Must Churches Pay Overtime and the Minimum Wage?

Two Federal Courts Address The Issue

• Article summary. Must churches pay the minimum wage to their secretaries, bookkeepers, preschool workers, nursery workers, teachers, musicians, and custodians? If so, are there any exceptions? What about volunteer workers and self-employed individuals? If churches must pay the minimum wage, do they also have to pay overtime compensation (i.e., one and one-half times their regular compensation) to employees who work more than 40 hours per week? If so, does this include ministers? This article will address these important questions on the basis of federal law, Department of Labor publications, and two recent federal court decisions.

• Key point 8-05. Congress has enacted a number of employment and civil rights laws regulating employers. These laws generally apply only to employers that are engaged in interstate commerce. This is because the legal basis for such laws is the constitutional power of Congress to regulate interstate commerce. As a result, religious organizations that are not engaged in commerce generally are not subject to these laws. In addition, several of these laws require that an employer have a minimum number of employees. The courts have defined “commerce” very broadly, and so many churches will be deemed to be engaged in commerce.

• Key point 8-17. The Fair Labor Standards Act mandates that employers pay the minimum wage and overtime compensation to employees who work for an enterprise engaged in commerce. There is no exception for religious organizations, but there are exceptions for certain classifications of employees.

With an increase in the federal minimum wage virtually certain, many church leaders are attempting to assess the impact of such an increase on church employment and compensation practices. Must churches pay their employees the minimum wage prescribed by federal law? Must they pay overtime compensation to employees who work more than 40 hours per week? What about ministers? Are they entitled to overtime pay and the minimum wage?

It is important for church leaders to be able to answer these questions, since churches and even church board members can be exposed to substantial liability in the event that a church fails to pay the minimum wage or overtime compensation to employees who are legally entitled to these benefits. Unfortunately, few church leaders have a clear understanding of the application of the federal minimum wage and overtime compensation law to church workers. For the most part, this is due to the complexity of the law. But it also can be attributed to the relatively few court decisions that have addressed the application of the law to churches. This fact makes every court ruling significant.

This article will review all of the major court rulings addressing this issue, including two recent cases. It also will review three Department of Labor “Opinion Letters” that address the coverage of church employees under the federal minimum wage and overtime law.

1. The Fair Labor Standard Act (FLSA)

In 1938 Congress enacted the Fair Labor Standards Act (the “Act” or “FLSA”) to protect employees engaged in interstate commerce from substandard wages and excessive working hours. The Act achieves its purpose by prescribing a maximum workweek of 40 hours for an employee engaged in commerce, unless the employee is paid at the rate of one and one half times the regular rate of compensation for all hours worked over 40, and by prescribing a minimum wage for all employees engaged in interstate commerce. The Act also requires equal pay for equal work regardless of gender, and restricts the employment of underage children.

The Act initially covered only those employees “engaged in commerce or in the production of goods for commerce.” Congress greatly expanded the Act’s coverage in 1961 by amending the Act to cover “enterprises” as well as individual employees. The Act now provides that employers must pay the minimum wage and overtime compensation not only to employees actually engaged in commerce or in the production of goods for commerce, but also to any employee “employed in an enterprise engaged in commerce or in the production of goods for commerce.”

In summary, for the minimum wage and overtime compensation requirements to apply to a particular worker, the following two requirements must be satisfied: (1) the worker must either be (a) engaged directly in commerce or in the production of goods for commerce, or (b) employed by an enterprise engaged in commerce or in the production of goods for commerce, and (2) the worker must be an employee.

The more important of these terms are discussed in the following paragraphs, along with pertinent exemptions.

Enterprises

The Act defines an enterprise as “the related activities performed … by any person or persons for a common business purpose.” The United States Supreme Court has noted that this definition excludes most religious and charitable organizations to the extent that they are not operating for profit and are not pursuing a “business purpose.” Tony & Susan Alamo Foundation v. Secretary of Labor, 471 U.S. 290 (1985). On the other hand, religious and charitable organizations will be deemed to be an “enterprise” subject to the minimum wage and overtime compensation requirements if they are engaged in commercial or business activities.

In 1966, Congress amended the Act to include within the definition of “enterprise” any “preschool, elementary or secondary school, or an institution of higher education (regardless of whether or not such … institution or school is public or private or operated for profit or not for profit).” The Act now provides that schools and preschools, even those operated by churches, are “deemed to be activities performed for a common business purpose.”

The fact that a church school or preschool is now deemed to be an “enterprise” does not end the analysis. As noted above, the enterprise must be “engaged in commerce or in the production of goods for commerce,” and the worker must be an employee. The Act defines the term enterprise engaged in commerce or in the production of goods for commerce to include an enterprise that:

(1) “Has employees engaged in commerce or in the production of goods for commerce, or that has employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person, and is an enterprise whose annual gross volume of sales made or business done is not less than $500,000”; or

(2) “Is engaged in the operation of a … preschool, elementary or secondary school, or an institution of higher education (regardless of whether or not such … institution or school is public or private or operated for profit or not for profit).”

According to this language, church-operated schools and preschools are deemed to be “enterprises engaged in commerce or in the production of goods for commerce.” A “fact sheet” published by the Department of Labor states:

The amendments to the FLSA specifically extended FLSA coverage to preschools as covered “enterprises,” regardless of whether public or private or operated for profit or not for profit, and without regard to the annual dollar volume of the business. As a result, all such enterprises are required to comply with applicable provisions of the FLSA.

Daycare centers and preschools provide custodial, educational, or developmental services to preschool age children to prepare them to enter elementary school grades. This includes nursery schools, kindergartens, head start programs, and any similar facility primarily engaged in the care and protection of preschool age children. Individuals who care for children in their home are not considered daycare centers unless they have employees to assist them with the care of the children.

This language leaves no doubt that the Department of Labor interprets the term preschool to include a church-operated child care facility even if the facility is primarily a custodial rather than an educational institution.

Individual coverage

Even when there is no enterprise coverage, employees are protected by the FLSA if their work regularly involves them in commerce between states (“interstate commerce”). The FLSA covers individual workers who are “engaged in commerce or in the production of goods for commerce.”

Examples of employees who are involved in interstate commerce include those who produce goods (such as a secretary typing letters in an office) that will be sent out of state, regularly make telephone calls to persons located in other states, handle records of interstate transactions, travel to other states on their jobs, and do janitorial work in buildings where goods are produced for shipment outside the state.

The Department of Labor Field Operations Handbook describes individual coverage as follows:

Individual coverage depends on the nature of the particular employee’s work. An employee is covered on an individual basis in each workweek in which he or she performs any work constituting engagement in interstate or foreign commerce …. As a practical matter [the Wage and Hour Division of the Department of Labor] does not assert individual coverage over an employee who is ordinarily engaged in employment which is not so covered but who may on isolated occasions spend an insubstantial amount of time performing individually covered work. However, this rule is not applicable in any workweek in which an employee spends a substantial amount of time doing individually covered work. If, in viewing the employment over a more extended period, it is apparent that the pattern of individual coverage is regular and recurrent, the employee involved is so covered in each workweek in which he does such work, regardless of whether the amount of time spent in this work is substantial or insubstantial.

It is not possible to establish precise guidelines to be followed in determining whether an employee who is not otherwise covered on an individual basis spends an insubstantial amount of time on isolated occasions in the performance of individually covered work. In view of the remedial purposes of the Act, the application of this rule is limited to circumstances where the time consumed by an employee in doing such covered work is obviously trivial, and the incidence of this covered work is so infrequent and out-of-pattern that it would be unrealistic to assert individual coverage solely on such grounds. This must be decided on the facts in a particular case. Field Operations Handbook § 11a01.

The Department of Labor Field Operations Handbook addresses the individual coverage of several categories of employees under the FLSA. The only one relevant to church staff would be “clerical” employees. Section 11c00 of the Field Operations Handbook states:

Office and clerical employees who are engaged in the sending and receiving of out-of-state remittances, letters, bills, contracts, etc. or whose work involves the regular and recurrent use of the interstate mails, telephone, telegraph, and similar agencies of communication across state lines, are engaged in interstate commerce …. Those who not only transmit, but also prepare letters, bills, contracts, and other papers which are sent out of the state, are actually engaged in the production of goods for interstate commerce.

