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By James Vicini

WASHINGTON (Reuters) - The Supreme Court considered on Wednesday whether the federal government can examine employment practices of religious groups, a case raising important church-state separation issues.

The high court appeared to struggle with how to draw the line in such cases so the government can enforce laws such as those prohibiting discrimination and retaliation while still protecting constitutional religious freedom rights.

The justices debated whether to adopt the rule used for decades by appeals courts that the government generally cannot delve into church affairs and religious beliefs in cases involving ministers or other clergy members.

The case pitted the Hosanna-Tabor Evangelical Lutheran Church and School in Redford, Michigan, against former teacher Cheryl Perich, who was also a minister. She taught both secular and religious classes.

She sought to return to work after taking time off for illness diagnosed as narcolepsy, a sleep disorder. The school refused and fired her after she threatened to sue to get her job back.

Perich then went to the Equal Employment Opportunity Commission, a federal agency which sued the church for unlawful discrimination and retaliation under the federal disabilities act.

Douglas Laycock, an attorney representing the school, said during the Supreme Court arguments that the government cannot get involved in the hiring or firing someone who holds office in the church or does important religious functions such as teaching the faith.

Justice Sonia Sotomayor asked about a teacher in a religious school who reported sex abuse to the government and was fired as a result. "How do we deal with that situation?" she asked in questioning an across-the-board rule.

Assistant Solicitor General Leondra Kruger said Perich could sue. But in response to a hypothetical question from Justice Stephen Breyer, she said the Roman Catholic Church would not have to have female priests.

"The government's general interest in eradicating discrimination in the workplace is simply not sufficient to justify changing the way the Catholic Church chooses its priests, based on gender roles that are rooted in religious doctrine," she said.

Walter Dellinger, arguing on behalf of Perich, said the appeals court correctly decided that she performed important secular functions in addition to her religious duties.

But Chief Justice John Roberts interrupted him. "That can't be the test. The Pope is a head of state carrying out secular functions, right. Those are important. So he is not a minister?"

Justice Samuel Alito cited the case of a nun at Catholic University who wanted a tenured position teaching canon law and claimed she was denied tenure because of her gender.

The university argued she was denied tenure because of the quality of her scholarship, he said, asking: "How can something like that he tried without getting into religious issues?"

A ruling is expected early next year.

The Supreme Court case is Hosanna-Tabor Evangelical Lutheran Church and School v. Equal Employment Opportunity Commission, No. 10-553.

(Reporting by James Vicini, Editing by Jackie Frank)

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