Recommended Reading

Church Disruptions and How to Respond

Church disruptions are top-of-mind for many faith leaders in today’s fractured landscape. Read on for valuable tips, insights and recommendations.

Dealing with church disruptions is not a normal part of the weekly worship experience. But in today’s climate, faith leaders must plan for them.

As Rich Hammar notes in Pastor Church & Law, 5th Edition, churches are under no obligation to let people disrupt worship services. And, in reality, church leaders have the law on their side when it comes to church disruptions:

Churches do not have to tolerate persons who disrupt religious services. Church leaders can ask a court to issue an order barring the disruptive person from the church’s premises. If the person violates the order, he or she may be removed from church premises by the police and may be found to be in contempt of court.

Bookmark this recommended reading list (and subscribe to Church Law & Tax today for full access) for help navigating these situations.

Learn how to ask a disruptor to leave your church to picking. Pick up a few tips on diffusing a potentially dangerous situation in “Responding to a Dangerous Person“, and hear from the head of security at Saddleback.com on what matters most in mass shooting response plans inside “Mass Shooting Preparation is All About Planning—Not Panic.”

Key Tax Dates June 2023

Key tax dates in June include housing allowance designations, quarterly payments, and monthly or semiweekly requirements.

Monthly requirements

If your church or organization reported withheld taxes of $50,000 or less during the most recent lookback period (for 2023 the lookback period is July 1, 2021, through June 30, 2022), then withheld payroll taxes are deposited monthly.

Monthly deposits are due by the 15th day of the following month. Note, however, that if withheld taxes are less than $2,500 at the end of any calendar quarter (March 31, June 30, September 30, or December 31), the church or organization need not deposit the taxes.

Tip: The 2023 Church & Clergy Tax Guide is available—order a print copy today (while supplies last) or download the .pdf version now.

Instead, it can pay the total withheld taxes directly to the IRS with its quarterly Form 941. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes (7.65 percent of wages), and the employer’s share of Social Security and Medicare taxes (an additional 7.65 percent of employee wages).

Semiweekly requirements

If your church or organization reported withheld taxes of more than $50,000 during the most recent lookback period (for 2023 the lookback period is July 1, 2021, through June 30, 2022), then the withheld payroll taxes are deposited semiweekly.

For paydays falling on Wednesday, Thursday, or Friday, the payroll taxes must be deposited on or by the following Wednesday.

For all other paydays, the payroll taxes must be deposited on the Friday following the payday.

Large employers having withheld taxes of $100,000 or more at the end of any day must deposit the taxes by the next banking day. The deposit days are based on the timing of the employer’s payroll. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes (7.65 percent of wages), and the employer’s share of Social Security and Medicare taxes (an additional 7.65 percent of employee wages).

June 15, 2023: Quarterly estimated tax payments for certain employees and churches

Filing for certain ministers and self-employed workers

Ministers who have not elected voluntary withholding and self-employed workers must file their second quarterly estimated federal tax payment for 2023 by June 15. A similar rule applies in many states to payments of estimated state taxes.

Nonminister employees of churches that filed a timely Form 8274 (waiving the church’s obligation to withhold and pay FICA taxes) are treated as self-employed for Social Security. They are subject to the estimated tax deadlines with respect to their self-employment (Social Security) taxes unless they ask their employing church to withhold an additional amount of income taxes from each paycheck that will be sufficient to cover self-employment taxes (use a new Form W-4, Step 4(c), to make this request).

Payments for unrelated business income tax liability

A church must make quarterly estimated tax payments if it expects an unrelated business income tax liability for the year to be $500 or more. Use IRS Form 990-W to figure your estimated taxes. Quarterly estimated tax payments of one-fourth of the total tax liability are due by April 15, June 15, September 15, and December 15, 2023, for churches on a calendar-year basis. Deposit quarterly tax payments electronically using the Electronic Federal Tax Payment System (EFTPS).

June 30, 2023: Review housing or parsonage allowance designations

Now is a good time to review the 2023 housing or parsonage allowances designated for all ministers on staff. If an allowance designated for 2023 is clearly below actual housing expenses, then the church board should consider declaring a larger portion of the minister’s remaining compensation as a housing or parsonage allowance.

A church is free to designate any portion of a minister’s compensation as a housing allowance but remember that clergy who own their home cannot claim a housing allowance exclusion greater than the fair rental value of the home (furnished, including utilities).

Therefore, the allowance ordinarily should not be significantly more than this amount.

Note: If a date listed for filing a return or making a tax payment falls on a Saturday, Sunday, or legal holiday (either national or statewide in a state where the return is required to be filed), the return or tax payment is due on the following business day.

Note: You must use electronic funds transfer to make all federal employment tax deposits. This is generally done using the Electronic Federal Tax Payment System, a free service provided by the US Department of Treasury. If you don’t wish to use EFTPS, you can arrange for your tax professional, financial institution, or payroll service to make deposits on your behalf. Failure to make a timely deposit may subject you to a 10-percent penalty.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

IRS Again Alerts Employers to Improper ERC Claims

Third parties are using aggressive tactics and lucrative promises related to ERC claims.

The Internal Revenue Service (IRS) is again warning employers, including churches, to exercise caution if they’re contacted by a third party regarding the Employee Retention Credit (ERC).

The ERC is legitimate. However, third parties are using aggressive tactics to try and entice employers to seek it, and sometimes, the third parties aren’t carefully evaluating an employer’s eligibility, putting the employer in jeopardy with the IRS.

In other instances, the third parties have fraudulent intentions altogether.

Church Law & Tax began warning churches about illegitimate or fraudulent activities surrounding the ERC in February.


A bit of background reading:


Many churches may be eligible for the ERC, a provision providing employers relief due to hardships experienced in the early days of the COVID-19 pandemic. Specific criteria must be met, however.

“The aggressive marketing of the Employee Retention Credit continues preying on innocent businesses and others,” said IRS Commissioner Danny Werfel, in the agency’s latest alert. “Aggressive promoters present wildly misleading claims about this credit. They can pocket handsome fees while leaving those claiming the credit at risk of having the claims denied or facing scenarios where they need to repay the credit.”


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The IRS provided a list of “warning signs” that employers should look for when dealing with a third party about the ERC, including:

  • Unsolicited calls or advertisements mentioning an “easy application process.”
  • Statements that the promoter or company can determine ERC eligibility within minutes.
  • Large upfront fees to claim the credit.
  • Fees based on a percentage of the refund amount claimed. This is a similar warning sign for everyday taxpayers, who should always avoid a tax preparer basing their fee on the size of the refund.
  • Aggressive claims from the promoter that the business receiving the solicitation qualifies before any discussion of the group’s tax situation. The ERC is a complex credit that requires careful review before applying.
  • Wildly aggressive suggestions from marketers urging businesses to submit the claim because there is nothing to lose. Those improperly receiving the credit could have to repay the credit—along with substantial interest and penalties.

“These promoters may lie about eligibility requirements,” the IRS added. “In addition, those using these companies could be at risk of someone using the credit as a ploy to steal the taxpayer’s identity or take a cut of the taxpayer’s improperly claimed credit.”

Part 4 of 4: The ‘Discovery Rule’ and What It Means for Abuse Victims and Churches

The discovery rule is an exception to the statute of limitations with far-reaching implications for both abuse victims and churches.

Editor’s Note: Child abuse scandals continue to garner widespread media attention as well as the attention of lawmakers nationwide. As more victims come forward, often years or decades after suffering alleged abuses, they learn their state’s statute of limitations prevent them from seeking damages from the perpetrator or, when relevant, the perpetrator’s employer through civil lawsuits. These time bars have become subject to changes—and in some instances, outright removals—by state legislatures in an effort to help victims.

This four-part series focuses on this continuing trend, helping churches and church leaders understand the potential ramifications. This part looks specifically at the “discovery rule,” an exception to statutes of limitation long available to victims—and especially relevant to churches in states where extensions or removals of statutes of limitation have not occurred. This rule also applies in states where extensions have been granted, but deadlines still exist.


Some states have adopted, either through legislation or court decision, a limited exception to the statute of limitations known as the discovery rule.

Under this rule, the statute of limitations does not begin to run until a person “discovers” that his or her injuries were caused by a particular event or condition, or, with the exercise of reasonable vigilance, should have discovered the connection. It does not matter how long ago the injury occurred.

The discovery rule has been applied most often in the following three situations:

1. Medical malpractice. In some cases, medical malpractice is difficult, if not impossible, to recognize until after the statute of limitations has expired. To illustrate, if a surgeon inadvertently leaves a scalpel in a patient’s body during an operation, and the patient does not discover this fact until after the statute of limitations for medical malpractice has expired, the patient should not be denied his or her day in court. Under the discovery rule, the statute of limitations begins to run not when the malpractice occurred, but when the patient knew or should have known of it.

2. Child molestation. Some courts have applied the discovery rule in cases of child sex abuse. These courts have concluded that young children may “block out” memories of molestation and not recall what happened for many years. The statute of limitations does not begin until the victim’s eighteenth birthday, or until the victim knew or should have known that his or her emotional or physical injuries were caused by the acts of molestation. Some courts that have applied this rule have limited it to victims who were very young at the time of the molestation. Adults who claim that they repressed memories of abuse occurring when they were adolescents often have a difficult time convincing juries that they are telling the truth.

3. Seduction of adult counselees. Some courts have applied the discovery rule in cases of sexual contact between a minister and an adult counselee. These courts have concluded that adults who engage in such acts with a minister may attempt to repress their memory of them or be so intimated by the authority of the minister that they lack the capacity to file a lawsuit.

Key point. Any rescission or extension of the statute of limitations in child sex abuse cases, or any “revival” of child abuse claims barred under prior law, presents extraordinary difficulties for a church that is sued as a result of an alleged incident of sexual misconduct that occurred many years ago. In some cases, church leaders cannot even remember the alleged wrongdoer, much less the precautions that were followed in selecting or supervising this person.

Several courts have been reluctant to apply the discovery rule in cases of child abuse because of the difficulty of repressing knowledge of such events, especially for victims who were adolescents at the time the alleged abuse occurred. As one court noted, “The discovery rule does not generally apply to claims from a violent assault because the plaintiff is usually aware of the assault.” Doe v. Jesuit College Preparatory School, 2022 WL 2352953 (Tex. App. 2022).

Example. A federal court in Vermont ruled that an adult who claimed to have been sexually abused by a nun some 40 years earlier could sue a Catholic diocese for his alleged injuries. 

An adult male (the plaintiff) began receiving intensive psychotherapy for what he alleges were severe emotional problems. As a result of this therapy, the plaintiff claimed that he discovered he was the victim of “childhood sexual abuse, physical abuse and psychological abuse” allegedly occurring 40 years ago when he was a resident of a church orphanage.

The plaintiff filed a lawsuit against “Sister Jane Doe,” the alleged perpetrator (whose identity was unknown) and various religious organizations allegedly responsible for hiring and supervising Sister Jane Doe.

The plaintiff alleged in his lawsuit that he had “used all due diligence, given the nature, extent, and severity of his psychological injuries and the circumstances of their infliction, to discover the fact that he has been injured by the sexual abuse.” The diocese urged the court to dismiss the case on the ground that the statute of limitations had expired long before.

Under Vermont law, when a plaintiff sues to recover damages for injuries “suffered as a result of childhood sexual abuse,” the lawsuit must be brought within “six years of the act alleged to have caused the injury or condition, or six years of the time the victim discovered that the injury or condition was caused by that act, whichever period expires later.”

The diocese claimed that since the alleged abuse occurred over forty years ago it is reasonable to assume that the plaintiff should have discovered the cause of his injuries long ago. It also argued that forcing it to defend against an alleged injury occurring so long ago violates the very purpose of a statute of limitations—relieving defendants of the difficult if not impossible task of defending against such claims.

The court rejected these arguments and ruled that the statute of limitations had not expired on any of the plaintiff’s claims (except for assault and battery, which the court deemed to be unrelated to childhood sexual abuse). The court observed that under Vermont law, the test is when the plaintiff in fact discovered that his injuries were caused by childhood abuse, and not when he reasonably could have made this discovery. Barquin v. Roman Catholic Diocese, 839 F. Supp. 275 (D. Vt. 1993).

‘Active Concealment’ and fraud can also extend statutes of limitations

Some courts have permitted the statute of limitations to be suspended in limited circumstances, including fraud or the “active concealment” of the existence of a civil claim against a wrongdoer.

Example. A Tennessee appellate court ruled that in a lawsuit alleging that church entities were negligent regarding the sexual abuse of minors by a pastor, the trial court erred in dismissing the complaint based on the statute of limitations when the victims alleged that efforts were made by certain of the church defendants to hide the sexual abuse and a “whitewash” ensued because the victims alleged fraudulent concealment, and that statute of limitations did not begin to run until after the lawsuit was filed. Doe v. Presbyterian, 2022 WL 1837455 (Tenn. App. 2022).