Regulations adopted by the Department of Labor state:

The Act makes no distinction as to the percentage, volume, or amount of activities of either the employee or the employer which constitute engaging in commerce or in the production of goods for commerce. However, an employee whose in-commerce or production activities are isolated, sporadic, or occasional and involve only insubstantial amounts of goods will not be considered “engaged in commerce or in the production of goods for commerce” by virtue of that fact alone. The law is settled that every employee whose activities in commerce or in the production of goods for commerce, even though small in amount are regular and recurring, is considered “engaged in commerce or in the production of goods for commerce”. 29 C.F.R. 779.109.

Employees

For a worker to be entitled to the minimum wage and overtime compensation, he or she must be an “employee.” The Act defines the term employee as “any individual employed by an employer,” and adds that an employee includes a person who is “suffered or permitted” to work.

These definitions, and especially the definition of “individual coverage,” are cursory and ambiguous, and often are difficult to apply in individual cases. As a result, court decisions and published opinions by the Department of Labor addressing these terms in the context of church employees are immensely helpful. It is to a survey of these decisions that we now turn.

2. Bowrin v. Catholic Guardian Society, 417 F.Supp.2d 449 (S.D.N.Y. 2006)

A church-affiliated nonprofit organization operated residential programs for mentally disabled persons and foster children. Nine employees (the “plaintiffs”) sued their employer in federal court claiming that it had failed to pay them overtime compensation for hours worked in excess of 40 per week.

The court began its opinion by noting that an employer is subject to the FLSA’s overtime pay requirements in either of the following two situations: (1) the employee individually is “engaged in commerce or in the production of goods for commerce,” or (2) the employer is an enterprise “engaged in commerce or in the production of goods for commerce,” regardless of whether the individual employee was so engaged. The court noted that under the FLSA’s individual coverage provision, any employee “engaged in commerce or in the production of goods for commerce” is covered by the Act whether or not his or her employer is an enterprise engaged in commerce.

The plaintiffs conceded that they had not been “engaged in the production of goods for commerce,” and so “the issue of individual coverage turns on whether the plaintiffs were or are engaged in commerce.”

Department of Labor regulations specify that employees are engaged in commerce “when they are performing work involving or related to the movement of persons or things (whether tangibles or intangibles, and including information and intelligence)” between states. 29 C.F.R. § 779.103. As a result, an employee is engaged in commerce “when regularly using the mails and telephone for interstate communication, or when regularly traveling across state lines while working.” However, Department of Labor regulations also specify:

This does not mean that any use by an employee of the mails and other channels of communication is sufficient to establish coverage. But if the employee, as a regular and recurrent part of his duties, uses such instrumentalities in obtaining or communicating information or in sending or receiving written reports or messages, or orders for goods or services, or plans or other documents across state lines, he comes within the scope of the act as an employee directly engaged in the work of “communication” between the state and places outside the state. 29 C.F.R. § 776.10 (emphasis added) …. To be engaged in commerce, a substantial part of the employee’s work must be related to interstate commerce.

The court concluded, based on this language, that when an employee’s interstate activities “are de minimis, or not regular or recurring, as a practical matter neither courts nor the Department of Labor consider the employee covered under the FLSA.” It cited the following examples:

Sporadic or occasional shipments of insubstantial amounts of goods are insufficient to bring an employee within the coverage of the FLSA. Remmers v. Egor, 332 F.2d 103 (2d Cir. 1964).
Four trips out of state by one employee on work-related activities over the course of 19 months were “sporadic to say the least,” while frequent trips out of state and consistent use of the mails to send correspondence out of state was sufficient for another employee to be covered by the FLSA. Isaacson v. Penn Cmty. Servs., 1970 WL 794 (D.S.C. 1970).
An employee’s use of the phone and mails to accomplish fourteen to thirty major purchases from out-of-state vendors between 1992 and 1997 were considered sufficient to find coverage under the FLSA. Boekemeier v. Fourth Universalist Society, 86 F.Supp.2d 280 (S.D.N.Y.2000).

The court conceded that “there is not a clear standard for determining when an individual employee’s interstate activities tip the scale and becomes substantial for purposes of determining coverage.” It noted that an official publication of the Department of Labor, Wage and Hour Division (WHD), states that the WHD does not assert individual coverage where an employee spends “insubstantial amount of time” “on isolated occasions” performing covered work. Field Operations Handbook § 11a01(a). The publication acknowledges that “it is not possible to establish precise guidelines to be followed” on the question of whether individually covered work is insubstantial and isolated. However, it goes on to clarify that

In view of the remedial purposes of the FLSA, the application of this [de minimis or “insubstantial amount”] rule is limited to circumstances where the time consumed by an employee in doing such covered work is obviously trivial, and the incidence of this covered work is so infrequent and out-of-pattern that it would be unrealistic to assert individual coverage solely on such grounds. This must be decided on the facts in a particular case.

Department of Labor regulations provide the following clarification regarding out-of-state travel:

Employees who are regularly engaged in traveling across state lines in the performance of their duties (as distinguished from merely going to and from their homes or lodgings in commuting to a work place) are engaged in commerce and covered by the act. On the other hand, it is equally plain that an employee who, in isolated or sporadic instances, happens to cross a state line in the course of his employment, which is otherwise intrastate in character, is not, for that sole reason, covered by the FLSA. Doubtful questions arising in the area between the two extremes must be resolved on the basis of the facts in each individual case. 29 C.F.R. § 776.12 (emphasis supplied).

The nine plaintiffs

The court noted that “whether the plaintiffs are covered for work done … will require an analysis of their alleged interstate activities to determine (1) whether those activities are of the type covered by the Act, and (2) whether these are performed frequently enough to give rise to coverage under the Act.” It observed:

The court agrees with the employer’s position that distributing personal mail and phone cards to residents in the home, and picking up personal calls for residents that originate out of state, do not constitute the type of use of the mails or channels of interstate commerce sufficient to trigger coverage under the Act. As discussed above, the Department of Labor does not consider “any use by an employee of the mails and other channels of communication” to implicate individual coverage. 29 C.F.R. § 776.10 (emphasis added). Rather, individual coverage may exist when that “use” is “regular and recurrent” and performed to obtain or communicate information, or to order goods or services across state lines. Although neither the substance nor volume criteria triggering individual coverage under the FLSA are well defined, typically it is the use of the interstate mails and placement of out-of-state phone calls occurring in the course of conducting an organization’s clerical or administrative business that appear to trigger individual coverage, if “regular and recurrent” and a “substantial part” of the employee’s work. Field Operations Handbook § 11n01. It is undisputed that plaintiffs’ handling of mail and receipt of telephone calls occurred only in the context of distributing mail and relaying calls and messages to residents. Employees cannot be considered to be “using” the mails simply because they physically touch letters that have arrived from out of state for residents in the homes. Nor does answering calls that happen to originate from out of state constitute “use” of the channels of interstate commerce. As a matter of common sense, these types of activities do not require an employee to be “directly engaged in the work of ‘communication’ between the state and places outside the State.” 29 C.F.R. § 776.10.

However, the court did find the employees’ trips to other states for shopping and recreation with residents of the homes to be interstate activities “that may bring an employee within the scope of individual coverage,” since “traveling across state lines in connection with one’s duties clearly implicates coverage under the Act” so long as the travel is neither infrequent nor de minimis.

The court concluded that two of the nine plaintiffs were covered under the FLSA because the home in which they worked qualified as an “enterprise.” The court then addressed the individual coverage of the remaining seven employees. Its conclusions are summarized in the following table.

EmployeeDutiesConclusion

1	Drove residents to another state to go shopping on two occasions. She also distributed mail to the residents three to four times a week.	Not covered by FLSA, so not entitled to overtime pay.
2	Over the course of two years made five trips out of state on recreational or shopping excursions with residents. Received phone calls from out of state approximately two times a month for two years, and six or seven times in the most recent year.	Not covered by FLSA, so not entitled to overtime pay. The court found five trips over two years to be de minimis.
3	The employee made four trips to other states with residents for recreation, plus another trip to another state to attend a week-long training seminar.	Not covered by FLSA, so not entitled to overtime pay.
4	The employee transported residents to another state two to four times per month to shop. The employer disputed the remainder of her alleged interstate activities, including the receipt of out-of-state telephone calls, and her handling of mail within the home.	“Two to four trips per month out of state to shop with residents are frequent enough to bring this employee under FLSA coverage. The disputed activity with respect to phone calls and mail are not considered in determining whether she is covered on an individual basis.”
5	This employee traveled to another state for shopping on one occasion, and at least twice for recreation with the residents. She answers the phone and sometimes places calls as part of her job.	Not covered by FLSA, so not entitled to overtime pay.
6	No interstate activity alleged.	Not covered by FLSA, so not entitled to overtime pay.
7	This employee traveled once a week to a neighboring state to shop for food and other items for residents and the home.	“Weekly trips to [a neighboring state] are regular and recurrent enough to bring her under the Act’s coverage.”

