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Employment Division, Department of Human Resources of Oregon v. Smith, 494 U.S. 872 (1990), is a United States Supreme Court case that determined that the state could deny unemployment benefits to a person fired for violating a state prohibition on the use of peyote, even though the use of the drug was part of a religious ritual. Although states have the power to accommodate otherwise illegal acts done in pursuit of religious beliefs, they are not required to do so.

Alfred Smith (an American Indian) and Galen Black (a white man) were members of the Native American Church and employees at a drug rehabilitation clinic who were fired because they had ingested peyote, a powerful entheogen, as part of their religious ceremonies as members of the Native American Church. At that time intentional possession of peyote was a crime under Oregon law without an affirmative defense for religious use. The counselors filed a claim for unemployment compensation, which was denied because the reason for their dismissal was deemed work-related “misconduct.” The Oregon Court of Appeals reversed that ruling, holding that denying them unemployment benefits for their religious use of peyote violated their right to exercise their religion. The Oregon Supreme Court agreed, although it relied not on the fact that peyote use was a crime but on the fact that the state’s justification for withholding the benefits—preserving the “financial integrity” of the workers’ compensation fund—was outweighed by the burden imposed on Smith’s and Black’s exercise of their religion. The state appealed to the U.S. Supreme Court, again arguing that denying the unemployment benefits was proper because using peyote was a crime.

The U.S. Supreme Court left the Oregon Supreme Court’s judgment against the disgruntled employees, and returned the case to the Oregon courts to determine whether or not sacramental use of illegal drugs violated Oregon’s state drug laws (485 U.S. 660 (1988)). On remand, the Oregon Supreme Court concluded that while Oregon drug law prohibited the consumption of illegal drugs for sacramental religious uses, this prohibition violated the free exercise clause. The case returned to the U.S. Supreme Court in this new posture. The state asked the U.S. Supreme Court to review this second decision of the Oregon Supreme Court, and it agreed to do so. In earlier rulings, the Court had ruled that the government could not condition access to unemployment insurance or other benefits on an individual’s willingness to give up conduct required by their religion. However, the Supreme Court did not find that this principle also applied when the conduct in question is justifiably prohibited by law. For the first time in an unemployment compensation case, the Court found against the believer and for the state.

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