Have you ever attended a business meeting and wondered what exactly is happening when people make motions? Maybe you’ve wondered why it’s necessary at all. Or perhaps the process is generally familiar to you, but you get tripped up from time to time on the little details of how motions work.
Whatever your level of understanding, this article explores four questions to help ensure your motions follow proper parliamentary procedure.
Series Overview
Church business meetings take place any time church members, boards, or committees get together to conduct official church business—from annual member meetings to weekly or periodic board or committee meetings where votes are taken and decisions are made.
This five-part article series is designed to provide simple and straightforward guidance to church leaders on parliamentary procedure and best practices for business meetings.
A motion is a proposal for specific action. It’s the vehicle by which a group makes an official decision to do or not do a certain thing.
If you think generally about how decisions are made when more than one person is involved, they typically follow a standard format: (1) they start with the proposal of an idea (e.g., “Let’s get Taco Bell for lunch!”); (2) they often involve some level of discussion (e.g., “McDonalds is better than Taco Bell!”); and (3) they end with individuals expressing their choices.
Motions are the way of formalizing that process in a group that is conducting official business.
There are two types of motions: main motions and secondary motions. Main motions propose substantive action—e.g., “I move that the church repave the parking lot.” Secondary motions propose procedural action related to the group’s meetings—e.g., “I move to refer this main motion to a committee,” or “I move to adjourn.”
How does a member make a motion?
To make a motion, ask to be recognized by raising your hand or going to a microphone, and then say the words, “I move that. …” Follow those words with your substantive or procedural proposal.
There are a few pitfalls to avoid here.
Avoid discussing the topic of your motion before you make it. In other words, if you’re frustrated that the church parking lot has potholes and cracks, save your expression of that frustration until after you’ve made the motion and the chairperson has asked if anyone would like to discuss the proposal.
Avoid using phrases like “I think we should” or “I’ve been thinking about” to introduce a motion. These phrases aren’t clear indicators of what you’re trying to do, and they may not result in your idea actually being put to the group for discussion. “I move that” is always the best place to start.
Avoid making a main motion when there is another main motion already being discussed. This rule supports efficiency: Discussing one topic at a time and then voting on it tends to streamline business and lessen confusion.
What happens to a motion after it is made?
After a member makes a motion, there are three events that should occur before the proposal becomes an official action taken by the group.
Second
A second is the word used in business meetings to indicate that more than one person thinks an idea is worth the group’s time. One member makes a motion, and another member has to say “second” for the motion to get any traction.
Note. When a member says “second,” it doesn’t necessarily mean that the member agrees with the idea proposed. It simply means that he or she thinks the group should talk about the idea.
Discussion
Once a second is made, the chairperson of the meeting should repeat the motion and then ask if the members want to discuss it. There are a few secondary (procedural) motions where discussion is not permitted, but discussion is allowed on all main motions.
Typically, the chairperson should say the following words, or something similar, to invite discussion: “It has been moved and seconded that the church repave the parking lot. Is there any discussion?”
To participate in discussion, members should seek recognition by raising their hands or coming to a microphone, then wait for the chairperson to recognize them, and then state their comments in favor of or in opposition to the motion that is before the group. Often, the chairperson will alternate between individuals in favor and in opposition.
According to Robert’s Rules of Order Newly Revised, the most well-known parliamentary authority and the rulebook most commonly used by churches, members can speak only two times, for ten minutes each time, on any issue, but alternative discussion limits can be adopted via the setting of special rules. After each speaker, the chairperson’s response to the member’s comments should simply be, “Thank you. Is there any further discussion?”
Ideally, the chairperson will keep his or her own views private. But to participate in the discussion, the chairperson should ask someone else to preside over that motion through the discussion and the vote.
Vote
When there is no more discussion on a motion, the chairperson should take a vote. Once a vote is taken and the results are tabulated, that is the group’s decision on that topic. If the motion is adopted, the group should proceed with the action proposed in the motion. If the motion is defeated, the group should continue with the status quo.
As for whether a topic can ever be proposed again if it is defeated, common business meeting procedure says that the topic is off limits until enough time has passed or circumstances have changed to allow the topic to essentially be a new one. In other words, a topic cannot be proposed and re-proposed because such continued discussion wastes the group’s time.
How do secondary motions work?
Secondary motions are motions that relate to the procedure of a group’s meetings. They are typically (but not always) made while a main motion is being discussed. Here are three examples of secondary motions.
Amend. A proposal to change the words of the motion that the group is discussing
Previous Question. A proposal to close discussion on a motion that the group is discussing and move directly to a vote on that motion with no further discussion (for additional insights, see my article, “4 Answers to Your Questions about ‘Previous Question,’” on The Law of Order blog)
Refer to Committee. A proposal to refer a main motion to a smaller group for research and in‑depth discussion so that they can make a recommendation on a course of action to the full group
If a secondary motion is made while a main motion is being discussed, the secondary motion becomes the highest priority for the group, and the group must discuss and vote on that secondary motion before it goes back to the main motion. Here are three examples using the secondary motions listed above.
Example 1: Motion to Amend. While a group is discussing a main motion to repave the church parking lot, a member thinks that perhaps the church could improve the parking lot a little and go to less expense if it just relined the parking spaces. He or she could seek recognition and say, “I move to amend the main motion by striking ‘repave’ and inserting ‘reline.’”
This amendment would need to be seconded, and then the group would discuss and vote on whether to strike “repave” and insert “reline.” If the amendment is adopted, the group would then go back to discussing the main motion as amended. If the amendment is defeated, the group would go back to discuss the main motion as originally stated.
Example 2: Previous Question. While a group is discussing a main motion to repave the church parking lot, a member thinks that the discussion has gone on too long and the group needs to move business along. He or she could seek recognition and say, “I move the previous question.”
This motion (Previous Question) would need to be seconded, and then the group would vote on whether to stop discussing the main motion and move directly to a vote. The group would then vote on whether to stop discussing the main motion.
Unlike with most motions, the group would not discuss whether to stop discussing. And, for adoption of the motion to stop discussing, at least two-thirds of the members voting must vote in favor. If the motion to stop discussing is adopted, the group would move directly to a vote on the main motion with no more discussion. If the motion to stop discussing is defeated, the group would continue discussing the main motion.
Example 3: Refer to Committee. While a group is discussing a main motion to repave the church parking lot, a member thinks that perhaps the building committee should request proposals from different paving companies and research the overall pros and cons of the project. He or she could seek recognition and say, “I move to refer the main motion to the building committee to research the costs and benefits of the proposal and report back at the next regular business meeting.”
This motion (Refer to Committee) would need to be seconded, and then the group would discuss and vote on whether to refer the main motion to the building committee. If the motion to refer is adopted, the main motion would be referred to the building committee, and the group could move to discussion of a new topic. If the motion to refer is defeated, the group would go back to discussing the main motion as proposed.
Sarah E. Merkle is a professional parliamentarian and presiding officer. One of five lawyers worldwide to have earned the credentials Certified Professional Parliamentarian-Teacher (CPP-T) and Professional Registered Parliamentarian (PRP), she helps boards, associations, corporations, and public bodies navigate rules applicable to governance and business meetings.
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Postgame Prayers Protected by First Amendment, Supreme Court Says
Supreme Court says postgame prayers protected by First Amendment while also striking down controversial “Lemon test.”
A school district in the state of Washington claimed a coach’s on-field, postgame prayers violated the First Amendment’s Establishment Clause. In a 6–3 decision handed down in June of 2022, the United States Supreme Court ruled against the district, stating that “a government entity sought to punish an individual for engaging in a brief, quiet, personal religious observance doubly protected by the Free Exercise and Free Speech Clauses.”
Through this ruling, the Court also struck down a controversial, decades-old judicial test created by a 1971 Court decision addressing Establishment Clause cases.
This article will further explore the ramifications of this decision, and what it means for religious liberty.
Background
In 2008, Joseph Kennedy began working as a football coach at Bremerton High School in Bremerton, Washington, after nearly two decades of service in the Marine Corps.
Like many other football players and coaches across the country, Kennedy made it a practice to give “thanks through prayer on the playing field” at the conclusion of each game. In his prayers, Kennedy sought to express gratitude for “what the players had accomplished and for the opportunity to be part of their lives through the game of football.”
After players and coaches shook hands at the end of each game, Kennedy would offer his prayers by taking a knee at the 50-yard line and praying “quietly” for “approximately 30 seconds.”
Initially, Kennedy prayed on his own. But over time, some players asked whether they could pray alongside him. Kennedy responded by saying, “This is a free country. You can do what you want.” The number of players who joined Kennedy eventually grew to include most of the team, at least after some games. Players also invited players from the other teams to join them. Over time, Kennedy began mixing motivational messages with the prayers when players were present.
For more than seven years, no one complained to the Bremerton School District (the “district”) about Kennedy’s prayer activities. The district’s superintendent first learned of them in September of 2015, and immediately sent Kennedy a letter instructing him to cease praying on school property following football games.
Kennedy initially chose to end his prayer activities, then hired an attorney after sensing he had “broken [his] commitment to God.” The attorney wrote on Kennedy’s behalf to school officials, informing them that, because of his “sincerely-held religious beliefs,” Kennedy felt “compelled” to offer a “post-game personal prayer” of thanks at midfield. The letter asked the district to allow Kennedy to continue that “private religious expression” alone.
The district rejected this request and issued Kennedy an ultimatum forbidding him from engaging in “any overt actions” that could “appea[r] to a reasonable observer to endorse . . . prayer . . . while he is on duty as a District-paid coach.” The district did so because it judged that anything less would lead it to violate the First Amendment’s Establishment Clause.
Kennedy prayed briefly and silently after the October 16, 2015, game and was joined by both players from the other team and community members. At the end of the next football game on October 23, 2015, Kennedy prayed at the 50-yard line and was joined by no one. After the next game on October 26, 2015, Kennedy prayed again, and while he was praying, other adults gathered around him on the field.
Shortly after the October 26 game, the district placed Kennedy on paid administrative leave and prohibited him from “participat[ing], in any capacity, in . . . football program activities.”
In a letter explaining the reasons for this disciplinary action, the superintendent criticized Kennedy for engaging in “public and demonstrative religious conduct while still on duty as an assistant coach” by offering a prayer following the games on October 16, 23, and 26. The letter did not allege that Kennedy performed these prayers with students, and it acknowledged that his prayers took place while students were engaged in unrelated postgame activities.
In an October 28, 2015, Q&A document provided to the public, the district admitted that it possessed “no evidence that students have been directly coerced to pray with Kennedy.”
The Q&A also acknowledged that Kennedy “had complied” with the district’s instruction to refrain from his “prior practices of leading players in a post-game prayer immediately following games.” But the Q&A asserted that the district could not allow Kennedy to “engage in a public religious display.” Otherwise, the district would “violate the . . . Establishment Clause” because “reasonable . . . students and attendees” might perceive the “District [as] endors[ing] . . . religion.”
While Kennedy received “uniformly positive evaluations” every year from the district, he received a poor performance evaluation after the 2015 season ended.
The evaluation advised against rehiring Kennedy on the ground that he “failed to follow District policy” regarding religious expression and “failed to supervise student-athletes after games.” Kennedy did not return for the next season.
The Supreme Court addresses Free Speech and Free Exercise Clauses
After these events, Kennedy sued in federal court, alleging that the district’s actions violated the First Amendment’s Free Speech Clause, as well as its Free Exercise Clause. The federal district court and a court of appeals both ruled against Kennedy. The United States Supreme Court agreed to hear the case.
The Court began its opinion by noting:
Under this Court’s precedents, a plaintiff bears certain burdens to demonstrate an infringement of his rights under the Free Exercise and Free Speech Clauses. If the plaintiff carries these burdens, the focus then shifts to the defendant to show that its actions were nonetheless justified and tailored consistent with the demands of our case law.
Free exercise
The Supreme Court noted that a plaintiff may carry the burden of proving a free exercise violation in two ways.
First, the plaintiff may carry the burden by showing that “official expressions of hostility” to religion accompany laws or policies burdening religious exercise. In such cases the courts will “‘set aside’” such policies without further inquiry.” To illustrate, in 2018, the Supreme Court overturned a Colorado Civil Rights Commission ruling fining a Christian baker for refusing to bake a cake for a same-sex wedding because of hostility to religion. One of the commission members had referred to Christianity as “irrational” and comparable to slavery and the holocaust. Masterpiece Cakeshop v. Civil Rights Commission, 138 S.Ct. 1719 (2018).
Second, the plaintiff may carry the burden by showing that a government entity has burdened his or her sincere religious practice pursuant to a policy that is “not neutral” or “generally applicable.” Should a plaintiff make such a showing, the Supreme Court will find a First Amendment violation unless the government can satisfy “strict scrutiny” by demonstrating its course was justified by “a compelling state interest and was narrowly tailored in pursuit of that interest.”
The Court concluded that Kennedy met this second method of proving a violation of the Free Exercise Clause:
In this case, the District’s challenged policies were neither neutral nor generally applicable. By its own admission, the District sought to restrict Mr. Kennedy’s actions at least in part because of their religious character. . . [and t]he District further explained that it could not allow “an employee, while still on duty, to engage in religious conduct (emphasis added). Prohibiting a religious practice was thus the District’s unquestioned object. The District candidly acknowledged as much . . . conceding that its policies were “not neutral” toward religion.
Free speech
Kennedy also asserted that the district’s restrictions on his religious activities amounted to an unconstitutional violation of the First Amendment’s Free Speech Clause.
The Court asked, “Did Mr. Kennedy offer his prayers in his capacity as a private citizen, or did they amount to government speech attributable to the District?” Only if the latter existed would the prayers be subject to government prohibition. The Court concluded:
[I]t seems clear to us that Mr. Kennedy has demonstrated that his speech was private speech, not government speech. When Mr. Kennedy uttered the . . . prayers that resulted in his suspension, he was not engaged in speech “ordinarily within the scope” of his duties as a coach. He did not speak pursuant to government policy. He was not seeking to convey a government-created message. He was not instructing players, discussing strategy, encouraging better on-field performance, or engaged in any other speech the District paid him to produce as a coach. Simply put: Mr. Kennedy’s prayers did not ow[e their] existence” to Mr. Kennedy’s responsibilities as a public employee.
The timing and circumstances of Mr. Kennedy’s prayers confirm the point. During the postgame period when these prayers occurred, coaches were free to attend briefly to personal matters—everything from checking sports scores on their phones to greeting friends and family in the stands.
The Court concluded that for the district to prevail, it had to show that its restrictions on Kennedy’s protected rights “serve a compelling interest narrowly tailored to that end.” And this it could not do.
The Court concluded:
Respect for religious expressions is indispensable to life in a free and diverse Republic—whether those expressions take place in a sanctuary or on a field, and whether they manifest through the spoken word or a bowed head. Here, a government entity sought to punish an individual for engaging in a brief, quiet, personal religious observance doubly protected by the Free Exercise and Free Speech Clauses of the First Amendment. And the only meaningful justification the government offered for its reprisal rested on a mistaken view that it had a duty to ferret out and suppress religious observances even as it allows comparable secular speech.
The Lemon test
Perhaps the most significant development from this case was the Court’s repudiation of the so-called “Lemon test,” named after a 1971 ruling by the Supreme Court. Lemon v. Kurtzman, 403 U.S. 602 (1971). In the 1971 decision, the Court articulated a three‑pronged test for evaluating the constitutionality of government action under the Establishment Clause:
First, the statute must have a clearly secular legislative purpose;
Second, its principal or primary effect must be one that neither advances nor inhibits religion; and
Third, the statute must not foster an excessive governmental entanglement between church and state.
This is the test that state and federal courts have frequently applied in evaluating whether or not a particular governmental accommodation of religion violates the Establishment Clause.
In the case involving Kennedy, the Supreme Court made these observations about the Lemon test:
In time, the approach also came to involve estimations about whether a “reasonable observer” would consider the government’s challenged action an “endorsement” of religion. . . .
[T]he “shortcomings” associated with this “ambitiou[s],” abstract, and ahistorical approach to the Establishment Clause became so “apparent” that this Court long ago abandoned Lemon and its endorsement test offshoot. . . .
The Court has explained that these tests “invited chaos” in lower courts, led to “differing results” in materially identical cases, and created a “minefield” for legislators. . . . This Court has since made plain, too, that the Establishment Clause does not include anything like a “modified heckler’s veto, in which . . . religious activity can be proscribed” based on “perceptions” or “discomfort.” . . . An Establishment Clause violation does not automatically follow whenever a public school or other government entity “fail[s] to censor” private religious speech. Nor does the Clause “compel the government to purchase from the public sphere” anything an objective observer could reasonably infer endorses or “partakes of the religious.”
The Court continued:
In place of Lemon and the endorsement test, this Court has instructed that the Establishment Clause must be interpreted by “reference to historical practices and understandings.” “[T]he line” that courts and governments “must draw between the permissible and the impermissible” has to “accord with history and faithfully reflect the understanding of the Founding Fathers.”
Conclusion
This decision reinforces free speech and free exercise protections for individuals who work in government positions.
But perhaps of greatest significance regarding this decision is the overturning of the Lemon test. Many religious practices have fallen victim to the Lemon test over the past several decades that would have been tolerated if not celebrated by the more accommodating analysis announced by the Supreme Court in the Kennedy case. This outcome enhances religious liberty protections going forward.
Kennedy v. Bremerton Sch. Dist., 142 S. Ct. 2407 (2022)
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
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Maine’s Tuition Assistance Rule Violated the First Amendment, Supreme Court Says
Maine’s tuition assistance rule barred use of state funds at religious schools, which violated the First Amendment, Court says.
A “nonsectarian” requirement included with a tuition assistance program offered in Maine violated the First Amendment’s Free Exercise of Religion Clause, the United States Supreme Court ruled last month.
The 6–3 decision in Carson v. Makin may make it easier for religious schools nationwide, at least in some cases, to benefit from financial aid made available to use at other public and private schools.
Background
Maine has enacted a program of tuition assistance for parents who live in school districts that do not operate a secondary school of their own. Under the program, parents designate the secondary school they would like their child to attend—public or private—and the school district transmits payments to that school to help defray the costs of tuition.
Most private schools are eligible to receive the payments, so long as they are “nonsectarian,” meaning the schools are not religious in nature. The requirement raised two questions: Does such a restriction violate the First Amendment’s Free Exercise Clause? And does the absence of such a restriction violate the First Amendment’s Establishment Clause prohibiting state sponsorship of religion?
The Supreme Court concluded the presence of the requirement did violate the Free Exercise Clause, while also finding the absence of the requirement would not violate the Establishment Clause.
The Court said:
A neutral benefit program in which public funds flow to religious organizations through the independent choices of private benefit recipients does not offend the Establishment Clause. . . .
[Justice Breyer’s dissenting opinion] stresses the importance of “government neutrality” when it comes to religious matters, but there is nothing neutral about Maine’s program. The State pays tuition for certain students at private schools so long as the schools are not religious. That is discrimination against religion. A State’s antiestablishment interest does not justify enactments that exclude some members of the community from an otherwise generally available public benefit because of their religious exercise.
The Court turned to two past rulings
In reaching its decision, the Court relied on two of its previous decisions—Trinity Lutheran and Espinoza.
Supreme Court Decisions Significant to Churches
Read more about recent US Supreme Court decisions and their implications for churches through this Recommended Reading page.
Trinity Lutheran Church v. Comer
In Trinity Lutheran Church v. Comer, 137 S.Ct. 2012 (2017), the Court considered a Missouri program that offered grants to qualifying nonprofit organizations that installed cushioning playground surfaces made from recycled rubber tires. The Missouri Department of Natural Resources maintained an express policy of denying such grants to any applicant owned or controlled by a church, sect, or other religious entity.
The Trinity Lutheran Church Child Learning Center applied for a grant to resurface its gravel playground, but the department denied funding on the ground that the center was operated by a church. The Court deemed it “unremarkable in light of our prior decisions” to conclude that the Free Exercise Clause did not permit Missouri to “expressly discriminate against otherwise eligible recipients by disqualifying them from a public benefit solely because of their religious character.”
While it was true that Trinity Lutheran remained “free to continue operating as a church,” it could enjoy that freedom only “at the cost of automatic and absolute exclusion from the benefits of a public program for which the Center [was] otherwise fully qualified.” Such discrimination, the Court said, was “odious to our Constitution” and could not stand.
Espinoza v. Montana Department of Revenue
In Espinoza v. Montana Department of Revenue, 140 S.Ct. 2246 (2020), the Supreme Court held that a provision of the Montana Constitution barring government aid to any school “controlled in whole or in part by any church, sect, or denomination,” violated the First Amendment’s Free Exercise of Religion Clause by prohibiting families from using otherwise available scholarship funds at the religious schools of their choosing.
The Court observed that “a State need not subsidize private education [but] once a State decides to do so, it cannot disqualify some private schools solely because they are religious.” The Court concluded:
Montana’s no-aid provision bars religious schools from public benefits solely because of the religious character of the schools. The provision also bars parents who wish to send their children to a religious school from those same benefits, again solely because of the religious character of the school. . . . The provision plainly excludes schools from government aid solely because of religious status,” [just as in Trinity Lutheran]. . . .
The Free Exercise [of religion] Clause protects against even “indirect coercion,” and a State “punishe[s] the free exercise of religion” by disqualifying the religious from government aid as Montana did here. . . .