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Part 3 of 4: A New Federal Law May Expand Abuse Victims’ Rights to Pursue Damages

The Eliminating Limits to Justice for Child Sex Abuse Victims Act of 2022 places no time limits on when victims can sue.

Editor’s Note: Child abuse scandals continue to garner widespread media attention as well as the attention of lawmakers nationwide. As more victims come forward, often years or decades after suffering alleged abuses, they learn their state’s statute of limitations prevent them from seeking damages from the perpetrator or, when relevant, the perpetrator’s employer through civil lawsuits. These time bars have become subject to changes—and in some instances, outright removals—by state legislatures in an effort to help victims.

This four-part series focuses on this continuing trend, helping churches and church leaders understand the potential ramifications. This part looks specifically at changes made by Congress as a way to offer victims a path to seek legal remedies if their states’ statutes of limitations have not been extended.


In 2022, Congress enacted the Eliminating Limits to Justice for Child Sex Abuse Victims Act. This Act provides that “there shall be no time limit” for filing civil lawsuits for any of the following federal sex offenses:

Federal offenseCitation
Forced labor18 USC 1589
Trafficking for forced labor18 USC 1590
Sex trafficking18 USC 1591
Aggravated sexual abuse18 USC 2241(c)
Sexual abuse18 USC 2242
Sexual abuse of a minor18 USC 2243
Sexual exploitation of children18 USC 2251
Selling or buying children18 USC 2251A
Certain activities relating to material involving the sexual exploitation of minors18 USC 2252
Certain activities relating to material involving the sexual exploitation of minors18 USC 2252A
Production of sexually explicit depictions of a minor for importation into the United States18 USC 2260
Transportation generally18 USC 2421
Coercion and enticement18 USC 2422
Transportation of minors18 USC 2423

It remains to be seen how effective this legislation will be since most sex abuse claims are brought in state court. However, it likely will benefit victims of child sexual abuse whose claims are barred by state statutes of limitation.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Part 2 of 4: Is Your Church Prepared for a Decades-Old Abuse Claim?

Pastors, church boards and everyday church members should understand the liability that can come with a decades-old abuse claim.

Editor’s Note: Child abuse scandals continue to garner widespread media attention as well as the attention of lawmakers nationwide. As more victims come forward, often years or decades after suffering alleged abuses, they learn their state’s statute of limitations prevent them from seeking damages from the perpetrator or, when relevant, the perpetrator’s employer through civil lawsuits. These time bars have become subject to changes—and in some instances, outright removals—by state legislatures in an effort to help victims.

This four-part series focuses on this continuing trend, helping churches and church leaders understand the potential ramifications. This part looks specifically at the legal, financial, and administrative tolls a church may face if a civil lawsuit dating back years or decades moves forward in the courts.


Church leaders must understand that their church is probably not in a financial position to respond to an abuse claim reaching back several decades, and that in some cases, liability for an abuse claim could extend to board members or even individual members.

The motivation behind states extending victims’ rights when it comes to abuse involving churches is both understandable and laudable: Legislators want to “give voice” to persons sexually abused as minors who, for whatever reason, were reluctant or unwilling to bring their claims in court.

After all, several studies have demonstrated that most child abuse victims find it difficult to seek remedies for their claims in civil court. This is often due to one or more of the following factors:

  • Repressed memory of the abuse.
  • Shame and embarrassment.
  • An unwillingness to publicly disclose in court the details of the abuse.
  • An unwillingness to testify in court regarding the details of the abuse.
  • An unwillingness to confront one’s abuser in court.
  • A reluctance to disclose the details of the abuse to family and friends who may know nothing about it.

But church leaders need to understand that if a church’s assets are below the amount a victim is seeking in court, and a church’s insurance coverage is insufficient to cover the claim, then the victim’s attorney may seek to recover damages against the personal assets of church board members.


Churches are financially ill-prepared to meet new claims

But many churches, schools and other defendants are not adequately positioned to answer for abuse that happened before current staff and members were born.

Unfortunately, insurance policies that are several years or decades old are often discarded by church staff who see no point in keeping them and adding to the general “clutter” in the church office, and most churches do not have liability insurance providing coverage for claims of sexual abuse alleged to have occurred years or decades in the past.

Even if liability insurance is available and no exception applies, the policy often will provide low limits of coverage for providing a defense and paying toward any damages awarded.

In any event, if a liability insurance policy for the year that a case of child abuse occurred is not available, then bankruptcy must be considered. This would involve identifying all church assets that are available to pay a sex abuse claim, including buildings, vehicles, bank accounts, and so on.

Furthermore, liability might extend to board members or even individual members if a church’s assets are far below the amount a victim is seeking in court.

Federal law and the laws of most states protect volunteers and uncompensated board members of tax-exempt corporations (including churches) from personal liability for their decisions as members of the board.

However, there are exceptions.

  • In most states, the immunity of uncompensated church board members does not extend to willful and wanton acts or gross negligence, or to board members of unincorporated churches. To illustrate, if an old claim of child abuse occurred because of a failure by the board to institute reasonable protective policies and procedures, it is possible that this will constitute gross negligence. This will expose the board members to the personal liability exception.
  • Immunity statutes providing limited relief to church board members only apply to uncompensated directors. This is an important point for church leaders to understand. Some churches provide limited amounts of compensation to board members. These may include a gift or stipend at Christmas, or non-accountable expense reimbursements. Even limited forms of compensation jeopardize the significant protection that uncompensated directors enjoy from personal liability, making it important for church leaders to review any future examples of compensation provided by the church to its board members.

Also note that some courts have suggested that members of an unincorporated church may be personally liable for the acts and obligations of other members, or the church itself, opening the door for victims to recover damages from individual members if the church cannot pay out of its own assets and insurance.

Understanding insurance is key

Clergy and church leaders evaluating possible abuse claims past or present need to understand the insurance coverage their churches possess (or possessed in the past). Of particular importance is whether a church secured an occurrence policy or a “claims made” policy.

Claims made and occurence insurance policies

“Occurrence” policies only cover injuries that occur during the policy period, regardless of when a claim is made.

Advantages to an “occurence” policy:

  • Covers any injury that occurs during the policy period, regardless of when a lawsuit is filed
  • No “prior acts” coverage needed if a church maintains a succession of “occurrence” policies

Disadvantages:

  • Does not cover lawsuits filed during the policy period for injuries occurring prior to the policy period.
  • Insurance premiums usually higher than for a “claims made” policy.

A “claims made” policy covers injuries for which a claim is made during the policy period if the insured has continuously been insured with claims made policies with the same insurer since the injury occurred.

Advantages to a “claims made” policy:

  • Covers any lawsuit filed during the policy period, regardless of when the injury occurred
  • Coverage limits are the current limits, not the limits in effect when the injury occurred
  • Insurance premiums often are lower than for an occurrence policy  

Disadvantages:

  • Must have carried “claims made” insurance continuously with the same insurer from the date of the injury to the date of the claim, or have purchased “prior acts coverage,” which can be costly.
  • A brief lapse in insurance coverage for any reason can result in no “claims made” coverage
  • Coverage for prior claims is lost if a church switches from a “claims made” to an “occurrence” policy
  • When a policy expires or is terminated, for any reason, coverage ceases (even for claims that are later made for injuries occurring during the policy period)
  • Claims for injuries occurring in more than one year may be filed during the same year, meaning that the policy’s “aggregate” coverage limit is more quickly reached (the aggregate limit is the total amount the insurer will pay out during that year for all covered claims)
  • Claims must not only be made during the policy period to be covered—they also must be reported to the insurer (a technicality that is sometimes overlooked)

“Prior acts” coverage, available for an additional cost and at the insurer’s discretion, covers claims made during the current policy period for injuries occurring in the past when the insured carried insurance with another insurer.

Example: A church purchases “claims made” counseling insurance from Company A each year for several years. It switches to an “occurrence policy” with Company B this year.

A lawsuit is brought against the church this year for an alleged act of counseling malpractice that occurred three years ago. The church’s policy with Company A will not cover this claim since the claim was not “made” during the policy period (even though it occurred during the policy period). Had the church not switched insurers this year, the claim would have been covered. Does the policy with Company B cover the claim? No, since the injury did not occur during the policy period.

As a result, there is no coverage for this claim. Note that the result would have been the same had the church purchased a claims made policy from Company B, unless it also purchased “prior acts” coverage.

This example illustrates an important point. Churches should not switch from a claims made to an occurrence policy (with the same or a different insurer), or switch claims made insurers, without legal counsel.

Church leaders should ensure that liability insurance policies are never discarded. Policies often are the only means of establishing the existence and availability of insurance for old claims—both now and in the future.

Church leaders should periodically review the policies and procedures the church has adopted to address the risk of child abuse and ensure both their adequacy and consistent application.

Insurance ‘archeology’

If a church cannot locate an insurance policy covering a case of child abuse occurring many years in the past, the services of an “insurance archaeologist” may be helpful. Insurance archaeologists are trained to locate missing insurance policies. Even if successful, conditions may apply. Further, the coverage limits under old policies often will be far below the damages sought, making the services of an archaeologist of limited value in many cases.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Part 1 of 4: More States Expand Victims’ Rights to Sue for Abuse

New laws extend, and in some cases, eliminate statutes of limitations for filing civil lawsuits in connection with abuse cases.

Editor’s Note: Child abuse scandals continue to garner widespread media attention as well as the attention of lawmakers nationwide. As more victims come forward, often years or decades after suffering alleged abuses, they learn their state’s statute of limitations prevent them from seeking damages from the perpetrator or, when relevant, the perpetrator’s employer through civil lawsuits.

These time bars have become subject to changes—and in some instances, outright removals—by state legislatures in an effort to help victims.

This four-part series focuses on this continuing trend, helping churches and church leaders understand the potential ramifications. This part looks specifically at how many states are changing statutes of limitation, and court cases illustrating how those changes affect the legal process.


Most states have several statutes of limitations specifying the deadline for filing a civil lawsuit seeking a legal remedy (such as compensation) for an injury that can range from a breach of contract to a personal injury to property damage. Different deadlines apply for different types of claims.

Key point 10-16.4 The statute of limitations specifies the deadline for filing a civil lawsuit. Lawsuits cannot be brought after this deadline has passed.

There are a few exceptions that have been recognized by some courts:

(1) The statute of limitations for injuries suffered by a minor begins to run on the minor’s eighteenth birthday.

(2) The statute of limitations does not begin to run until an adult survivor of child sexual molestation “discovers” that he or she has experienced physical or emotional suffering as a result of the molestation.

(3) The statute of limitations does not begin to run until an adult with whom a minister or church counselor has had sexual contact “discovers” that his or her psychological damages were caused by the inappropriate contact.

(4) The statute of limitations is suspended due to fraud or concealment of a cause of action.

Persons who do not file a lawsuit by the deadline specified by law generally have no legal recourse.

But state lawmakers, federal lawmakers, and courts have come up with a variety of ways to extend the statute of limitations for injuries to minors, particularly as it relates to sexual abuse and molestation.

A report released in 2022 by CHILD USA notes:

  • 50 states have eliminated the statute of limitations for child abuse criminal claims.
  • 18 states have eliminated a statute of limitations for some or all child abuse civil claims.
  • 27 states have enacted “revival statutes” that “revive” child sex abuse claims that expired under prior law.

Case Studies

North Carolina

An adult male sued a religious denomination in 2022 for injuries he sustained as a result of being sexually abused by a house parent at a denomination–run orphanage. A North Carolina appeals court observed:

The Sexual Assault Fast Reporting and Enforcement Act (“the Act”) was enacted in 2019 to “strengthen and modernize” our sexual assault laws. Among other revisions, the Act extended to ten years the statute of limitations for a civil action based on sexual abuse suffered while a minor.

Further, it provided that “a plaintiff may file a civil action within two years of the date of a criminal conviction for a related felony sexual offense against a defendant for claims related to sexual abuse suffered while the plaintiff was under 18 years of age.”

The Act also contained a provision, effective from 1 January 2020 to 31 December 2021, that revived “any civil action for child sexual abuse otherwise time-barred under [prior law] as it existed immediately before” the Act’s passage. Doe v. The Western North Carolina Conference of the United Methodist Church, 871 S.E.2d 877 (N.C. App. 2022).

New York

Example 1: The plaintiff, a 69 year old male, sued a church and others for sexual abuse from 1960 to 1964 by two persons associated with his Boy Scout troop, the suit was not time-barred because the Child Victims Act … extended the statute of limitations to bring a civil action based on sexual abuse until the child victim reached the age of 55, and … created a one-year revival window for time-barred claims, which was later extended by the Governor for an additional year regardless of the victim’s age. LG 67 Doe v. Resurrection Lutheran Church, 164 N.Y.S.3d 803 (N.Y. App. 2022).

Example 2: A federal district court in New York made the following comments regarding a sex abuse case:

On February 14, 2019, former New York Governor Andrew Cuomo signed into law the Child Victims Act. … The Child Victims Act allows individuals who were sexually abused as children to assert civil claims that had previously been barred by the statute of limitations. Specifically, the CVA extends the statute of limitations for actions against ‘any party whose intentional or negligent acts or omissions are alleged to have resulted in the commission of child sexual offenses.’