Liquidated damages

The court ruled that the employer was required to pay “liquidated damages” in addition to unpaid overtime compensation. According to the FLSA, employers that fail to pay overtime compensation may be obligated to pay not only the unpaid overtime compensation but also “an additional equal amount as liquidated damages.” However, an employer will not be required to pay liquidated damages if it can demonstrate that it had “reasonable grounds” for believing that it was not obligated to pay overtime compensation. The court cautioned that this defense required evidence “of at least an honest intention to ascertain what the Act requires and to comply with it. The employer must show more than that it did not purposefully violate the provisions of the FLSA to establish that it acted in good faith.” The court ruled that the employer was not entitled to this defense, and accordingly assessed liquidated damages in addition to back overtime pay.

Statute of limitations

An employer who has violated the FLSA must pay unpaid wages for two years from the filing of a lawsuit, unless the employer has “willfully” violated the Act, in which case unpaid wages are due for three years. The court concluded that the special three-year rule did not apply in this case since there was no evidence that the employer “knew it was violating the FLSA.” While the employer may not have “taken sufficient steps to ensure compliance with the FLSA,” it did “make some effort to ascertain whether it was entitled to an exemption.”

Application of the FLSA to religious employers

The court rejected the employer’s suggestion that it was exempt from FLSA since it was a religious organization. It noted that Department of Labor, Wage and Hour Division, “clearly recognizes that individual employees of nonprofit organizations who do not engage in substantial competition with other businesses may be covered on an individual basis.” It quoted from a Department of Labor publication: “Employees of educational, eleemosynary, or nonprofit organizations may be covered on an individual basis …. Employees, such as office and clerical personnel, whose work involves the regular use of the interstate mails, telegraph, telephone, and similar instrumentalities for communication across state lines are actually engaged in interstate commerce.” Field Operations Handbook § 11n01.

3. Alcazar v. Corporation of Catholic Archbishop of Seattle, 2006 WL 3791370 (W.D. Wash. 2006)

This case is addressed in the recent developments section of this newsletter. To summarize, a federal court in Washington ruled that the “ministerial exception” prevented it from resolving several claims brought by seminary students against a religious organization, including violation of a state minimum wage law.

The court noted that the First Amendment guaranty of religious freedom has created a “ministerial exception” to employment laws, and that this exception prohibits a court from “inquiring into the decisions of a religious organization concerning the hiring, firing, promotion, rate of pay, placement or any other employment related decision concerning ministers and other non-secular church employees.”

The court dismissed the seminarian’s claim that his religious employer had violated a state minimum wage law. It concluded:

This claim concerns decisions regarding the rate of pay for non-secular church employees and must also be dismissed under the ministerial exception. The … ministerial exception applies to both state and federal claims, and prohibits a court from inquiring into the decisions of a religious organization concerning the hiring, firing, promotion, rate of pay, placement or any other employment related decision concerning ministers and other non-secular church employees. This most certainly includes questions concerning the amount of compensation owed a visiting seminarian student [citing Bollard v. California Province of the Society of Jesus, 196 F.3d 940 (9th Cir.1999)].

4. Boekemeier v. Fourth Universalist Society, 86 F.Supp.2d 280 (S.D.N.Y. 2000)

A church in New York City supplemented its income by leasing its facilities and property on a short and long term basis to individuals and organizations. In soliciting customers to rent its facilities, the church performed monthly mass mailings, issued press releases and placed advertisements in magazines and on the Internet. About half of the groups that rented space from the church for special events were from a state other than New York.

The church’s total income for each fiscal year from 1993 to 1996 surpassed $500,000. This income came from the following categories:

(1) Rental income

(2) Contributions (contributions that qualify as tax-deductible charitable contributions)

(3) Investment income (revenue derived from dividends and interest received as a result of investments made by the church)

(4) Special events income (revenue derived from the coin operated soda machine on the church’s premises, any fund-raising events conducted by the church, and any letter writing campaigns or other special fund-raising efforts conducted by the staff of the church)

(5) Miscellaneous income (credits from merchants, adjustments to reflect outstanding checks which never were negotiated, and income derived from meals served at the church)

(6) Gain on sale of investments (revenue from the sale of securities owned by the church)

(7) Social action committee income (contributions received by the church’s social action committee)

(8) Insurance proceeds derived from any claim made on a church insurance policy

The following table reflects the amount of income attributable to each such category for the fiscal years in question:

Income source	1994	1995	1996
Rental income	$467,912	$481,427	$451,973
Contributions	57,289	41,444	50,690
Investment income	6,319	6,512	7,008
Special events	12,087	8,511	9,069
Miscellaneous	3,024	6,718	2,406
Gain on investments	18,850	(8,982)	(1,437)
Social action com.	1,123	600	200
Insurance proceeds	15,520	0	0

The church placed the money it received from its rental activities, contributions, and other sources of income into a single, unrestricted fund, and from that fund paid its employees’ salaries and other expenses.

The plaintiff

A man (“Ralph”) began employment with the church in 1990 as an “Assistant Building Engineer.” His job responsibilities included custodial and maintenance work, assisting the church’s short and long term tenants, and purchasing equipment and cleaning and maintenance supplies.

Ralph purchased custodial supplies and other equipment from five out of state vendors. The majority of such purchases were for custodial supplies, but on separate occasions Ralph also purchased a refrigerator, electronics equipment, and a computer from these vendors. Ralph also claimed to have purchased materials from a supplier of plumbing parts from California.

Ralph and the church agreed that he made between one and four purchases of custodial supplies from out of state vendors in 1992; between three and six such purchases in 1993; between three and four such purchases in 1994; between one and four such purchases in 1995; between two and six such purchases in 1996; and between four and six such purchases in 1997. In other words, Ralph made a total of between fourteen and thirty such out-of-state purchases between 1992 and 1997.

Also as part of his regular duties, on an average of twice per month, Ralph showed church facilities to potential short term tenants for special events like weddings and meetings. He further worked directly with some short term tenants to set up for their special events, both in advance and at the time of their rentals, and at times suggested how such tenants might accomplish what they were trying to do. In addition, Ralph generally was available during special events to help in case any problems arose and to clean up after the event. For example, Ralph performed custodial and maintenance tasks for a preparatory school that met on church premises during the entire time that he was employed by the church. He also performed custodial and “set up” tasks for the National Broadcasting Company (“NBC”) in connection with its use of the church as a “control center” during the broadcast of the 1997 Macy’s Thanksgiving Day Parade.

Throughout his employment, Ralph was paid an annual salary that did not vary according to the number of hours he worked. His days and hours of work changed several times during the course of his employment, but he had regularly scheduled hours and was expected to and did work additional hours. At all such times, Ralph received “compensatory time” for working excess hours rather than receiving any additional monetary compensation. The allocation of compensatory time to Ralph was governed by a “compensatory time policy” set forth in the church’s personnel manual. The personnel manual provided that employees of the church were entitled to straight compensatory time for work in excess of thirty five hours per week if the employee obtained the prior approval of the Director of Management and Marketing or the senior minister. An employee could be credited for compensatory time without prior approval if the employee’s supervisor approved the overtime and either an emergency existed or the supervisor submitted a written explanation of why additional hours were needed. The personnel manual made no mention of how compensation time would be treated at an employee’s termination.

The Church kept no records of the number of hours Ralph worked, and as a matter of church policy, no full time employees completed time sheets. However, Ralph maintained personal records showing time worked on weekends and at special events. The church presented no evidence to contradict the information contained in Ralph’s records.

While Ralph did not always follow church policy in obtaining compensatory time, he did inform the church’s Director of Management and Marketing of the amount of compensatory time that they owed during his employment, and the church never denied credit for any such time.

Ralph claimed that the church board knew that church employees were “potentially” covered by the overtime pay requirements of the Fair Labor Standards Act. As proof, he pointed to an excerpt in the board’s minutes under the heading “Concerns of the Board,” which expressed concern over “overtime and compensatory time as it applies to hourly staff and to management.” In addition, in 1996 the church treasurer warned a staff member that the church needed to “limit” its income-producing activities so as not to exceed $500,000 per year.

Ralph sued the church and the church board members individually, claiming that they had violated the Fair Labor Standards Act by not paying him overtime compensation while he was employed by the church.

