The case of Employment Division, Department of Human Resources of the State of Oregon v. Smith (1987) involved two Native American men who were fired from their jobs for using peyote, a hallucinogenic drug used in religious ceremonies by the Native American Church. The men applied for unemployment benefits but were denied because they had been dismissed for work-related misconduct. They argued that this denial violated their First Amendment rights to freely exercise their religion. In a controversial decision, the Supreme Court ruled against them stating that while states have the power to accommodate otherwise illegal acts done in pursuit of religious beliefs, they are not required to do so. This ruling significantly narrowed previous interpretations regarding protection for religious freedom under the First Amendment and led Congress later on to pass Religious Freedom Restoration Act (RFRA) in 1993 which aimed at restoring these protections.

In the dissenting opinion for Employment Division, Department of Human Resources of Oregon v. Smith (1987), Justice O'Connor argued that the majority's decision to uphold a state law prohibiting peyote use, even in religious ceremonies, was an overreach and could potentially infringe upon First Amendment rights. She contended that any law burdening religious practices should be subject to strict scrutiny - meaning it must serve a compelling government interest and be narrowly tailored to achieve its goal. In her view, this standard had not been met in this case as there were other ways for the state to regulate illegal drug use without impeding on Native American Church members' right to practice their religion freely. Furthermore, she expressed concern about the potential implications of such ruling which might allow governments too much power in regulating or restricting religious practices under general laws.