[The Constitution] condemns discrimination against religious schools and the families whose children attend them. They are “member[s] of the community too,” and their exclusion from the scholarship program here is “odious to our Constitution” and “cannot stand” (citing Trinity Lutheran).
The Court’s conclusion in Maine
The Court concluded in Maine’s Carson case:
Maine’s “nonsectarian” requirement for its otherwise generally available tuition assistance payments violates the Free Exercise Clause of the First Amendment. Regardless of how the benefit and restriction are described, the program operates to identify and exclude otherwise eligible schools on the basis of their religious exercise. The judgment of the Court of Appeals is reversed, and the case is remanded for further proceedings consistent with this opinion.
What this means for churches
What is the importance of this case? Most importantly, it will allow religious schools nationwide, at least in some cases, to benefit from financial aid made available to other schools (i.e., public and private secular schools).
Religious schools cannot be excluded from such aid solely on the basis of their religious status. As the Court concluded, religious schools are “members of the community too,” and their exclusion from the scholarship program here is “odious to our Constitution” and “cannot stand” (citing Trinity Lutheran).
This case may contribute to a greater degree of school choice, depending on current and future state-enabling legislation.
Carson v. Makin, 596 U.S. ____ (2022)
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
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Supreme Court: Religious Law Allows Clergy to be in Execution Chambers
Law protecting prisoners’ religious rights allows clergy to be present in execution chambers, Court says.
A prisoner scheduled to be executed in Texas requested that he be allowed to have his pastor present to provide “spiritual comfort and guidance in his final moments.” The state of Texas denied the request because it bars chaplains of any religion to enter an execution chamber.
After the denial by Texas, the prisoner sought legal relief for his request only to be denied by a federal district court and a court of appeals. The United States Supreme Court subsequently took up the case.
The Court, in an 8-1 majority, reversed the lower court decisions. Citing the Religious Land Use and Institutionalized Persons Act of 2000 (RLUIPA), it said the restrictions imposed by Texas were not based on “a compelling governmental interest.”
This article will explore the Court’s analysis, and the general implications of the decision for chaplains and prison ministries.
Background
Pablo Castro worked the night shift at the Times Market convenience store in Corpus Christi, Texas. On July 19, 2004, Castro was outside closing up when John Ramirez and an accomplice approached him with a knife. Ramirez stabbed Castro 29 times, searched his pockets, and made off with $1.25. Castro died on the pavement, leaving behind 9 children and 14 grandchildren.
Ramirez fled to Mexico, where he evaded authorities for more than three years. In 2008, he was finally apprehended near the Mexican border. The state of Texas charged Ramirez with murdering Castro in the course of committing or attempting to commit robbery—a capital offense. Ramirez admitted to killing Castro but denied the robbery that made the murder a capital crime. A jury disagreed, found Ramirez guilty, and sentenced him to death.
Texas scheduled Ramirez’s execution for September 9, 2020. Ramirez asked to have his pastor accompany him into the execution chamber. Prison officials denied the request. They did so because, at the time, Texas’s execution protocol barred all spiritual advisors from entering the chamber.
A prior version of the protocol had allowed access for prison chaplains, but at the time, Texas employed only Christian and Muslim chaplains. In 2019, when a Buddhist inmate sought to have his spiritual advisor join him in the execution chamber, Texas declined to grant the accommodation. In response, Texas also amended its execution protocol to bar all chaplains from entering the execution chamber so as not to discriminate among religions.
Turning to RLUIPA
Ramirez filed a lawsuit in federal court. He did not challenge his conviction or death sentence. Instead, he asked that his longtime pastor be allowed to pray with him and lay hands on him while he was being executed. He claimed that RLUIPA, a federal law, requires this accommodation.
Ramirez sought a preliminary injunction ordering Texas to permit his religious exercise if the state went forward with his execution. A federal district court and court of appeals declined to grant such relief. The United States Supreme Court agreed to hear the case on appeal.
Ramirez’s complaint said that he was a Christian and had received religious guidance from Pastor Dana Moore since 2016. Ramirez is a member of Moore’s church in Corpus Christi.
Ramirez explained that he wanted his pastor “to be present at the time of his execution to pray with him and provide spiritual comfort and guidance in his final moments,” and that the pastor be permitted to “lay hands” on him and audibly “pray over” him while the execution was taking place. Ramirez’s grievance explains that “it is part of my faith to have my spiritual advisor lay hands on me anytime I am sick or dying.”
Texas denied this request on the ground that spiritual advisors are “not allowed to touch an inmate while inside the execution chamber.”
In reviewing the case, the Supreme Court described RLUIPA in this way:
No government shall impose a substantial burden on the religious exercise of a person residing in or confined to an institution—including state prisoners . . . unless the government demonstrates that imposition of the burden on that person (1) is in furtherance of a compelling governmental interest; and (2) is the least restrictive means of furthering that compelling governmental interest.
The Court concluded that any restriction on the ability of Ramirez’s pastor to enter the execution chamber, lay hands on him, and audibly pray for him during the execution procedure would impose a substantial burden on his religious exercise.
The Court further concluded that restrictions imposed by Texas on the presence of clergy during an execution were not based on a compelling governmental interest.
Rejecting Texas’s arguments
Texas argued it had two compelling governmental interests that justified its policy.
First, absolute silence was necessary in the execution chamber so they can monitor the inmate’s condition through a microphone suspended overhead. Prison officials claimed that audible prayer might impede their ability to hear subtle signs of trouble or might prove distracting during an emergency.
The Court agreed that “audible prayer could present a . . . serious risk of interference during the delicate process of lethal injection. . . . But [prison officials] fail to show that a categorical ban on all audible prayer is the least restrictive means of furthering their compelling interests,” as required by RLUIPA.
Second, Texas argued about concerns regarding possible disruptions. Prison officials claimed that if they allow spiritual advisors to pray aloud during executions, the opportunity “could be exploited to make a statement to the witnesses or officials, rather than the inmate. . . . [And] such statements might cause further trauma to the victim’s family or otherwise interfere with the execution.”
The Court agreed that the government has a compelling interest in preventing disruptions of any sort and maintaining solemnity and decorum in the execution chamber. But “there is no indication in the record that Pastor Moore would cause the sorts of disruptions that [prison officials] fear.”
Historical practices with executions
With its decision, the Court briefly summarized the history of audible prayer at the time of execution to affirm the central importance of this practice in the Christian tradition:
As for audible prayer, there is a rich history of clerical prayer at the time of a prisoner’s execution, dating back well before the founding of our Nation. For example, at Newgate Prison—one of London’s most notorious jails—an Anglican priest would stand and pray with the condemned in their final moments. By the early 1700s, that practice had evolved to permit prisoners to be “attended by a minister, or even a priest, of their own communion. Prayer at the time of execution was also commonplace in the American Colonies. . . . And during the Revolutionary War, General George Washington ordered that “prisoners under sentence of death” “be attended with such Chaplains as they choose”—including at the time of their execution. These chaplains often spoke and prayed with the condemned during their final moments. . . . (“Upon the arrival of the criminals at the place of execution, the attending chaplain . . . prayed and recommended them severally to God.”)
A tradition of such prayer continued throughout our Nation’s history. When, for example, the Federal Government executed four members of the conspiracy that led to the assassination of President Abraham Lincoln, the prisoners were accompanied by clergy of various denominations. These “spiritual advisers” ministered to the condemned, and three spoke public prayers shortly before the prisoners were hanged. And in the aftermath of World War II, the United States Army even permitted Nazi war criminals facing execution to be accompanied by a chaplain, who “spoke” prayers on the gallows in the moments before death.
The practice continues today. In 2020 and 2021, the Federal Bureau of Prisons allowed religious advisors to speak or pray audibly with inmates during at least six federal executions. What’s more, Texas itself appears to have long allowed prison chaplains to pray with inmates in the execution chamber, deciding to prohibit such prayer only in the last several years. (citations omitted)
What this means for churches
The ministries of chaplains carry great historical significance in the country and constitute significant and vibrant efforts still today in many parts of the country. This decision is especially relevant to chaplains carrying on that work now and going forward. Likewise, it is relevant to any church with a minister who serves as a prison chaplain, as well as churches with active prison ministries in which ministers visit prisoners, among other services.
Ramirez v. Collier, 142 S. Ct. 1264 (2021)
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
The Basics of Running a Legally Sound Church Business Meeting
Attorneys Richard Hammar and Sarah E. Merkle discuss best practices for implementing and following parliamentary procedures.
Attorneys Richard R. Hammar and Sarah E. Merkle
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Churches should select and implement a specific body of parliamentary procedure in order to efficiently consider business and properly make legally sound decisions.
Yet some churches have not adopted procedures, while others do not recall what they have adopted—and still others know the procedures they adopted, but do not know if they correctly follow them. This uncertainty leaves many congregations open to the possibilities of disorganized meetings, haphazard decision-making—and possible legal scrutiny down the road.
In this webinar featuring attorneys Richard Hammar and Sarah Merkle—two well-respected voices on the topics of church governance and business meetings—participants will learn more about:
the processes of adopting procedures;
the various types of procedures available to adopt (including Hammar’s analysis of the new 12th edition of Robert’s Rules of Order Newly Revised);
the best practices for implementing and following those procedures;
and more.
Download the presentation slides to follow along and take notes as you watch.
More on this topic:
Make note of 17 Changes Relevant to Churches in Newest Robert’s Rules of Order.
Learn more about what churches need to know to conduct legally sound meetings from this recommended reading collection.
Gain new ideas, insights, and advice on how to proceed as you shift more ministry online.
Find out about the emergency provision you should consider including in your bylaws.
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Assessing US Supreme Court Rulings on Pandemic Restrictions
What the Supreme Court’s rulings on pandemic restrictions mean for churches and in-person gatherings.
Richard R. Hammar, Attorney, CPA, and Matthew Branaugh, Attorney
The novel COVID-19 virus presented numerous medical, social, and political challenges as it spread across the United States in 2020.
It also posed many legal questions. As state and health officials sought to slow the virus, many mandated temporary lockdowns and prohibited people from assembling in public places, including those who desired to gather for worship, prayer, and fellowship at church events and services. Some churches complied. Others resisted. Legal challenges brought by churches quickly emerged.
Those challenges reached conflicting results in various federal courts around the country, setting the stage for the US Supreme Court to eventually weigh in. In May of 2020, a deeply divided Court said California’s restrictions remained constitutionally permissible for at least the time being. In Chief Justice John Roberts’s concurring opinion with the decision, he cautioned state leaders about the protections afforded to religious exercise.
In subsequent decisions, the Court’s posture shifted. A majority of justices began seeing the state restrictions as an uneven treatment of churches—and thus unconstitutional—whether in the prohibition of gathering for worship services or through various occupancy limits for those activities.
Read Richard Hammar’s coverage of the US Supreme Court’s May 2020, July 2020, and November 2020 decisions regarding pandemic restrictions and religious liberty.
The Court’s majority became especially focused on the way state governments issued executive orders. As written, the orders sounded neutral and generally applicable to the public. But when actually applied, the majority found the religious activities were substantially burdened more than comparable businesses and secular organizations—and often without the government able to justify such treatment.
What this means for churches
The COVID-19 pandemic will be remembered for many things. Among them will be the precedents set by the Supreme Court with respect to the treatment of churches when government-related laws or orders arise during a crisis.
Consider the following three points:
First, at least six justices of the Supreme Court have concluded that churches cannot be treated less favorably during a pandemic than comparable secular organizations.
Second, “comparable secular organizations” include those that have similar numbers in attendance for similar periods of time each week and with similar physical interactions among attendees.
Third, a state can impose restrictions on gatherings that treat churches no less favorably than comparable secular organizations. To illustrate, a ban on gatherings in excess of 100 persons that applies uniformly to every religious and secular organization would likely not run afoul of the First Amendment guarantee of religious freedom.
Lastly, one other key point should be noted. The COVID-19 pandemic still poses numerous legal and risk liabilities to churches, especially when laws or orders restricting in-person activities are in place. Church leaders that continue hosting in-person worship services in violation of state or local restrictions that treat churches no less favorably than comparable secular organizations must understand that, in doing so, they are exposing their churches and board members to potential legal risks should one or more persons become infected with the COVID-19 virus as a result of attending church. These risks include:
Potential personal liability of church board members if their decision to ignore government mandates and recommendations is deemed to constitute gross negligence. Most states have enacted laws limiting the personal liability of church officers and directors. The most common type of statute immunizes uncompensated directors and officers from legal liability for their ordinary negligence committed within the scope of their official duties. These statutes generally provide no protection for “willful and wanton” conduct or “gross negligence”—the same standard typically used as a basis for punitive damages (see below). A decision by a church board to continue holding worship services in disregard of government restrictions may constitute gross negligence, subjecting board members who participated in the decision to personal legal liability.
Reckless inattention to risks can lead to punitive damages, and such damages ordinarily are not covered by a church’s liability insurance policy. This means that a jury award of punitive damages represents a potentially uninsured risk. As a result, church leaders should understand the basis for punitive damages, and avoid behavior that might be viewed as grossly negligent. A decision by a church’s leadership to continue holding worship services in disregard of neutral government restrictions may constitute gross negligence, subjecting the church to punitive damages.
A closer look at the Supreme Court’s pandemic-related cases involving churches and religious organizations
This case-by-case review, listed in chronological order, shows the progression of the Supreme Court’s decisions involving legal challenges brought by churches and religious organizations against pandemic-related restrictions set by state government leaders.
South Bay United Pentecostal Church et al. v. Newsom
Date: May 29, 2020
Can government treat churches less favorably than comparable secular organizations? No.
Ruling: A 5-4 decision denying a church’s request to block California’s restrictions on religious services.
Chief Justice John Roberts, in a concurring opinion, noted:
Similar or more severe restrictions apply to comparable secular gatherings, including lectures, concerts, movie showings, spectator sports, and theatrical performances, where large groups of people gather in close proximity for extended periods of time” while more lenient treatment was given to “dissimilar activities, such as operating grocery stores, banks, and laundromats, in which people neither congregate in large groups nor remain in close proximity for extended periods.
Calvary Chapel v. Sisolak
Date: July 24, 2020
Can government treat churches less favorably than comparable secular organizations? Unclear.
Ruling: A 5-4 decision declining to lift Nevada’s 50-person limit on religious services.
The majority’s one-sentence ruling did not respond to the claim of unequal treatment of churches.
Roman Catholic Diocese of Brooklyn, New York v. Cuomo
Date: November 25, 2020
Can government treat churches less favorably than comparable secular organizations? No.
Ruling: A 5-4 decision blocking New York from enforcing 10- and 25-person occupancy limits on religious services, pending the case’s appeal to the US Court of Appeals for the Second Circuit. Justice Gorsuch, in a concurring opinion, noted:
Government is not free to disregard the First Amendment in times of crisis. At a minimum, that Amendment prohibits government officials from treating religious exercises worse than comparable secular activities unless they are pursuing a compelling interest and using the least restrictive means available.
High Plains Harvest Church v. Polis
Date: December 15, 2020
Can government treat churches less favorably than comparable secular organizations? No.
Ruling: An unsigned, one-paragraph order requiring a lower federal court to reconsider its own previous ruling denying a church’s request to block Colorado’s 50-person occupancy limits at houses of worship. Three justices dissented.
Colorado issued a public health order capping attendance at “houses of worship” to 50 people in designated geographic zones, without regard to the size of the building and despite allowing numerous secular businesses to operate without any capacity restrictions.
A federal district court ruled the state’s restriction was permissible, and the church asked the Supreme Court to review that holding. In response, the Supreme Court remanded the case to the federal court to reconsider its decision, in light of the Supreme Court’s ruling three weeks earlier in Roman Catholic Diocese of Brooklyn, New York v. Cuomo.
Danville Christian Academy v. Beshear
Date: December 17, 2020
Can government treat churches less favorably than comparable secular organizations? Not applicable.
Ruling: An unsigned decision denying a private religious school’s request for an injunction barring enforcement of the Kentucky governor’s executive order requiring all public and private schools, including religious schools, to close until after the holiday break. Two justices dissented.
The private religious school argued the order treated schools (including religious schools) worse than restaurants, bars, and gyms, which remained open. A federal district court granted the injunction, but a federal appeals court suspended the injunction pending an appeal. The Supreme Court declined to rule on the substance of the school’s claim on the ground that it would be pointless to do so since the order expired in just a few days.
Justice Alito, in a dissenting opinion, noted, “As I understand this Court’s order, it is based primarily on timing. . . . The Court is therefore reluctant to grant relief that, at this point, would have little practical effect.”
South Bay United Pentecostal Church et al. v. Newsom
Date: February 5, 2021
Can government treat churches less favorably than comparable secular organizations? No.
Ruling: Multiple-part decision, with the California church’s requests to bar enforcement of certain state orders partially granted and partially denied. Three justices dissented with the decision to grant partial relief to the church.
The Supreme Court granted an injunction prohibiting California from banning indoor worship services, pending the disposition of the church’s petition for a writ of certiorari. But the Court denied the church’s application for an injunction that would have barred the state from (1) imposing a 25-percent capacity limitation on indoor worship services, and (2) prohibiting singing and chanting during indoor services.
At least six justices concluded that churches cannot be treated less favorably during a pandemic than comparable secular organizations.
Justice Gorsuch, in a concurring opinion, noted:
[T]he State allows most retail operations to proceed indoors with 25% occupancy, and other businesses to operate at 50% occupancy or more. Apparently, California is the only State in the country that has gone so far as to ban all indoor religious services. When a State so obviously targets religion for differential treatment, our job becomes that much clearer. . . . Regulations like these violate the First Amendment unless the State can show they are the least restrictive means of achieving a compelling government interest.
Added Justice Barrett in a concurring opinion: “Of course, if a chorister can sing in a Hollywood studio but not in her church, California’s regulations cannot be viewed as [permissible].”
Ritesh Tandon et al. v. Newsom
Date: April 9, 2021
Can government treat churches less favorably than comparable secular organizations? No.
Ruling: A 5-4 decision barring California from enforcing restrictions on in-home religious activities involving other households.
A pastor asked the US Court of Appeals for the Ninth Circuit to stop California from enforcing restrictions on private religious activities, including the hosting of in-home Bible studies and communal worship with more than three households in attendance. The Ninth Circuit denied the pastor’s request. The Supreme Court ruled the Ninth Circuit erred, explaining:
First, California treats some comparable secular activities more favorably than at-home religious exercise, permitting hair salons, retail stores, personal care services, movie theaters, private suites at sporting events and concerts, and indoor restaurants to bring together more than three households at a time. . . .
Second, the Ninth Circuit did not conclude that those activities pose a lesser risk of transmission than [the pastor’s] proposed religious exercise at home. The Ninth Circuit erroneously rejected these comparators simply because this Court’s previous decisions involved public buildings as opposed to private buildings.
Third, instead of requiring the State to explain why it could not safely permit at-home worshipers to gather in larger numbers while using precautions used in secular activities, the Ninth Circuit erroneously declared that such measures might not “translate readily” to the home. The State cannot “assume the worst when people go to worship but assume the best when people go to work.”
And fourth, although California officials changed the challenged policy shortly after this application was filed, the previous restrictions remain in place until April 15th, and officials with a track record of “moving the goalposts” retain authority to reinstate those heightened restrictions at any time.
The Court noted that this is the fifth time it had “summarily rejected the Ninth Circuit’s analysis of California’s COVID restrictions on religious exercise.”
Learn more about religious freedom protections available to churches and ministries through Church Law & Tax’s50-State Religious Freedom Laws Report, a downloadable resource by Matthew Branaugh, attorney and content editor, and Richard Hammar, attorney and senior editor.
Richard R. Hammar, senior editor of Church Law & Tax, is an attorney, CPA, and author specializing in legal and tax issues for churches and clergy.
Matthew Branaugh is attorney and editor for Church Law & Tax at Christianity Today.
Learn More about Sexual Harassment Prevention Training for Your Church
Church Law & Tax’s Matthew Branaugh interviews attorney and advisor-at-large Theresa Sidebotham about her firm’s Telios Teaches program.
The Editors
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Church Law & Tax has teamed up with advisor-at-large Theresa Sidebotham, an attorney and the founder of Telios Teaches. Sidebotham created a sexual harassment prevention training program tailored specifically for churches and nonprofits.
This online training is available on an individual or group basis. This affliate link, Telios Teaches, provides details on how you can start training your staff. (Please note: Church Law & Tax receives a commission for purchases made through this link, at no additional cost to you.)
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Supreme Court: Harsher Pandemic Restrictions for Churches Are Unconstitutional
Why the Supreme Court said harsher restrictions for churches during the pandemic are unconstitutional.
Update: Since this ruling, the Supreme Court has made a number of other decisions that have reshaped religious liberty challenges brought against pandemic-related restrictions. For Richard Hammar’s review of all of these decisions, see “Assessing US Supreme Court Rulings on Pandemic Restrictions.”
For the third time in six months, the United States Supreme Court has addressed the constitutionality of government restrictions on religious worship in the face of the ongoing COVID-19 pandemic. This time the Court sided with religion.
Background
See our review of several previous religious liberty cases brought against pandemic-related restrictions issued by states.