Enterprise coverage

The court began its opinion by noting that in order to prove Ralph was entitled to overtime wages, he “must demonstrate either that the church was an enterprise subject to the requirements of the FLSA or, alternatively, that Ralph was himself engaged in commerce as the FLSA defines these terms.”

As noted above, employees who are “employed by an enterprise engaged in commerce or in the production of goods for commerce” that has “annual gross sales” or “business done” of $500,000 or more are entitled to overtime pay and the minimum wage unless specifically exempted. The church conceded that it would meet the definition of an “enterprise” engaged in commerce if it met the $500,000 annual gross sales or “business done” requirement. The court agreed with this conclusion, noting that “Ralph’s handling of janitorial goods that have moved in commerce and the church’s employment of several individuals involved in an extensive advertising campaign to solicit interstate special event renters are more than sufficient to invoke enterprise coverage should the church meet the [Act’s] gross dollar volume requirement.”

In order for Ralph to be entitled to overtime pay on the basis of the church’s status as an enterprise engaged in commerce, the church must have annual gross sales or “business done” of at least $500,000. Did the church’s revenue, described above, meet this requirement? The court noted that the “church’s gross income for each fiscal year between 1994 and 1996 exceeded $500,000.” However, it pointed out that

Enterprise coverage will apply … only to the extent the business done by the relevant enterprise exceeds $500,000 for any of these years. Given its nonprofit charitable status, the church generally would not be considered an enterprise under the Act. However, the Act is applicable to its activities insofar as they “serve the general public in competition with ordinary commercial enterprises.” Tony and Susan Alamo Foundation v. Secretary of Labor, 471 U.S. 290 (1985). As the church’s rental activities are in direct competition with other short and long term commercial landlords and special event locations, they are clearly commercial under the standard articulated by [the Supreme Court in the Alamo decision].

The church argued that only the funds from its rental activity should be calculated into the gross business done of the enterprise because it serves as the sole commercial business in which the church is engaged. And, since its rental income did not exceed the $500,000 threshold in any year, it did not meet the enterprise test, and Ralph was not entitled to overtime pay.

Ralph, on the other hand, argued that aside from moneys received from contributions, all of the church’s sources of income should be included in the calculation of its gross annual sales. Ralph noted that the church commingled all of its income in one fund, and that money from this fund was used by the church to support all of its operations, including the payment of employees and expenses related to its rental activities.

The court interpreted the $500,000 requirement to include only the following categories of church income:

(1) Income from the operation of a “business,” such as rental income;

(2) Income from special events, such as revenue from a coin operated soda machine on the church’s premises, fund-raising events conducted by the church, and letter-writing campaigns or other special fund-raising efforts conducted by the staff of the church; and

(3) Other sources of income that are “sufficiently related to the church’s business income” to warrant inclusion in the gross volume amount.

Individual coverage

Even if a worker’s employer does not meet the “enterprise” test, the worker may be covered by the FLSA’s minimum wage and overtime protections if he or she is “engaged in commerce” or “engaged in the production of goods for commerce.” Ralph agreed that he did not participate in the production of goods for commerce, so individual coverage depended on the extent to which he was “engaged in commerce.”

The court noted that for an employee to be engaged in commerce, “a substantial part of the employee’s work must be related to interstate commerce.” Further, the test “is not whether the employee’s activities affect or indirectly relate to interstate commerce but whether they are actually in or so closely related to the movement of the commerce as to be a part of it.”

The court noted that Ralph’s purchases “were made from five different vendors, and included not only custodial supplies but also other important items to the church like a computer, electronic equipment and a refrigerator. Additionally … Ralph made between fourteen and thirty such purchases over the course of his employment. Moreover … the church’s Director of Management and Marketing has estimated that Ralph made ‘dozens’ of purchases from only one of these vendors, and that it was a ‘normal part’ of his duties to place orders with such vendors.” The court concluded that “such recurrent and frequent purchases of goods from out of state vendors are more than sufficient to trigger the protection of the FLSA.”

Damages

The court noted that under the Fair Labor Standards Act an employee is due “back wages” for two years from the filing of his action, unless the employer “willfully” violates the Act, in which case back wages are due for three years. A violation is “willful” only if the employer “shows a reckless disregard for the provisions of the Act.” The court noted that “willfulness cannot be found on the basis of mere negligence or on a completely good faith but incorrect assumption that a pay plan complied with the FLSA in all respects.”

In addition, the Act provides that an employer that has violated overtime pay or minimum wage provisions shall be liable not only for back wages but also “an additional amount as liquidated damages” unless “the employer shows … that the act or omission giving rise to such action was in good faith and that he had reasonable grounds for believing that his act or omission was not a violation of the [Act].”

Ralph insisted that the church’s violation of the overtime pay protections of the Fair Labor Standards Act was willful and that its violation was not in good faith, making Ralph eligible for both a three-year damage limitations period and liquidated damages. In support of these contentions, Ralph noted that the church board’s minutes contain the statement “overtime and compensatory time as it applies to hourly staff and to management” under the heading “Concerns of the Board.” In addition, Ralph contended that the church’s Director of Management and Marketing was warned by the church treasurer that the church needed to limit its income-producing activities to not more than $500,000 per year. The church disagreed. The court concluded that the church might have acted willfully, but that further proof was needed. It ordered this issue to be determined by a jury.

The court then addressed the proper method for calculating Ralph’s damages. The church claimed that Ralph was entitled to overtime compensation only for the weeks he actually performed work in interstate commerce. Ralph countered that he was entitled to overtime compensation for every week of overtime he worked because defendants did not keep records detailing the type of work that he performed. The court agreed with Ralph and ruled that he was entitled to overtime pay whenever he worked overtime since his employer failed to keep records of the time he spent specifically working in interstate commerce. It observed, “An employer who has not kept the records required by [the Act] cannot be heard to complain that there is no evidence of the precise amount of time worked in interstate commerce, including overtime so worked.” The court also referred to a Department of Labor opinion stating that if an employer wishes to pay overtime to an employee only for duties performed in interstate commerce, “the employer’s records must clearly show this delineation in duties performed and wages paid.” U.S. Department of Labor, Wage and Hour Division, Opinion WH 230 (1993).

5. Shaliehsabou v. Hebrew Home of Greater Washington, 363 F.3d 299 (4th Cir. 2004)

For several years an Orthodox Jewish man (David) worked at a predominantly Jewish nursing home as a “kosher inspector.” His primary duty was to guard against any violation of Jewish dietary laws. The nursing home is a nonprofit corporation whose mission, according to its bylaws, is to serve “aged of the Jewish faith in accordance with the precepts of Jewish law and customs, including the observance of dietary laws.” While the nursing home accepts persons of all faiths, about 95% of its residents are Jewish. All members of its board of directors are Jewish. The facility maintains a synagogue on its premises and holds twice-daily religious services conducted by an ordained rabbi who serves as a full-time employee. Each resident’s room contains a “mezuzah” (a parchment scroll inscribed with the Biblical passages).

Consistent with its mission to serve the spiritual needs of its residents, the nursing home provides its residents with kosher meals prepared in accordance with the Jewish dietary laws. To ensure that the food services department complied with these laws, the nursing home asked a council of local rabbis to recommend a person to serve as a kosher inspector at its facility. The council determined that a kosher inspector must have a knowledge of the basic Jewish dietary laws; must be a “Sabbath observer” and a “fully observant Jew”; and must have a knowledge of the dietary laws through experience and study at an Orthodox Jewish seminary. Compliance with the dietary laws, the council concluded, was “an integral and essential part of Jewish identity.” The council recommended David as the nursing home’s kosher inspector, and he was hired. David had been a devout Orthodox Jew his entire life and had obtained a Bachelor of Talmudic Law from a rabbinical college. He declared himself as “clergy” on his federal tax returns, and also claimed a parsonage exemption from his salary.

David’s primary duties as kosher inspector included inspecting deliveries, opening and closing the refrigerators to insure the integrity of the kosher status of the kitchen, insuring that all meat and dairy products were stored and kept separate during food preparation, and lighting all ovens and heating equipment in accordance with the requirements of Jewish law. He also cleansed kitchen utensils and other items if they became non-kosher, and instructed kitchen staff on complying with the dietary laws and to report any violations.