Those actions must be brought before the plaintiff reaches the age of 55. The CVA also created a ‘window of time’ during which previously time-barred claims alleging child sexual abuse could be brought. … After the CVA became law, more than 200 previously time-barred actions alleging child sexual abuse were brought against the Diocese and certain individuals and organizations affiliated with the Diocese.

Together, these suits allege acts of sexual abuse dating back more than six decades. The Diocese provided notice to its former insurers and requested that they defend and indemnify the Diocese in accordance with the requirements in the individual policies. The filing of more than 200 claims, and the possibility of additional claims, led the Diocese on October 1, 2020, to file for bankruptcy protection pursuant to Chapter 11 of the United States Bankruptcy Code. Roman Catholic Diocese of Rockville Ctr. v. Certain Underwriters at Lloyds, 2021 WL 4027020 (S.D.N.Y. 2021).

Old abuse claims pose challenges for both victims, churches

While the motivation behind such laws is understandable, churches will likely struggle to defend themselves against claims arising from decades-old abuse cases.

This is due to several factors, including:

  • memories have faded,
  • witnesses are dead,
  • alleged living witnesses have no recollection of the abuse,
  • few, if any, church members have any knowledge or recollection of the abuse,
  • no documentary evidence exists pertaining to the alleged abuse,
  • the victim has no corroborating physical evidence pertaining to the abuse, such as letters, email, social media posts, and photographs,
  • the victim cannot identify the alleged perpetrator,
  • a lack of evidence that the victim reported the abuse to parents, friends, or church staff.

Some courts have noted that the following factors tend to corroborate claims of child abuse occurring many years or decades ago:

  • an admission by the abuser,
  • a criminal conviction for the abuse,
  • a victim’s documented medical history of childhood sexual abuse,
  • contemporaneous records or written statements of the abuser, such as diaries or letters,
  • photographs or recordings of the abuse,
  • an objective eyewitness’s account,
  • evidence the abuser had sexually abused others,
  • “… proof of a chain of facts and circumstances having sufficient probative force to produce a reasonable and probable conclusion that sexual abuse occurred. …” Moriarty v. Garden Sanctuary Church of God, 534 S.E.2d 672 (SC 2000).
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

4-Part Series: Expanding Abuse Victims’ Rights and What It Means for Churches

As state and federal lawmakers understandably expand abuse victims’ rights, Church Law & Tax examines what it all means for churches.

Child abuse scandals continue to garner widespread media attention as well as the attention of lawmakers nationwide. As more victims come forward, often years or decades after suffering alleged abuses, they learn their state’s statute of limitations prevents them from seeking damages from the perpetrator or, when relevant, the perpetrator’s employer through civil lawsuits. These time bars have become subject to changes—and in some instances, outright removals—by state legislatures in an effort to help victims.

This four-part series focuses on this continuing trend, helping churches and church leaders understand the potential ramifications.

Part 1: More States Expand Victims’ Rights to Sue for Abuses

Part 2: Is Your Church Prepared for a Decades-Old Abuse Claim?

Part 3: A New Federal Law May Expand Abuse Victims’ Rights to Pursue Damages

Part 4: The ‘Discovery Rule’ and What It Means for Victims and Churches

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Key Tax Dates May 2023

Along with monthly and semiweekly requirements, May includes several quarterly filings and forms for churches, ministries, and church-run schools.

Monthly requirements

If your church or organization reported withheld taxes of $50,000 or less during the most recent lookback period (for 2023 the lookback period is July 1, 2021, through June 30, 2022), then withheld payroll taxes are deposited monthly.

Tip: The 2023 Church & Clergy Tax Guide is available—order a print copy today (while supplies last) or download the .pdf version now.

Monthly deposits are due by the 15th day of the following month. Note, however, that if withheld taxes are less than $2,500 at the end of any calendar quarter (March 31, June 30, September 30, or December 31), the church or organization need not deposit the taxes.

Instead, it can pay the total withheld taxes directly to the Internal Revenue Service (IRS) with its quarterly Form 941. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes (7.65 percent of wages), and the employer’s share of Social Security and Medicare taxes (an additional 7.65 percent of employee wages).

Semiweekly requirements

If your church or organization reported withheld taxes of more than $50,000 during the most recent lookback period (for 2023 the lookback period is July 1, 2021, through June 30, 2022), then the withheld payroll taxes are deposited semiweekly.

This means that for paydays falling on Wednesday, Thursday, or Friday, the payroll taxes must be deposited on or by the following Wednesday. For all other paydays, the payroll taxes must be deposited on the Friday following the payday.

Note further that large employers having withheld taxes of $100,000 or more at the end of any day must deposit the taxes by the next banking day. The deposit days are based on the timing of the employer’s payroll. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes (7.65 percent of wages), and the employer’s share of Social Security and Medicare taxes (an additional 7.65 percent of employee wages).

May 10, 2023: Employer’s quarterly federal tax return—Form 941

Churches having non-minister employees (or one or more ministers who report their federal income taxes as employees and who have elected voluntary withholding) may file their employer’s quarterly federal tax return (Form 941) by this date instead of April 30 if all taxes for the first calendar quarter have been deposited in full and on time.

May 15, 2023: File forms 990, 990-T, and 5578

Information return—Form 990

An annual information return (Form 990) for tax-exempt organizations is due by this date for tax year 2022. Form 990 summarizes revenue, expenses, and services rendered. Organizations exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code must report additional information on Schedule A.

Note. Churches, conventions, and associations of churches, “integrated auxiliaries” of churches, and church-affiliated elementary and secondary schools are among the organizations that are exempt from this reporting requirement. Organizations not exempt from this reporting requirement must file Form 990 if they normally have annual gross receipts of $50,000 or more.

Unrelated business income tax return—Form 990-T

An unrelated business income tax return (Form 990-T) must be filed by this date by churches and any other organization exempt from federal income tax that had gross income from an unrelated trade or business of $1,000 or more in 2022. Learn more about unrelated business income on this Recommended Reading page.

Certificate of racial nondiscrimination—Form 5578

Annual certification (for calendar year 2022) of racial nondiscrimination by a private school exempt from federal income tax (Form 5578) must be filed by this date by schools that operate on a calendar-year basis.

This form must be filed by preschools, primary and secondary schools, and colleges, whether operated as a separate legal entity or by a church.

Richard R. Hammar further explains Form 5578, including the steps for filing one, in this article.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

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Mass Shooting Preparation is All About Planning—Not Panic

Churches need to first think through safety basics, not active-shooter scenarios when preparing mass shooting response plans.

Mass shooting preparation is top-of-mind for many faith leaders nationwide.

But has this anxiousness unintentionally overshadowed other, more common risks confronting churches? The statistical probabilities of a mass shooting at a church remain remarkably low. By contrast, the chances of an abuse allegation or personal injury claim are much higher.

Editor’s Note: This article is part of the Advantage Membership. Learn more on how to become an Advantage Member or upgrade your membership.

“The likelihood (of a shooting) is extremely rare,” said Kevin Robertson, a former law enforcement officer who heads security for Saddleback Church and its multiple locations throughout Southern California.

Yet experts like Robertson still note the threat of gun violence against churches cannot be ignored, either. “Don’t bury your heads in the sand,” he tells churches. “But don’t micro-focus on it, either.”

Troubling events

The desire to “micro-focus” is understandable. Shootings generating widespread media attention have hit schools, retailers, music concerts, and movie theaters in recent years, not to mention faith communities. For instance:

The ripple effects from these acts of violence have been felt. Attorney and ChurchLawAndTax.com senior editor Richard Hammar said one large church insurer’s general counsel recently told him the top question his legal department receives from churches each year pertains to active shooters and armed security.

On a larger scale, uneasiness is visibly evident—as demonstrated by two separate, nationwide polls, conducted in the spring of 2019, that were focused on church security and shootings. In one, 12 percent of the 2,001 adults polled said they did not feel safe in a house of worship, and their top concern was an armed intruder. In the other, which surveyed an undisclosed number of evangelical Christian leaders, 71 percent said they increased security at worship services in recent years due to mass shootings.

These events, combined with these sentiments, undoubtedly prompted this provocative headline in the October 2019 issue of Christianity Today magazine: “Armed Security at Churches Is Becoming a New Normal.” (Christianity Today is a sister publication of Church Law & Tax.)

Sorting through the statistics

Statistically speaking, though, the likelihood of an active shooter—or any violent activity—on church property is unquestionably the exception, not the rule.

There are an estimated 350,000 houses of worship in the United States. Based on Robertson’s detailed tracking, only 121 church shootings have occurred nationwide since 1999, 80 of which took place during a church service or event.

Carl Chinn, who helped develop New Life’s security program and was at the church the day it was attacked, has tracked violent incidents since 1999 as well. Chinn casts his net wider, both incorporating the properties of parachurch ministries and religiously affiliated schools and including all types of violent incidents, not just ones involving guns. While the numbers in his report continue to grow each year, the annual total typically remains fewer than 250.

Some of those situations occur during church functions, but many happen on church properties when the church is closed. Domestic violence has been the leading cause of an incident, Chinn has previously noted.

Churches still should be aware of the threat of an active shooter, said Chinn, who leads the Faith Based Security Network and consults with churches across the country. “Just because those life-taking events are low probability, we also have to keep in mind they are still high impact,” he said. “But we should keep it in check. We should focus on the things most likely to happen.”

Basic safety as a ministry

Troubling to both Robertson and Chinn are the number of churches that inquire about shooting prevention and armed security training, only to reveal they have no basic safety or risk management efforts underway at all. Robertson, who fields half-a-dozen inquiries a week from church leaders nationwide, estimates about three-fourths “don’t have anything in place.”

That’s problematic because church safety basics are foundational to solving more complex and challenging situations like a violent threat. Chinn said New Life’s efforts to develop a comprehensive safety ministry likely saved lives, even though a handful of deaths still occurred. “Because we were good at the smaller things, we were better at responding to true evil,” he said.

Robertson, whose security books follow a “crawl-walk-run” model, puts it this way:

I encourage [churches] not to micro-focus on the active shooter, but to micro-focus on what’s more likely. What are you going to do if you have a medical issue? What are you going to do if you have a verbal disruption? What are you going to do if you have a noncustodial parent show up? Those are the ones that are more likely to happen. Those are the ones to micro-focus on.

Robertson sees safety as a ministry. The starting point is to build a team of people primarily committed to helping others, and avoid using the terms “security” or “security guards.” This posture often helps draw support from the senior pastor and church board, Robertson added, and creates long-term buy-in. When Robertson personally interviewed volunteers and staff members for Saddleback’s team, he said his first question was whether the person was comfortable praying with an attender. “It’s a ministry. It’s no different than ushers or greeters,” Robertson added.

Chinn agreed, describing the initial process as a “start-with-what-you-have” philosophy. New Life intentionally called its program the “Life Safety Ministry,” and sought “people serving on that team because of a compassion for their fellow man, not because of the sensationalism associated with the word ‘security,’” he said.

But also note: 41 states regulate the security operations of private parties—and that’s true whether or not the team members of those operations will be armed, Chinn said. Many local jurisdictions, like the city of Denver, do the same. Churches must be aware of these local and state laws and the requirements they must keep to maintain compliance for any team they assemble, he said.

“Keep it simple”

Once a team is established, Chinn said churches should avoid the temptation to rapidly expand policies and procedures. “So many of those inclined to start or head up a security program for their church make it too complicated at first,” Chinn said. Among his 10 standards for starting or improving security (see “10 Standards for Starting a Program”), he emphasizes No. 4 in particular: “Keep it simple.”

As far as first priorities, Robertson said child safety ranks first (if a church has only one volunteer interested to help with safety, he said he advises that church to place the person in the children’s ministry). Second is medical emergencies, followed by responding to verbal disruptions. (Added Chinn: “Our lips are what keeps much of the evil at bay. Whether it’s a violent act about to occur or an obnoxious one, we’ve got to get better at de-escalation training.”)

Leaders also should consult with their insurance agents for resources and to ensure those agents know the steps and measures the church plans to take, Robertson said.

Additional simple steps include securing building doors (the YWAM attack was likely minimized because doors properly latched and locked) and posting at least one person to watch the church parking lot and lobby during services (most attacks start outside the building), Chinn said.

In time, the conversation about active-shooter situations will emerge—as they should, Chinn and Robertson said. Leaders again should contact their insurance agents for possible resources and guidance. Local law enforcement agencies often want to connect with churches about prevention and response plans, and frequently provide low- or no-cost training workshops. Additionally, attorney Richard Hammar recommends hiring off-duty law enforcement if a church decides to implement armed security.

If a church decides to use outside help beyond law enforcement, and considers using security consultants (which have proliferated in number over the past decade), it should look for options that “truly understand the environment of faith-based places,” Chinn said. “Look for someone who has served in churches for years, understands the culture, and has the heart and experience of a protector.”

