the abnormally large nonprofit sector in the U.S. The tight correspondence between the peculiar contours of American law and the ideological composition of the American nonprofit sector should alert us to its ultimate source in American legal culture.