David was paid for at least 80 hours of work each bi-weekly period. Although he occasionally received additional hourly compensation for hours worked over 80 per bi-weekly period, he claimed that he was not compensated for all of the overtime hours he worked. When he worked less than 80 hours during a bi-weekly period, hours were deducted from his “accrued leave” time to make sure that his total hours for the bi-weekly period equaled 80. If he exceeded his leave time, he would be docked pay for absences, including absences of less than one day

David quit his job, and later sued the nursing home in a federal district court claiming that it had violated the federal Fair Labor Standards Act (FLSA), and a corresponding state law, by failing to pay him overtime wages. The district court ruled that David’s claims were barred by a “ministerial exception” to the FLSA, and it dismissed the case. The court also ruled that even if David was not covered by the ministerial exception, he was exempt from the overtime pay requirements since he was a professional employee. David appealed. He claimed that the “ministerial exception” only applied to civil rights and employment laws, and not to the FLSA. He also asserted that he was not an exempt professional employee because he was paid an hourly wage rather than a salary.

The “Ministerial Exception”

Several state and federal laws prohibit various forms of discrimination in employment. For example, Title VII of the federal Civil Rights Act of 1964 prohibits discrimination in employment on the basis of race, color, national origin, sex, or religion. Employers engaged in interstate commerce and having at least 15 employees are subject to this law, including churches.

However, for many years the courts have recognized a limited exception in the case of ministers. With this exception (known as the “ministerial exception”), the civil courts are barred by the First Amendment guaranty of religious freedom from resolving discrimination claims brought by ministers against a church.

In 2012, the US Supreme Court unanimously affirmed the ministerial exception. A subsequent 7-2 decision by the Supreme Court in 2020 further defined the exception.

As one court has noted in a case involving a dismissed minister’s claim of unlawful discrimination:

This case involves the fundamental question of who will preach from the pulpit of a church, and who will occupy the church parsonage. The bare statement of the question should make obvious the lack of jurisdiction of a civil court. The answer to that question must come from the church.

The ministerial exception has been applied by the courts to several other discrimination laws, including those banning discrimination in employment on the basis of age and disability. But what about the Fair Labor Standards Act? Does the ministerial exception prevent the civil courts from resolving cases involving the entitlement of ministers to overtime pay? One court concluded that it did. Dole v. Shenandoah Baptist Church, 899 F.2d 1389 (4th Cir. 1990). In the Dole case the court noted that the ministerial exception “is derived from the congressional debate [about the FLSA] and delineated in guidelines issued by the Labor Department’s Wage and House Administrator.” The relevant portion of those guidelines provides:

Persons such as nuns, monks, priests, lay brothers, ministers, deacons, and other members of religious orders who serve pursuant to their religious obligations in schools, hospitals, and other institutions operated by their church or religious order shall not be considered to be “employees.” Field Operations Handbook, Wage and Hour Division, U.S. Department of Labor § 10b03 (1967).

The court noted that in the Title VII context it applied a “primary duties” test to determine whether an individual falls within the ministerial exception. This test focuses on the function of the position and whether the position is important to the spiritual and pastoral mission of the church, and not whether the individual holding that position is formally ordained. As a general rule, “if the employee’s primary duties consist of teaching, spreading the faith, church governance, supervision of a religious order, or supervision or participation in religious ritual and worship, he or she should be considered clergy.” The court concluded:

Although the Title VII ministerial exception is based on constitutional principles and not on “congressional debate” and Labor Department guidelines as is the FLSA exception, we implicitly have held that the ministerial exceptions under the two Acts are coextensive in scope. For example, we have relied on Title VII ministerial exception cases in Dole, and we have cited both Dole and Title VII cases together in support of the proposition that “the ministerial exception operates to exempt from the coverage of various employment laws the employment relationships between religious institutions and their ministers.” Accordingly, our precedent suggests that when determining who is a [minister] for purposes of the ministerial exception to the FLSA, we apply the same primary duties test that we apply for purposes of the Title VII ministerial exception. This common sense approach creates continuity between the FLSA and Title VII, two employment laws of general applicability, and it allows us to avoid answering a difficult constitutional question—i.e., whether the First Amendment would otherwise compel an exception to the FLSA coextensive with that recognized as constitutionally mandated in the Title VII context.

The court noted that using a “primary duties” test to determine the scope of the FLSA’s ministerial exception is “in accord with other statutory exceptions to the FLSA.” It pointed out that the FLSA’s minimum wage and overtime requirements do not apply to “any employee employed in a bona fide executive, administrative, or professional capacity.” The regulations “look to the primary duties of a salaried position to determine whether an employee is a bona fide executive, administrator or professional. Courts are thus familiar and comfortable with examining the primary duties of an employee when determining the scope of exceptions under the FLSA. In sum, by determining whether a position is ministerial by referencing the primary duties of the position, the FLSA’s ministerial exception is coextensive with that recognized under Title VII and parallels the inquiry made for other exceptions to the FLSA.”

The court concluded that “the ministerial exception to the FLSA applies only where the employer is a religious institution and the employee’s primary duties are ministerial in nature. The exception does not apply to the religious employees of secular employers or to the secular employees of religious employers.”

The court then addressed David’s contention that his primary duties were not ministerial, and that the nursing home was not a religious institution. In rejecting David’s claim that his duties were not ministerial, the court noted that “in the Jewish faith, non-compliance with dietary laws is a sin. Jews view their dietary laws as divine commandments, and compliance therewith is as important to the spiritual well-being of its adherents as music and song are to the mission of the Catholic church. In short, failure to apply the ministerial exception in this case would denigrate the importance of keeping kosher to Orthodox Judaism.”

The court then addressed David’s contention that the ministerial exception should not apply to him because he was not employed by a religious institution. The court noted that the ministerial exception has been applied to religiously affiliated schools, hospitals, and corporations, and it concluded that “a religiously affiliated entity is a religious institution for purposes of the ministerial exception whenever that entity’s mission is marked by clear or obvious religious characteristics.” Applying that standard here, the court concluded that the nursing home was a religious institution. The court acknowledged that the home existed primarily to provide elder care and not religious services, but it concluded that “an entity can provide secular services and still have substantial religious character. The home is religiously affiliated, and its bylaws define it as a religious and charitable non-profit corporation and declare that its mission is to provide elder care to aged of the Jewish faith in accordance with the precepts of Jewish law and customs.” Pursuant to that mission, the home maintained a rabbi on its staff, employed a kosher inspector to ensure compliance with the Jewish dietary laws, and placed a mezuzah on every resident’s doorpost.”

The court noted that the FLSA exempted professional, administrative, and executive employees from its protections, and that these exceptions are limited to salaried employees. However, because it concluded that David’s claims were barred by the ministerial exception, it did not address his status as an exempt professional employee.

6. Department of Labor Opinion Letters

The United States Department of Labor has issued three “opinion letters” that directly address the application of the FLSA to church employees. These opinion letters are summarized below:

(1) Opinion Letter FLSA2005-12NA (September 23, 2005)

A church employed a person in a full-time salaried position who also works a second job for the church as an hourly employee. It was the church’s position that no employee of the church was engaged in interstate or commercial activities, and that the church did not receive financial support through any commercial ventures.

The Opinion Letter concluded that the church was not subject to “enterprise” coverage under the FLSA:

Enterprise coverage does not apply to a private, non-profit enterprise where the eleemosynary, religious or educational activities of the non-profit enterprise are not in substantial competition with other businesses, unless it is operated in conjunction with a hospital, a residential care facility, a school or a commercial enterprise operated for a business purpose …. It appears that the local church you represent satisfies none of these tests and, thus, is not covered on an enterprise basis. Further … enterprise coverage is not applicable to employees engaged exclusively in the operation of a church or synagogue since their activities are not performed for a business purpose within the meaning of FLSA.

The Opinion Letter noted that employees of enterprises not covered under the FLSA may still be individually covered by the FLSA “in any workweek in which they are engaged in interstate commerce, the production of goods for commerce or activities closely related and directly essential to the production of goods for commerce. Examples of such interstate commerce activities include making/receiving interstate telephone calls, shipping materials to another state and transporting persons or property to another state.”

The Opinion Letter further clarified:

As a practical matter, the Wage and Hour Division will not assert that an employee who on isolated occasions spends an insubstantial amount of time performing individually covered work is individually covered by the FLSA. As stated in Field Operations Handbook 11a01, individual coverage will not be asserted for employees who occasionally devote insubstantial amounts of time to:

Receiving/making interstate phone calls;
Receiving/sending interstate mail or electronic communications;
Making bookkeeping entries related to interstate commerce.