Require referrals from other churches they have served. Research their standing in the business community, too, he added.

Above all, remember that active-shooter prevention and response is a “run” step on the crawl-walk-run spectrum, Robertson said. Get started with crawl steps that simply focus on physically protecting the church and minimizing legal liability.

“Churches need to build up a foundation first,” he said.

Related resources

Kevin Robertson provides local churches nationwide with about a dozen types of documents, including sample policies and procedures, a sample safety team member application, and a manual covering how to use force when necessary during an escalated situation. Church Law & Tax Advantage Members are encouraged to contact Robertson about these documents, available for free, at kevinr@saddleback.com.

Advantage Members have access to the following on ChurchLawAndTax.com:

Advantage Members also receive a 20-percent discount on these resources when they log into ChurchLawAndTaxStore.com using their email address:

 

Taking the Right Steps to Establish a Retirement Plan

Early planning can avoid IRS trouble—and provide well when retirement comes.

As a lawyer who advises churches on a variety of issues, I’ve had many difficult conversations with church leaders. One of the most difficult discussions, however, involves telling a church and its pastor that it’s too late to fund the pastor’s retirement.

Far too many pastors reach retirement age and can’t consider retiring—even if they desire to—because they do not have enough in retirement savings. Alternatively, a church board may want a change in leadership, but faces resistance from a longtime pastor who is unwilling to step down because of the financial uncertainties he or she will face. Then there is the heartbreaking situation in which a pastor dies, leaving no viable means of financial support behind for the surviving spouse.

These problems unfortunately arise more often at churches across the nation than they should. Even more concerning: when a problem is discovered, the quick-fix solutions often proposed to resolve it are usually questionable, if not outright illegal.

Consider the complexity of the following six real-life examples, and the challenges posed to the church and the pastor by the attempt to make things right (resolutions to each are at the end of this article):

EXAMPLE 1 A pastor worked for 50 years for the church. The church paid him an annual salary of less than $30,000, but sometimes much less. He opted out of Social Security, stating he opposed receiving any public insurance, but he really opted out because he did not have the cash to pay into the system. He wasn’t able to save anything. The church membership dwindled over time, so much so that the church voted to dissolve, sell the property, and use the money to purchase an annuity for the pastor’s retirement. The state attorney general challenged the use of the funds for this purpose.

EXAMPLE 2 Over a period of about 15 years, a pastor and the church board talked about setting up a retirement plan, but they never finalized anything. He died, and the church began to pay his widow a small sum of money each month. When the church filed to reestablish its exempt status with the Internal Revenue Service, the IRS questioned the basis for these payments to the widow, as she did not provide services to the church, and never had been an employee of the church. The IRS considered these payments a possible form of private inurement.

EXAMPLE 3 Two churches voted to merge. Both churches had pastors; the pastor of one church said he was ready to retire. But then it turned out that he expected the second church to keep paying him a salary in his retirement years after the merger.

EXAMPLE 4 A church’s board of directors included its pastor, who was also the chief executive officer of the church. Because of the respect board members had for the pastor, decisions made by the pastor and presented to the board generally were rubber stamped. Board members didn’t ask hard questions to assure that each decision made was actually in the best interests of the church. When the pastor decided he wanted to retire in about five years, and he realized he did not have sufficient assets to do this, he asked the church to set up a separate fund with a significant amount of church assets. The pastor planned to handle the investments until such time as he retired, and at which time he would have the church transfer the account directly to him to fund his retirement.

EXAMPLE 5 A religious leader who lived most of his life as a monk had a wife he still supported. He wanted to make sure his wife would continue to receive support after his death, but he recognized this would have to come from church assets, since he personally owned nothing. Like Example 2, the wife never was an employee of the church and on her own would not have been entitled to receive retirement benefits from the church. And because the religious leader lived under a vow of poverty and didn’t receive a regular salary from the church, funding a retirement plan would be difficult. The religious leader understood that the church assets would legally have to remain in the control of the church, but he asked that a method be set up to allow some of the assets to be used for the wife’s support after his death.

EXAMPLE 6 A church pastor served a church for over 25 years. Church elders wanted to figure out how to care for him upon retirement. They decided to create a “Pastor Emeritus” role, and to pay him for the next five years. In return, he would focus on relationships with congregants that he developed over the years, as well as the expansion of an overseas ministry. This raised numerous questions, including whether such an arrangement was legal, how long it could continue, and what amounts could be paid.

Do any of these examples sound familiar? How can they be resolved in a way that protects the church, while providing at least some assistance to the pastor or a surviving family member? Ideally, church leaders and pastors will plan ahead so that these types of problems never arise.

Four key questions

As a first step, let’s examine four questions that should guide decisions all churches make with respect to the retirements of their pastors. Then we’ll come back to these examples and offer some answers to the questions they pose.

1. Are you paying your pastor enough?

Being called to ministry shouldn’t mean unfair or unreasonable compensation. Sometimes the pastor, having felt called by God to the ministry, may be willing to live very modestly. Even so, pastors who feel called should not be required to live with barely enough to cover basic expenses—and this should certainly include setting something aside for retirement. By setting up a compensation budget, and sometimes by asking the congregation for contributions to help fund it, some churches have discovered that they can actually pay their pastors more.

For churches with sufficient budgets to pay reasonable salaries, the board must make sure that the pastor’s salary (including housing allowance) is sufficient for current living expenses, and it also must make certain that the church has implemented an appropriate retirement package.

Although the board should look at salaries that are paid for comparable positions to ensure the compensation isn’t too high (and thus trigger penalties discussed later in this article), even apart from this, a good rule of thumb is that the amount paid to the pastor should be in the median range of the income of the congregants—not at the top of the income range, nor at the bottom.

For some churches, financial realities still make it difficult to pay their pastors the amounts they would like. For instance, a very small church may not be able to pay the pastor what would normally be considered a reasonable salary. Or sometimes the growing pains at mid- or large-sized churches can make reasonable salaries challenging, and may require time for those churches to address. In these situations, the board must have a conversation with the pastor about whether it is appropriate to have the pastor in a full-time position, or whether the pastor should be employed, at least part-time on a bivocational basis, outside of the church until the church can afford to pay more. But even in these situations, church boards still must consider ways to help their pastors set aside funds for retirement, as small or seemingly insignificant as those amounts might seem at that moment.

One caution for all churches regarding compensation packages: the pastor should never set his or her salary. This is the responsibility of the church’s governing or financial board. More explanation about this appears later in this article.

2. Has your pastor opted out of Social Security?

The Social Security program was developed by the government to provide a safety net. It was not intended to replace retirement plans, although many people today retire without any significant savings, instead relying upon Social Security programs to completely cover them during their retirement years. Social Security includes medical care and disability coverage as well as retirement benefits, and when a recipient dies, Social Security will provide assistance to the recipient’s survivors.

During the first two years of receiving compensation for ministerial services, a pastor has an option to elect out of Social Security by filing Form 4361. To make such an election, the pastor must certify his or her opposition to the acceptance of such public insurance based on his or her religious beliefs, and must certify that he or she has informed his or her ordaining body of such opposition. Once the election is made, it is irrevocable.

A significant percentage of pastors have made this election, but not always because of religious-based objections. Many new pastors believe (or are told) that opting out represents a chance to accumulate more money through investments made on their own. This is not a legal reason to opt out. It also isn’t wise: even if a pastor could do a better job of investing the funds than the federal government, such a plan only works if the pastor takes the same funds that would have been paid into Social Security and makes investments every year. Not everyone is financially disciplined enough to do so. And for those who do not have a trusted financial advisor to help them, they may not be savvy enough to make the right investment picks.

The amount paid by a church to a pastor must be reasonable. This includes not just salary, but the contributions made by the church to a pastor’s retirement account.

By opting out, the Social Security safety net disappears. When it does, the pastor must make certain the money he or she saves ultimately replicates that safety net for their medical, disability, and retirement needs, as well as for their beneficiaries when they die. Example 1 above demonstrates the problems faced by a retiring pastor who opted out, but didn’t possess the means to replicate that individual safety net.

So what can a pastor who previously opted out of Social Security do about future retirement plans?

First, it isn’t likely a pastor in such a situation will have an opportunity to reenroll into Social Security. Only twice in the past 30 years has Congress temporarily allowed pastors to opt back in, and there are no indications that Congress intends to offer another chance anytime soon.

Second, any pastor who opted out must consider setting aside funds for a safety net right away if he or she hasn’t done so already.

And third, a pastor should evaluate what role Social Security still might play in their future financial outlook, based on previous, current, or future nonministerial employment. For instance, any pastor who opted out for their ministerial role, but previously or currently held some other line of work, and pays into the Social Security program from the earnings of their nonreligious employment for at least 40 quarters (i.e., 10 years), will be eligible to participate in Social Security when they reach retirement age. Since retirement benefits will be based, in part, on the actual amounts paid in, the Social Security retirement benefits generally will be less than if the pastor never opted out. But it still provides some financial support in the retirement years.

For a pastor who opted out, never worked a nonministerial job, and now hopes to retire, the prospect of working in another job for 10 years is likely unattractive. Of course, if the pastor worked another nonministerial job earlier in his or her career, and only needs a few additional quarters to qualify, it may well be worth considering some additional nonministerial work. Sometimes a member of the church who is a business owner might be willing to hire the pastor for the period of time needed. I have worked with pastors who successfully did this. The business gets assistance, often in the form of strategic planning and direction, and the overseeing pastor obtains the additional quarters of nonministerial work that he or she needs.

It should also be noted that if the minister’s spouse has worked the necessary quarters and qualified for Social Security, the spouse may file to receive Social Security benefits and the minister might also be entitled to receive them as a spouse (of course, there is a moral question of whether this is something that the pastor wants to do if the pastor really held religious objections to receiving public insurance benefits).

Even if the minister has paid partially or fully into the Social Security program, there is a clear question of whether it is—or will be—sufficient to cover the minister’s full retirement needs. Social Security’s original purpose was to supplement other retirement savings plans. And because of the financial difficulties the Social Security system faces, it is recommended that all churches and pastors make sure they have a retirement plan that does not require the pastor to rely solely on Social Security to fully fund his or her retirement.

3. How does your pastor’s current housing situation affect the future?

For most Americans approaching retirement age, a large portion of their assets consists of the equity built through a home they own. This is not always true for pastors, though. If the church provides a parsonage, the pastor can live there without paying taxes on the value of the housing furnished. This seems like a great deal. But this also raises questions, such as:

•Where will the pastor and spouse live upon retirement?

•Has the pastor built up a nest egg similar to the equity most others achieve through home ownership?

Some churches address this by providing an “equity allowance”: additional income paid now to the pastor that, although taxable, makes up for the lost opportunity to build equity through home ownership. Senior Editor Richard Hammar further explains in the 2018 Compensation Handbook for Church Staff: An equity allowance is an excellent idea that should be considered by any church having one or more ministers living in church-provided housing. The equity allowance should not be accessible by the minister until retirement, so it should be placed directly in a minister’s tax-sheltered retirement account. Equity allowances also should be considered by a church whose minister rents a home.

Alternatively, many churches provide pastors with housing allowances. This arrangement allows the pastor the ability to build up equity by purchasing a home. The housing allowance is also excludible from income tax (but not from Social Security tax) to the extent it is actually used to provide a home for the pastor, and so long as the total does not exceed the fair rental value of the house. (Editor’s Note: Pastors and church leaders should note the current litigation challenging the constitutionality of the clergy housing allowance. The outcome, which remains uncertain, could affect the availability of this benefit. Check ChurchLawAndTax.com regularly for updates.)

Whether through an equity allowance or a housing allowance, such an arrangement—though not an alternative to retirement planning—does help ensure a pastor is not left penniless. For more help regarding housing allowances, particularly for retired pastors, see chapters 6 and 10 of the Church & Clergy Tax Guide.

4. What types of retirement plans are available—and how should a pastor and board evaluate them?

What should the church and pastor do to figure out the best retirement plan(s) for their particular situation? The area of retirement law is very complex, and is beyond the scope of this article. However, for further guidance, refer to the first article in this issue and to the Church & Clergy Tax Guide. As for this article, here are some basic thoughts and concerns that churches and pastors should consider together:

Each church should consider the future of its pastor, preferably from the time of his or her hire, but in any event, well before the pastor wants to retire. Most denominational churches already have retirement plans in place, and this should be the starting point for the pastors serving these congregations. It is likely that a complete review of where the pastor wants to end up might require additional planning and contributions, and perhaps the use of additional retirement plans. The church should support the pastor in this process.

A new pastor has the benefit of time. If the pastor starts putting money into a retirement account at the beginning of his or her ministry, by the time retirement age arrives, the principal and interest that has accrued (tax-free in most cases) will allow for a comfortable retirement (the chart on page 3 further illustrates the power of saving for retirement early in one’s career).