In its two previous rulings, a sharply divided Court concluded that the inherent power of states to protect public health and safety outweighed the constitutional right of churches to gather for worship. But in the first of these cases, Chief Justice John Roberts, in a concurring opinion siding with the Court’s four liberal Justices to form a majority, observed:
Although California’s guidelines place restrictions on places of worship, those restrictions appear consistent with the Free Exercise [of religion] Clause of the First Amendment. Similar or more severe restrictions apply to comparable secular gatherings, including lectures, concerts, movie showings, spectator sports, and theatrical performances, where large groups of people gather in close proximity for extended periods of time. And the Order exempts or treats more leniently only dissimilar activities, such as operating grocery stores, banks, and laundromats, in which people neither congregate in large groups nor remain in close proximity for extended periods. South Bay United Pentecostal Church, et al. v. Newsom, 140 S. Ct. 1613 (2020).
This is an important clarification. The Constitution permits state and local governments to enact restrictions on public gatherings in the interest of public health and safety, and such restrictions can be applied to churches so long as churches are treated the same as other “comparable secular gatherings.” Chief Justice Roberts noted that “comparability” involves consideration of the following factors:
The number of persons who will be gathering
The physical proximity of persons in the group
The length of time persons will gather
The Court, in a second 5-4 decision issued by the same majority in July of 2020, again sided with government authorities by denying a Nevada church’s request for an exemption to pandemic-related building capacity limits.
The Court sides with New York congregations
The third case, decided on November 25, 2020, involved challenges by a Roman Catholic diocese and a synagogue (the “applicants”) to an Executive Order issued by New York Governor Andrew Cuomo that imposed severe restrictions on attendance at religious services in areas classified as “red” or “orange” zones. Roman Catholic Diocese of Brooklyn, New York v. Cuomo, 592 US ____ (2020).
In red zones, no more than 10 people may attend each religious service, and in orange zones, attendance is capped at 25.
The applicants argued that the Executive Order treats houses of worship much more harshly than comparable secular facilities. The Court agreed:
In a red zone, while a synagogue or church may not admit more than 10 persons, businesses categorized as “essential” may admit as many people as they wish. And the list of “essential” businesses includes things such as acupuncture facilities, camp grounds, garages, as well as many whose services are not limited to those that can be regarded as essential, such as all plants manufacturing chemicals and microelectronics and all transportation facilities. . . . The disparate treatment is even more striking in an orange zone. While attendance at houses of worship is limited to 25 persons, even non-essential businesses may decide for themselves how many persons to admit. These categorizations lead to troubling results. At the hearing in the District Court, a health department official testified about a large store in Brooklyn that could “literally have hundreds of people shopping there on any given day.” Yet a nearby church or synagogue would be prohibited from allowing more than 10 or 25 people inside for a worship service. And the Governor has stated that factories and schools have contributed to the spread of COVID-19 . . . but they are treated less harshly than the Diocese’s churches . . . which have admirable safety records.
The Court concluded:
The loss of First Amendment freedoms, for even minimal periods of time, unquestionably constitutes irreparable injury. If only 10 people are admitted to each service, the great majority of those who wish to attend Mass on Sunday . . . will be barred. And while those who are shut out may in some instances be able to watch services on television, such remote viewing is not the same as personal attendance. Catholics who watch a Mass at home cannot receive communion. . . . But even in a pandemic, the Constitution cannot be put away and forgotten. The restrictions at issue here, by effectively barring many from attending religious services, strike at the very heart of the First Amendment’s guarantee of religious liberty.
Justice Neil Gorsuch issued a concurring opinion agreeing with the Court’s ruling. Here are excerpts:
Government is not free to disregard the First Amendment in times of crisis. At a minimum, that Amendment prohibits government officials from treating religious exercises worse than comparable secular activities, unless they are pursuing a compelling interest and using the least restrictive means available. Yet recently, during the COVID pandemic, certain States seem to have ignored these long-settled principles. Today’s case supplies just the latest example. New York’s Governor has asserted the power to assign different color codes to different parts of the State and govern each by executive decree. In “red zones,” houses of worship are all but closed—limited to a maximum of 10 people. . . . In “orange zones,” it’s not much different. Churches . . . are limited to a maximum of 25 people. These restrictions apply even to the largest cathedrals . . . which ordinarily hold hundreds. And the restrictions apply no matter the precautions taken, including social distancing, wearing masks, leaving doors and windows open, forgoing singing, and disinfecting spaces between services.
At the same time, the Governor has chosen to impose no capacity restrictions on certain businesses he considers “essential.” And it turns out the businesses the Governor considers essential include hardware stores, acupuncturists, and liquor stores. Bicycle repair shops, certain signage companies, accountants, lawyers, and insurance agents are all essential too. So, at least according to the Governor, it may be unsafe to go to church, but it is always fine to pick up another bottle of wine, shop for a new bike, or spend the afternoon exploring your distal points and meridians. Who knew public health would so perfectly align with secular convenience? As almost everyone on the Court today recognizes, squaring the Governor’s edicts with our traditional First Amendment rules is no easy task. People may gather inside for extended periods in bus stations and airports, in laundromats and banks, in hardware stores and liquor shops. No apparent reason exists why people may not gather, subject to identical restrictions, in churches or synagogues, especially when religious institutions have made plain that they stand ready, able, and willing to follow all the safety precautions required of “essential” businesses and perhaps more besides. The only explanation for treating religious places differently seems to be a judgment that what happens there just isn’t as “essential” as what happens in secular spaces. Indeed, the Governor is remarkably frank about this: In his judgment laundry and liquor, travel and tools, are all “essential” while traditional religious exercises are not. That is exactly the kind of discrimination the First Amendment forbids.
What this means for churches
What is the practical relevance of this case to churches? Consider the following four points.
First, the central holding of the Court’s opinion is that churches cannot be treated less favorably during a pandemic than “comparable secular organizations.”
Second, comparable secular organizations include those that have similar numbers in attendance for similar periods of time each week, with similar physical interactions among attendees.
Third, a state can impose restrictions on gatherings that treat churches no less favorably than comparable secular organizations. To illustrate, a ban on gatherings in excess of 100 people that applies uniformly to every religious and secular organization would likely not run afoul of the First Amendment guarantee of religious freedom.
Fourth, church leaders that continue to hold worship services in violation of state or local restrictions that treat churches no less favorably than comparable secular organizations must understand that they are exposing their church to potential legal risks should one or more persons become infected with the COVID-19 virus as a result of church attendance. These risks include:
Potential personal liability of church board members if their decision to ignore government mandates and recommendations is deemed to constitute gross negligence. Most states have enacted laws limiting the personal liability of church officers and directors. The most common type of statute immunizes uncompensated directors and officers from legal liability for their ordinary negligence committed within the scope of their official duties. These statutes generally provide no protection for “willful and wanton” conduct or “gross negligence”—the same standard typically used as a basis for punitive damages (below). A decision by a church board to continue holding worship services in disregard of government restrictions may constitute gross negligence subjecting board members who participated in the decision to personal liability.
Reckless inattention to risks can lead to punitive damages, and such damages ordinarily are not covered by a church’s liability insurance policy. This means that a jury award of punitive damages represents a potentially uninsured risk. As a result, church leaders should understand the basis for punitive damages, and avoid behavior which might be viewed as grossly negligent. A decision by a church’s leadership to continue holding worship services in disregard of government restrictions may constitute gross negligence subjecting the church to punitive damages.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
Image: Getty
When Is It Wise to Pay for Legal Counsel?
Attorney Sally Wagenmaker offers guidelines on when to consider paid professionals in an interview with Matthew Branaugh.
Attorney Sally Wagenmaker is a partner in a Chicago-based law firm serving churches and nonprofits. Wagenmaker is the current president of the Christian Legal Society (CLS).
Editor Matthew Branaugh interviewed Wagenmaker about legal issues confronting churches and pastors and the ways churches can secure legal representation when needs arise and resources are limited. In Part 2 of this two-part interview she shares insights on common misconceptions about outside legal help.
Church leaders often express worry about dealing with legal issues—that the complexities and costs are so overwhelming that they end up doing very little in response. What are some practical ways these leaders can overcome this, given the scarcities of time and resources they face?
First, include legal expenses as part of a church budget. By doing so, a church will be better prepared and equipped to absorb legal costs when they arise. And they likely will arise as an expected part of doing ministry in a complex world.
Second, identify what can be handled by volunteers and what should be outsourced to paid professionals.
Perhaps the church’s employee handbook could first be developed by a volunteer who is experienced with human resources issues, and then outsourced to a paid attorney for review. Or perhaps the church’s real estate purchase could be handled by a volunteer attorney in the congregation, with the follow-up specialized property tax exemption work done by a paid attorney who focuses on that legal area.
Third, be wise in all things. If volunteers lack the time, expertise, or trustworthiness to follow through, then don’t ask for their help.
Sometimes the best stewardship is to pay others to handle matters, especially complicated legal matters requiring particular expertise. But in doing so, check the costs. It is appropriate to ask for a fee estimate, and a church should definitely hire an attorney who is experienced with serving churches and other nonprofits. One would not hire a mechanic for dental drilling work, nor should an organization hire a patent lawyer to help address often-tricky employment issues.
What types of matters do you think should prompt a church to hire an attorney?
The two most common ways a need for an attorney arises are either through a crisis or a discovered vulnerability that requires planning. Church leaders who understand this can shape their church budgets accordingly each year, knowing some funds should be set aside for the unexpected while other funds should get allocated for normal developments that require planning.
What is a legal crisis? Our most common “911” types of calls include the following:
When a childcare worker suspects child abuse that may trigger “mandated reporter” requirements;
When an employee complains of being sexually harassed;
When a clergy member is not sure of the scope of the privilege in relation to a parishioner who shares confidential information;
When a supervisor believes that an employee needs to be fired due to misconduct or other serious problems;
When someone is injured and has accused the church of wrongdoing; or
When someone threatens harm against the church or people involved with the church.
Knowledgeable legal assistance in an urgent situation can be critical, particularly to prevent potentially devastating harm from actually occurring, as well as to avoid relational damage, financial repercussions, and legal liability for the church.
Planning is the other way—and it’s the preferable option for obvious reasons. It fosters better decision-making with a church’s long-term well-being and vitality in mind. Through planning, leaders are also in a better position to identify the time- and expense-related priorities, which can help their church absorb the associated legal costs over a longer period of time.
Prime examples of planning opportunities include situations like a church contemplating a merger with another congregation, weighing a request to share its facility space with another ministry, realizing a new-and-improved abuse prevention policy is needed, or discovering the need to address employment and intellectual property matters (e.g. use of sermons, worship materials, and other creative works).
For churches—especially smaller ones—how can they secure helpful legal representation, especially when their resources may be even more limited than most other congregations?
Our law firm represents many small churches, and we address legal fees as a matter of mutual trust and transparency with church leadership. Church leaders who are thinking about hiring an attorney should ask questions upfront about fee structures and how the attorney will get paid by the church.
Church leaders also should prioritize the work they want addressed to ensure the most pressing needs get handled first, which then allows the attorney and church to determine whether lower-ranked projects should wait until additional budget funds are available later in the year.
There is often a temptation to secure free legal information or services. Remember, people oftentimes get what they pay for. Make certain the information and services are good and effective.
Christian Legal Society (CLS) can also be a great resource for churches in need of legal counsel. Pro bono assistance may be an option.
More commonly, CLS provides training to licensed attorneys about representing churches and ministries, particular through its national conferences. Attorneys who do not practice in church- or ministry-related areas can connect with other attorneys who do through CLS, allowing them to network and discuss strategically needed approaches for churches or ministries.
Sally Wagenmaker is a partner in a Chicago-based law firm serving churches and nonprofits, and she is the current president of the Christian Legal Society (CLS).
Matthew Branaugh is an attorney, and the business owner for Church Law & Tax.
Unpaid Payroll Taxes: A Hidden Liability for Churches and Leaders
A recent case in the for-profit world underscores the potential threat.
Matthew Branaugh
“A company’s CFO is liable for its past-due employment taxes, a court says. He had control over the company’s bank account and oversaw all aspects of the firm’s operations and finances, including payroll, tax return preparation and personnel matters. He knew that the firm failed to deposit payroll taxes and file tax returns when due. He had check-signing authority and paid creditors before the IRS. That makes him liable for the tax shortfall” (The Kiplinger Tax Letter, Feb. 8, 2019).
The Church Law & Tax Take
The case referenced by The Kiplinger Tax Letter involved a motion for summary judgment by the government against the company’s CFO, a certified public accountant who was caught in 2009 embezzling from the company. The CFO’s actions resulted in more than five years of unpaid payroll withholding taxes by the company, or more than $11 million total. Throughout the scheme, the CFO told the company’s board the company was financially strong and meeting all of its tax obligations.
The CFO was charged with first-degree felony theft of property worth over $200,000 in 2013, pled guilty, and was sentenced to 10 years in prison. Separately, the IRS instituted $4.3 million in penalties against the company’s founder, indicating he faced personal liability as a “responsible person” of the company. The estate of the founder, who had since died, legally challenged the penalties, prompting the government to file a counterclaim naming both the founder and the CFO. Earlier this year, a federal district court in Texas found the now-imprisoned CFO was a “responsible person” and ruled his “failure to pay taxes was willful,” making him responsible for the $4.3 million, plus interest.
Why is this issue relevant to churches? The IRS watches this issue closely, doling out billions of dollars in fines and penalties for unpaid employment taxes every year. This means pastors and church board chairs must make certain all employment-related taxes are being withheld and remitted, on time and in full, every quarter. Failure to do so can lead to fines and penalties for both churches and individuals alike.
A new article on ChurchLawAndTax.com further illustrates the importance of this topic. One 200-member congregation owed $350,000, including penalties and interest, for unpaid payroll taxes due to a financial secretary’s embezzlement scheme. Other churches get hit with penalties because leaders sometimes mistakenly assume they can dip into withholdings to cover other operational expenses, which is illegal. And still others do not closely monitor the third-party vendors hired to handle payroll services, only to later learn the vendors mishandled—either intentionally or unintentionally—the withholdings.
One in five pastors do not save for retirement, revealed a National Association of Evangelicals (NAE) survey of more than 4,000 pastors nationwide. And among those who do, they don’t save nearly enough.
Asked about the amounts saved thus far for retirement, whether through individual retirement accounts (IRAs), 403(b) or 401(k) plans, pension funds, or other options, 21 percent said “Nothing.” The median amount for those who have set aside something was a meager $30,000—not nearly enough to cover living expenses for someone who may live 10, 20, or even 30 years after they retire. Perhaps most troubling is that a Barna study showed the median age for a US pastor in 2017 was 54 years old, a sign that many who are heading toward the home stretches of their careers may have little sources of income to live off of after those careers.
And even with 80 percent of respondents from the NAE survey indicating they contribute to Social Security, and expect to draw from it in their retirement years, the outlook isn’t rosy, either. In a report from the board overseeing Social Security and other entitlement programs, the funds needed for these programs will be depleted by 2034 (based on October 2016 projections) unless major reform occurs soon. That puts even more pressure on retired pastors to draw income from other sources, such as retirement plans—and that pressure further intensifies for those pastors who opted out of Social Security.
The bottom line: pastors—and the churches that employ them—must think strategically about retirement savings as a way to avoid severe financial hardship.
Evaluating retirement plan options
Several kinds of tax-favored retirement plans are available to pastors through either their employing church or a denominational plan. A “tax-favored” plan has the following two characteristics:
1. contributions made by a church to a pastor’s account are excludible for income tax purposes in the year of contribution, and
2. the income (or appreciation) earned on the account is tax-deferred, meaning that it is not taxable until distributed—and even then contributions and earnings may not be taxable if a pastor is entitled to a retiree housing allowance (discussed later in this article).
These plans may be funded with pastor contributions (typically through salary reductions), by contributions from the church, or by a combination of the two.
Ministers can accumulate substantial retirement funds by using tax-deferred retirement plans. How much is accumulated depends on three variables: the amount of the annual contributions to the plan, the rate of return, and the number of years of participation. This chart illustrates what a pastor can accomplish through an annual $3,000 contribution ($250 per month) toward retirement, whether 20, 30, or 40 years away from retirement; whether achieving low, modest, or high rates of return, depending on market conditions; and, whether the pastor opts for a tax-deferred retirement plan (the highlighted column on the far right).
As the chart shows, the deferral of tax on income generated by a retirement plan can result in significant accumulations of funds for retirement, especially if contributions begin early and are made systematically. Younger pastors should discipline themselves to participate in such plans at as early an age as possible, since the value of their contributions will be magnified over time. But pastors further into their careers also can make significant progress and should be encouraged to save as much as they can afford, and to do so as soon as possible.
Types of retirement help
This article addresses the following types of church- or denominational-sponsored retirement plans:
tax-sheltered annuities (403(b) plans);
IRAs;
qualified pension plans; and
deferred compensation plans, including rabbi trusts.
Beyond sponsoring retirement plans, there are two other significant ways that churches can financially help pastors with their retirements. The first is the housing allowances that churches, church benefits boards, or other qualified organizations can designate for retired pastors, which represent a significant tax savings for pastors—if certain conditions are met. Chapters 6 and 10 of the Church & Clergy Tax Guide offer further insights on this front.
The other is a lump-sum retirement gift made by a congregation to a retiring pastor. Sometimes the gift is paid out in monthly installments. Ordinarily, these gifts constitute taxable compensation rather than a tax-free gift. Chapter 4 of the Church & Clergy Tax Guide further explains the tax implications of various retirement gift arrangements.
Church plans
Before reviewing possible plans, churches must understand the terminology related to the term church plan, since it has significant effects on rules and exemptions that may or may not apply to the plans or the pastors who participate in them. A plan maintained by a local church is going to be a church plan. Leaders should know that the ongoing litigation involving church plans sponsored by hospital systems will not affect a church plan they oversee for their local congregation.
The tax code uses the term church plan in several contexts, including the following:
• Section 79(d)(7) exempts church plans from the nondiscrimination rules that apply to the exclusion of up to $50,000 of employer-provided group term life insurance.
• Section 410(d) of the tax code permits an election to be made under which a church plan would be subject to the same requirements as apply to other qualified plans (electing church plan). Section 1.410(d)-1 of the income tax regulations provides that the election is irrevocable and may be made only by the plan administrator and only in the manner provided in the regulations. If the election is made, the plan must comply with the applicable provisions of the tax code. In addition, an electing church plan would be covered by and subject to Title I and, if a defined benefit pension plan, Title IV of the Employee Retirement Income Security Act of 1974 (ERISA).
• Section 4980D exempts church plans from the penalty that applies to group health plans that discriminate in favor of highly compensated employees.
• Section 1402(a)(8) specifies that net earnings from self-employment (in computing the self-employment tax) does not include “the rental value of any parsonage or any parsonage allowance … provided after the individual retires, or any other retirement benefit received by such individual from a church plan (as defined in section 414(e)) after the individual retires.”
• Section 415(c)(7) provides that church employees who participate in a church plan can elect an alternative amount for the limit on annual additions. Under this election, employees can contribute up to $10,000 a year to a tax-qualified retirement plan, even if nothing can be contributed under the regular 415(c) limit. Total contributions over one’s lifetime under this election cannot be more than $40,000.
• The nondiscrimination rules that apply to 403(b) plans do not apply to church 403(b) plans.
• The instructions for the current IRS Form 5500 state that church plans not electing ERISA coverage under section 410(d) of the tax code are not required to file Form 5500.
Under section 4(b)(2) of ERISA, a “non-electing” church plan is excluded from coverage under Title I of ERISA. This means it is not subject to ERISA’s rules governing reporting, disclosure, and fiduciary conduct. In the case of a defined benefit pension plan, the plan is also not covered by the insurance provisions of Title IV of ERISA, which provides for certain benefit guarantees by the Pension Benefit Guaranty Corporation (PBGC) in the event of termination of an underfunded pension plan. This means the plan is not required to pay PBGC premiums.
A non-electing church plan is instead primarily subject to certain qualification requirements that predate the enactment of ERISA. The plan is treated as a tax-qualified plan only if the plan satisfies the participation, vesting, and funding requirements of the tax code as in effect prior to ERISA. Section 514(a) of ERISA generally provides that ERISA supersedes state laws that relate to an employee benefit plan described in section 4(a) of ERISA and not exempt under section 4(b) of ERISA. A non-electing church plan is exempt under section 4(b) of ERISA. Thus, state laws that relate to an employee benefit plan generally would apply to the non-electing church plan.
Section 410(d) of the tax code permits an election to be made under which a church plan would be subject to the same requirements as apply to other qualified plans (electing church plan). Section 1.410(d)-1 of the income tax regulations provides that the election is irrevocable and may be made only by the plan administrator and only in the manner provided in the regulations. If the election is made, the plan must comply with the applicable provisions of the tax code. In addition, an electing church plan would be covered by and subject to Title I and, if a defined benefit pension plan, Title IV of ERISA.
Key Point. The major advantage derived by a plan that qualifies as a church plan is that it allows the plan sponsor flexibility in complying with the participation, vesting, and funding requirements imposed by the code. As well as being exempt from certain provisions of the tax code, church plans are exempt from Titles I and IV of ERISA.
Plan options
Let’s look at the most common options available to pastors.
1. 403(b) plans
One of the most popular retirement plans for church employees is the 403(b) plan (sometimes called a tax-sheltered annuity). Such plans permit employees of churches and other public charities to make nontaxable contributions to their 403(b) account up to the allowable limits prescribed by law. In addition, earnings and gains on 403(b) accounts are tax-deferred, meaning that they are not taxed until distributed.