The church asked the Department of Labor how to calculate overtime for an employee simultaneously holding a salaried position and an hourly position. The duties of the employee’s salaried position were food preparation, while the duties of the hourly position were janitorial. The work of both positions was conducted in the church building. The Opinion Letter concludes:

Employees of a church are individually covered under FLSA where they regularly and recurrently use the telephone, telegraph, or the mails for interstate communication or receive, prepare, or send written material across state lines …. Generally, custodians would not be covered under FLSA on an individual basis unless they regularly clean offices of the church where goods are regularly produced for shipment across state lines. A cook in a church would not be covered on an individual basis unless the employee is ordering, receiving or preparing goods that are moving or will move in interstate commerce. Therefore, because the employee in question does not engage in these interstate activities, the employee would not be individually subject to the FLSA. In light of all of the above information, it is our opinion that the church and the culinary and janitorial employees within it are not covered by the FLSA.

• Key point. This Opinion Letter specifically referenced the following two Opinion Letters dated November 4, 1983. and July 23, 1975. This demonstrates that the Department of Labor still considers these earlier Opinion Letters to be correct interpretations of the FLSA.

(2) Opinion Letter, November 4, 1983

A synagogue asked the Department of Labor for an opinion regarding the application of the FLSA to custodians and a cook. The custodians’ duties included set-up work for meetings, keeping the premises cleaned and repaired, and cutting the grass and serving food for various functions. The synagogue also employed a cook who prepared food following certain religious services and activities. The other employees of the synagogue were a rabbi, secretary, and part-time religious school teachers.

The Department of Labor concluded that it was not presented with enough information to enable it to make a ruling on the application of the FLSA to the synagogue staff. However, it did provide the following information to assist the synagogue in reaching an informed decision:

FLSA applies to employees individually engaged in interstate commerce or in the production of goods for interstate commerce and to all employees in certain enterprises which are so engaged. Employees of a church or synagogue are individually covered under FLSA where they regularly and recurrently use the telephone, telegraph, or the mails for interstate communication or receive, prepare, or send written material across state lines. Individual coverage will not be asserted, however, for office and clerical employees of a church or synagogue who only occasionally or sporadically devote negligible amounts of time to writing interstate letters or otherwise handle interstate mail or make bookkeeping entries related to interstate transactions. Generally, custodians would not be covered under FLSA on an individual basis unless the employees regularly clean offices of the church or synagogue where goods are regularly produced for shipment across state lines. A cook in a church or synagogue would not be covered on an individual basis unless the employee is ordering, receiving or preparing goods that are moving or will move in interstate commerce.

Whether or not enterprise coverage applies to the operations of a nonprofit religious organization, such as a church or synagogue, depends on several factors. Generally, enterprise coverage is not applicable to employees engaged exclusively in the operation of a church or synagogue since their activities are not performed for a “business purpose” within the meaning of FLSA. However, where the nonprofit religious organization employs employees in connection with the operation of the type of institutions described in sections 3(r) and 3(s) of the FLSA [pertaining to hospitals, elementary and secondary schools, preschools, residential care institutions, and institutions of higher education, all of which are presumed to be “enterprises” whose employees are all covered by FLSA regardless of annual gross income] they will be covered on an enterprise basis, since such activities have, by statute, been declared to be performed for a business purpose.

Additionally, activities of a religious organization may be performed for a “business purpose” where, for example, they engaged in ordinary commercial activities, such as operating a printing and publishing plant. In such cases, employees employed in these business activities may be individually covered under FLSA if they are engaged in commerce or the production of goods for commerce, or on an enterprise basis … if the business has employees engaged in commerce or in the production of goods for commerce or employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person, and the enterprise has an annual dollar volume of sales made or business done of not less than [$500,000] exclusive of excise taxes at the retail level which are separately stated. Contributions, pledges, donations, and other funds raised through activities such as raffles and games that are in furtherance of the educational, eleemosynary and religious activities of a nonprofit organization are not included in computing the annual dollar volume of business done of the enterprise.

Individuals who volunteer their services, usually on a part-time basis, to a church or synagogue not as employees or in contemplation of pay are not considered to be employees within the meaning of FLSA. For example, persons who volunteer their services as lectors, cantors, ushers or choir members would not be considered employees. Likewise, persons who volunteer to answer telephones, serve as doorkeepers, or perform general clerical or administrative functions would not be employees. However, in situations where the understanding is that the person will work for wages there will be an employment relationship. On the other hand, a bookkeeper could not be treated as an unpaid volunteer bookkeeper for the employing institution in the same workweek in which he or she is also an employee.

Persons such as priests, ministers, monks, nuns, lay brothers, deacons and other members of religious orders or communities who serve pursuant to their religious obligations in the schools, hospitals, and other institutions operated by their church or religious order or community shall not be considered to be “employees.”

This Department of Labor Opinion Letter contains a number of important clarifications. Consider the following:

Individual coverage. Church employees are individually covered under FLSA, even if their employing church is not an “enterprise,” if they “regularly and recurrently use the telephone, telegraph, or the mails for interstate communication or receive, prepare, or send written material across state lines.”
Occasional or sporadic tasks. Individual coverage will not be asserted “for office and clerical employees of a church who only occasionally or sporadically devote negligible amounts of time to writing interstate letters or otherwise handle interstate mail or make bookkeeping entries related to interstate transactions.”
Custodians. Church custodians are not covered under FLSA on an individual basis unless they “regularly clean offices of the church where goods are regularly produced for shipment across state lines.”
Cooks. A cook employed by a church is not covered on an individual basis unless he or she is “ordering, receiving or preparing goods that are moving or will move in interstate commerce.”
Enterprise coverage. The FLSA defines an enterprise as “the related activities performed … by any person or persons for a common business purpose.” The United States Supreme Court has noted that this definition excludes most religious and charitable organizations to the extent that they are not operating for profit and are not pursuing a “business purpose.” However, some religious organizations will satisfy the definition of an enterprise if they have annual sales revenue of $500,000 or more. The Opinion Letter cites a printing plant as one example. However, contributions, pledges, donations, and other funds raised through activities such as raffles and games that are in furtherance of a church’s exempt purposes are not included in computing the annual dollar volume of business done by the enterprise.
Church-operated hospitals and schools. The FLSA specifies that hospitals, elementary and secondary schools, preschools, residential care institutions, and institutions of higher education are presumed to be “enterprises” whose employees are all covered by FLSA regardless of annual gross income, since such employment is specifically designated by the FLSA as being for a business purpose. However, persons such as priests, ministers, monks, nuns, lay brothers, deacons and other members of religious orders or communities who serve pursuant to their religious obligations in the schools, hospitals, and other institutions operated by their church or religious order or community shall not be considered to be “employees.”
Volunteers. Individuals who volunteer their services, usually on a part-time basis, to a church “not as employees or in contemplation of pay are not considered to be employees within the meaning of FLSA.” For example, persons who volunteer their services as lectors, cantors, ushers or choir members would not be considered employees. Likewise, persons who volunteer to answer telephones, serve as doorkeepers, or perform general clerical or administrative functions would not be employees. However, in situations where the understanding is that the person will work for wages there will be an employment relationship.
Can employees be treated as volunteers? The Opinion Letter concludes that “a bookkeeper could not be treated as an unpaid volunteer bookkeeper for the employing institution in the same workweek in which he or she is also an employee.”

(3) Opinion Letter, July 23, 1975

This Opinion Letter addressed the question of “the application of the provisions of the Fair Labor Standards Act to a secretary employed by a local church.” The Opinion Letter concludes:

This Act applies to employees individually engaged in or producing goods for interstate commerce and to employees of certain enterprises so engaged.

Church employees would be individually covered under the Act where they regularly and recurrently use the telephone, telegraph or mails for interstate communications or receive, prepare or send material across state lines. We would not, however, assert individual coverage for office or clerical employees of a church, such as the secretary, who only occasionally or sporadically devote negligible amounts of time to such interstate transactions. Additionally, coverage would not be applicable to church employees, such as a janitor, engaged exclusively in the operation of the church since their activities are not performed for a business purpose.

Exemptions

The FLSA exempts executive, administrative, and professional employees from the minimum wage and overtime pay requirements so long as they perform specified functions and are paid on a salary basis of at least $455 per week ($23,660 per year). These exemptions are addressed fully in the March-April 2005 edition of this newsletter.

Ministers

How does the FLSA treat ministers? First, professional employees are exempt from FLSA, and this would include ministers so long as they meet the minimum salary test ($455/week).