A pastor with 10 to 20 years left of his or her ministry will have to plan more diligently, but should be able to reach retirement age with some assurance of funds.

No plan will solve the problem that results when a pastor has served a church for 30 or more years and does not think about retirement until retirement nears. The natural response is to ask the church for help, and to figure out how to save enough in the next several years to catch up to where the individual would have been, had retirement contributions been made regularly for the past 30 years of his ministry. Not only is this approach unrealistic, but it may raise other challenges related to annual compensation levels that exceed reasonable levels and trigger penalties discussed later in this article.

Funding the plan and reasonable compensation

How will the plan be funded? Clearly, it is appropriate for a church to assist its pastor in planning a retirement, and even setting up the retirement plan. However, contributions, when added to the compensation already being paid to the pastor, cannot be in excess of what is reasonable compensation for the position. Different providers and organizations recommend different amounts that a church contributes. For instance, GuideStone, a Christian-based financial services provider, recommends church contributions equal to 10 percent of the pastor’s salary. If a pastor has determined that 10 percent will not be sufficient, he or she may be able to set aside additional amounts, through elective contributions. But all amounts contributed by the church must be weighed along with the pastor’s total compensation to ensure penalties aren’t incurred. Let’s examine how those penalties are triggered.

Limits on compensation: private benefit, private inurement, and intermediate sanctions

We have already talked about the need to pay a minister a decent salary. However, there is a limit to what the church can pay. The most common reason for a church to lose its tax exemption is when the church is found to be operating principally to benefit an individual or individuals. This “private benefit” or “private inurement” occurs when the individual receives a benefit (compensation) greater than the value of what he or she provided (services) to the church.

The amount paid by a church to a pastor must be reasonable. This includes not just salary, but the contributions made by the church to a pastor’s retirement account. Unless there was a prior agreement between the church and the pastor to defer income to a later year (for example, the church agreed to pay the pastor $50,000 per year; however, because of a cash shortage, the church and pastor agreed to $40,000 cash and $10,000 deferred income to be shown as a liability to the church and paid to the pastor in the future, as appropriate), all of the funds will be considered to be earned in the year in which they were paid.

Private benefit. All assets of the church must be used for church purposes—to benefit the purpose for which the church was formed. If the church cannot provide a religious justification for a particular expenditure, it should not be made. Clearly this does not prevent a church from having employees. In fact, the purposes of the church may require a minister and other employees in order to accomplish its purposes. However, the amount paid to each employee, including the minister, must be reasonable, and the primary purpose of any payment must be to advance the ministry of the church. If the primary purpose is to benefit an individual, this will endanger the tax status of the organization.

Private inurement. Private inurement is likely to arise when there is a transfer of church resources to an “insider” solely by virtue of the individual’s relationship with the organization, and without regard to accomplishing exempt purposes. An insider is one with a unique relationship to the church, by which the insider, by virtue of his or her control or influence over the church, can cause the organization’s funds or property to be applied to the insider’s benefit. There is no inurement when the benefit to the insider (or any other private party) is an unavoidable byproduct of actions taken for the church’s exempt purpose.

Intermediate sanctions. In the past, if an exempt organization was operated in a way that benefitted a private person, the only remedy the IRS had was to revoke the exempt status of the organization. This often did not penalize the wrongdoer, but hurt the beneficiaries who no longer received services from the organization whose tax-exempt status was now revoked. In 1996, Congress changed the law by adopting a new provision (IRC section 4958) that imposes penalties on the person(s) who actually benefit from an improper transaction, rather than just revoking the exempt status of the organization. The result of this change is that if a “disqualified person” (defined as someone who is, or within the past five years has been, in a position to substantially influence the organization—and this will normally include the pastor) receives an “excess benefit” (for instance, more than the person is entitled to, based on what he or she provided to the organization), that person must repay the excess benefit (plus interest) along with a penalty of 25 percent of the excess benefit. In addition, if the excess benefit (plus interest) is not repaid in a timely manner, the IRS may impose an additional 200 percent penalty. Further, anyone who approved the benefit, even if he or she did not receive a dime (for instance, the board of directors), is subject to a penalty of up to $20,000 per transaction.

As a result of this law, which is commonly referred to as “intermediate sanctions”—since it is less than total revocation of the organization’s exempt status—it is even more important that the church take steps to determine that the compensation paid to the minister does not exceed what is reasonable (the value of services being provided by the minister).

But why, in talking about retirement, do we care about reasonable compensation and intermediate sanctions?

What is reasonable compensation? Compensation is reasonable if the amount paid would ordinarily be paid for like services, by like enterprises, under like circumstances. In determining the value of compensation for purposes of intermediate sanctions, all items of compensation must be considered, including all forms of cash and noncash compensation (i.e., including salary, bonuses, severance payments, and deferred and noncash compensation at the time it vests or is not subject to substantial forfeiture).

Whether compensation received in a given year is treated as gross (taxable) income that year is a separate question from whether the compensation paid is reasonable for purposes of intermediate sanctions. In determining reasonable compensation, all the benefits provided by the disqualified person to the organization in exchange for that compensation also are taken into account. For example, when a pension plan benefit vests, the services performed for the years leading up to the year of vesting may be considered in determining reasonableness. Let’s say that the reasonable compensation for the pastor is determined to be $100,000 per year. The pastor has worked for 10 years for an annual salary of $90,000, with the church also making annual contributions of $10,000 to the pension plan. At the end of 10 years, the pension plan shows $100,000 as now being the property of the pastor. When the $100,000 vests, the pastor would receive, in that year, his $90,000 salary, plus $100,000 pension plan assets, for a total of $190,000—clearly more than what was considered reasonable for annual compensation. However, by looking back over the 10 years, the reasonable compensation would have been a total of $1 million, of which the pastor has previously received $900,000. When one adds the additional $100,000 which has now vested, the compensation is still reasonable.

What must be treated as compensation? Any benefit received by a disqualified person must be in exchange for some type of service or other benefit provided to the church by the disqualified person, and the church must treat it as such. Otherwise, it is treated as an excess benefit, without further consideration, and without regard to any claim of reasonableness of the total compensation package.

An economic benefit will not be treated as payment for the performance of services rendered by the disqualified person unless the church providing the benefit clearly indicates its intent to treat it as such when the benefit is paid.

Except for nontaxable benefits, a church will be treated as clearly indicating its intent to provide an economic benefit as compensation for services only if the church provides written substantiation that is contemporaneous with the transfer of the economic benefit. There may be other written contemporaneous evidence used to demonstrate this intent, such as an executed and approved written employment contract, documentation showing that an authorized body, such as the board of directors, approved the compensation before paid, or written evidence that supports a reasonable belief that the benefit was nontaxable. If the failure to report was due to a reasonable cause (i.e., the church can establish that there were significant mitigating factors, or that the failure arose from events beyond its control) and the church otherwise acted in a responsible manner, the church will be treated as having clearly indicated its intent. If there has not been the requisite withholding or reporting and the failure to report was not due to a reasonable cause, then the economic benefit will be considered an excess benefit transaction.

Why the date of occurrence matters. An excess benefit transaction occurs on the date the disqualified person receives the economic benefit for federal income tax purposes. If the contract provides for a series of payments over a taxable year, any excess benefit transaction resulting from the payments will be deemed to occur on the last day of the taxable year (or the date of the last payment, if only for part of the year). With qualified pension plan benefits, the transaction occurs on the date the benefit vests. With a transaction involving substantial risk of forfeiture (the nonqualified retirement plans), the transaction occurs on the date there is no longer any substantial risk of forfeiture.

The role of the initial contract with the pastor. An initial contract is a binding, written contract between the exempt organization and a person who was not a disqualified person immediately prior to entering into the contract. Intermediate sanctions do not apply to any fixed payment (as defined below) pursuant to this initial contract, unless the person fails to substantially perform his or her obligations under the contract.

This means that when the church first hires the pastor and sets his or her salary, this salary will not be considered to be subject to intermediate sanctions, because the pastor does not become a disqualified person (e.g., able to exercise substantial influence) until after being hired.

A fixed payment is defined in the regulations as the amount of cash or property specified in the contract or determined by a fixed formula specified in the contract, in exchange for the provision of specified services or property. A fixed formula may incorporate an amount that depends upon future specified events or contingencies, provided that no person exercises discretion when calculating the amount or deciding whether to make a payment. Contributions to a qualified pension plan or nondiscriminatory employee benefit program are treated as fixed payments.

Determining reasonableness of other contracts and payments. For all contracts other than initial contracts, reasonableness of a fixed payment (as defined above) is determined based on the facts and circumstances existing as of the date the parties enter into the contract. However, if there is substantial nonperformance, reasonableness is determined based on all facts and circumstances from the date of entering into the contract up to the date of payment. If a payment is not a fixed payment under a contract, then the determination must be made, based on all facts and circumstances, up to and including circumstances as of the date of payment. However, the organization cannot argue that the compensation is reasonable, based on facts and circumstances existing at the time a contract is questioned.

These rules also apply to property subject to a substantial risk of forfeiture: if it satisfies the definition of a fixed payment, reasonableness is determined at the time the parties enter into the contract; if it is not fixed, reasonableness is determined as of the date of payment.

In reviewing this area of the law, it appears that the question of what is reasonable is not always obvious, and will have to be considered when the salary and benefits are set, when they are paid, and when they vest, or are no longer subject to substantial risk of forfeiture. Because compensation includes both salary and retirement benefits, it is important to make sure that the reasonableness is reviewed on a regular basis.

In addition, the IRS takes the position that if a pastor has been willing to perform services in exchange for a particular salary, the pastor is not entitled to receive an additional amount as retroactive compensation, since he or she already received the amount that both parties had agreed was acceptable. Of course, the church can increase his or her salary to what is reasonable. But it cannot provide “extra” compensation over what is reasonable at the time it is received to “catch up” for prior years. It would be different, of course, if the parties agreed to a salary of x+y, but with an understanding that a salary of x would be paid now, and that y would be paid at some point in the future.

Safe harbor

There are steps a church can take so that any compensation paid fits into what is sometimes called a “safe harbor.” This safe harbor provides that if certain requirements are met, then the burden switches from the individual to prove that his or her compensation is reasonable to the IRS to prove that the compensation is not reasonable. The safe harbor requires three steps:

1. Approval by disinterested board. The arrangement must be approved by a board or a committee of the board that is composed entirely of people who are unrelated to the person receiving the benefit, and not subject to his or her control. If the individual is a director, he or she must not participate in the decision regarding the salary (although he or she may participate in decisions about other matters). The individual may meet with other directors to answer questions, but should be excused from the rest of the discussion so that he or she is not present during the debate and voting on the transaction or compensation arrangement. For the safe harbor to be available, the decision of the board must be made at or before the payment is made.

2. Based on independent valuation. The board or committee must obtain and rely upon outside objective information to determine that an arrangement is reasonable. For example, the board might look at compensation paid by similar organizations (both taxable and nontaxable) for similar positions, independent compensation surveys compiled by independent firms (including ChurchSalary), actual written offers to the disqualified person from similar institutions, and independent appraisals of any property that is the subject of the transaction. If the organization has annual gross receipts of less than $1 million, it may rely upon data of compensation paid by five comparable organizations in the same or similar communities for similar services. It is clear that the organization can look at what is paid by for-profit entities, as well as by nonprofits, in order to determine what is reasonable.

3. Adequate documentation. The decision must be adequately documented and the basis for determining reasonableness clearly defined. Meeting minutes should set forth:

    • the terms of the transaction and the date it was approved,
    • the directors present during the debate and who voted,
    • the comparability data obtained and relied upon and how it was obtained, and
    • any actions taken concerning the transaction by any director who had a conflict of interest (e.g., they recused themselves from the meeting).

If the board determines that reasonable compensation/fair market value is actually higher or lower than the comparable information obtained, the basis for this determination must be recorded. Minutes of the meeting must be prepared by the next meeting of the board, and must be reviewed and approved by the board as being reasonably accurate and complete within a reasonable time thereafter.

If these steps are taken, then the IRS will have to furnish additional information to show that the compensation (including retirement benefits) was not reasonable, or that the transfer was not at fair market value, in order to prevail. But remember—the burden only shifts to the IRS if all of the above steps are taken first, before compensation is paid. If not, the burden remains with the individual and the board to prove that the total compensation package, including retirement contributions and other benefits, was reasonable.

The church does not belong to the pastor

Although this might seem obvious, this point needs to be made. Many independent churches look to their pastor to lead and guide all aspects of the church. Often, the board itself is nonfunctional or acts as a rubber stamp for what the pastor decides.

When a director is making a decision on behalf of the church, he or she must look out for the church’s best interests. When a decision could benefit or harm the director personally, then the director is considered to have a conflict of interest. Limiting and regulating conflicts of interest is often addressed in the state law.

If the church plans to set up a retirement plan for its pastor, it should reflect this intention in the minutes of the board meetings, with whatever detail is discussed.