When section 403(b) accounts were first introduced in 1958, the only investment option available to employees was an annuity (hence the name tax-sheltered annuity). In 1974, Congress added section 403(b)(7) to the tax code. This section allows employees of churches and other charities to invest their 403(b) account with a mutual-fund company. These types of 403(b) plans are called 403(b)(7) accounts or custodial accounts. In 1982, Congress added section 403(b)(9)to the tax code, which recognizes retirement income accounts of churches as yet another kind of 403(b) plan. Such accounts may be invested in annuities or mutual funds, and they usually are. But they are not limited to these investments.
To summarize, a 403(b) plan can be any of the following types:
an annuity contract, described in section 403(b)(1) of the tax code, which is a contract provided through an insurance company;
a custodial account, described in section 403(b)(7) of the tax code, which is an account invested in mutual funds; or
a retirement income account, described in section 403(b)(9) of the tax code, which is set up for church employees.
Although 403(b) plans established by churches can be of any of these three types, there are three reasons many churches establish the third kind of 403(b) plan (a 403(b)(9) retirement income account). First, these accounts were designed for church employees. Second, the investment options are more flexible, since church retirement income accounts are not restricted to investing in annuities and regulated mutual funds. And third, if a church participates in a denominational 403(b)(9) plan, the pastor also may be able to receive benefits payable as an annuity under the program.
A 403(b) plan has several tax advantages:
You do not pay tax on contributions to your 403(b) plan in the year they are made. You do not pay tax on them until you begin making withdrawals from the 403(b) plan, usually after you retire.
Earnings and gains on your 403(b) plan are not taxed until you withdraw them, usually after you retire.
You may be eligible to claim a “qualified retirement savings” tax credit for contributions to your 403(b) plan made by salary reduction.
Elective contributions (through salary reduction) to a 403(b) plan do not constitute self-employment earnings in computing the self-employment tax liability of a minister.
Churches and church pension boards that offer 403(b) plans can designate a portion of a retired minister’s distributions as a tax-excludible housing allowance.
Qualified employers
Only a qualified employer can maintain a 403(b) plan. Tax-exempt organizations, including churches and most other religious and charitable organizations, are considered qualified employers, as are employers that are not tax-exempt but that employ a minister serving outside of a local church to perform ministerial services.
Eligible employees
The following employees are eligible to participate in a 403(b) plan:
• Employees of tax-exempt organizations established under section 501(c)(3) of the tax code (this includes employees of religious organizations and schools).
• Pastors employed by section 501(c)(3) organizations.
• A self-employed pastor is treated as employed by a tax-exempt organization that is a qualified employer. The earned income of a self-employed pastor becomes their compensation for purposes of calculating permissible contributions to a 403(b) plan, and a self-employed minister “shall be treated as his or her own employer which is an organization described in section 501(c)(3) and exempt from tax.” This is an exception to the general rule that only employees of 501(c)(3) organizations are eligible to participate in a 403(b) plan.
• Ministers (chaplains) who meet both of the following requirements: (1) they are employed by organizations that are not section 501(c)(3) organizations, and (2) they function as ministers in their day-to-day professional responsibilities with their employers. But note that chaplains cannot contribute both to a denominational retirement plan and to their employer’s plan from salary paid by his or her employer—they can only contribute to one.
Funding a 403(b)
A 403(b) plan can be funded by the following contributions:
Elective deferrals. These are contributions made under a salary reduction agreement. This agreement allows a church to withhold money from the pastor’s paycheck to be contributed directly into a 403(b) account for the pastor’s benefit. Except for Roth contributions, a pastor does not pay tax on these contributions until he or she withdraws them from the account. If the pastor’s contributions are designated as Roth contributions, the pastor pays taxes on the contributions, but any qualified distributions from the Roth account are tax-free.
Key Point. A pastor may want to designate a portion of his or her contributions as Roth contributions, even though the pastor will be entitled to a tax-excludible housing allowance in retirement. This is because the pastor may need to receive a sizable retirement plan distribution in order to make a down payment on a retirement home—and the housing allowance rules only allow part of such a down payment to be tax-excludible.
Nonelective contributions. These are church contributions that are not made under a salary reduction agreement. Nonelective contributions include matching contributions, discretionary contributions, and mandatory contributions from a church. The pastor does not pay tax on these contributions until he or she withdraws them from the account.
After-tax contributions. These are contributions (that are not Roth contributions) a pastor makes with funds that the pastor must include as income on his or her tax return. A salary payment on which income tax has been withheld is a source of these contributions. If the pastor’s plan allows him or her to make after-tax contributions, the pastor cannot deduct them on his or her tax return.
Combination. A combination of any of the three contribution types listed above.
Maximum contributions
Generally, the maximum amount contributable (MAC) is governed by (1) the limit on annual additions (the total of employer contributions and employee elective deferrals in a year) or (2) the separate limit on elective deferrals. Note the following:
Limit on annual additions
The overall limit on annual additions is the limit on the total contributions that can be made to the pastor’s 403(b) plan each year. For 2017, it is the lesser of $54,000 or 100 percent of includible compensation for the pastor’s most-recent year of service. IRC 415(c). The $54,000 amount is indexed for inflation in $1,000 increments.
Limit on elective deferrals
In addition to the overall limit, for 2017, an employee cannot elect to defer more than $18,000 a year from salary. The limit on elective deferrals also is indexed for inflation.
Includible compensation
Includible compensation is defined by the tax code as “the amount of compensation which is received from the employer … and which is includible in gross income … for the most recent period (ending not later than the close of the taxable year). … Such term does not include any amount contributed by the employer for an annuity contract to which this subsection applies.” IRC 403(b)(3).
Includible compensation also includes (1) elective deferrals (the church’s contributions made on the pastor’s behalf under a salary reduction agreement); (2) amounts contributed or deferred by a church under a section 125 cafeteria plan; (3) wages for personal services earned with the church that maintains the 403(b) plan; and (4) income otherwise excluded under the foreign earned income exclusion.
Housing allowances
Does the term includible compensation include a pastor’s housing allowance? Based on the tax code and IRS guidance, the definition of includible compensation for purposes of computing the limit on annual additions to a 403(b) plan would not include the portion of a pastor’s housing allowance that is excludable from gross income, or the annual rental value of a parsonage.
Additional limits and special rules apply to MAC calculations. Chapter 10 of the Church & Clergy Tax Guide provides these details, including help with making calculations.
Catch-up contributions
The limit on elective deferrals under a 403(b) plan is increased for individuals who have attained age 50 by the end of the year.
The additional amount of elective contributions that may be made by an eligible individual participating in such a plan is the lesser of (1) the “applicable dollar amount” or (2) the excess of your compensation for the year over the elective deferrals that are not catch-up contributions.
Catch-up contributions are not subject to any other contribution limits and are not taken into account in applying other contribution limits.
When figuring allowable catch-up contributions, combine all catch-up contributions made by your employer on your behalf to the following plans:
qualified retirement plans,
403(b) plans,
simplified employee pension (SEP) plans, and
SIMPLE plans.
The total amount of the catch-up contributions on your behalf to all plans maintained by your employer cannot be more than the annual limit.
Use Worksheet C in IRS Publication 571 to compute your catch-up contributions.
There also is an additional special limit increase available under a 403(b) plan for pastors who have had 15 years of service with their church. Service with other churches in the same denomination can be aggregated to satisfy the 15-year requirement. Generally, under this special rule, pastors can contribute up to an additional $3,000 per year above the $18,000 salary deferral limit, with a lifetime limit of $15,000 in these additional catch-up contributions.
Key Point. If you are eligible for both the 15-year rule increase in elective deferrals and the age-50 catch-up, allocate amounts first under the 15-year rule and next as an age-50 catch-up.
Key Point. The age-50 catch-up contributions are not counted against a pastor’s MAC. The special 15 years of service contributions do count toward the MAC. Therefore, the maximum amount that a pastor is allowed to have contributed to his or her 403(b) account is the MAC plus the allowable age-50 catch-up contribution.
Excess contributions
If your actual contributions are greater than your MAC, you have an excess contribution. Excess contributions can result in additional taxes and penalties.
Voluntary employee contributions
As noted above, a pastor cannot deduct voluntary after-tax employee contributions made to his or her 403(b) plan. However, if contributions are made on a salary-reduction basis and meet the requirements of the 403(b) regulations, the amounts are currently excludible from income.
Contributions and Social Security
Note the following rules:
IRS Publication 517 instructs ministers, when computing self-employment taxes: “Do not include … contributions by your church to a tax-sheltered annuity plan set up for you, including any salary reduction contributions (elective deferrals), that are not included in your gross income.” See also Revenue Ruling 68-395 and Revenue Ruling 78-6.
Further, section 1402(a)(8) of the tax code specifies that “an individual who is a duly ordained, commissioned, or licensed minister of a church … shall not include in net earnings from self-employment the rental value of any parsonage or any parsonage allowance (whether or not excludable under section 107) provided after the individual retires, or any other retirement benefit received by such individual from a church plan after the individual retires” (emphasis added).
Reporting contributions on tax returns
Churches must report 403(b) contributions on a pastor’s W-2. Chapter 10 of the annual Church & Clergy Tax Guide provides details on this reporting.
Distributions
Generally, a distribution cannot be made from elective deferrals made to a 403(b) plan until the employee
reaches age 59½,
has a severance from employment,
dies,
becomes disabled, or
encounters financial hardship.
Distributions prior to age 59½ that do not satisfy one of the above exceptions, or are made before an individual reaches age 55 and terminates employment, are subject to an additional “tax on early distributions” of 10 percent multiplied by the amount of the distribution.
Although the term hardship is not defined in section 403(b) of the tax code, the IRS applies the same definition and rules to hardship distributions from 403(b) plans that apply to 401(k) plans. In that context, it is defined as a distribution that “is made on account of an immediate and heavy financial need of the employee and is necessary to satisfy the financial need. The determination of the existence of an immediate and heavy financial need and of the amount necessary to meet the need must be made in accordance with nondiscriminatory and objective standards set forth in the plan.” Treas. Reg. 1.401(k)-1(d)(2)(i). This definition probably is relevant in construing the same term under section 403(b).
In most cases, the payments a pastor receives or that are made available to the pastor under his or her 403(b) plan are taxable in full as ordinary income—unless, of course, the pastor can claim a retiree housing allowance with respect to all or part of such payments. In general, the same tax rules apply to distributions from 403(b) plans that apply to distributions from other retirement plans.
A pastor cannot keep retirement funds in his or her 403(b) account indefinitely. A pastor has to start taking withdrawals upon the later of: (1) when he or she reaches age 70½ or (2) when he or she retires. The question of when a pastor is “retired” for this purpose is not clearly defined. The IRS has informally indicated that, while it will not define what retirement is for this purpose, a position taken by a church that is consistent with its governing documents and is consistently applied will not be challenged. Churches and pastors should consult qualified legal counsel for more specifics about the meaning of “retirement” for 403(b) plan purposes.
The required minimum distribution (RMD) is the minimum amount the pastor must withdraw from his or her account each year.
A pastor can withdraw more than the minimum required amount.
The pastor’s withdrawals will be included in his or her taxable income except for any part that was taxed before (referred to as the pastor’s “basis”).
Beginning date for a pastor’s first RMD for a 403(b) account is April 1 following the later of the calendar year in which the pastor:
reaches age 70½ or
retires.
The pastor reaches age 70½ on the date that is six calendar months after his or her 70th birthday.
Calculating the RMD can be difficult. The IRS website (IRS.gov) contains a calculator that simplifies this calculation.
If an account owner fails to withdraw an RMD, fails to withdraw the full amount of the RMD, or fails to withdraw the RMD by the applicable deadline, an additional 50 percent excise tax must be paid.
403(b)(7) custodial accounts
As mentioned above, in 1974 Congress added section 403(b)(7) to the tax code. This section allows employees of churches and other charities to invest their 403(b) account with a mutual-fund company. 403(b)(7) plans are different than 403(b)(1) annuity plans or 403(b)(9) retirement accounts in one important respect—both employer contributions and employee elective deferrals are subject to the distribution restrictions on elective deferrals, previously described.
Caution If a church participates in a denominational 403(b) plan and also contributes on behalf of a pastor or other church worker separately to a 403(b) arrangement offered by another 403(b) provider, the church is required to apply the 403(b) rules on an aggregated plan basis. For example, if the pastor takes a loan out from the denominational plan and also from the other provider’s 403(b) arrangement, both loans must be aggregated for purposes of satisfying the tax code’s limit on retirement plan loans.
Rollovers
A pastor can generally roll over, tax-free, all or any part of a distribution from a 403(b) plan to a traditional IRA or an eligible retirement plan except for any nonqualifying distributions. The most a pastor can roll over is the amount that, except for the rollover, would be taxable. The rollover must be completed by the 60th day following the day on which the pastor receives the distribution. The IRS may waive the 60-day rollover period if the failure to waive such requirement would be against equity or good conscience, including cases of casualty, disaster, or other events beyond the reasonable control of the individual. To obtain a hardship exception, a pastor formerly had to apply to the IRS for a waiver of the 60-day rollover requirement, however the IRS has issued guidance that now permits a participant to self-certify that the required conditions exist for a waiver of this requirement.
Distribution from a designated Roth account can only be rolled over to another Roth account.
A pastor can roll over, tax-free, all or any part of a distribution from an eligible retirement plan to a 403(b) plan. If a distribution includes both pre-tax contributions and after-tax contributions, the portion of the distribution that is rolled over is treated as consisting first of pre-tax amounts (contributions and earnings that would be includible in income if no rollover occurred). This means that if a pastor rolls over an amount that is at least as much as the pre-tax portion of the distribution, the pastor does not have to include any of the distribution in income.
The following are considered eligible retirement plans: IRAs, Roths, qualified retirement plans, 403(b) plans, and eligible governmental 457 plans (except Roth contributions and earnings on such contributions can only be rolled over to a Roth IRA). A pastor cannot roll over, tax-free, any of the following nonqualifying distributions: required minimum distributions, substantially equal payments over the pastor’s life or life expectancy, substantially equal payments over the joint lives or life expectancies of the pastor’s beneficiary and the pastor, substantially equal payments for a period of 10 years or more, or hardship distributions.
Caution Pastors rolling money out of a denominational 403(b) arrangement or other 403(b) arrangement provided by their employing church into an IRA (or other eligible plan) need to understand that the new financial provider will not be able to designate a housing allowance on payments made from the new arrangement.
Nondiscrimination rules
A 403(b) plan established and maintained by a church is not subject to coverage and nondiscrimination rules, including the so-called “universal availability” rule related to employee elective deferrals.
IRS regulations
In 2004, the IRS published proposed regulations that provided the first comprehensive guidance on the administration of 403(b) plans in 40 years. The IRS was prompted to act as a result of the massive noncompliance it uncovered in field audits of 403(b) plans. Following publication of the 2004 proposed regulations, comments were received and a public hearing was held. The regulations were adopted as final regulations in 2007. The final regulations took effect on January 1, 2009, for most tax-exempt organizations.
What is the relevance of the 403(b) regulations to churches? Section 403(b) retirement plans are perhaps the most common form of retirement plan for church employees, so it is essential for church leaders to be familiar with the application of the regulations to their 403(b) plan. Failure to comply with the regulations may result in adverse tax consequences.
The provisions in the final regulations of most relevance to churches are summarized below.
Written plan requirement
The final regulations require a 403(b)(9) retirement income account to have a formal written plan document that satisfies the requirements of section 403(b) and the regulations. This means that a plan document must address several issues, including the following:
employee eligibility,
contribution limits,
distributions,
benefits,
salary reductions,
investments (fund providers available under the plan),
loans,
hardship withdrawals, and
allocation of compliance responsibilities to employers and fund providers (vendors).
In addition, the plan document must state (or otherwise evidence in a similarly clear manner) the intent to constitute a 403(b)(9) retirement income account.
Churches sponsoring a 403(b)(1) or a 403(b)(7) type of plan, however, are not required to have a written plan document. (As noted above, 403(b)(1) plans are provided by insurance companies providing annuities, while 403(b)(7) plans are provided by mutual fund financial service providers.)
The final regulations note that a 403(b) plan is permitted to allocate to the employer or to one or more third parties (e.g., investment companies) the responsibility for compliance with section 403(b) and the regulations. Any such allocation must identify who is responsible for compliance with the requirements of section 403(b), including loans and hardship withdrawals. However, the final regulations assert that it is generally inappropriate to allocate these responsibilities to employees.
The final regulations permit the plan to incorporate by reference other documents (including salary-reduction agreements, contracts, and policies) which, as a result of such reference, would become part of the plan. As a result, a plan may include a wide variety of documents, but it is important for the employer adopting the plan to ensure that its plan does not conflict with other documents that are incorporated by reference. If a plan does incorporate other documents by reference, then, in the event of a conflict with another document, except in rare and unusual cases, the plan would govern.
For further assistance
Churches that are affiliated with a denomination that offers a 403(b) plan should check with their denominational plan for compliance-related questions. Churches that offer 403(b) plans through one or more commercial mutual fund or investment firms should check with those vendors for assistance. In addition, the IRS website (IRS.gov) contains a section devoted to compliance with the regulations.
2. IRAs
Church pastors may wish to establish individual retirement arrangements (IRAs) on either a Roth or a non-Roth basis. Regarding IRAs, the IRS explains:
Two tax advantages of an IRA are that:
Contributions you make to an IRA may be fully or partially deductible, depending on which type of IRA you have and on your circumstances, and
Generally, amounts in your IRA (including earnings and gains) are not taxed until distributed. In some cases, amounts are not taxed at all if distributed according to the Roth IRA rules.
Eligibility to claim a deduction for traditional IRA contributions depends on whether you are an active participant in an employer-sponsored plan in the year to which your deduction applies. If neither you nor your spouse is an active participant, you may deduct your full contribution for the year, up to the IRA contribution limit. If, however, you are an active participant, your tax-filing status and modified adjusted gross income determine your eligibility to deduct your IRA contribution.
Regarding Roth IRAs, the IRS explains:
A Roth IRA is an individual retirement plan that, except as explained in this article, is subject to the rules that apply to a traditional IRA. It can be either an account or an annuity… . To be a Roth IRA, the account or annuity must be designated as a Roth IRA when it is opened… . Unlike a traditional IRA, you cannot deduct contributions to a Roth IRA. But, if you satisfy the requirements, qualified distributions are tax-free. Contributions can be made to your Roth IRA after you reach age 70&frac; and you can leave amounts in your Roth IRA as long as you live… . You can open a Roth IRA at any time. However, the time for making contributions for any year is limited.
IRAs and Roth IRAs are fully explained in IRS Publication 590, which can be downloaded from the IRS website (IRS.gov).
3. Qualified pension plans
Some churches and religious denominations have established qualified pension plans described in tax code section 401(a) to finance retirement benefits for their employees. The best-known type of qualified section 401(a) plan is a 401(k) plan. Such plans enjoy several tax benefits, including the following: (1) the employer gets an immediate tax deduction for contributions to the plan (this benefit is, of course, not relevant to tax-exempt churches and religious organizations), (2) fund earnings are tax-exempt, (3) employees are not taxed on their share of the fund until they receive distributions, (4) qualifying distributions can be rolled over tax-free to another plan or IRA, and (5) an employee can elect to have benefits payable to a designated beneficiary after his or her death without incurring gift tax liability.
These various tax benefits are available only if the plan is qualified. Qualification means that the plan satisfies the several conditions enumerated in section 401 of the tax code. Some of the more important requirements for qualification include the following: (1) the plan must be a written program that is communicated to all employees; (2) the plan must be for the exclusive benefit of employees and their beneficiaries; (3) if the plan is a defined benefit or money-purchased pension plan, it must be properly funded; (4) the plan must begin making payments no later than a specified date; (5) contributions and benefits may not exceed specified limitations; (6) certain employees must be permitted to participate in the plan; and (7) an employee’s interest in the plan must generally vest within a specified time. Additional requirements apply to plans benefiting owner-employees and certain “top-heavy” plans (i.e., plans that disproportionately benefit highly compensated employees).
Church plans are exempt from the minimum participation, vesting, funding, and nondiscrimination requirements of ERISA and the tax code unless they elect to be covered. IRC 410. Such an election is irrevocable. As described previously, tax code section 414(e) defines the term church plan as a plan “maintained for its employees by a church.” The income tax regulations clarify that, for purposes of this definition, the term church includes “a religious organization if such organization (1) is an integral part of a church, and (2) is engaged in carrying out the functions of a church, whether as a civil law corporation or otherwise.” Treas. Reg. § 1.414(e)-1(e).
Qualified pension plans can be either defined benefit or defined contribution plans. In a defined benefit plan, each employee is promised specified benefits upon retirement, either for a term of years or for life, based upon such factors as years of service and amount of compensation earned. Employer contributions are actuarially calculated to provide the promised benefits and are not allocated to individual accounts for each employee. In a defined contribution plan, the employer does not promise specified benefits to the employees. Rather, the employer makes discretionary or required contributions to the plan, as selected by the employer. Such contributions must be allocated to individual accounts for each employee. Retirement benefits are whatever can be provided by the accumulated employer contributions plus any earnings.
