As widely reported, including in this Time magazine story, sex offenders who are barred by state law from going near children have begun to invoke their free exercises rights when such state laws are used to keep them from attending religious services in houses of worhsip that also supervise children. The Time article focuses on a North Carolina case, but the problem is broader. Unfortunately, the article does not go into the real legal issues in any depth. I'll take a shot at clarifying.
There is pretty clearly no federal free exercise problem here. Back in the day, the formal doctrine from SCOTUS said that whenever the govt substantially burdened somebody's ability to practice his or her religion, the law or policy doing the burdening had to be subject to strict scrutiny: The govt had to prove that the law or policy was narrowly tailored to serve a compelling state interest. Under Sherbert v. Verner, the strict scrutiny test applied not only to laws that specifically targeted religion as such but also to religion-neutral laws that happened to impose incidental (but nonetheless substantial) burdens on particular people.
In Employment Div. v. Smith, the Supreme Court changed its approach. Under Smith, a law of general applicability--i.e., a law that does not single out religion or any particular religion for special burdens--can be validly applied in circumstances in which it limits the ability of someone to practice his religion; free exercise, as interpreted by the SCOTUS, simply does not require religious exemptions. Technically, the Court distinguished rather than overruled the old cases, characterizing them as requiring exemptions only where there was already in place an administrative scheme for granting other sorts of exemptions or where the claimant's free exercise claim was coupled with some other constitutional claim, and thus posed a "hybrid" right. A small number of lower court cases take the hybrid category seriously, but I do not. It was pretty obviously made up in Smith so that the Court could pretend it wasn't overruling prior precedent. There's no principled basis for the hybrid category and the particular outcome it was used to justify, Wisconsin v. Yoder, involved a hybrid of free exercise and the unenumerated right of parents to direct the upbringing of their children. Yet Justice Scalia, the author of the Smith majority, does not even believe in that unenumerated right, so it is hard to see why he would think it adds anything--except as a way of disingenuously distinguishing rather than overruling Yoder. Thus, the best reading of Smith is that it does not require exemptions from laws that do not specifically target religion.
The North Carolina sex offender law, like those of other states, does not single out churches. It applies equally to bar registered sex offenders from other places children congregate, such as day-care centers, public parks, or schools that have adult education classes at the same times that they have programs for children. Thus, under Smith, there is no federal free exercise problem.
Congress tried to overrule the Smith decision in the Religious Freedom Restoration Act (RFRA), which would have reinstated the pre-Smith requirement that even religion-neutral laws must be subject to strict judicial scrutiny when they substantially burden religion. However, as applied to states and their subdivisions, RFRA was struck down as beyond the enumerated powers of Congress in City of Boerne v. Flores. A subsequent federal statute, the Religious Land Use and Institutionalized Persons Act (RLUIPA), applies the RFRA rule to persons who are "residing in or confined to an institution," but registered sex offenders out on parole or probation do not meet that test, so they are stuck with Smith. (A few prisoners have tried to challenge proposed probation conditions during parole hearings, but under the statute's plain meaning they aren't entitled to the protections of RLUIPA once they're released. Indeed, the basis for Congressional power to enact RLUIPA is the receipt of federal funds by state prisons and jails; applying RLUIPA to a parolee/probationer's claim outside a jail or prison would render the Act unconstitutional, per Boerne.)
People like James Nichols (the protagonist in the Time Magazine story) can do much better under state law. Some state high courts interpret their state constitutions to require religious exemptions from generally applicable laws where those laws substantially burden free exercise and do not satisfy strict scrutiny. Other states achieve the same result via state RFRAs.
Nichols, however, appears to be out of luck on this front too, because North Carolina apparently follows the federal rule. I say "appears" and "apparently" because the issue is not entirely free from doubt. North Carolina has no RFRA of its own, and a 1967 North Carolina Supreme Court case, In Re Williams, had this to say about the state's constitutional protection for free exercise:
the term ‘rights of conscience’ as used in Article I, s 26, of the Constitution of North Carolina, must be construed in relation to the right to worship God according to the dictates of one's own conscience. Consequently, the freedom protected by this provision of the State Constitution is no more extensive than the freedom to exercise one's religion, which is protected by the First Amendment to the Constitution of the United States. Clearly, these constitutional provisions do not provide immunity for every act which one's conscience permits him to do, or even for every act which one's conscience classifies as required by ethics, nor do they shield the defendant from a command by the State that he do an act merely because he believes it morally or ethically wrong. It is the right to exercise one's religion, or lack of it, which is protected, not one's sense of ethics.That language on its face adopts what state con law scholars call the "lockstep" approach, whereby the state's constitutional rights are identical to those protected by the federal Constitution. However, in distinguishing what is required by "ethics" from the exercise of religion, the North Carolina Supreme Court could have been implying that where something truly is a matter of religious exercise--as church attendance undoubtedly is--then it is at least presumptively protected, even against laws of general applicability. Indeed, at the time the Williams case was decided, the operative doctrine in the Supreme Court was given by Sherbert v. Verner, and the Willimans court cited and applied Sherbert's test. So, when in Williams, the North Carolina Supreme Court equated the state constitutional protection for free exercise with the federal First Amendment's Free Exercise Clause, it was equating the former with a substantially broader notion of free exercise--one which requires exemptions if strict scrutiny is not satisfied--than we now have under Smith. It was the Sherbert test, invoked by that name, that Congress sought to restore via RFRA. If Williams is read as adopting that test, then it was never abandoned in North Carolina.
However, at least one lower court in North Carolina has said (in an unpublished 2006 decision I found on Westlaw), that the core holding of Williams is the equation of the North Carolina right of conscience clause with the SCOTUS's First Amendment jurisprudence. This lockstep approach is, to use the language of an article of mine in the 2008 U Penn L Rev, "dynamic" rather than "static," so that when the SCOTUS substituted the stingy Smith test for the more generous Sherbert test, it thereby changed the meaning of the North Carolina right of conscience clause as well.
Finally, let's come to the merits. What about a case from a state that applies the Sherbert test, either as a matter of state con law or a state RFRA? Is there a compelling interest in keeping registered sex offenders away from children? Of course. But it's not at all clear that banning a registered sex offender from a house of worship is narrowly tailored to advance that goal. Certainly one can come up with alternatives: E.g., the registered sex offender must be accompanied by other adults, who assume responsibility for supervising him or her, whenever the offender comes to the house of worship. If and when a state with a Sherbert-style free exercise regime confronts one of these cases, the law will likely be most vulnerable at this second stage of the analysis.