As the safe harbor discussed in the last section suggests, a determination of what to pay the pastor really needs to be made by a disinterested board. Although there are some differences in the laws of the various states concerning conflicts of interest and self-dealing transactions, if the board is not involved in determining the salary and benefits to be provided, the pastor and the board may be subject to penalties, and the church may have its exempt status challenged.

This is a particular concern to the IRS as well as to the states, especially to ensure that the assets of the nonprofit are used to benefit the nonprofit’s mission, rather than principally benefit a private individual. One way to soothe IRS concerns is to adopt a conflict of interest policy (for more help see “Why Churches Need a Conflict of Interest Policy” on ChurchLawAndTax.com). Such a policy allows the board to make decisions in an objective manner without undue influence from interested persons (such as the pastor), assures that the organization fulfills its charitable purposes, and that the compensation paid is reasonable. However, a conflict of interest policy only works if the board takes responsibility to fulfill its duties. Often, the chair of the board, if there is such an officer, will work with the pastor to review his responsibilities, accomplishments, and salary needs, and then will present it to the board. Again, as noted above, the pastor’s salary, including retirement benefits, should be approved by a disinterested board, must be reasonable based on outside objective facts, and documented in the board minutes.

And again, with regard to the retirement plan(s) as part of the overall compensation, it is crucial that this must be addressed by the board.

Setting up a church-wide program to assist ministers

If a church does not take care of its ministers who have dedicated their lives to the church, this is not only unscriptural (see 1 Timothy 5:17-18 and 1 Corinthians 9:9-11), but it does not provide a good witness to others. In addition, taking care of the poor, the widowed, and the orphans is a scriptural requirement. If the church can provide assistance to others in need, there does not seem to be anything that should prohibit the church from also taking care of those in the ministry.

Some denominations have set up programs to assist ministers who are retired or retiring, especially if they are in need of financial assistance. Again, this does not replace the need for retirement planning, but it can provide relief, especially when some unforeseen financial issue arises. This method allows the church to take care of those who have given their lives in service to the church, especially when special needs arise.

Transition to full-time retirement

As noted above, unless it is deferred compensation (earned earlier, but paid at an agreed-upon future date), the church cannot pay compensation after the fact. Once a pastor has ceased to provide services, the church cannot generally continue to pay a salary.

Often the pastor and the church agree to have the pastor continue to provide services for a period of time, on either a part- or full-time basis. These services might be a continuation of the services already being rendered, they might be limited to just some of the pastor’s prior responsibilities, or they might have the pastor moving into a new area of ministry. Sometimes the pastor will actually want to retire, but the church will want the pastor to be available for consultation during the transition period. These are all permitted options. In any event, the church must limit the compensation to what is reasonable for the services rendered. If the pastor is still working full time, even if his responsibilities have shifted, his full-time salary still may be reasonable and appropriate. If he is only working part time, the salary should be reduced so that it remains reasonable for the services rendered. Contributions to retirement plans may also continue to be paid during this time.

Sometimes the transition involving the retirement of the pastor becomes difficult. If the church has determined that it is time for the pastor to retire for whatever reason, especially when the pastor does not agree, the church may want to negotiate a settlement with the pastor where the pastor agrees to a voluntary retirement/termination of his or her employment in exchange for severance pay. This allows the church to settle with the pastor, and thus avoid a potential lawsuit, while also providing the pastor with a sum of money that would help in any transition.

Setting the plan

The steps a church can take to accomplish “safe harbor” with an IRS inquiry also represent best practices, in general, for setting the compensation of the pastor, including the retirement plan or plans set.

If the church plans to set up a retirement plan for its pastor, it should reflect this intention in the minutes of the board meetings, with whatever detail is discussed. As more details are determined, this should again be reflected in the board minutes.

If a full plan is developed and funded, this is best, of course. But do not wait until then to have it addressed by the board. If the board has agreed that, as part of the pastor’s compensation, it will provide a retirement plan, and the pastor continues to perform services for the church for a period of years with the understanding that he or she will continue receiving retirement benefits upon retirement, then there will be a basis for making the argument that the benefits are a legitimate part of the pastor’s salary. That’s because they were earned while he or she was working, and are being paid as part of a contractual arrangement, rather than being provided as an afterthought.

Examples revisited and resolved

Here are resolutions to the real examples from the beginning of this article:

EXAMPLE 1 The pastor in this instance has been hit with a triple whammy. He was never paid enough to allow him to save, the church never set up a retirement plan to help, and he, like many others, opted out of Social Security without providing for an alternative, leaving him with nothing. Our solution was to go back through the church records and show the attorney general that at least some of the initial funding for the church facility came from the pastor. More importantly, we were also able to show that the board intended to provide a retirement but never was able to implement their promise, and perhaps most importantly, the amount that was actually being provided was barely above the poverty line. Although this was not an optimal solution, the attorney general did remove the objection and allowed the annuity to be set up.

EXAMPLE 2 Planning in advance is always necessary. In this case, because the directors had always planned to provide a retirement for the minister and spouse and documented it in the minutes over a period of years, even though a formal church retirement plan was never completed, the IRS was willing to acknowledge that the payment was actually agreed-upon deferred compensation that had been earned by the pastor over his years of service. It also should be mentioned that, as with the first situation, the amounts of money being paid were not large; thus there was little incentive for the IRS to pursue the matter.

EXAMPLE 3 Even if the pastor works out an arrangement to continue to be paid by the merged church, unless he continues to provide services, this would be using nonprofit assets for his personal benefit. This violates the private inurement rule, and also would likely trigger intermediate sanctions. A better solution would have been to discuss the issue with both boards before the merger, and to enter into a contract which specified the work that would be performed by the pastor during the time of transition, and to pay the pastor for that work (either by contribution to his retirement plan or by payment of a salary). For example, in one merger, the pastor who was getting ready to retire actually took a position as an associate director for several years so that there was no dispute over who was the principal pastor of the church.

EXAMPLE 4 This is a situation where the pastor thought of the church as his. He had a board of trustees, but he mostly made decisions for the church unilaterally. The first issue is that a decision like this needs to be made by a disinterested board, not by the pastor who would receive the benefit. This includes determining what amounts would be paid. The second issue is whether the total of this “retirement fund,” when added to his salary, would be considered reasonable. We suggested that there be annual contributions to such a fund, limited by what was approved by the board, and that it also be limited by a determination of reasonable compensation. This might still be more than the limits of what could be contributed to most retirement plans; to the extent it exceeded these limits, it would not be excluded from current income. However it might be possible to use a rabbi trust (which would leave title to the fund with the church until such time as it was distributed).

EXAMPLE 5 This is another example of how planning in advance (in this case approximately 10 years before it was fully implemented) will allow a particular result to be achieved. This particular entity had a fund with assets that had been given specifically to provide support for the religious leader. A separate trust was created, containing assets from this fund, and having trustees approved by the religious leader (since it was not clear who would oversee the religious organization upon his death). This trust authorized a designated amount of support to be paid to the wife each year, and also allowed the wife to live in the parsonage for the remainder of her life. Upon her death, the trust would be dissolved and the assets would revert to the original church fund. The amounts paid to the wife were deferred compensation that was earned by the religious leader during his tenure and were taxable to the wife when received.

EXAMPLE 6 The fact that the pastor is changing positions should not affect the ability of the church to continue to pay him, as long as the amount is reasonable based on his current functions. If it is full time, he can continue to be paid for these services. If the overseas ministry is a ministry of the church, then this clearly can be part of the services that he is providing for the church, as well as the direct church ministry. In addition to his compensation (a part of which should be paid as a housing allowance), the church may continue to pay into his retirement fund. If the pastor assumes a part-time position, then his salary should be reduced so that it continues to be reasonable, based on the services rendered.

The best solution

The best way to avoid the problems in the examples described in this article is always to make retirement planning a priority long before the pastor is in a position where he or she wants to—or may have to—retire. The only way to ensure that the pastor will not end up penniless is to begin the process early. This is something that pastors and their churches must be aware of and address while there is time to come up with a constructive solution.

Lisa A. Runquist has more than 40 years of experience as a transactional lawyer, both with nonprofit organizations and business organizations.

The Legal Consequences of Clergy Seducing Employees

A federal court issues an important ruling.

Article summary. A federal court in Texas addressed the complex legal issues surrounding the sexual seduction of church employees by a minister. The court concluded that the employees could sue the minister for negligence, breach of a fiduciary duty, and intentional infliction of emotional distress—even though the sexual relationships were allegedly consensual. However, the court dismissed the employees’ sexual harassment claims against the minister, all of the employees’ claims against the church, and the minister’s wrongful termination claim against the church. This important ruling is discussed fully in this feature article.

When a minister engages in a sexual relationship with a church employee, several legal consequences may result affecting the minister, church, and employee. Many of these consequences were illustrated in a recent federal court ruling in Texas. The court’s ruling will be instructive to all church leaders. This article will summarize the facts of the case, explain the court’s ruling, and evaluate the importance of the case to other churches and church staff members.

Facts

A church’s minister of education was contacted by a woman seeking marital counseling. At the time, the woman was employed as a waitress at a local restaurant. The relationship resulted in a sexual affair that lasted several months. During this time the minister hired the woman as a receptionist at the church. She later informed the minister that she wanted to quit seeing him.

At the same time that he was seeing this woman the minister was engaging in sexual relations with another woman who had come to him for marital counseling. The second woman, like the first woman, was hired to work in the church office. The second woman informed the minister that she wanted to terminate their relationship after an affair lasting nearly a year and a half.

The two women worked next to each other in the church office. One of them informed the other of her affair with the minister and was shocked to learn of the other’s similar experience. The women informed a church deacon of their relationships with the minister, and the minister was confronted immediately. He confessed to the church’s senior minister that he had committed adultery with both women, and accepted the church’s request to resign. The two women were placed on administrative leave with pay pending an investigation, and a few months later they were dismissed.

The women later sued the dismissed minister on the basis of:

  • malpractice in pastoral counseling
  • breach of fiduciary duties
  • sexual harassment in employment
  • intentional infliction of emotional distress

The women also sued the church on the basis of:

  • breach of fiduciary duties
  • malpractice in pastoral counseling
  • intentional infliction of emotional distress
  • negligent hiring
  • negligent retention
  • negligent supervision
  • sex discrimination in dismissing them from employment
  • sexual harassment in employment
  • retaliation for disclosing sex discrimination

Both the dismissed minister and church asked the court to dismiss the case. The court’s response to these requests is summarized below.

The claims against the dismissed pastor

malpractice in pastoral counseling

The women claimed that the dismissed minister’s conduct constituted “malpractice in pastoral counseling.” The minister countered by arguing that pastoral counseling is rooted in religion and cannot be the basis for civil liability. The court concluded that the pastor could be sued for his actions. It observed that

[we agree] with the many decisions that have held that an action for clergy malpractice could not be maintained because the evaluation of such a complaint would require the court to extensively investigate and evaluate religious tenets and doctrines. However, tort claims for behavior by a cleric that does [sic] not require the examination of religious doctrine are cognizable. The free exercise [of religion] clause does not relieve an individual of the obligation to comply with neutral laws of general applicability … nor does it shield clergy from all liability for their wrongs.

In addition, while spiritual counseling, including a cleric’s marital counseling, may implicate first amendment rights, the court is not convinced that [the women’s] allegations permit [the minister] to assert a free exercise defense. When the free exercise [of religion] clause is raised as a defense, the threshold question is whether the conduct of the defendant is religious. In the spiritual counseling context, the free exercise clause is relevant only if the defendant can show that the conduct that allegedly caused plaintiff’s distress was in fact part of the belief and practices of the religious group.

In other words, pastoral counseling is protected from civil liability only if the practice is itself religious. In this case, however, the actions of the dismissed minister in engaging in prolonged adulterous affairs with two women were not religious. The court observed:

[The minister’s] preying on [the women], masqueraded in the form of marriage counseling, constitutes conduct that is not subject to first amendment protection. Certainly such conduct is not part of the beliefs and practices of [the church]. Therefore, to the extent that [the women’s] claim is based on [the minister’s] holding himself out to provide services of a marriage counselor, [their] claim under these circumstances is for professional malpractice by a marriage counselor, not clergy malpractice. Although [the lawsuit] labels this claim negligence (malpractice in pastoral counseling), the court will construe the claim based on the facts alleged as one for professional malpractice by a marriage counselor.

In support of this conclusion, the court pointed to the following facts: (1) The minister offered his services to help the women with their marital problems. (2) Each woman claimed that the minister offered “to provide me with marital counseling,” and described the nature and extent of the marriage counseling and the fact that the minister bragged about his “skills and experience as a marital counselor.” (3) The minister held himself out as a skilled and experienced marital counselor with a psychology degree, and undertook to provide such counseling.