The establishment of a qualified pension plan obviously is a complex task that should be handled by an attorney having experience with employee benefits. While IRS approval of a newly established qualified pension plan is not required, it ordinarily is advisable. Often employee pension plans are established by adopting a master or prototype plan previously approved by the IRS.
The instructions for the current IRS Form 5500 state that church plans not electing ERISA coverage under tax code section 410(d) are not required to file Form 5500.
A plan cannot be a qualified plan if it provides for contributions or benefits in excess of specified amounts. A defined benefit plan cannot provide annual benefits that exceed the lesser of $270,000 (for 2017) or 100 percent of an employee’s average compensation for his or her highest three years. (Church plans are not subject to the 100 percent of taxable compensation limit.) Contributions (and any other additions) to a defined contribution plan must not exceed the lesser of $54,000 or 100 percent of an employee’s compensation for 2017.
As is the case with 403(b) plans, self-employed pastors and chaplains also can participate in 401(a) tax-qualified plans.
4. Deferred compensation plans
Generally, it is desirable to defer current income to future years when your income and tax rates may be lower. As described above, this is commonly done through various “qualified” plans such as a 403(b), 401(k), or IRA. But persons who have contributed the maximum amount to a qualified plan through salary reduction may want to defer more income to the future, and this is often accomplished through a nonqualified deferred compensation (NQDC) plan that consists of a promise by an employer to pay an employee (or self-employed person) compensation in the future in exchange for services performed currently. The term nonqualified means that the plan is not subject to the many conditions that apply to qualified benefit plans under section 401 of the tax code. However, such plans are subject to the requirements of tax code section 409A, discussed below.
NQDC arrangements can be funded through salary reduction agreements or employer contributions, or they can be unfunded (a mere unsecured promise by the employer to pay future benefits). In either case, such arrangements ordinarily are attractive only if contributions made by or on behalf of an employee are not currently taxable and earnings can accumulate tax-free. In order to ensure that an employee is not taxed currently under a NQDC arrangement, the assets of the plan must be subject to the reach of the employer’s creditors.
Congress added section 409A to the tax code in 2004 to address what it perceived to be certain abuses involving NQDCs. Examples of NQDCs covered by section 409A include some severance agreements, salary deferral agreements, and deferred compensation programs for directors, that provide for the payment of compensation beyond the current year.
In 2007, the IRS published final regulations interpreting section 409A. The final regulations define an NQDC broadly, to include any plan that provides for the deferral of compensation, with some exceptions. This definition is broad enough to include rabbi trusts and some other kinds of church compensation arrangements.
One of the advantages of an NQDC plan is that employees can make larger tax-deferred contributions than are possible under a 403(b), 401(k), or IRA (subject, of course, to the requirement that the tax deferrals plus other compensation is reasonable). However, these advantages come with risks, including the possibility of losing much or all of the deferred compensation. In addition, the 409A rules impose other rules on employee tax-deferred contributions which must be met to avoid current taxation of these contributions. However, if deferred compensation meets the requirements of section 409A, there is no effect on an employee’s taxes. The compensation is taxed in the same manner as it would be if it were not covered by section 409A.
If the arrangement does not meet the requirements of section 409A, the compensation is subject to certain additional taxes, including a 20 percent additional income tax. Section 409A has no effect on the FICA (Social Security and Medicare) tax.
Key Point. What requirements does section 409A of the tax code impose on NQDC plans? There are several, and they are highly complex. Church leaders contemplating the deferral of compensation that an employee earns in the current year to a future year should address the following four points:
If your church is considering the deferral of compensation for an employee beyond the current year, such as in a severance agreement or rabbi trust, you need to understand that complex rules now apply to such arrangements (” deferred compensation plans”), and the employee may be subject to significant penalties (including back taxes, plus a 20-percent tax) if the complex requirements enumerated in section 409A of the tax code are not met.
Penalties may be avoided if a deferral arrangement meets the requirements of section 409A.
As a result, any church contemplating the deferral of an employee’s compensation to a future year should first consult with a tax professional for assistance in complying with the section 409A requirements.
Section 409A contains some exemptions that may apply, depending on the facts and circumstances. A tax professional can assist in evaluating the possible application of these exemptions.
Key Point. If a church wants to provide a pastor with a substantial retirement contribution upon the pastor’s retirement, a NQDC can be used for that purpose. However, it also may be possible to have the church make additional post-employment contributions to the church’s 403(b) plan in the amount desired for up to five years following the pastor’s retirement. Churches and pastors should also discuss this possibility with qualified tax counsel.
Rabbi trusts
In 1992, the IRS acknowledged that it received a flood of private ruling requests by employers seeking IRS approval of their rabbi trust arrangements. In response, it published a model rabbi trust agreement. Revenue Procedure 92-64. The IRS observed:
The model trust provided in this revenue procedure is intended to serve as a safe harbor for taxpayers that adopt and maintain grantor trusts in connection with unfunded deferred compensation arrangements. If the model trust is used in accordance with this revenue procedure, an employee will not be in constructive receipt of income or incur an economic benefit solely on account of the adoption or maintenance of the trust. However, the desired tax effect will be achieved only if the nonqualified deferred compensation arrangement effectively defers compensation.
The IRS warned that it will not issue any rulings on NQDCs that “use a trust other than the model trust.” In other words, churches and other religious employers that have adopted rabbi trust arrangements should ensure that the language used in their trusts is identical to that in the model IRS form. The IRS cautioned: “The model language must be adopted verbatim, except where substitute language is expressly permitted… . Of course, provisions may be renumbered if appropriate, language in brackets may be omitted, and blanks may be completed. In addition, the taxpayer may add sections to the model language provided that such additions are not inconsistent with the model language.”
A rabbi trust can be an effective tool for churches and religious organizations, especially for highly compensated ministers who are nearing retirement age. Through proper drafting, it is possible for a church to set aside amounts in trust that would exceed the limits associated with other retirement plans. But keep the following points in mind:
409A. The NQDC associated with the rabbi trust must meet the requirements of section 409A.
Assets. The trust must provide that the trust assets are subject to the general creditors of the employer under both federal and state law. This is the most significant disadvantage of a rabbi trust and distinguishes it from many other tax-favored retirement plans.
Example A church establishes a rabbi trust for its senior pastor. Over several years the trust accumulates $250,000. The church is sued as a result of the sexual misconduct of a volunteer worker, and a court awards the victim $1 million in damages. The church’s insurance only covers $100,000 of this amount. The victim has the legal right to compel the church to turn over the rabbi trust to her, thereby eliminating the pastor’s retirement funds.
Beneficiary. The beneficiary (i.e., the minister) cannot have any legal interest in the trust fund until the trust assets are distributed. The trust should specify that the beneficiary’s interest cannot be assigned, transferred, or used as collateral, and it is not subject to his or her creditors prior to distribution. The idea is this: the beneficiary cannot be taxed on the employer’s transfer of funds to the rabbi trust, since the beneficiary has no interest in the funds and may never receive them should the employer become insolvent.
Funding. The trust must be funded with the employer’s assets. It is unclear whether a rabbi trust can be funded, in whole or in part, with an employee’s own compensation (such as through a salary reduction agreement). In a 1997 ruling, the IRS did conclude that a rabbi trust could be funded through “salary deferrals” that were executed by employees prior to the beginning of the year in which the salary was earned. IRS Letter Ruling 9703022. However, as mentioned above, salary deferrals must meet the 409A rules applicable to such deferrals in order for them to not be taxable currently.
Any church or other organization that is considering a rabbi trust (or any other arrangement that defers compensation to a future year) should contact an attorney to have the arrangement reviewed to ensure compliance with both section 409A and the final 409A regulations. Such a review will protect against the substantial penalties the IRS can assess for noncompliance. It also will help clarify whether a deferred compensation arrangement is a viable option in light of the limitations imposed by section 409A and the final regulations.
Special thanks to attorney Danny Miller, an editorial advisor for Church Law & Tax, who reviewed this article and provided numerous helpful additions, changes, and clarifications. Miller is a partner in the Washington, D.C., office of Conner & Winters, LLP.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
Image: dan_prat | Getty
Cell Tower Leases: Easy Money or Never-ending Headaches?
What churches need to know before renting their property to a communications company.
Heidi Hall
Competing for greater market share with the promise of better-than-ever coverage, cellular companies are always on the lookout for new places to construct cell towers. That means pastors and church financial directors will continue to be approached—and sometimes even hounded—by companies hoping to build antennas into steeples, disguise them as crosses and bell towers, and slap them on spires.
These arrangements promise hundreds or thousands of dollars per month in lease fees to cash-strapped churches. But the possible pitfalls include hidden tax burdens, opposition from activists and neighbors, and leases that hamstring the church from expansion.
Pluses and minuses
A quick internet search finds a few examples of churches embroiled in arguments with neighbors and others over whether the tower will change the neighborhood’s character. Others oppose the towers out of fears over health problems from electromagnetic radiation—a factor the federal government and multiple studies have dismissed.
Both factors can usually be overcome and, generally, once a tower is up for a while, the neighborhood forgets about it. Sarah Graham, financial administrator at The Church at Green Hills in La Habra, California, said she’s unaware of any controversy over the cell tower her church has hosted for 20 years. It’s operated by T-Mobile—which pays $24,000 annually for the lease—and is disguised as a cross.
“My experience has been that the agreement was a good agreement,” said Graham, who grew up in the church.
Churches that are satisfied with their leases have maintained control over their property, said Casey Hale, an attorney who works with churches and serves the nonprofit sector for Brown & Streza in Irvine, California.
Hale has seen it far too often: a church signs an agreement, senses somethings is amiss, and then gives him a call. “Then it’s too late,” said Hale. “Depending on terms in the agreement, it might make it difficult for the church to make any changes to its property or buildings. [Or] the church could be locked into below-fair-market rental rates for decades.”
“In dealing with carriers, you want to be as shrewd as snakes,” said Steve Kazella, referencing Jesus’ words in Matthew 10:16. Kazella heads Tower Genius, a cell tower lease consulting firm in Lewiston, Idaho. The way to do that, according to Kazella, is to hire people with thorough knowledge of zoning, tax codes, legal issues, and the wireless industry itself. Tower Genius, he said, typically works with lawyers on the latter.
Following IRS rules
On the tax side, the biggest problems relate to property tax rules, which differ from state to state, and a lack of clarity around Internal Revenue Service rules, CPA Dave Moja said. Moja helped write a 2014 report to the IRS on issues with unrelated business income tax (UBIT).
Under IRS rules, if a church collects money on an activity unrelated to its ministry, it could be considered taxable income. Those rules can be difficult to untangle, Moja said.
Moja offers these tips for church leaders:
Check with local government about whether the area of church property where the tower will be erected would be subject to property tax.
If the church owns the building outright and the IRS considers it “real property,” it may be exempt from paying UBIT on rental income from antennas or towers affixed to it.
If the church already owns a stand-alone radio antenna and allows a cell service provider to affix an antenna to it, the congregation may be subject to UBIT on the net income from the tower rental.
If the church has debt on its building or land and rents space for a cell tower, it may have to pay tax on the rental fee, depending on the percentage of the property considered debt-financed.
If the church simply rents land to a communications company and that company constructs a tower and pays all costs associated with operating the tower, the church will generally not owe UBIT on the land rental. However, if the church has debt on the land, it would be subject to the debt-financed rules.
Navigating zoning boards
Sometimes churches will find that their neighbors don’t want to allow a cell phone tower on church property, but zoning boards generally look favorably upon cell towers at churches, said Kevin Donohue, a partner in the Tower Genius consulting firm.
“If [churches] can hide the antennas, planning boards and zoning boards won’t give them a hard time,” Donohue said.
Seek expert help
“The UBIT laws I’ve been working with for 20 years are probably the best marketing tool for CPAs and attorneys out there,” Moja said. “There’s a don’t-try-this-at-home aspect to this stuff. It comes down to working with your tax advisers and making sure you have good guidance on local, state, and federal laws.”
Real estate agent Dominic Dutra, whose California-based firm consults with churches and other nonprofits on cell phone tower leases, urges clients to consider alternatives to cell phone towers. Too often, he’s heard of churches devastated by being trapped in contracts that take away control of their property, result in unanticipated taxes, or yield far less income than they should have.
Dutra encourages churches to ask themselves questions like these before signing any cell tower contracts: “Does it do anything for us beyond the income? Does it improve what we do in our ministry or in the community? Or does it constrain what we want to do with our property on a long-term basis?”
He said the biggest question churches should ask themselves is, “Why are we doing this?”
Image: Getty / NadyaPhoto
Q&A: Annually Reviewing W-4s for Church Employees
An annual review of W-4s by church employees can best address changes affecting their tax situations.
Should our church ask each employee to fill out a new Form W-4 each year? If so, why?
The W-4 form is used by employees to report withholding allowances. This information will determine how much income tax the church withholds from the wages of a nonminister employee. The important point is this—W-4 forms often become obsolete because of changes in an employee’s circumstances, but the employee fails to submit a new form to the church. This can result in withholding that is significantly above or below the actual tax liability.
Here are some reasons why an employee’s W-4 may be inaccurate—the birth of a new child, a pay raise, a divorce, or significant medical expenses. These same considerations apply to ministers who have elected “voluntary withholding” of their taxes. Also, note that the tax cuts passed by Congress in recent years have reduced taxes for most Americans, and this is another reason why church employees should periodically review their W-4 form.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
Can Social Networking Get Us Sued?
How to safeguard your church staff’s use of popular communication tools.
Like the rest of the world, many churches are turning to social networking sites like Facebook, MySpace, and Twitter to connect with people and promote outreaches and other church programs. And that’s what these tools were designed for-easy mass communication and media sharing. While this is a creative way to do business and connect with people inside and outside the church, using these social networks could cause some liability problems for your church if you do not set up the appropriate policies and monitoring procedures.
Public sites offer little security
There’s virtually no privacy for your staff when they use a social networking site. Anything posted online is available worldwide and never dies, even after a user deletes it. Even if you restrict the privacy settings or the page is password protected, there are ways to get into that document. Facebook, for example, retains copies of these according to its “Terms of Use Agreement.” Social networking sites are public and permanent, which means anything from them may cause you future harm.
The New York Times reported a case where jurors were mining information about the defendant online. After one juror confessed to this, the judge discovered eight of the other jurors were also looking the defendant up online. The judge declared the case a mistrial.
It’s easy to collect information on people these days. If your staff is going to talk about anything work-related on any webpage, that posting may create problems for your church, and, in some cases, a liability for your church. As a result, your church probably wants to avoid responsibility for everything they say. The best way to avoid liability for staff members’ postings to social media is to require them to agree that all postings will comply with the church’s terms and conditions for social networking by its staff members.
In addition to there being little to no privacy on these sites, information spreads easily-social networking can be a breeding ground for rumors and gossip. This is just another reason why your staff should agree to a social networking policy that includes a disclaimer for your church, among other things.
Sample terms and conditions
If anyone on your staff has a social networking web page (Facebook, MySpace, Twitter, Plaxo, LinkedIn and similar sites) and they write about any work-related activities, they need to agree to the following terms and conditions:
You agree to write under your own name.
You may write about the church, your job, or some aspect of our business on a regular basis.
You agree to include the following disclaimer on your site: “The opinions expressed on this site are the opinions of the participating user. ________________ Church acts only as a passive conduit for the online distribution and publication of user-submitted material, content and/ or links and expressly DOES NOT endorse any user-submitted material, content and/or links or assume any liability for any actions of the participating user.”
You agree not to attack fellow employees, members, or vendors. You may disagree with the church and its officers, provided your tone is respectful and you do not resort to personal attacks.
You agree not to disclose any sensitive, proprietary, confidential, or financial information about the church, other than what is publicly available.
You may comment on other churches, but you agree to do so respectfully without ridiculing, defaming, or libeling them in any way.
You agree not to post any material that is obscene, defamatory, profane, libelous, threatening, harassing, abusive, hateful or embarrassing to another person or any other person or entity.
You agree not to post advertisements, solicitations and/ or market and/or promote any business or commercial interest, chain letters, or pyramid schemes.
Your church should include this agreement in its employee handbook. Each employee should sign it as part of the new hire paperwork.
My son-in-law is a youth minister at a new startup church in the Houston area. He uses Facebook extensively to communicate with those in his care. It has proven to be one of the best ways to communicate both needs and events. When Hurricane Ike devastated a church in Galveston, he used Facebook to secure volunteers to work at that church for a week. At the same time, he is careful to follow the above rules, especially avoiding the sharing of any confidential information. Though using it for a prayer request may be appropriate, he secures advanced approval from the subject of the prayer before posting it to Facebook.
Frank Sommerville is a both a CPA and attorney, and a longtime Editorial Advisor for Church Law & Tax.
• Article summary. Must churches pay the minimum wage to their secretaries, bookkeepers, preschool workers, nursery workers, teachers, musicians, and custodians? If so, are there any exceptions? What about volunteer workers and self-employed individuals? If churches must pay the minimum wage, do they also have to pay overtime compensation (i.e., one and one-half times their regular compensation) to employees who work more than 40 hours per week? If so, does this include ministers? This article will address these important questions on the basis of federal law, Department of Labor publications, and two recent federal court decisions.
• Key point 8-05. Congress has enacted a number of employment and civil rights laws regulating employers. These laws generally apply only to employers that are engaged in interstate commerce. This is because the legal basis for such laws is the constitutional power of Congress to regulate interstate commerce. As a result, religious organizations that are not engaged in commerce generally are not subject to these laws. In addition, several of these laws require that an employer have a minimum number of employees. The courts have defined “commerce” very broadly, and so many churches will be deemed to be engaged in commerce.
• Key point 8-17. The Fair Labor Standards Act mandates that employers pay the minimum wage and overtime compensation to employees who work for an enterprise engaged in commerce. There is no exception for religious organizations, but there are exceptions for certain classifications of employees.
With an increase in the federal minimum wage virtually certain, many church leaders are attempting to assess the impact of such an increase on church employment and compensation practices. Must churches pay their employees the minimum wage prescribed by federal law? Must they pay overtime compensation to employees who work more than 40 hours per week? What about ministers? Are they entitled to overtime pay and the minimum wage?
It is important for church leaders to be able to answer these questions, since churches and even church board members can be exposed to substantial liability in the event that a church fails to pay the minimum wage or overtime compensation to employees who are legally entitled to these benefits. Unfortunately, few church leaders have a clear understanding of the application of the federal minimum wage and overtime compensation law to church workers. For the most part, this is due to the complexity of the law. But it also can be attributed to the relatively few court decisions that have addressed the application of the law to churches. This fact makes every court ruling significant.
This article will review all of the major court rulings addressing this issue, including two recent cases. It also will review three Department of Labor “Opinion Letters” that address the coverage of church employees under the federal minimum wage and overtime law.
1. The Fair Labor Standard Act (FLSA)
In 1938 Congress enacted the Fair Labor Standards Act (the “Act” or “FLSA”) to protect employees engaged in interstate commerce from substandard wages and excessive working hours. The Act achieves its purpose by prescribing a maximum workweek of 40 hours for an employee engaged in commerce, unless the employee is paid at the rate of one and one half times the regular rate of compensation for all hours worked over 40, and by prescribing a minimum wage for all employees engaged in interstate commerce. The Act also requires equal pay for equal work regardless of gender, and restricts the employment of underage children.
The Act initially covered only those employees “engaged in commerce or in the production of goods for commerce.” Congress greatly expanded the Act’s coverage in 1961 by amending the Act to cover “enterprises” as well as individual employees. The Act now provides that employers must pay the minimum wage and overtime compensation not only to employees actually engaged in commerce or in the production of goods for commerce, but also to any employee “employed in an enterprise engaged in commerce or in the production of goods for commerce.”
In summary, for the minimum wage and overtime compensation requirements to apply to a particular worker, the following two requirements must be satisfied: (1) the worker must either be (a) engaged directly in commerce or in the production of goods for commerce, or (b) employed by an enterprise engaged in commerce or in the production of goods for commerce, and (2) the worker must be an employee.
The more important of these terms are discussed in the following paragraphs, along with pertinent exemptions.
Enterprises
The Act defines an enterprise as “the related activities performed … by any person or persons for a common business purpose.” The United States Supreme Court has noted that this definition excludes most religious and charitable organizations to the extent that they are not operating for profit and are not pursuing a “business purpose.” Tony & Susan Alamo Foundation v. Secretary of Labor, 471 U.S. 290 (1985). On the other hand, religious and charitable organizations will be deemed to be an “enterprise” subject to the minimum wage and overtime compensation requirements if they are engaged in commercial or business activities.
In 1966, Congress amended the Act to include within the definition of “enterprise” any “preschool, elementary or secondary school, or an institution of higher education (regardless of whether or not such … institution or school is public or private or operated for profit or not for profit).” The Act now provides that schools and preschools, even those operated by churches, are “deemed to be activities performed for a common business purpose.”
The fact that a church school or preschool is now deemed to be an “enterprise” does not end the analysis. As noted above, the enterprise must be “engaged in commerce or in the production of goods for commerce,” and the worker must be an employee. The Act defines the term enterprise engaged in commerce or in the production of goods for commerce to include an enterprise that:
(1) “Has employees engaged in commerce or in the production of goods for commerce, or that has employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person, and is an enterprise whose annual gross volume of sales made or business done is not less than $500,000”; or
(2) “Is engaged in the operation of a … preschool, elementary or secondary school, or an institution of higher education (regardless of whether or not such … institution or school is public or private or operated for profit or not for profit).”