Second, what about ministers who earn less than $455/week, or who are not paid on a salary basis? They technically do not meet the definition of an exempt professional employee, but can churches be compelled to pay these ministers overtime pay consistently with the First Amendment guaranty of religious freedom? This is an unresolved question. Note the following considerations:

(1) The official “economic report” accompanying the final DOL overtime regulations contain the following statements:

“Most employees earning less than $455 per week ($23,660 annually) who are exempt under the existing regulations will be entitled to overtime pay under the final regulations (there are some workers, such as teachers, doctors, lawyers, and clergy, who are statutorily exempt or whose exempt status is not affected by the increased salary requirement in the final rule).”
“Clergy and religious workers are not covered by the FLSA.”
“The Department excluded [in making its coverage predictions] the 14.9 million workers not covered by the FLSA, such as the self-employed and unpaid volunteers, and the clergy and religious workers.”
“Of the 499 occupation codes in the CPS [current population survey] … two are assigned to clergy and religious workers (codes 176 and 177) who are not covered by the FLSA ….”

In addition, Table 3-1 in the final regulations lists “clergy and religious workers” as one of six categories of “Occupations Exempt from FLSA’s Overtime Provisions.” This same conclusion is repeated in Table B-1.

This language suggests that the official position of the Department of Labor is that clergy are not subject to the minimum wage and overtime pay requirements of the FLSA no matter how little they earn.

(2) As noted previously in this article, two federal courts have specifically ruled that the FLSA does not apply to ministers due to the so-called “ministerial exception.” Alcazar v. Corporation of Catholic Archbishop of Seattle, 2006 WL 3791370 (W.D. Wash. 2006); Boekemeier v. Fourth Universalist Society, 86 F.Supp.2d 280 (S.D.N.Y. 2000). It should be noted that these cases are binding precedent only in the states of Maryland, North Carolina, South Carolina, Virginia, Washington, and West Virginia. They are persuasive, but not binding, precedent in other states. Therefore, in other states this issue has not definitely been resolved by the courts. However, the final Department of Labor regulations (quoted above) provide some basis for concluding that the FLSA minimum wage and overtime pay requirements do not apply to ministers. Church leaders wanting a definitive answer in a particular case should consult with an attorney.

Examples

Here are some examples that illustrate the main points in this article.

Individual Coverage of Church Employees

• Example 1. A church has annual revenue of $300,000 and employs four persons (a pastor, a youth pastor, a church secretary, and a custodian). It engages in no “businesses” that compete with for-profit companies, and does not operate a preschool or school. The church secretary asks the pastor if she is entitled to overtime pay for hours that she occasionally works in excess of 40 per week. The secretary is not entitled to the overtime provisions of the Fair Labor Standards Act on the basis of enterprise coverage for two reasons. First, the church is not engaged in commerce or in the production of goods for commerce; and second, the church does not have business income of $500,000 or more.

• Example 2. Same facts as the previous example except that the secretary purchases office supplies from a local office supply store two or three times each year. Do these purchases satisfy the individual coverage provisions of the Act, entitling the secretary to overtime pay for hours worked in excess of 40 each week? Probably not. The Department of Labor’s Opinion Letter dated November 4, 1984, states that church employees are individually covered under FLSA, even if their employing church is not an “enterprise,” if they “regularly and recurrently use the telephone, telegraph, or the mails for interstate communication or receive, prepare, or send written material across state lines.” However, individual coverage will not be asserted “for office and clerical employees of a church who only occasionally or sporadically devote negligible amounts of time to writing interstate letters or otherwise handle interstate mail or make bookkeeping entries related to interstate transactions.”

• Example 3. Same facts as Example 1, except that the secretary purchased office supplies once or twice each year over the Internet from the same out-of-state office supply store. These purchases were always less than $100 per order. Do these purchases satisfy the individual coverage provisions of the FLSA, entitling the secretary to overtime pay for hours worked in excess of 40 each week? Probably not. See the analysis in Example 2.

• Example 4. Same facts as Example 1, except that for the past 3 years the church secretary has purchased office supplies about 10 times each year over the Internet from various out-of-state office supply stores. These purchases included computers, computer software, office equipment, and office supplies, and averaged $4,000 per year. Do these purchases satisfy the individual coverage provisions of the FLSA, entitling the secretary to overtime pay for hours worked in excess of 40 each week? Probably. The court in the Boekemeier case (Case #3, above), concluded that a church employee satisfied the individual coverage provision and was entitled to overtime pay since he made “recurrent and frequent purchases” of goods from 5 out-of-state vendors, amounting to between 14 and 30 purchases over a 5-year period (between 3 and 6 such purchases each year), for such items as custodial supplies and “important items to the church” such as a computer, electronic equipment, and a refrigerator. The secretary in this example made 10 purchases from various out-of-state vendors each year, not only for office supplies but also for “important items to the church” such as computers and computer software.

• Example 5. Same facts as Example 4, except that the church secretary makes all of these purchases from an office supply store a mile from the church (in the same state). Do these purchases satisfy the individual coverage provisions of the FLSA, entitling the secretary to overtime pay for hours worked in excess of 40 each week? No, they do not. In order for the secretary to qualify for individual coverage under the Act, she must be “engaged in commerce” or “engaged in the production of goods for commerce.” The word “commerce” is defined by the FLSA as “trade, commerce, transportation, transmission, or communication among the several states or between any state and any place outside thereof.” In other words, the “commerce” must be either interstate or foreign. Exclusively local commercial transactions, such as the secretary’s purchases of office supplies from a local office supply store, do not meet this definition.

• Example 6. Same facts as Example 4, except that the office supply store is ten miles away in another state. The analysis would be the same as in Example 4.

• Example 7. Same facts as Example 1, except that the church secretary purchases Sunday School literature from an out-of-state publisher twice each year. Each shipment costs an average of $5,000. Do these purchases satisfy the individual coverage provisions of the FLSA, entitling the secretary to overtime pay for hours worked in excess of 40 each week? Probably. The court in the Boekemeier case (Case #3, above), noted that “sporadic and occasional shipments of insubstantial amounts of goods” are not enough to invoke the overtime pay and minimum wage provisions of the Act. While the purchases of Sunday School literature were certainly “occasional,” these purchases did not consist of “insubstantial amounts of goods.” Literature for the church’s education program would be substantial both in terms of amount of goods purchased from the out-of-state vendor and the importance of those goods to the church.

• Example 8. Same facts as Example 1, except that the secretary places or receives between 5 and 10 long-distance calls each month involving persons in other states. Do these calls satisfy the individual coverage provisions of the FLSA, entitling the secretary to overtime pay for hours worked in excess of 40 each week? Probably so, according to the wording of the Fair Labor Standards Act and a Department of Labor publication. The Act defines “commerce” to include “transmission or communication among the several states or between any state and any place outside thereof.” Further, a Department of Labor publication states that interstate commerce means “any work involving or related to the movement of persons or things (including intangibles, such as information) across state lines or from foreign countries.” This publication gives the following example of an employee who is engaged in interstate commerce: “An employee such as an office or clerical worker who uses a telephone, facsimile machine, the U.S. mail, or a computer e-mail system to communicate with persons in another state.” As a result, it is virtually certain that the Department of Labor would consider the secretary to be engaged in commerce, and therefore subject to the overtime pay and minimum wage provisions of the Act.

• Example 9. Same facts as Example 1, except that the secretary sends and receives several e-mail messages each week from a computer in her church office. Many of these e-mails are sent to, and received from, persons in other states. The analysis in example 8 would apply to this example.

• Example 10. Same facts as Example 1, except that the secretary occasionally travels to another state while performing her job. Do these trips satisfy the individual coverage provisions of the Act, entitling the secretary to overtime pay for hours worked in excess of 40 each week? Probably so, according to the wording of the Fair Labor Standards Act and publications issued by the United States Department of Labor. The word “commerce” is defined by the Act to include “transportation among the several states or between any state and any place outside thereof.” A Department of Labor publication states that interstate commerce means “any work involving or related to the movement of persons or things (including intangibles, such as information) across state lines or from foreign countries.” This publication gives the following example of an employee who is engaged in interstate commerce: “An employee who drives or flies to another state while performing his or her job duties.” As a result, it is virtually certain that the Department of Labor would consider the secretary to be engaged in commerce, and therefore subject to the overtime pay and minimum wage provisions of the Act.

• Example 11. Same facts as Example 10. What, if any, effect does the secretary’s involvement in interstate commerce have upon the church custodian’s entitlement to overtime pay and the minimum wage? The church does not meet the enterprise test since it is not engaged in commerce or in the production of goods for commerce, and does not have business income of $500,000 or more. Therefore, the only way for church employees to be covered by the Act’s overtime pay and minimum wage provisions is by meeting the individual coverage requirements. Since individual coverage is on an individual basis, the fact that the secretary meets the individual coverage test has no effect on the church custodian. She will be entitled to overtime pay and the minimum wage only if she independently meets the individual coverage requirements summarized in this article.