Key point. The courts have consistently refused to find clergy liable on the basis of “malpractice” for their pastoral counseling. However, this case illustrates that this rule only applies to the content of counseling that is religious in nature, and not to inappropriate behavior that is engaged in during the counseling relationship. The court concluded that ministers who engage in sexual contact with counselees in the course of marriage counseling may be sued on the basis of malpractice—as marriage counselors rather than as clergy.

breach of fiduciary duties

The women claimed that the dismissed minister breached his “fiduciary duty” to them by taking advantage of the “special confidence and trust” they had placed in him as a pastoral counselor. Specifically, they maintained that a fiduciary relationship existed on the basis of the following factors:

(1) They entered into a counselor—counselee relationship with the dismissed minister based, in part, on his representations regarding his expertise in marriage counseling.

(2) The dismissed minister solicited their trust and confidence with his alleged ability to help them with their marital problems.

(3) The dismissed minister made misrepresentations to them for the purpose of seducing their affections and emotional dependence for his own benefit rather than their’s.

(4) The dismissed minister breached his fiduciary duty in disclosing to others confidential information he obtained during counseling with the two women.

The church insisted that the position of religious advisor does not impose a fiduciary duty or establish a fiduciary relationship. The church pointed out that no Texas court had recognized a fiduciary relationship between a minister and a member of a congregation. Once again, the court agreed with the women and allowed them to sue the dismissed minister for breaching a fiduciary duty that he owed them as a pastoral counselor. While conceding that Texas courts have not recognized a fiduciary relationship between a minister and counselee, the court did note that the state supreme court had recognized that certain “informal relationships” may give rise to a fiduciary duty. The supreme court stated that such “informal fiduciary relationships … may arise where one person trusts in and relies upon another, whether the relation is a moral, social, domestic or merely personal one.” The supreme court further noted that because not every relationship involving a high degree of trust and confidence is a fiduciary relationship, “the law recognizes the existence of [such] relationships in those cases in which influence has been acquired and abused, in which confidence has been reposed and betrayed.”

The state appeals court concluded that “genuine issues of material fact are present in this case regarding whether confidential relationships existed between [the dismissed minister and the women] in which influence had been acquired and abused, in which confidence had been reposed and betrayed.” As a result, in ruled that the women could proceed with their lawsuit against the minister on the basis of a breach of his fiduciary duties. The court noted that if the women’s allegations were true, it

would have little difficulty finding that [the dismissed minister owed the women] a fiduciary duty as a marriage counselor …. His duty would be created by his undertaking to counsel them. Moreover, [his] alleged undertaking would create a duty to engage in conduct designed to improve [the women’s] respective marital relationships. Thus, entering into the sexual relationships would be clear evidence of a breach of [his] fiduciary duties.

Key point. A number of courts have ruled that a “fiduciary relationship” arises when a minister engages in a counseling relationship with another person, and that this relationship imposes a duty upon the minister to act in the best interests of the counselee. This duty is breached when the minister engages in sexual contact with the counselee. This may be true even if the sexual contact is consensual.

Key point. The court suggested that a minister can be sued on the basis of a breach of fiduciary duty if confidential information obtained during the counseling relationship is disclosed.

sexual harassment in employment

The women claimed that the dismissed minister sexually harassed them. The court rejected this theory of liability. It noted that to establish sexual harassment in the work place, a plaintiff must show that:

(1) she belongs to a protected class; (2) she was subject to unwelcome sexual harassment; (3) the harassment was based on sex; (4) the harassment affected a term, condition, or privilege of employment; and (5) the employer knew or should have known of the harassment and failed to take prompt remedial action.

The court ruled that the minister could not be liable for sexual harassment for his activities prior to the time the women terminated their sexual relationships with him. It concluded that the women’s argument that they were incapable of giving psychological consent is without merit … the court finds that [they] freely consented to their respective adulterous affairs with [the minister].

Key point. The court erred in ruling that sexual harassment cannot exist if the victim consents to the harassment. The law defines sexual harassment as “unwelcome sexual advances, requests for sexual favors, and other verbal or physical conduct of a sexual nature.” Sexual harassment occurs if the offender’s actions are unwelcome, even if the victim consents to them. Many times victims feel they have choice but to consent. The United States Supreme Court, in addressing this question, observed: “[T]he fact that sex—related conduct was voluntary in the sense that the complainant was not forced to participate against her will, is not a defense to a sexual harassment suit …. The gravamen of any sexual harassment claim is that the alleged sexual advances were unwelcome …. The correct inquiry is whether [the victim] by her conduct indicated that the alleged sexual advances were unwelcome, not whether her actual participation in sexual intercourse was voluntary.” In other words, a female employee may engage in voluntary sexual contact with a supervisor because of her belief that her job (or advancement) depends on it. While such contact would be voluntary, it is not necessarily welcome. Sexual harassment addresses unwelcome sexual contact, whether or not that contact is voluntary.

The court found no evidence of sexual harassment after the women terminated their sexual relationships with the dismissed minister. Further, the dismissed minister had no opportunity to punish the women for terminating their relationships with him since he was fired a few weeks later when the women informed church officials.

intentional infliction of emotional distress

The women claimed that the dismissed minister’s misconduct amounted to “intentional infliction of emotional distress.” The court noted that intentional infliction of emotional distress requires proof that (1) the dismissed minister acted intentionally or recklessly; (2) his conduct was extreme or outrageous; (3) his actions caused the women emotional distress; and (4) the emotional distress was severe. The court concluded that the dismissed minister’s misconduct, if proven, could satisfy all four of these requirements. It observed: “[The women’s] allegations that [the minister] sexually harassed [them] at work, made graphic sexual comments and gestures, and engaged in a sexual relationship, at relatively the same time, with two employees who worked within a few feet of each other, could rise to the level of extreme or outrageous conduct under certain circumstances.”

The claims against the church

breach of fiduciary duty, malpractice in pastoral counseling, intentional infliction of emotional distress

The women claimed that the church was liable for the dismissed minister’s breach of fiduciary duty, malpractice in pastoral counseling, and intentional infliction of emotional distress. The court noted that the church could be liable for these “intentional wrongs” only if the dismissed minister was acting “within the course and scope of his employment” at the time he was counseling the women and engaging in sexual contact with them. The court concluded that the women had failed to prove that the minister’s misconduct occurred within the course and scope of his employment:

Counseling was not a part of [the dismissed minister’s] job description or within his job authority. [The senior pastor] informed [him] that he was never to counsel ….

In addition, the court notes that sexual misconduct by a member of the clergy is, by the weight of the authority, beyond the scope of employment of the cleric. Furthermore, [the church’s] policy provided that adultery by any member of the clergy is immediate grounds for dismissal. Thus, the court finds that [the church] should not be held vicariously liable for any intentional torts attributed to [the dismissed minister].

The court conceded that the dismissed minister’s counseling could be within the course and scope of his employment if church officials were aware that he was counseling with the two women but took no action to stop him. The women pointed to the following incidents to demonstrate that the church knew the minister was counseling with them:

On one occasion an associate minister of the church walked into the dismissed minister’s office and found him alone with one of the two women. The associate minister later informed the woman that the dismissed minister was not supposed to be counseling with anyone. The court concluded that this incident did not prove that the church “knew” that the dismissed minister was counseling with one of the women, because when the associate minister asked the woman if the dismissed minister had been counseling with her she replied “no.”

The two women provided several examples of other women who “felt uncomfortable” around the dismissed minister. The court insisted that this evidence does not show that [the church] knew that [the dismissed minister] was counseling [the women] or that he was engaged in a sexual relationship with them.

The senior pastor told the dismissed minister that his car was seen parked outside the home of one of the two women. Again, the church insisted that this evidence did not establish that the church was aware that the dismissed minister was counseling with the woman. Further, it pointed out that “when [the women] informed [the church] of [the minister’s] conduct [the church] promptly requested [his] resignation.”

The women also claimed that the church was liable for the dismissed minister’s acts on the basis of ratification. The court conceded that an employer that ratifies the misconduct of an employee may be liable for that misconduct. It noted that ratification occurs when the employer fails to repudiate the known acts of an employee. However, it found that the church did not ratify the [wrongful] acts because [the women] have failed to show that [the church] knew or should have known about such conduct.

negligent hiring, negligent retention, negligent supervision

The women claimed that the church was responsible for their injuries on the basis of its negligence in hiring, retaining, and supervising the dismissed minister. The court disagreed. It noted that

In Texas, employers have a duty to inquire as to the competence and qualifications of those the employer considers for employment …. To prevail on a claim for negligent hiring or supervision, a plaintiff must show that the employer retained in its employment an individual who was incompetent or unfit for the job as a result of a failure to make a reasonable inquiry into the individual’s competence and qualifications.

However, the court concluded that the church “made a reasonable inquiry into [the dismissed minister’s] competence and qualifications.” It pointed to the following factors:

A member of the church’s pastoral search committee was informed by a friend that the dismissed minister had a good reputation.

A member of the church’s pastoral search committee contacted three references from the dismissed minister’s previous employer (another church). All three references had favorable comments regarding the minister.

A member of the pastoral search committee met with the dismissed minister on one occasion.

The church’s senior pastor and two other church members met with the dismissed minister on another occasion.

The dismissed minister and his wife met with all of the members of the search committee.

A former pastor of the dismissed minister’s prior church employer, and currently a denominational leader at the state level, told the senior pastor that “I want you to know that if I were to leave denominational work and go back into the pastorate today, that I would do whatever I had to do and pay whatever I had to pay to get [the dismissed minister] on my staff as education minister. He’s the best there is.” The denominational official was the dismissed minister’s supervisor for more than ten years in his prior church.

The church received a very favorable recommendation from another denominational official.

The court concluded: “[The church] was only required to conduct a reasonable search, not an exhaustive investigation. Therefore, the court finds that [it] did conduct a reasonable search into [the dismissed minister’s] competence and qualifications before it hired him.”

In rejecting the women’s claim that the church was guilty of negligent retention and negligent supervision the court pointed out that the church “did not know, nor should it have known, that [the minister] was counseling [the women] and engaging in a sexual relationship with them.” The court noted that the women “worked within a few feet of each other without knowing of each other’s relationship with [the minister].”

Key point. The court concluded that the church was not negligent in hiring the minister on the basis of (1) the positive comments of several references, including the minister’s former supervising pastor, and (2) a personal interview.

Key point. The court concluded that a church cannot be responsible on the basis of negligent retention or negligent supervision for the sexual misconduct of a pastor if his two victims worked next to each other in the church office and were unaware of the other’s relationship with him.

sex discrimination in dismissing the women from employment

The women claimed that the church committed unlawful sex discrimination in violation of Title VII of the Civil Rights Act of 1964 by dismissing them from employment. The court noted that to win a sex discrimination case under Title VII, a plaintiff must

first prove by a preponderance of the evidence a prima facie case of discrimination. The plaintiff may prove her case by direct or circumstantial evidence. A plaintiff makes out a prima facie case of sex discrimination by proving: (1) she was discharged; (2) she was qualified for the position; (3) she was within the protected class at the time of discharge; and (4) she was replaced by someone outside the protected class, or otherwise discharged because of her sex. If the plaintiff is successful in making out a prima facie case of discrimination, the burden shifts to the defendant to show a legitimate, nondiscriminatory reason for the adverse employment decision. If the defendant articulates a nondiscriminatory reason of its adverse employment action, then the presumption is rebutted and the plaintiff must prove that the nondiscriminatory reason was a pretext for discrimination.

The court concluded that the women had failed to demonstrate that the church committed sex discrimination, noting that

[they] have offered no evidence to show that they were replaced by someone outside the protective class, or that they were discharged because of their sex. Thus, [they] have failed to make out a prima facie case of discrimination. In addition, even if [they] did make out a prima facie case of discrimination, [they] have produced no evidence to show that [the church’s] reasons for terminating them were a mere pretext for discrimination. Rather, after [the church] learned that [the women and the dismissed minister] had entered into adulterous relationships [the church] placed [the women] on administrative leave with pay pending an investigation and advice from the insurance carrier regarding potential church liability. Furthermore, [the church] promptly requested [that the minister] resign. After [the women] were placed on leave [the church] assigned their former duties to incumbent female employees.

The court noted that the church’s personnel policies provide that any moral conduct that is inconsistent with the “Lord’s standards” is “just cause” for an employee’s dismissal. The women did not dispute that entering into an adulterous relationship was inconsistent with the Lord’s standards. After the church concluded its investigation it offered the women the opportunity to resign. When they refused, the church terminated them for violating the personnel policy prohibiting conduct inconsistent with the Lord’s standards. Based on this uncontradicted evidence, the court concluded that the women “have failed to offer any evidence to show that [the church’s] reasons for terminating them were a mere pretext for discrimination.” The court rejected the women’s claim that their conduct was somehow legitimized by their inability to “consent” to their sexual relations with the minister.

The women claimed that the dismissed minister received a more favorable termination package, and that this amounted to sex discrimination by the church in violation of Title VII. The court rejected this argument, noting that the church asked the dismissed minister to resign immediately, and gave him one month severance pay. The church placed the women on involuntary leave with pay for two months, and paid them for two months of psychiatric counseling. The court concluded that “[a]ny difference in the termination package between [the women and the minister] is immaterial to a proper determination of [the women’s] sex discrimination claim.”