According to this language, church-operated schools and preschools are deemed to be “enterprises engaged in commerce or in the production of goods for commerce.” A “fact sheet” published by the Department of Labor states:
The amendments to the FLSA specifically extended FLSA coverage to preschools as covered “enterprises,” regardless of whether public or private or operated for profit or not for profit, and without regard to the annual dollar volume of the business. As a result, all such enterprises are required to comply with applicable provisions of the FLSA.
Daycare centers and preschools provide custodial, educational, or developmental services to preschool age children to prepare them to enter elementary school grades. This includes nursery schools, kindergartens, head start programs, and any similar facility primarily engaged in the care and protection of preschool age children. Individuals who care for children in their home are not considered daycare centers unless they have employees to assist them with the care of the children.
This language leaves no doubt that the Department of Labor interprets the term preschool to include a church-operated child care facility even if the facility is primarily a custodial rather than an educational institution.
Individual coverage
Even when there is no enterprise coverage, employees are protected by the FLSA if their work regularly involves them in commerce between states (“interstate commerce”). The FLSA covers individual workers who are “engaged in commerce or in the production of goods for commerce.”
Examples of employees who are involved in interstate commerce include those who produce goods (such as a secretary typing letters in an office) that will be sent out of state, regularly make telephone calls to persons located in other states, handle records of interstate transactions, travel to other states on their jobs, and do janitorial work in buildings where goods are produced for shipment outside the state.
The Department of Labor Field Operations Handbook describes individual coverage as follows:
Individual coverage depends on the nature of the particular employee’s work. An employee is covered on an individual basis in each workweek in which he or she performs any work constituting engagement in interstate or foreign commerce …. As a practical matter [the Wage and Hour Division of the Department of Labor] does not assert individual coverage over an employee who is ordinarily engaged in employment which is not so covered but who may on isolated occasions spend an insubstantial amount of time performing individually covered work. However, this rule is not applicable in any workweek in which an employee spends a substantial amount of time doing individually covered work. If, in viewing the employment over a more extended period, it is apparent that the pattern of individual coverage is regular and recurrent, the employee involved is so covered in each workweek in which he does such work, regardless of whether the amount of time spent in this work is substantial or insubstantial.
It is not possible to establish precise guidelines to be followed in determining whether an employee who is not otherwise covered on an individual basis spends an insubstantial amount of time on isolated occasions in the performance of individually covered work. In view of the remedial purposes of the Act, the application of this rule is limited to circumstances where the time consumed by an employee in doing such covered work is obviously trivial, and the incidence of this covered work is so infrequent and out-of-pattern that it would be unrealistic to assert individual coverage solely on such grounds. This must be decided on the facts in a particular case. Field Operations Handbook § 11a01.
The Department of Labor Field Operations Handbook addresses the individual coverage of several categories of employees under the FLSA. The only one relevant to church staff would be “clerical” employees. Section 11c00 of the Field Operations Handbook states:
Office and clerical employees who are engaged in the sending and receiving of out-of-state remittances, letters, bills, contracts, etc. or whose work involves the regular and recurrent use of the interstate mails, telephone, telegraph, and similar agencies of communication across state lines, are engaged in interstate commerce …. Those who not only transmit, but also prepare letters, bills, contracts, and other papers which are sent out of the state, are actually engaged in the production of goods for interstate commerce.
Regulations adopted by the Department of Labor state:
The Act makes no distinction as to the percentage, volume, or amount of activities of either the employee or the employer which constitute engaging in commerce or in the production of goods for commerce. However, an employee whose in-commerce or production activities are isolated, sporadic, or occasional and involve only insubstantial amounts of goods will not be considered “engaged in commerce or in the production of goods for commerce” by virtue of that fact alone. The law is settled that every employee whose activities in commerce or in the production of goods for commerce, even though small in amount are regular and recurring, is considered “engaged in commerce or in the production of goods for commerce”. 29 C.F.R. 779.109.
Employees
For a worker to be entitled to the minimum wage and overtime compensation, he or she must be an “employee.” The Act defines the term employee as “any individual employed by an employer,” and adds that an employee includes a person who is “suffered or permitted” to work.
These definitions, and especially the definition of “individual coverage,” are cursory and ambiguous, and often are difficult to apply in individual cases. As a result, court decisions and published opinions by the Department of Labor addressing these terms in the context of church employees are immensely helpful. It is to a survey of these decisions that we now turn.
A church-affiliated nonprofit organization operated residential programs for mentally disabled persons and foster children. Nine employees (the “plaintiffs”) sued their employer in federal court claiming that it had failed to pay them overtime compensation for hours worked in excess of 40 per week.
The court began its opinion by noting that an employer is subject to the FLSA’s overtime pay requirements in either of the following two situations: (1) the employee individually is “engaged in commerce or in the production of goods for commerce,” or (2) the employer is an enterprise “engaged in commerce or in the production of goods for commerce,” regardless of whether the individual employee was so engaged. The court noted that under the FLSA’s individual coverage provision, any employee “engaged in commerce or in the production of goods for commerce” is covered by the Act whether or not his or her employer is an enterprise engaged in commerce.
The plaintiffs conceded that they had not been “engaged in the production of goods for commerce,” and so “the issue of individual coverage turns on whether the plaintiffs were or are engaged in commerce.”
Department of Labor regulations specify that employees are engaged in commerce “when they are performing work involving or related to the movement of persons or things (whether tangibles or intangibles, and including information and intelligence)” between states. 29 C.F.R. § 779.103. As a result, an employee is engaged in commerce “when regularly using the mails and telephone for interstate communication, or when regularly traveling across state lines while working.” However, Department of Labor regulations also specify:
This does not mean that any use by an employee of the mails and other channels of communication is sufficient to establish coverage. But if the employee, as a regular and recurrent part of his duties, uses such instrumentalities in obtaining or communicating information or in sending or receiving written reports or messages, or orders for goods or services, or plans or other documents across state lines, he comes within the scope of the act as an employee directly engaged in the work of “communication” between the state and places outside the state. 29 C.F.R. § 776.10 (emphasis added) …. To be engaged in commerce, a substantial part of the employee’s work must be related to interstate commerce.
The court concluded, based on this language, that when an employee’s interstate activities “are de minimis, or not regular or recurring, as a practical matter neither courts nor the Department of Labor consider the employee covered under the FLSA.” It cited the following examples:
Sporadic or occasional shipments of insubstantial amounts of goods are insufficient to bring an employee within the coverage of the FLSA. Remmers v. Egor, 332 F.2d 103 (2d Cir. 1964).
Four trips out of state by one employee on work-related activities over the course of 19 months were “sporadic to say the least,” while frequent trips out of state and consistent use of the mails to send correspondence out of state was sufficient for another employee to be covered by the FLSA. Isaacson v. Penn Cmty. Servs., 1970 WL 794 (D.S.C. 1970).
An employee’s use of the phone and mails to accomplish fourteen to thirty major purchases from out-of-state vendors between 1992 and 1997 were considered sufficient to find coverage under the FLSA. Boekemeier v. Fourth Universalist Society, 86 F.Supp.2d 280 (S.D.N.Y.2000).
The court conceded that “there is not a clear standard for determining when an individual employee’s interstate activities tip the scale and becomes substantial for purposes of determining coverage.” It noted that an official publication of the Department of Labor, Wage and Hour Division (WHD), states that the WHD does not assert individual coverage where an employee spends “insubstantial amount of time” “on isolated occasions” performing covered work. Field Operations Handbook § 11a01(a). The publication acknowledges that “it is not possible to establish precise guidelines to be followed” on the question of whether individually covered work is insubstantial and isolated. However, it goes on to clarify that
In view of the remedial purposes of the FLSA, the application of this [de minimis or “insubstantial amount”] rule is limited to circumstances where the time consumed by an employee in doing such covered work is obviously trivial, and the incidence of this covered work is so infrequent and out-of-pattern that it would be unrealistic to assert individual coverage solely on such grounds. This must be decided on the facts in a particular case.
Department of Labor regulations provide the following clarification regarding out-of-state travel:
Employees who are regularly engaged in traveling across state lines in the performance of their duties (as distinguished from merely going to and from their homes or lodgings in commuting to a work place) are engaged in commerce and covered by the act. On the other hand, it is equally plain that an employee who, in isolated or sporadic instances, happens to cross a state line in the course of his employment, which is otherwise intrastate in character, is not, for that sole reason, covered by the FLSA. Doubtful questions arising in the area between the two extremes must be resolved on the basis of the facts in each individual case. 29 C.F.R. § 776.12 (emphasis supplied).
The nine plaintiffs
The court noted that “whether the plaintiffs are covered for work done … will require an analysis of their alleged interstate activities to determine (1) whether those activities are of the type covered by the Act, and (2) whether these are performed frequently enough to give rise to coverage under the Act.” It observed:
The court agrees with the employer’s position that distributing personal mail and phone cards to residents in the home, and picking up personal calls for residents that originate out of state, do not constitute the type of use of the mails or channels of interstate commerce sufficient to trigger coverage under the Act. As discussed above, the Department of Labor does not consider “any use by an employee of the mails and other channels of communication” to implicate individual coverage. 29 C.F.R. § 776.10 (emphasis added). Rather, individual coverage may exist when that “use” is “regular and recurrent” and performed to obtain or communicate information, or to order goods or services across state lines. Although neither the substance nor volume criteria triggering individual coverage under the FLSA are well defined, typically it is the use of the interstate mails and placement of out-of-state phone calls occurring in the course of conducting an organization’s clerical or administrative business that appear to trigger individual coverage, if “regular and recurrent” and a “substantial part” of the employee’s work. Field Operations Handbook § 11n01. It is undisputed that plaintiffs’ handling of mail and receipt of telephone calls occurred only in the context of distributing mail and relaying calls and messages to residents. Employees cannot be considered to be “using” the mails simply because they physically touch letters that have arrived from out of state for residents in the homes. Nor does answering calls that happen to originate from out of state constitute “use” of the channels of interstate commerce. As a matter of common sense, these types of activities do not require an employee to be “directly engaged in the work of ‘communication’ between the state and places outside the State.” 29 C.F.R. § 776.10.
However, the court did find the employees’ trips to other states for shopping and recreation with residents of the homes to be interstate activities “that may bring an employee within the scope of individual coverage,” since “traveling across state lines in connection with one’s duties clearly implicates coverage under the Act” so long as the travel is neither infrequent nor de minimis.
The court concluded that two of the nine plaintiffs were covered under the FLSA because the home in which they worked qualified as an “enterprise.” The court then addressed the individual coverage of the remaining seven employees. Its conclusions are summarized in the following table.
EmployeeDutiesConclusion
1
Drove residents to another state to go shopping on two occasions. She also distributed mail to the residents three to four times a week.
Not covered by FLSA, so not entitled to overtime pay.
2
Over the course of two years made five trips out of state on recreational or shopping excursions with residents. Received phone calls from out of state approximately two times a month for two years, and six or seven times in the most recent year.
Not covered by FLSA, so not entitled to overtime pay. The court found five trips over two years to be de minimis.
3
The employee made four trips to other states with residents for recreation, plus another trip to another state to attend a week-long training seminar.
Not covered by FLSA, so not entitled to overtime pay.
4
The employee transported residents to another state two to four times per month to shop. The employer disputed the remainder of her alleged interstate activities, including the receipt of out-of-state telephone calls, and her handling of mail within the home.
“Two to four trips per month out of state to shop with residents are frequent enough to bring this employee under FLSA coverage. The disputed activity with respect to phone calls and mail are not considered in determining whether she is covered on an individual basis.”
5
This employee traveled to another state for shopping on one occasion, and at least twice for recreation with the residents. She answers the phone and sometimes places calls as part of her job.
Not covered by FLSA, so not entitled to overtime pay.
6
No interstate activity alleged.
Not covered by FLSA, so not entitled to overtime pay.
7
This employee traveled once a week to a neighboring state to shop for food and other items for residents and the home.
“Weekly trips to [a neighboring state] are regular and recurrent enough to bring her under the Act’s coverage.”
Liquidated damages
The court ruled that the employer was required to pay “liquidated damages” in addition to unpaid overtime compensation. According to the FLSA, employers that fail to pay overtime compensation may be obligated to pay not only the unpaid overtime compensation but also “an additional equal amount as liquidated damages.” However, an employer will not be required to pay liquidated damages if it can demonstrate that it had “reasonable grounds” for believing that it was not obligated to pay overtime compensation. The court cautioned that this defense required evidence “of at least an honest intention to ascertain what the Act requires and to comply with it. The employer must show more than that it did not purposefully violate the provisions of the FLSA to establish that it acted in good faith.” The court ruled that the employer was not entitled to this defense, and accordingly assessed liquidated damages in addition to back overtime pay.
Statute of limitations
An employer who has violated the FLSA must pay unpaid wages for two years from the filing of a lawsuit, unless the employer has “willfully” violated the Act, in which case unpaid wages are due for three years. The court concluded that the special three-year rule did not apply in this case since there was no evidence that the employer “knew it was violating the FLSA.” While the employer may not have “taken sufficient steps to ensure compliance with the FLSA,” it did “make some effort to ascertain whether it was entitled to an exemption.”
Application of the FLSA to religious employers
The court rejected the employer’s suggestion that it was exempt from FLSA since it was a religious organization. It noted that Department of Labor, Wage and Hour Division, “clearly recognizes that individual employees of nonprofit organizations who do not engage in substantial competition with other businesses may be covered on an individual basis.” It quoted from a Department of Labor publication: “Employees of educational, eleemosynary, or nonprofit organizations may be covered on an individual basis …. Employees, such as office and clerical personnel, whose work involves the regular use of the interstate mails, telegraph, telephone, and similar instrumentalities for communication across state lines are actually engaged in interstate commerce.” Field Operations Handbook § 11n01.
3. Alcazar v. Corporation of Catholic Archbishop of Seattle, 2006 WL 3791370 (W.D. Wash. 2006)
This case is addressed in the recent developments section of this newsletter. To summarize, a federal court in Washington ruled that the “ministerial exception” prevented it from resolving several claims brought by seminary students against a religious organization, including violation of a state minimum wage law.
The court noted that the First Amendment guaranty of religious freedom has created a “ministerial exception” to employment laws, and that this exception prohibits a court from “inquiring into the decisions of a religious organization concerning the hiring, firing, promotion, rate of pay, placement or any other employment related decision concerning ministers and other non-secular church employees.”
The court dismissed the seminarian’s claim that his religious employer had violated a state minimum wage law. It concluded:
This claim concerns decisions regarding the rate of pay for non-secular church employees and must also be dismissed under the ministerial exception. The … ministerial exception applies to both state and federal claims, and prohibits a court from inquiring into the decisions of a religious organization concerning the hiring, firing, promotion, rate of pay, placement or any other employment related decision concerning ministers and other non-secular church employees. This most certainly includes questions concerning the amount of compensation owed a visiting seminarian student [citing Bollard v. California Province of the Society of Jesus, 196 F.3d 940 (9th Cir.1999)].
A church in New York City supplemented its income by leasing its facilities and property on a short and long term basis to individuals and organizations. In soliciting customers to rent its facilities, the church performed monthly mass mailings, issued press releases and placed advertisements in magazines and on the Internet. About half of the groups that rented space from the church for special events were from a state other than New York.
The church’s total income for each fiscal year from 1993 to 1996 surpassed $500,000. This income came from the following categories:
(1) Rental income
(2) Contributions (contributions that qualify as tax-deductible charitable contributions)
(3) Investment income (revenue derived from dividends and interest received as a result of investments made by the church)
(4) Special events income (revenue derived from the coin operated soda machine on the church’s premises, any fund-raising events conducted by the church, and any letter writing campaigns or other special fund-raising efforts conducted by the staff of the church)
(5) Miscellaneous income (credits from merchants, adjustments to reflect outstanding checks which never were negotiated, and income derived from meals served at the church)
(6) Gain on sale of investments (revenue from the sale of securities owned by the church)
(7) Social action committee income (contributions received by the church’s social action committee)
(8) Insurance proceeds derived from any claim made on a church insurance policy
The following table reflects the amount of income attributable to each such category for the fiscal years in question:
Income source
1994
1995
1996
Rental income
$467,912
$481,427
$451,973
Contributions
57,289
41,444
50,690
Investment income
6,319
6,512
7,008
Special events
12,087
8,511
9,069
Miscellaneous
3,024
6,718
2,406
Gain on investments
18,850
(8,982)
(1,437)
Social action com.
1,123
600
200
Insurance proceeds
15,520
0
0
The church placed the money it received from its rental activities, contributions, and other sources of income into a single, unrestricted fund, and from that fund paid its employees’ salaries and other expenses.
The plaintiff
A man (“Ralph”) began employment with the church in 1990 as an “Assistant Building Engineer.” His job responsibilities included custodial and maintenance work, assisting the church’s short and long term tenants, and purchasing equipment and cleaning and maintenance supplies.
Ralph purchased custodial supplies and other equipment from five out of state vendors. The majority of such purchases were for custodial supplies, but on separate occasions Ralph also purchased a refrigerator, electronics equipment, and a computer from these vendors. Ralph also claimed to have purchased materials from a supplier of plumbing parts from California.
Ralph and the church agreed that he made between one and four purchases of custodial supplies from out of state vendors in 1992; between three and six such purchases in 1993; between three and four such purchases in 1994; between one and four such purchases in 1995; between two and six such purchases in 1996; and between four and six such purchases in 1997. In other words, Ralph made a total of between fourteen and thirty such out-of-state purchases between 1992 and 1997.
Also as part of his regular duties, on an average of twice per month, Ralph showed church facilities to potential short term tenants for special events like weddings and meetings. He further worked directly with some short term tenants to set up for their special events, both in advance and at the time of their rentals, and at times suggested how such tenants might accomplish what they were trying to do. In addition, Ralph generally was available during special events to help in case any problems arose and to clean up after the event. For example, Ralph performed custodial and maintenance tasks for a preparatory school that met on church premises during the entire time that he was employed by the church. He also performed custodial and “set up” tasks for the National Broadcasting Company (“NBC”) in connection with its use of the church as a “control center” during the broadcast of the 1997 Macy’s Thanksgiving Day Parade.
Throughout his employment, Ralph was paid an annual salary that did not vary according to the number of hours he worked. His days and hours of work changed several times during the course of his employment, but he had regularly scheduled hours and was expected to and did work additional hours. At all such times, Ralph received “compensatory time” for working excess hours rather than receiving any additional monetary compensation. The allocation of compensatory time to Ralph was governed by a “compensatory time policy” set forth in the church’s personnel manual. The personnel manual provided that employees of the church were entitled to straight compensatory time for work in excess of thirty five hours per week if the employee obtained the prior approval of the Director of Management and Marketing or the senior minister. An employee could be credited for compensatory time without prior approval if the employee’s supervisor approved the overtime and either an emergency existed or the supervisor submitted a written explanation of why additional hours were needed. The personnel manual made no mention of how compensation time would be treated at an employee’s termination.
The Church kept no records of the number of hours Ralph worked, and as a matter of church policy, no full time employees completed time sheets. However, Ralph maintained personal records showing time worked on weekends and at special events. The church presented no evidence to contradict the information contained in Ralph’s records.
While Ralph did not always follow church policy in obtaining compensatory time, he did inform the church’s Director of Management and Marketing of the amount of compensatory time that they owed during his employment, and the church never denied credit for any such time.
Ralph claimed that the church board knew that church employees were “potentially” covered by the overtime pay requirements of the Fair Labor Standards Act. As proof, he pointed to an excerpt in the board’s minutes under the heading “Concerns of the Board,” which expressed concern over “overtime and compensatory time as it applies to hourly staff and to management.” In addition, in 1996 the church treasurer warned a staff member that the church needed to “limit” its income-producing activities so as not to exceed $500,000 per year.
Ralph sued the church and the church board members individually, claiming that they had violated the Fair Labor Standards Act by not paying him overtime compensation while he was employed by the church.
Enterprise coverage
The court began its opinion by noting that in order to prove Ralph was entitled to overtime wages, he “must demonstrate either that the church was an enterprise subject to the requirements of the FLSA or, alternatively, that Ralph was himself engaged in commerce as the FLSA defines these terms.”
As noted above, employees who are “employed by an enterprise engaged in commerce or in the production of goods for commerce” that has “annual gross sales” or “business done” of $500,000 or more are entitled to overtime pay and the minimum wage unless specifically exempted. The church conceded that it would meet the definition of an “enterprise” engaged in commerce if it met the $500,000 annual gross sales or “business done” requirement. The court agreed with this conclusion, noting that “Ralph’s handling of janitorial goods that have moved in commerce and the church’s employment of several individuals involved in an extensive advertising campaign to solicit interstate special event renters are more than sufficient to invoke enterprise coverage should the church meet the [Act’s] gross dollar volume requirement.”