Key point. Churches are free to dismiss employees for violation of religious standards, so long as such dismissals are not a pretext for unlawful discrimination and “similar cases are treated similarly.” In this case, the church avoided liability for sex discrimination since it treated similarly a male and two females guilty of adultery.

sexual harassment in employment

The court noted that the women had failed to demonstrate that the dismissed minister had sexually harassed them, and therefore the church could not be responsible either. The court further noted that even if the women had proven that the dismissed minister’s actions amounted to sexual harassment, his employing church could not be responsible for his acts unless it “knew or should have known of the harassment and failed to take prompt remedial action.” The court pointed out that the church “did not know, nor should it have known of [the minister’s] conduct.”

This is the second serious error made by the court (the first was its conclusion that “consensual” acts can never constitute sexual harassment). Guidelines published by the Equal Employment Opportunity Commission (a federal agency that enforces Title VII) specify:

[A]n employer … is responsible for its acts and those of its agents and supervisory employees with respect to sexual harassment regardless of whether the specific acts complained of were authorized or even forbidden by the employer and regardless of whether the employer knew or should have known of their occurrence. The Commission will examine the circumstances of the particular employment relationship and the job junctions performed by the individual in determining whether an individual acts in either a supervisory or agency capacity.

With respect to conduct between fellow employees, an employer is responsible for acts of sexual harassment in the workplace where the employer (or its agents or supervisory employees) knows or should have known of the conduct, unless it can show that it took immediate and appropriate corrective action.

To summarize, if the dismissed minister was the church’s agent or was a “supervisory employee” the church could have been responsible for his acts of sexual harassment whether or not it knew or should have known they were occurring—even if they were strictly forbidden by the church’s policies. It is possible if not likely that a minister of education (such as the dismissed minister) would be deemed an agent or supervisory employee.

retaliation for disclosing sex discrimination

The women claimed that the church had committed unlawful “retaliation” against them in violation of Title VII. Title VII prohibits employers from retaliating against employees for conduct protected by Title VII. The women claimed that the church retaliated against them unlawfully by dismissing them for disclosing the relationships they had conducted with the dismissed minister. The court disagreed, noting that the church could not be responsible for retaliation since its decision to dismiss the women was not sex discrimination.

The minister’s claims against the church

The dismissed minister sued the church on the basis of breach of contract and wrongful dismissal. Specifically, he claimed that the senior pastor and a deacon “made unkept promises” to him that induced him to sign his letter of resignation and letter of repentance. One alleged promise was that the pastor would “secure him reemployment without breaching confidences.” Presumably, this meant that the senior pastor would recommend the dismissed minister to other congregations without disclosing the nature of his misconduct. The court pointed out that the senior pastor did not promise to secure reemployment for the dismissed minister, but merely assured him that he would “help him find a job.” The court observed that “this naked assertion does not constitute a binding contract because it lacks consideration.” The court also concluded that the first amendment prevents the civil courts from resolving wrongful dismissal lawsuits brought by dismissed ministers against their former churches:

Civil court review of ecclesiastical decisions of church tribunals, particularly those pertaining to the hiring or firing of clergy, are in themselves an extensive inquiry into religious law and practice, and hence forbidden by the first amendment. Courts have concluded that matters touching the relationship between a church and its minister, determination of salary, and assignment of duties and location, are matters of church administration and government and thus purely of ecclesiastical cognizance. Religious bodies may make apparently arbitrary decisions affecting the employment status of their clergy members and be free from civil review having done so. By its very nature, the inquiry which [the dismissed minister] would have us undertake into the circumstances of his discharge plunges an inquisitor into a maelstrom of church policy, administration, and governance. It is an inquiry barred by the free exercise clause [of the first amendment].

[The minister] argues that this court can decide this case based on neutral principles because it involves a general contractual dispute. [A federal appeals court has] stated that “the neutral principles doctrine” “has never been extended to religious controversies in the areas of church government, order and discipline, nor should it be.” Hutchison v. Thomas, 789 F.2d 392 (6th Cir. 1986). [The dismissed minister’s] claim relates to his employment as a minister …. Therefore, his claim “concerns internal church discipline, faith, and organization, all of which are governed by ecclesiastical rule, custom, and law.” Therefore, the court finds that the first amendment bars [the minister’s] claims ….

Significance of the case to other churches

What is the relevance of this ruling to local churches? Obviously, a decision of a federal district court in Texas is of limited significance since it has no direct or binding effect in any other state. Nevertheless, there a number of aspects to the ruling that will be instructive to church leaders in every state. Consider the following:

1. Malpractice in pastoral counseling. The court acknowledged that ministers cannot be sued on the basis of malpractice if the resolution of such a lawsuit would require a court to “extensively investigate and evaluate religious tenets and doctrines.” On the other hand, when ministers engage in sexual contact with counselees in the course of a counseling relationship they are subject to civil liability for their acts. Further, the court pointed out that the minister held himself out as a qualified marriage counselor, and it was in this capacity that the two women sought out his services.

Key point. Ministers who hold themselves out as marriage counselors are more vulnerable to malpractice claims than pastors who engage in counseling in the course of their pastoral duties.

2. Breach of fiduciary duties. The court concluded that ministers who engage in marriage counseling may create a fiduciary relationship with their counselees that imposes upon them a duty to act in the counselees’ best interests. Taking advantage of a counselee’s dependence or vulnerability for purposes of sexual gratification represents a blatant violation of this duty that subjects the minister to legal liability.

Key point. Ministers who engage in sexual contact with a counselee may be guilty of a number of “intentional wrongs” including battery, breach of a fiduciary duty, and intentional infliction of emotional distress. Generally, intentional wrongs are not covered under a church’s liability insurance policy, and so a minister who commits such acts may find that he must pay for his own attorney and any portion of a judgment or settlement attributable to his conduct. Further, such acts constitute a criminal offense in several states.

3. Sexual harassment in employment. The court erred in concluding the minister was not guilty of sexual harassment with respect to “consensual” sexual contacts with the two female employees. As noted above, sexual harassment occurs if the offender’s actions are unwelcome, even if the victim consents to them. The court also erred in holding that the church could not be liable for the minister’s acts (even if they did constitute sexual harassment) since it was not aware they were occurring. As noted above, guidelines published by the Equal Employment Opportunity Commission specify that “an employer … is responsible for its acts and those of its agents and supervisory employees with respect to sexual harassment regardless of whether the specific acts complained of were authorized or even forbidden by the employer and regardless of whether the employer knew or should have known of their occurrence.”

While the court was completely off base in its analysis of the women’s sexual harassment claims, the case does illustrate the potential significance of this basis of liability. Had the court decided these issues correctly, the church likely would have been found liable—assuming that the minister was an agent or supervisory employee of the church.

Sexual harassment is a form of “sex discrimination” prohibited by Title VII of the Civil Rights Act of 1964. Note that Title VII only applies to employers that (1) have 15 or more employees, and (2) are engaged in interstate commerce. Accordingly, it does not apply to most churches (it does apply to many denominational agencies engaged in interstate sales). The court in this case assumed that Title VII applied to the church, without any explanation.

Key point. Title VII does not apply to most churches. However, most states have enacted their own civil rights laws that often ban sex discrimination and sexual harassment, and it is much more likely that these state laws will apply to churches. As a result, sexual harassment is a theory of liability that all churches should take seriously.

A current EEOC regulation entitled “EEOC Guidelines on Discrimination Because of Sex” specifies, in part:

(a) Harassment on the basis of sex is a violation of Sec. 703 of Title VII. Unwelcome sexual advances, requests for sexual favors, and other verbal or physical conduct of a sexual nature constitute sexual harassment when (1) submission to such conduct is made either explicitly or implicitly a term or condition of an individual’s employment, (2) submission to or rejection of such conduct by an individual is used as the basis for employment decisions affecting such individual, or (3) such conduct has the purpose or effect of unreasonably interfering with an individual’s work performance or creating an intimidating, hostile, or offensive working environment.

This regulation confirms the conclusion reached by numerous state and federal courts that sexual harassment includes at least two separate types of conduct:(1) “Quid pro quo” harassment, which refers to conditioning employment opportunities on submission to a sexual or social relationship, or (2) “hostile environment” harassment, which refers to the creation of an intimidating, hostile, or offensive working environment through unwelcome verbal or physical conduct of a sexual nature.

4. Sex discrimination. One of the most important aspects of this case was the court’s conclusion that the church did not commit sex discrimination when it fired the two female employees since it did not treat them any less favorably than it treated the male minister who was sexually involved with them. This case illustrates that churches subject to Title VII can discriminate in employment decisions on the basis of religious standards. However, there are a few very important qualifications here that were mentioned by the court:

The discrimination must in fact be based on religion. Religion cannot be a “pretext” to discriminate on the basis of sex, pregnancy, or some other protected category.

While a church can discriminate on the basis of religion, it must do so in a way that does not adversely impact a protected group of employees. The dismissed female employees insisted that the severance package the church offered the dismissed minister was more attractive than what they were offered. The court evaluated the terms and conditions of the termination of all of these workers, and concluded that the church had treated the women and the male minister similarly. The dismissed minister was forced to resign immediately, and was given one month severance pay. The church placed the two women on involuntary leave with pay for two months, and paid them for two months of psychiatric counseling. The court concluded that [a]ny difference in the termination package between [the women and the minister] is immaterial to a proper determination of [the women’s] sex discrimination claim.

Key point. Churches can discriminate against employees on the basis of religion, but they must be able to demonstrate that religion is not a pretext of discriminating against a protected group of workers. If the church had dismissed the women but not the minister, the religious exemption would not apply.

5. Negligent hiring. The court acknowledged that employers can be liable on the basis of negligent hiring for the misconduct of an employee committed in the course of employment if a reasonable background investigation into the employee’s “competence and qualifications” was not conducted at the time of employment. In this case, the court concluded that the church conducted a reasonable investigation into the minister’s competence and qualifications at the time he was hired. It based this conclusion on the following facts: (1) the church obtained favorable references from three persons in the minister’s previous church; (2) the minister was interviewed on three occasions (by a member of the pastoral search committee, by the senior pastor and two church members, and by the entire pastoral search committee); and (3) the church obtained favorable references from two denominational officials—one of whom was the minister’s former supervising pastor.

6. Negligent retention and supervision. The court reached the perfectly logical conclusion that a church cannot be liable for negligently retaining and supervising a minister who commits adultery with two female employees if the employees themselves, who worked next to each other in the church office, were not aware of the other’s relations with the minister. This will be a useful precedent to other churches that are accused, in hindsight, of negligently retaining or supervising a minister.

7. The church’s lack of knowledge. The court concluded that the church was not aware that the minister of education was engaging in unauthorized marital counseling, despite the fact that (1) on one occasion an associate minister of the church walked into his office and found him alone with one of the two female employees who later filed the lawsuit; (2) the two female employees provided several examples of other women who “felt uncomfortable” around the dismissed minister; and (3) the senior pastor told the minister of education that his car was seen parked outside the home of one of the two female employees.

Key point. Had the church known that the minister was violating church policy by engaging in unauthorized counseling, the court would have found it liable for the minister’s wrongful acts on several grounds. This illustrates a critical point—churches that have adopted policies must be sure those policies are being followed. A failure to abide by stated policies can expose a church to significant legal risks. Church leaders should periodically review policies, and assess whether or not they are being followed. If they are not, efforts should be made to immediately begin enforcing them. If this is no longer possible with respect to a particular policy, it should be abandoned.

8. Ratification. The court concluded that the church had not “ratified” the minister’s wrongful acts since it did not know of them and fail to repudiate them.

9. The what ifs? The church in this case handled matters very well. Consider the following: (1) It thoroughly screened the minister of education before hiring him; (2) church policy prohibited the minister from engaging in counseling; (3) church leaders had no knowledge that the minister of education was engaging in unauthorized counseling or in wrongful conduct; (4) when confronted by the two women with allegations of wrongdoing, the church immediately launched an investigation resulting in a paid leave of absence for the women and a forced resignation of the minister; and (5) the church offered comparable “severance packages” to the two women and the minister, thereby avoiding liability for sex discrimination. What if any of these factors had not been present? What if the church had not screened the minister when he was hired? What if the church was aware of unauthorized counseling by the minister of education? What if the church was aware of the minister’s wrongful acts but took no action against him, or treated the women less favorably than the minister? In any of these situations, the church would have faced potentially significant liability for the minister’s wrongful acts.

This case demonstrates how a church can meaningfully reduce its exposure to legal risk by how it handles employment decisions. Church leaders should ask themselves this question—if a woman in our church made similar allegations against our minister, would we be as successful in avoiding liability? Or, would we be vulnerable? This case will provide church leaders with helpful guidance in reducing exposure to legal risk.

Sanders v. Casa View Baptist Church, 898 F. Supp. (N.D. Tex. 1995)

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
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