In order for Ralph to be entitled to overtime pay on the basis of the church’s status as an enterprise engaged in commerce, the church must have annual gross sales or “business done” of at least $500,000. Did the church’s revenue, described above, meet this requirement? The court noted that the “church’s gross income for each fiscal year between 1994 and 1996 exceeded $500,000.” However, it pointed out that
Enterprise coverage will apply … only to the extent the business done by the relevant enterprise exceeds $500,000 for any of these years. Given its nonprofit charitable status, the church generally would not be considered an enterprise under the Act. However, the Act is applicable to its activities insofar as they “serve the general public in competition with ordinary commercial enterprises.” Tony and Susan Alamo Foundation v. Secretary of Labor, 471 U.S. 290 (1985). As the church’s rental activities are in direct competition with other short and long term commercial landlords and special event locations, they are clearly commercial under the standard articulated by [the Supreme Court in the Alamo decision].
The church argued that only the funds from its rental activity should be calculated into the gross business done of the enterprise because it serves as the sole commercial business in which the church is engaged. And, since its rental income did not exceed the $500,000 threshold in any year, it did not meet the enterprise test, and Ralph was not entitled to overtime pay.
Ralph, on the other hand, argued that aside from moneys received from contributions, all of the church’s sources of income should be included in the calculation of its gross annual sales. Ralph noted that the church commingled all of its income in one fund, and that money from this fund was used by the church to support all of its operations, including the payment of employees and expenses related to its rental activities.
The court interpreted the $500,000 requirement to include only the following categories of church income:
(1) Income from the operation of a “business,” such as rental income;
(2) Income from special events, such as revenue from a coin operated soda machine on the church’s premises, fund-raising events conducted by the church, and letter-writing campaigns or other special fund-raising efforts conducted by the staff of the church; and
(3) Other sources of income that are “sufficiently related to the church’s business income” to warrant inclusion in the gross volume amount.
Individual coverage
Even if a worker’s employer does not meet the “enterprise” test, the worker may be covered by the FLSA’s minimum wage and overtime protections if he or she is “engaged in commerce” or “engaged in the production of goods for commerce.” Ralph agreed that he did not participate in the production of goods for commerce, so individual coverage depended on the extent to which he was “engaged in commerce.”
The court noted that for an employee to be engaged in commerce, “a substantial part of the employee’s work must be related to interstate commerce.” Further, the test “is not whether the employee’s activities affect or indirectly relate to interstate commerce but whether they are actually in or so closely related to the movement of the commerce as to be a part of it.”
The court noted that Ralph’s purchases “were made from five different vendors, and included not only custodial supplies but also other important items to the church like a computer, electronic equipment and a refrigerator. Additionally … Ralph made between fourteen and thirty such purchases over the course of his employment. Moreover … the church’s Director of Management and Marketing has estimated that Ralph made ‘dozens’ of purchases from only one of these vendors, and that it was a ‘normal part’ of his duties to place orders with such vendors.” The court concluded that “such recurrent and frequent purchases of goods from out of state vendors are more than sufficient to trigger the protection of the FLSA.”
Damages
The court noted that under the Fair Labor Standards Act an employee is due “back wages” for two years from the filing of his action, unless the employer “willfully” violates the Act, in which case back wages are due for three years. A violation is “willful” only if the employer “shows a reckless disregard for the provisions of the Act.” The court noted that “willfulness cannot be found on the basis of mere negligence or on a completely good faith but incorrect assumption that a pay plan complied with the FLSA in all respects.”
In addition, the Act provides that an employer that has violated overtime pay or minimum wage provisions shall be liable not only for back wages but also “an additional amount as liquidated damages” unless “the employer shows … that the act or omission giving rise to such action was in good faith and that he had reasonable grounds for believing that his act or omission was not a violation of the [Act].”
Ralph insisted that the church’s violation of the overtime pay protections of the Fair Labor Standards Act was willful and that its violation was not in good faith, making Ralph eligible for both a three-year damage limitations period and liquidated damages. In support of these contentions, Ralph noted that the church board’s minutes contain the statement “overtime and compensatory time as it applies to hourly staff and to management” under the heading “Concerns of the Board.” In addition, Ralph contended that the church’s Director of Management and Marketing was warned by the church treasurer that the church needed to limit its income-producing activities to not more than $500,000 per year. The church disagreed. The court concluded that the church might have acted willfully, but that further proof was needed. It ordered this issue to be determined by a jury.
The court then addressed the proper method for calculating Ralph’s damages. The church claimed that Ralph was entitled to overtime compensation only for the weeks he actually performed work in interstate commerce. Ralph countered that he was entitled to overtime compensation for every week of overtime he worked because defendants did not keep records detailing the type of work that he performed. The court agreed with Ralph and ruled that he was entitled to overtime pay whenever he worked overtime since his employer failed to keep records of the time he spent specifically working in interstate commerce. It observed, “An employer who has not kept the records required by [the Act] cannot be heard to complain that there is no evidence of the precise amount of time worked in interstate commerce, including overtime so worked.” The court also referred to a Department of Labor opinion stating that if an employer wishes to pay overtime to an employee only for duties performed in interstate commerce, “the employer’s records must clearly show this delineation in duties performed and wages paid.” U.S. Department of Labor, Wage and Hour Division, Opinion WH 230 (1993).
5. Shaliehsabou v. Hebrew Home of Greater Washington, 363 F.3d 299 (4th Cir. 2004)
For several years an Orthodox Jewish man (David) worked at a predominantly Jewish nursing home as a “kosher inspector.” His primary duty was to guard against any violation of Jewish dietary laws. The nursing home is a nonprofit corporation whose mission, according to its bylaws, is to serve “aged of the Jewish faith in accordance with the precepts of Jewish law and customs, including the observance of dietary laws.” While the nursing home accepts persons of all faiths, about 95% of its residents are Jewish. All members of its board of directors are Jewish. The facility maintains a synagogue on its premises and holds twice-daily religious services conducted by an ordained rabbi who serves as a full-time employee. Each resident’s room contains a “mezuzah” (a parchment scroll inscribed with the Biblical passages).
Consistent with its mission to serve the spiritual needs of its residents, the nursing home provides its residents with kosher meals prepared in accordance with the Jewish dietary laws. To ensure that the food services department complied with these laws, the nursing home asked a council of local rabbis to recommend a person to serve as a kosher inspector at its facility. The council determined that a kosher inspector must have a knowledge of the basic Jewish dietary laws; must be a “Sabbath observer” and a “fully observant Jew”; and must have a knowledge of the dietary laws through experience and study at an Orthodox Jewish seminary. Compliance with the dietary laws, the council concluded, was “an integral and essential part of Jewish identity.” The council recommended David as the nursing home’s kosher inspector, and he was hired. David had been a devout Orthodox Jew his entire life and had obtained a Bachelor of Talmudic Law from a rabbinical college. He declared himself as “clergy” on his federal tax returns, and also claimed a parsonage exemption from his salary.
David’s primary duties as kosher inspector included inspecting deliveries, opening and closing the refrigerators to insure the integrity of the kosher status of the kitchen, insuring that all meat and dairy products were stored and kept separate during food preparation, and lighting all ovens and heating equipment in accordance with the requirements of Jewish law. He also cleansed kitchen utensils and other items if they became non-kosher, and instructed kitchen staff on complying with the dietary laws and to report any violations.
David was paid for at least 80 hours of work each bi-weekly period. Although he occasionally received additional hourly compensation for hours worked over 80 per bi-weekly period, he claimed that he was not compensated for all of the overtime hours he worked. When he worked less than 80 hours during a bi-weekly period, hours were deducted from his “accrued leave” time to make sure that his total hours for the bi-weekly period equaled 80. If he exceeded his leave time, he would be docked pay for absences, including absences of less than one day
David quit his job, and later sued the nursing home in a federal district court claiming that it had violated the federal Fair Labor Standards Act (FLSA), and a corresponding state law, by failing to pay him overtime wages. The district court ruled that David’s claims were barred by a “ministerial exception” to the FLSA, and it dismissed the case. The court also ruled that even if David was not covered by the ministerial exception, he was exempt from the overtime pay requirements since he was a professional employee. David appealed. He claimed that the “ministerial exception” only applied to civil rights and employment laws, and not to the FLSA. He also asserted that he was not an exempt professional employee because he was paid an hourly wage rather than a salary.
The “Ministerial Exception”
Several state and federal laws prohibit various forms of discrimination in employment. For example, Title VII of the federal Civil Rights Act of 1964 prohibits discrimination in employment on the basis of race, color, national origin, sex, or religion. Employers engaged in interstate commerce and having at least 15 employees are subject to this law, including churches.
However, for many years the courts have recognized a limited exception in the case of ministers. With this exception (known as the “ministerial exception”), the civil courts are barred by the First Amendment guaranty of religious freedom from resolving discrimination claims brought by ministers against a church.
In 2012, the US Supreme Court unanimously affirmed the ministerial exception. A subsequent 7-2 decision by the Supreme Court in 2020 further defined the exception.
As one court has noted in a case involving a dismissed minister’s claim of unlawful discrimination:
This case involves the fundamental question of who will preach from the pulpit of a church, and who will occupy the church parsonage. The bare statement of the question should make obvious the lack of jurisdiction of a civil court. The answer to that question must come from the church.
The ministerial exception has been applied by the courts to several other discrimination laws, including those banning discrimination in employment on the basis of age and disability. But what about the Fair Labor Standards Act? Does the ministerial exception prevent the civil courts from resolving cases involving the entitlement of ministers to overtime pay? One court concluded that it did. Dole v. Shenandoah Baptist Church, 899 F.2d 1389 (4th Cir. 1990). In the Dole case the court noted that the ministerial exception “is derived from the congressional debate [about the FLSA] and delineated in guidelines issued by the Labor Department’s Wage and House Administrator.” The relevant portion of those guidelines provides:
Persons such as nuns, monks, priests, lay brothers, ministers, deacons, and other members of religious orders who serve pursuant to their religious obligations in schools, hospitals, and other institutions operated by their church or religious order shall not be considered to be “employees.” Field Operations Handbook, Wage and Hour Division, U.S. Department of Labor § 10b03 (1967).
The court noted that in the Title VII context it applied a “primary duties” test to determine whether an individual falls within the ministerial exception. This test focuses on the function of the position and whether the position is important to the spiritual and pastoral mission of the church, and not whether the individual holding that position is formally ordained. As a general rule, “if the employee’s primary duties consist of teaching, spreading the faith, church governance, supervision of a religious order, or supervision or participation in religious ritual and worship, he or she should be considered clergy.” The court concluded:
Although the Title VII ministerial exception is based on constitutional principles and not on “congressional debate” and Labor Department guidelines as is the FLSA exception, we implicitly have held that the ministerial exceptions under the two Acts are coextensive in scope. For example, we have relied on Title VII ministerial exception cases in Dole, and we have cited both Dole and Title VII cases together in support of the proposition that “the ministerial exception operates to exempt from the coverage of various employment laws the employment relationships between religious institutions and their ministers.” Accordingly, our precedent suggests that when determining who is a [minister] for purposes of the ministerial exception to the FLSA, we apply the same primary duties test that we apply for purposes of the Title VII ministerial exception. This common sense approach creates continuity between the FLSA and Title VII, two employment laws of general applicability, and it allows us to avoid answering a difficult constitutional question—i.e., whether the First Amendment would otherwise compel an exception to the FLSA coextensive with that recognized as constitutionally mandated in the Title VII context.
The court noted that using a “primary duties” test to determine the scope of the FLSA’s ministerial exception is “in accord with other statutory exceptions to the FLSA.” It pointed out that the FLSA’s minimum wage and overtime requirements do not apply to “any employee employed in a bona fide executive, administrative, or professional capacity.” The regulations “look to the primary duties of a salaried position to determine whether an employee is a bona fide executive, administrator or professional. Courts are thus familiar and comfortable with examining the primary duties of an employee when determining the scope of exceptions under the FLSA. In sum, by determining whether a position is ministerial by referencing the primary duties of the position, the FLSA’s ministerial exception is coextensive with that recognized under Title VII and parallels the inquiry made for other exceptions to the FLSA.”
The court concluded that “the ministerial exception to the FLSA applies only where the employer is a religious institution and the employee’s primary duties are ministerial in nature. The exception does not apply to the religious employees of secular employers or to the secular employees of religious employers.”
The court then addressed David’s contention that his primary duties were not ministerial, and that the nursing home was not a religious institution. In rejecting David’s claim that his duties were not ministerial, the court noted that “in the Jewish faith, non-compliance with dietary laws is a sin. Jews view their dietary laws as divine commandments, and compliance therewith is as important to the spiritual well-being of its adherents as music and song are to the mission of the Catholic church. In short, failure to apply the ministerial exception in this case would denigrate the importance of keeping kosher to Orthodox Judaism.”
The court then addressed David’s contention that the ministerial exception should not apply to him because he was not employed by a religious institution. The court noted that the ministerial exception has been applied to religiously affiliated schools, hospitals, and corporations, and it concluded that “a religiously affiliated entity is a religious institution for purposes of the ministerial exception whenever that entity’s mission is marked by clear or obvious religious characteristics.” Applying that standard here, the court concluded that the nursing home was a religious institution. The court acknowledged that the home existed primarily to provide elder care and not religious services, but it concluded that “an entity can provide secular services and still have substantial religious character. The home is religiously affiliated, and its bylaws define it as a religious and charitable non-profit corporation and declare that its mission is to provide elder care to aged of the Jewish faith in accordance with the precepts of Jewish law and customs.” Pursuant to that mission, the home maintained a rabbi on its staff, employed a kosher inspector to ensure compliance with the Jewish dietary laws, and placed a mezuzah on every resident’s doorpost.”
The court noted that the FLSA exempted professional, administrative, and executive employees from its protections, and that these exceptions are limited to salaried employees. However, because it concluded that David’s claims were barred by the ministerial exception, it did not address his status as an exempt professional employee.
6. Department of Labor Opinion Letters
The United States Department of Labor has issued three “opinion letters” that directly address the application of the FLSA to church employees. These opinion letters are summarized below:
(1) Opinion Letter FLSA2005-12NA (September 23, 2005)
A church employed a person in a full-time salaried position who also works a second job for the church as an hourly employee. It was the church’s position that no employee of the church was engaged in interstate or commercial activities, and that the church did not receive financial support through any commercial ventures.
The Opinion Letter concluded that the church was not subject to “enterprise” coverage under the FLSA:
Enterprise coverage does not apply to a private, non-profit enterprise where the eleemosynary, religious or educational activities of the non-profit enterprise are not in substantial competition with other businesses, unless it is operated in conjunction with a hospital, a residential care facility, a school or a commercial enterprise operated for a business purpose …. It appears that the local church you represent satisfies none of these tests and, thus, is not covered on an enterprise basis. Further … enterprise coverage is not applicable to employees engaged exclusively in the operation of a church or synagogue since their activities are not performed for a business purpose within the meaning of FLSA.
The Opinion Letter noted that employees of enterprises not covered under the FLSA may still be individually covered by the FLSA “in any workweek in which they are engaged in interstate commerce, the production of goods for commerce or activities closely related and directly essential to the production of goods for commerce. Examples of such interstate commerce activities include making/receiving interstate telephone calls, shipping materials to another state and transporting persons or property to another state.”
The Opinion Letter further clarified:
As a practical matter, the Wage and Hour Division will not assert that an employee who on isolated occasions spends an insubstantial amount of time performing individually covered work is individually covered by the FLSA. As stated in Field Operations Handbook 11a01, individual coverage will not be asserted for employees who occasionally devote insubstantial amounts of time to:
Receiving/making interstate phone calls;
Receiving/sending interstate mail or electronic communications;
Making bookkeeping entries related to interstate commerce.
The church asked the Department of Labor how to calculate overtime for an employee simultaneously holding a salaried position and an hourly position. The duties of the employee’s salaried position were food preparation, while the duties of the hourly position were janitorial. The work of both positions was conducted in the church building. The Opinion Letter concludes:
Employees of a church are individually covered under FLSA where they regularly and recurrently use the telephone, telegraph, or the mails for interstate communication or receive, prepare, or send written material across state lines …. Generally, custodians would not be covered under FLSA on an individual basis unless they regularly clean offices of the church where goods are regularly produced for shipment across state lines. A cook in a church would not be covered on an individual basis unless the employee is ordering, receiving or preparing goods that are moving or will move in interstate commerce. Therefore, because the employee in question does not engage in these interstate activities, the employee would not be individually subject to the FLSA. In light of all of the above information, it is our opinion that the church and the culinary and janitorial employees within it are not covered by the FLSA.
• Key point. This Opinion Letter specifically referenced the following two Opinion Letters dated November 4, 1983. and July 23, 1975. This demonstrates that the Department of Labor still considers these earlier Opinion Letters to be correct interpretations of the FLSA.
(2) Opinion Letter, November 4, 1983
A synagogue asked the Department of Labor for an opinion regarding the application of the FLSA to custodians and a cook. The custodians’ duties included set-up work for meetings, keeping the premises cleaned and repaired, and cutting the grass and serving food for various functions. The synagogue also employed a cook who prepared food following certain religious services and activities. The other employees of the synagogue were a rabbi, secretary, and part-time religious school teachers.
The Department of Labor concluded that it was not presented with enough information to enable it to make a ruling on the application of the FLSA to the synagogue staff. However, it did provide the following information to assist the synagogue in reaching an informed decision:
FLSA applies to employees individually engaged in interstate commerce or in the production of goods for interstate commerce and to all employees in certain enterprises which are so engaged. Employees of a church or synagogue are individually covered under FLSA where they regularly and recurrently use the telephone, telegraph, or the mails for interstate communication or receive, prepare, or send written material across state lines. Individual coverage will not be asserted, however, for office and clerical employees of a church or synagogue who only occasionally or sporadically devote negligible amounts of time to writing interstate letters or otherwise handle interstate mail or make bookkeeping entries related to interstate transactions. Generally, custodians would not be covered under FLSA on an individual basis unless the employees regularly clean offices of the church or synagogue where goods are regularly produced for shipment across state lines. A cook in a church or synagogue would not be covered on an individual basis unless the employee is ordering, receiving or preparing goods that are moving or will move in interstate commerce.
Whether or not enterprise coverage applies to the operations of a nonprofit religious organization, such as a church or synagogue, depends on several factors. Generally, enterprise coverage is not applicable to employees engaged exclusively in the operation of a church or synagogue since their activities are not performed for a “business purpose” within the meaning of FLSA. However, where the nonprofit religious organization employs employees in connection with the operation of the type of institutions described in sections 3(r) and 3(s) of the FLSA [pertaining to hospitals, elementary and secondary schools, preschools, residential care institutions, and institutions of higher education, all of which are presumed to be “enterprises” whose employees are all covered by FLSA regardless of annual gross income] they will be covered on an enterprise basis, since such activities have, by statute, been declared to be performed for a business purpose.
Additionally, activities of a religious organization may be performed for a “business purpose” where, for example, they engaged in ordinary commercial activities, such as operating a printing and publishing plant. In such cases, employees employed in these business activities may be individually covered under FLSA if they are engaged in commerce or the production of goods for commerce, or on an enterprise basis … if the business has employees engaged in commerce or in the production of goods for commerce or employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person, and the enterprise has an annual dollar volume of sales made or business done of not less than [$500,000] exclusive of excise taxes at the retail level which are separately stated. Contributions, pledges, donations, and other funds raised through activities such as raffles and games that are in furtherance of the educational, eleemosynary and religious activities of a nonprofit organization are not included in computing the annual dollar volume of business done of the enterprise.
Individuals who volunteer their services, usually on a part-time basis, to a church or synagogue not as employees or in contemplation of pay are not considered to be employees within the meaning of FLSA. For example, persons who volunteer their services as lectors, cantors, ushers or choir members would not be considered employees. Likewise, persons who volunteer to answer telephones, serve as doorkeepers, or perform general clerical or administrative functions would not be employees. However, in situations where the understanding is that the person will work for wages there will be an employment relationship. On the other hand, a bookkeeper could not be treated as an unpaid volunteer bookkeeper for the employing institution in the same workweek in which he or she is also an employee.
Persons such as priests, ministers, monks, nuns, lay brothers, deacons and other members of religious orders or communities who serve pursuant to their religious obligations in the schools, hospitals, and other institutions operated by their church or religious order or community shall not be considered to be “employees.”
This Department of Labor Opinion Letter contains a number of important clarifications. Consider the following:
Individual coverage. Church employees are individually covered under FLSA, even if their employing church is not an “enterprise,” if they “regularly and recurrently use the telephone, telegraph, or the mails for interstate communication or receive, prepare, or send written material across state lines.”
Occasional or sporadic tasks. Individual coverage will not be asserted “for office and clerical employees of a church who only occasionally or sporadically devote negligible amounts of time to writing interstate letters or otherwise handle interstate mail or make bookkeeping entries related to interstate transactions.”
Custodians. Church custodians are not covered under FLSA on an individual basis unless they “regularly clean offices of the church where goods are regularly produced for shipment across state lines.”
Cooks. A cook employed by a church is not covered on an individual basis unless he or she is “ordering, receiving or preparing goods that are moving or will move in interstate commerce.”
Enterprise coverage. The FLSA defines an enterprise as “the related activities performed … by any person or persons for a common business purpose.” The United States Supreme Court has noted that this definition excludes most religious and charitable organizations to the extent that they are not operating for profit and are not pursuing a “business purpose.” However, some religious organizations will satisfy the definition of an enterprise if they have annual sales revenue of $500,000 or more. The Opinion Letter cites a printing plant as one example. However, contributions, pledges, donations, and other funds raised through activities such as raffles and games that are in furtherance of a church’s exempt purposes are not included in computing the annual dollar volume of business done by the enterprise.
Church-operated hospitals and schools. The FLSA specifies that hospitals, elementary and secondary schools, preschools, residential care institutions, and institutions of higher education are presumed to be “enterprises” whose employees are all covered by FLSA regardless of annual gross income, since such employment is specifically designated by the FLSA as being for a business purpose. However, persons such as priests, ministers, monks, nuns, lay brothers, deacons and other members of religious orders or communities who serve pursuant to their religious obligations in the schools, hospitals, and other institutions operated by their church or religious order or community shall not be considered to be “employees.”
Volunteers. Individuals who volunteer their services, usually on a part-time basis, to a church “not as employees or in contemplation of pay are not considered to be employees within the meaning of FLSA.” For example, persons who volunteer their services as lectors, cantors, ushers or choir members would not be considered employees. Likewise, persons who volunteer to answer telephones, serve as doorkeepers, or perform general clerical or administrative functions would not be employees. However, in situations where the understanding is that the person will work for wages there will be an employment relationship.
Can employees be treated as volunteers? The Opinion Letter concludes that “a bookkeeper could not be treated as an unpaid volunteer bookkeeper for the employing institution in the same workweek in which he or she is also an employee.”
(3) Opinion Letter, July 23, 1975
This Opinion Letter addressed the question of “the application of the provisions of the Fair Labor Standards Act to a secretary employed by a local church.” The Opinion Letter concludes:
This Act applies to employees individually engaged in or producing goods for interstate commerce and to employees of certain enterprises so engaged.
Church employees would be individually covered under the Act where they regularly and recurrently use the telephone, telegraph or mails for interstate communications or receive, prepare or send material across state lines. We would not, however, assert individual coverage for office or clerical employees of a church, such as the secretary, who only occasionally or sporadically devote negligible amounts of time to such interstate transactions. Additionally, coverage would not be applicable to church employees, such as a janitor, engaged exclusively in the operation of the church since their activities are not performed for a business purpose.
Exemptions
The FLSA exempts executive, administrative, and professional employees from the minimum wage and overtime pay requirements so long as they perform specified functions and are paid on a salary basis of at least $455 per week ($23,660 per year). These exemptions are addressed fully in the March-April 2005 edition of this newsletter.
Ministers
How does the FLSA treat ministers? First, professional employees are exempt from FLSA, and this would include ministers so long as they meet the minimum salary test ($455/week).
Second, what about ministers who earn less than $455/week, or who are not paid on a salary basis? They technically do not meet the definition of an exempt professional employee, but can churches be compelled to pay these ministers overtime pay consistently with the First Amendment guaranty of religious freedom? This is an unresolved question. Note the following considerations:
(1) The official “economic report” accompanying the final DOL overtime regulations contain the following statements:
“Most employees earning less than $455 per week ($23,660 annually) who are exempt under the existing regulations will be entitled to overtime pay under the final regulations (there are some workers, such as teachers, doctors, lawyers, and clergy, who are statutorily exempt or whose exempt status is not affected by the increased salary requirement in the final rule).”
“Clergy and religious workers are not covered by the FLSA.”
“The Department excluded [in making its coverage predictions] the 14.9 million workers not covered by the FLSA, such as the self-employed and unpaid volunteers, and the clergy and religious workers.”
“Of the 499 occupation codes in the CPS [current population survey] … two are assigned to clergy and religious workers (codes 176 and 177) who are not covered by the FLSA ….”
In addition, Table 3-1 in the final regulations lists “clergy and religious workers” as one of six categories of “Occupations Exempt from FLSA’s Overtime Provisions.” This same conclusion is repeated in Table B-1.
This language suggests that the official position of the Department of Labor is that clergy are not subject to the minimum wage and overtime pay requirements of the FLSA no matter how little they earn.
(2) As noted previously in this article, two federal courts have specifically ruled that the FLSA does not apply to ministers due to the so-called “ministerial exception.” Alcazar v. Corporation of Catholic Archbishop of Seattle, 2006 WL 3791370 (W.D. Wash. 2006); Boekemeier v. Fourth Universalist Society, 86 F.Supp.2d 280 (S.D.N.Y. 2000). It should be noted that these cases are binding precedent only in the states of Maryland, North Carolina, South Carolina, Virginia, Washington, and West Virginia. They are persuasive, but not binding, precedent in other states. Therefore, in other states this issue has not definitely been resolved by the courts. However, the final Department of Labor regulations (quoted above) provide some basis for concluding that the FLSA minimum wage and overtime pay requirements do not apply to ministers. Church leaders wanting a definitive answer in a particular case should consult with an attorney.
Examples
Here are some examples that illustrate the main points in this article.
Individual Coverage of Church Employees
• Example 1. A church has annual revenue of $300,000 and employs four persons (a pastor, a youth pastor, a church secretary, and a custodian). It engages in no “businesses” that compete with for-profit companies, and does not operate a preschool or school. The church secretary asks the pastor if she is entitled to overtime pay for hours that she occasionally works in excess of 40 per week. The secretary is not entitled to the overtime provisions of the Fair Labor Standards Act on the basis of enterprise coverage for two reasons. First, the church is not engaged in commerce or in the production of goods for commerce; and second, the church does not have business income of $500,000 or more.
• Example 2. Same facts as the previous example except that the secretary purchases office supplies from a local office supply store two or three times each year. Do these purchases satisfy the individual coverage provisions of the Act, entitling the secretary to overtime pay for hours worked in excess of 40 each week? Probably not. The Department of Labor’s Opinion Letter dated November 4, 1984, states that church employees are individually covered under FLSA, even if their employing church is not an “enterprise,” if they “regularly and recurrently use the telephone, telegraph, or the mails for interstate communication or receive, prepare, or send written material across state lines.” However, individual coverage will not be asserted “for office and clerical employees of a church who only occasionally or sporadically devote negligible amounts of time to writing interstate letters or otherwise handle interstate mail or make bookkeeping entries related to interstate transactions.”
• Example 3. Same facts as Example 1, except that the secretary purchased office supplies once or twice each year over the Internet from the same out-of-state office supply store. These purchases were always less than $100 per order. Do these purchases satisfy the individual coverage provisions of the FLSA, entitling the secretary to overtime pay for hours worked in excess of 40 each week? Probably not. See the analysis in Example 2.
• Example 4. Same facts as Example 1, except that for the past 3 years the church secretary has purchased office supplies about 10 times each year over the Internet from various out-of-state office supply stores. These purchases included computers, computer software, office equipment, and office supplies, and averaged $4,000 per year. Do these purchases satisfy the individual coverage provisions of the FLSA, entitling the secretary to overtime pay for hours worked in excess of 40 each week? Probably. The court in the Boekemeier case (Case #3, above), concluded that a church employee satisfied the individual coverage provision and was entitled to overtime pay since he made “recurrent and frequent purchases” of goods from 5 out-of-state vendors, amounting to between 14 and 30 purchases over a 5-year period (between 3 and 6 such purchases each year), for such items as custodial supplies and “important items to the church” such as a computer, electronic equipment, and a refrigerator. The secretary in this example made 10 purchases from various out-of-state vendors each year, not only for office supplies but also for “important items to the church” such as computers and computer software.
• Example 5. Same facts as Example 4, except that the church secretary makes all of these purchases from an office supply store a mile from the church (in the same state). Do these purchases satisfy the individual coverage provisions of the FLSA, entitling the secretary to overtime pay for hours worked in excess of 40 each week? No, they do not. In order for the secretary to qualify for individual coverage under the Act, she must be “engaged in commerce” or “engaged in the production of goods for commerce.” The word “commerce” is defined by the FLSA as “trade, commerce, transportation, transmission, or communication among the several states or between any state and any place outside thereof.” In other words, the “commerce” must be either interstate or foreign. Exclusively local commercial transactions, such as the secretary’s purchases of office supplies from a local office supply store, do not meet this definition.
• Example 6. Same facts as Example 4, except that the office supply store is ten miles away in another state. The analysis would be the same as in Example 4.
• Example 7. Same facts as Example 1, except that the church secretary purchases Sunday School literature from an out-of-state publisher twice each year. Each shipment costs an average of $5,000. Do these purchases satisfy the individual coverage provisions of the FLSA, entitling the secretary to overtime pay for hours worked in excess of 40 each week? Probably. The court in the Boekemeier case (Case #3, above), noted that “sporadic and occasional shipments of insubstantial amounts of goods” are not enough to invoke the overtime pay and minimum wage provisions of the Act. While the purchases of Sunday School literature were certainly “occasional,” these purchases did not consist of “insubstantial amounts of goods.” Literature for the church’s education program would be substantial both in terms of amount of goods purchased from the out-of-state vendor and the importance of those goods to the church.
• Example 8. Same facts as Example 1, except that the secretary places or receives between 5 and 10 long-distance calls each month involving persons in other states. Do these calls satisfy the individual coverage provisions of the FLSA, entitling the secretary to overtime pay for hours worked in excess of 40 each week? Probably so, according to the wording of the Fair Labor Standards Act and a Department of Labor publication. The Act defines “commerce” to include “transmission or communication among the several states or between any state and any place outside thereof.” Further, a Department of Labor publication states that interstate commerce means “any work involving or related to the movement of persons or things (including intangibles, such as information) across state lines or from foreign countries.” This publication gives the following example of an employee who is engaged in interstate commerce: “An employee such as an office or clerical worker who uses a telephone, facsimile machine, the U.S. mail, or a computer e-mail system to communicate with persons in another state.” As a result, it is virtually certain that the Department of Labor would consider the secretary to be engaged in commerce, and therefore subject to the overtime pay and minimum wage provisions of the Act.
• Example 9. Same facts as Example 1, except that the secretary sends and receives several e-mail messages each week from a computer in her church office. Many of these e-mails are sent to, and received from, persons in other states. The analysis in example 8 would apply to this example.
• Example 10. Same facts as Example 1, except that the secretary occasionally travels to another state while performing her job. Do these trips satisfy the individual coverage provisions of the Act, entitling the secretary to overtime pay for hours worked in excess of 40 each week? Probably so, according to the wording of the Fair Labor Standards Act and publications issued by the United States Department of Labor. The word “commerce” is defined by the Act to include “transportation among the several states or between any state and any place outside thereof.” A Department of Labor publication states that interstate commerce means “any work involving or related to the movement of persons or things (including intangibles, such as information) across state lines or from foreign countries.” This publication gives the following example of an employee who is engaged in interstate commerce: “An employee who drives or flies to another state while performing his or her job duties.” As a result, it is virtually certain that the Department of Labor would consider the secretary to be engaged in commerce, and therefore subject to the overtime pay and minimum wage provisions of the Act.
• Example 11. Same facts as Example 10. What, if any, effect does the secretary’s involvement in interstate commerce have upon the church custodian’s entitlement to overtime pay and the minimum wage? The church does not meet the enterprise test since it is not engaged in commerce or in the production of goods for commerce, and does not have business income of $500,000 or more. Therefore, the only way for church employees to be covered by the Act’s overtime pay and minimum wage provisions is by meeting the individual coverage requirements. Since individual coverage is on an individual basis, the fact that the secretary meets the individual coverage test has no effect on the church custodian. She will be entitled to overtime pay and the minimum wage only if she independently meets the individual coverage requirements summarized in this article.
Enterprise Coverage
• Example 12. A church receives rental income of $550,000 each year from the rental of its facilities and several homes that it owns. In addition, it has at least two employees who are engaged in interstate commerce because of their frequent interstate purchases, telephone calls, and e-mail messages. The church meets the enterprise test since it “has employees engaged in commerce or in the production of goods for commerce” and has annual business income of at least $500,000. As a result, all of the church’s nonexempt employees are covered by the Act’s overtime pay and minimum wage provisions.
• Example 13. A church does not operate any businesses, and has annual revenue of $300,000. It also operates a preschool that generates an additional $20,000 of income. Are employees of the preschool and church covered by the Act’s overtime pay and minimum wage requirements? The Act defines an enterprise to include any organization that “is engaged in the operation of a … preschool, elementary or secondary school, or an institution of higher education (regardless of whether or not such … institution or school is public or private or operated for profit or not for profit).” Does this mean that both preschool and church employees are covered by the Act’s protections? Probably. Note that the Act’s definition of an enterprise includes an organization that “is engaged in the operation of” a school or preschool. This language would include a church that operates a school or preschool, and so it should be assumed that all of the nonexempt employees of a church that operates a school or preschool are covered by the Act’s overtime pay and minimum wage requirements. A number of federal courts have reached these conclusions. See section 8-17 in Richard Hammar’s book Pastor, Church & Law (3rd ed. 2000).
Ministers
• Example 14. A youth pastor is employed full-time by a church, is paid an annual salary of $20,000, and in addition is permitted to live in the church parsonage without having to pay rent. The annual rental value of the parsonage is $12,000. Is the annual rental value of the parsonage considered in deciding if the youth pastor is paid on a salary basis of at least $455 per week ($23,660 per year) and therefore is exempt from the FLSA’s overtime pay provisions as a result of his status as a professional employee? Department of Labor regulations specify that the value of “board” and “housing furnished for dwelling purposes” are not included in computing an employee’s salary.
• Example 15. Same facts as the previous example. Since the youth pastor is paid an annual salary of less than $23,660, is he entitled to overtime pay? Department of Labor regulations specify that “there are some workers, such as … clergy, who are statutorily exempt or whose exempt status is not affected by the increased salary requirement in the final rule,” and that “clergy and religious workers are not covered by the FLSA.” This language indicates that the official position of the Department of Labor is that clergy are not subject to the minimum wage and overtime pay requirements of the FLSA regardless of the amount of their compensation. Further, two federal courts have ruled that the so-called “ministerial exception” prohibits the Department of Labor from applying the FLSA to ministers. These cases are binding only in Maryland, North Carolina, South Carolina, Virginia, Washington, and West Virginia. They are persuasive, but not binding, in other states. However, even in these states the Department of Labor regulations provide a basis for concluding that the FLSA minimum wage and overtime pay requirements do not apply to ministers.
• Example 16. A youth pastor is employed full-time by a church, is paid an annual salary of $20,000, and in addition is paid an annual housing allowance of $12,000 that he uses to rent a home for his family. Is a housing allowance considered in deciding if the youth pastor is paid on a salary basis of at least $455 per week ($23,660 per year)? Department of Labor regulations do not address this issue directly, but they do state that the value of “board” and “housing furnished for dwelling purposes” are not included. These terms may be interpreted broadly to include compensation that is provided to a minister to provide housing in lieu of a parsonage, meaning that the youth pastor in this example would not meet the $23,660 threshold for exempt status. This conclusion seems to be consistent with the purpose of the law to make the minimum wage and overtime pay protections of the Fair Labor Standards Act available to as many employees as possible. However, even if the salary requirement for exempt professional status is met, it is unlikely that the youth pastor would be entitled to overtime pay, for the same reasons mentioned in Example 15.
• Example 17. A church pays it pastor on an hourly basis of $15 per hour. Is the pastor entitled to overtime pay? In general, persons paid on an hourly basis cannot be exempt employees under the FLSA, and must receive overtime pay for hours worked in excess of 40 in any week. However, as noted in Example 15, Department of Labor regulations state that ministers “are not covered by the FLSA.” Further, two federal courts have ruled that the so-called “ministerial exception” prohibits the Department of Labor from applying the FLSA to ministers.
• Example 18. A church pays its senior pastor an annual salary of $45,000. The pastor frequently works 60 hours or more per week, and asks the church treasurer if he is entitled to overtime pay. The answer is no. Even if the FLSA applies to ministers (which according to the Department of Labor it does not), the pastor would satisfy the “professional employee” exemption under the FLSA since he performs professional duties and is compensated at a rate in excess of $23,660 per year.
Occasional Workers (Including Nursery Attendants)
• Example 19. Lisa works for two hours on one Sunday each month in her church’s nursery. She works as a volunteer, and receives no compensation. The FLSA has no application to her. The Department of Labor Opinion Letter of November 4, 1983 (quoted above) states: “Individuals who volunteer their services, usually on a part-time basis, to a church or synagogue not as employees or in contemplation of pay are not considered to be employees within the meaning of FLSA. For example, persons who volunteer their services as lectors, cantors, ushers or choir members would not be considered employees. Likewise, persons who volunteer to answer telephones, serve as doorkeepers, or perform general clerical or administrative functions would not be employees.”
• Example 20. Same facts as the previous example, except that the church pays Lisa $3 per hour for her services. Should the church pay Lisa the federal minimum wage? Assume that the state minimum wage is less than the federal minimum wage. Note the following factors that are relevant in answering this question. (1) The FLSA defines the term employee as “any individual employed by an employer,” and adds that an employee includes a person who is “suffered or permitted” to work. This is a very broad definition, and is much broader than the definition used by the IRS for tax purposes. (2) The Department of Labor Opinion Letter of November 4, 1983 (quoted above) states: “In situations where the understanding is that the person will work for wages there will be an employment relationship.” (3) If a church meets the definition of an enterprise, then compensated nursery workers (as well as other compensated staff positions) would be regarded by the Department of Labor as employees covered by the FLSA’s protections. Note that the FLSA defines an enterprise to include any organization that is engaged “in the operation of a … preschool, elementary or secondary school, or an institution of higher education.” So, churches that operate any of these entities will be regarded as enterprises by the Department of Labor. (4) If the church is not an enterprise, then nursery workers and other compensated workers will be covered by the FLSA’s minimum wage and overtime pay provisions only if they meet the “individual coverage” requirement. In this regard, note that the Department of Labor Opinion Letter of November 4, 1983 (quoted above) states: “Individual coverage will not be asserted, however, for office and clerical employees of a church or synagogue who only occasionally or sporadically devote negligible amounts of time to writing interstate letters or otherwise handle interstate mail or make bookkeeping entries related to interstate transactions.” If there is any doubt concerning a compensated worker’s entitlement to the minimum wage and overtime pay, church leaders should seek legal advice.
Actual Time Worked in Commerce
• Example 21. A church has annual revenue of $300,000, and employs four persons (a pastor, a youth pastor, a church secretary, and a custodian). It engages in no “businesses” that compete with for-profit companies. The church secretary asks the pastor if she is entitled to overtime pay for hours that she occasionally works in excess of 40 per week. The secretary’s “interstate” activities during year 2000 include (1) 7 purchases of church supplies over the Internet (each purchase was in a different week), and (2) 10 out-of-state telephone calls (each call was made during a different week, and no call was made during the same week as an Internet purchase). These purchases and telephone calls probably are enough to satisfy the individual coverage provisions of the Act, entitling the secretary to overtime pay for hours worked in excess of 40 each week. However, the church’s records demonstrate that the secretary was engaged in interstate commerce only during 17 weeks of the year (the weeks in which Internet purchases and out-of-state telephone calls were made). Note that an employer’s obligation to pay minimum wage or overtime compensation is determined on a weekly basis. As a result, the church could argue that the secretary was engaged in commerce only during these 17 weeks and was entitled to overtime pay only during these weeks and not for hours worked in excess of 40 during the remaining 35 weeks of the year when she was not engaged in commerce.
• Example 22. Same facts as Example 21. The church keeps no records “clearly showing” the duties the secretary performed in interstate commerce and the wages she was paid during those weeks. The secretary is entitled to overtime pay for the entire year.
• Example 23. A church operates a preschool five days each week. Can the church avoid the application of the Fair Labor Standards Act’s overtime pay and minimum wage provisions by keeping records showing that its preschool employees are rarely if ever engaged in interstate commerce? Probably not. As noted above, the Act defines the term enterprise engaged in commerce or in the production of goods for commerce to include an enterprise that (1) “has employees engaged in commerce or in the production of goods for commerce” with annual business income of $500,000 or more, or (2) is engaged in the operation of a school. There is no requirement that preschool employees actually be engaged in commerce. They are covered by the Act because of the “enterprise” status of their employer.
Church Board Minutes
• Example 24. A church custodian frequently works more than 40 hours per week, and is paid overtime compensation. The church board decides to place the custodian on a salary basis of $24,000 in order to avoid having to pay him overtime compensation. The board minutes state: “Custodian placed on salary of $24,000, to avoid overtime obligations.” Church board members can be personally liable for violating the FLSA. This liability may be either criminal (in the case of willful violations) or civil. The Act specifies that “any person” who willfully violates the overtime pay or minimum wage provisions is subject to criminal prosecution. In addition, the Act specifies that any employer that violates the minimum wage or overtime pay provisions of the Act “shall be liable to the employee or employees affected in the amount of their unpaid minimum wages, or their unpaid overtime compensation, as the case may be, and in an additional equal amount as liquidated damages.” In a recent federal court case, a church employee asserted that the church’s board members were personally liable for their failure to pay him overtime compensation. He pointed to an excerpt in the minutes of the church board entitled “Concerns of the Board” which expressed concern over “overtime and compensatory time as it applies to hourly staff and to management.” The court relied in part on this excerpt in concluding that the church and board may have “willfully” violated the overtime pay protections of the FLSA. Boekemeier v. Fourth Universalist Society, 86 F.Supp.2d 280 (S.D.N.Y. 2000).
10. State law. This article only addresses the federal Fair Labor Standards Act. Most states have their own minimum wage and overtime pay laws that should be consulted. Many states have minimum wages that exceed the federal minimum wage. When federal and state laws have different minimum wage rates, the higher standard applies.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