Enterprise Coverage

• Example 12. A church receives rental income of $550,000 each year from the rental of its facilities and several homes that it owns. In addition, it has at least two employees who are engaged in interstate commerce because of their frequent interstate purchases, telephone calls, and e-mail messages. The church meets the enterprise test since it “has employees engaged in commerce or in the production of goods for commerce” and has annual business income of at least $500,000. As a result, all of the church’s nonexempt employees are covered by the Act’s overtime pay and minimum wage provisions.

• Example 13. A church does not operate any businesses, and has annual revenue of $300,000. It also operates a preschool that generates an additional $20,000 of income. Are employees of the preschool and church covered by the Act’s overtime pay and minimum wage requirements? The Act defines an enterprise to include any organization that “is engaged in the operation of a … preschool, elementary or secondary school, or an institution of higher education (regardless of whether or not such … institution or school is public or private or operated for profit or not for profit).” Does this mean that both preschool and church employees are covered by the Act’s protections? Probably. Note that the Act’s definition of an enterprise includes an organization that “is engaged in the operation of” a school or preschool. This language would include a church that operates a school or preschool, and so it should be assumed that all of the nonexempt employees of a church that operates a school or preschool are covered by the Act’s overtime pay and minimum wage requirements. A number of federal courts have reached these conclusions. See section 8-17 in Richard Hammar’s book Pastor, Church & Law (3rd ed. 2000).

Ministers

• Example 14. A youth pastor is employed full-time by a church, is paid an annual salary of $20,000, and in addition is permitted to live in the church parsonage without having to pay rent. The annual rental value of the parsonage is $12,000. Is the annual rental value of the parsonage considered in deciding if the youth pastor is paid on a salary basis of at least $455 per week ($23,660 per year) and therefore is exempt from the FLSA’s overtime pay provisions as a result of his status as a professional employee? Department of Labor regulations specify that the value of “board” and “housing furnished for dwelling purposes” are not included in computing an employee’s salary.

• Example 15. Same facts as the previous example. Since the youth pastor is paid an annual salary of less than $23,660, is he entitled to overtime pay? Department of Labor regulations specify that “there are some workers, such as … clergy, who are statutorily exempt or whose exempt status is not affected by the increased salary requirement in the final rule,” and that “clergy and religious workers are not covered by the FLSA.” This language indicates that the official position of the Department of Labor is that clergy are not subject to the minimum wage and overtime pay requirements of the FLSA regardless of the amount of their compensation. Further, two federal courts have ruled that the so-called “ministerial exception” prohibits the Department of Labor from applying the FLSA to ministers. These cases are binding only in Maryland, North Carolina, South Carolina, Virginia, Washington, and West Virginia. They are persuasive, but not binding, in other states. However, even in these states the Department of Labor regulations provide a basis for concluding that the FLSA minimum wage and overtime pay requirements do not apply to ministers.

• Example 16. A youth pastor is employed full-time by a church, is paid an annual salary of $20,000, and in addition is paid an annual housing allowance of $12,000 that he uses to rent a home for his family. Is a housing allowance considered in deciding if the youth pastor is paid on a salary basis of at least $455 per week ($23,660 per year)? Department of Labor regulations do not address this issue directly, but they do state that the value of “board” and “housing furnished for dwelling purposes” are not included. These terms may be interpreted broadly to include compensation that is provided to a minister to provide housing in lieu of a parsonage, meaning that the youth pastor in this example would not meet the $23,660 threshold for exempt status. This conclusion seems to be consistent with the purpose of the law to make the minimum wage and overtime pay protections of the Fair Labor Standards Act available to as many employees as possible. However, even if the salary requirement for exempt professional status is met, it is unlikely that the youth pastor would be entitled to overtime pay, for the same reasons mentioned in Example 15.

• Example 17. A church pays it pastor on an hourly basis of $15 per hour. Is the pastor entitled to overtime pay? In general, persons paid on an hourly basis cannot be exempt employees under the FLSA, and must receive overtime pay for hours worked in excess of 40 in any week. However, as noted in Example 15, Department of Labor regulations state that ministers “are not covered by the FLSA.” Further, two federal courts have ruled that the so-called “ministerial exception” prohibits the Department of Labor from applying the FLSA to ministers.

• Example 18. A church pays its senior pastor an annual salary of $45,000. The pastor frequently works 60 hours or more per week, and asks the church treasurer if he is entitled to overtime pay. The answer is no. Even if the FLSA applies to ministers (which according to the Department of Labor it does not), the pastor would satisfy the “professional employee” exemption under the FLSA since he performs professional duties and is compensated at a rate in excess of $23,660 per year.

Occasional Workers (Including Nursery Attendants)

• Example 19. Lisa works for two hours on one Sunday each month in her church’s nursery. She works as a volunteer, and receives no compensation. The FLSA has no application to her. The Department of Labor Opinion Letter of November 4, 1983 (quoted above) states: “Individuals who volunteer their services, usually on a part-time basis, to a church or synagogue not as employees or in contemplation of pay are not considered to be employees within the meaning of FLSA. For example, persons who volunteer their services as lectors, cantors, ushers or choir members would not be considered employees. Likewise, persons who volunteer to answer telephones, serve as doorkeepers, or perform general clerical or administrative functions would not be employees.”

• Example 20. Same facts as the previous example, except that the church pays Lisa $3 per hour for her services. Should the church pay Lisa the federal minimum wage? Assume that the state minimum wage is less than the federal minimum wage. Note the following factors that are relevant in answering this question. (1) The FLSA defines the term employee as “any individual employed by an employer,” and adds that an employee includes a person who is “suffered or permitted” to work. This is a very broad definition, and is much broader than the definition used by the IRS for tax purposes. (2) The Department of Labor Opinion Letter of November 4, 1983 (quoted above) states: “In situations where the understanding is that the person will work for wages there will be an employment relationship.” (3) If a church meets the definition of an enterprise, then compensated nursery workers (as well as other compensated staff positions) would be regarded by the Department of Labor as employees covered by the FLSA’s protections. Note that the FLSA defines an enterprise to include any organization that is engaged “in the operation of a … preschool, elementary or secondary school, or an institution of higher education.” So, churches that operate any of these entities will be regarded as enterprises by the Department of Labor. (4) If the church is not an enterprise, then nursery workers and other compensated workers will be covered by the FLSA’s minimum wage and overtime pay provisions only if they meet the “individual coverage” requirement. In this regard, note that the Department of Labor Opinion Letter of November 4, 1983 (quoted above) states: “Individual coverage will not be asserted, however, for office and clerical employees of a church or synagogue who only occasionally or sporadically devote negligible amounts of time to writing interstate letters or otherwise handle interstate mail or make bookkeeping entries related to interstate transactions.” If there is any doubt concerning a compensated worker’s entitlement to the minimum wage and overtime pay, church leaders should seek legal advice.

Actual Time Worked in Commerce

• Example 21. A church has annual revenue of $300,000, and employs four persons (a pastor, a youth pastor, a church secretary, and a custodian). It engages in no “businesses” that compete with for-profit companies. The church secretary asks the pastor if she is entitled to overtime pay for hours that she occasionally works in excess of 40 per week. The secretary’s “interstate” activities during year 2000 include (1) 7 purchases of church supplies over the Internet (each purchase was in a different week), and (2) 10 out-of-state telephone calls (each call was made during a different week, and no call was made during the same week as an Internet purchase). These purchases and telephone calls probably are enough to satisfy the individual coverage provisions of the Act, entitling the secretary to overtime pay for hours worked in excess of 40 each week. However, the church’s records demonstrate that the secretary was engaged in interstate commerce only during 17 weeks of the year (the weeks in which Internet purchases and out-of-state telephone calls were made). Note that an employer’s obligation to pay minimum wage or overtime compensation is determined on a weekly basis. As a result, the church could argue that the secretary was engaged in commerce only during these 17 weeks and was entitled to overtime pay only during these weeks and not for hours worked in excess of 40 during the remaining 35 weeks of the year when she was not engaged in commerce.

• Example 22. Same facts as Example 21. The church keeps no records “clearly showing” the duties the secretary performed in interstate commerce and the wages she was paid during those weeks. The secretary is entitled to overtime pay for the entire year.

• Example 23. A church operates a preschool five days each week. Can the church avoid the application of the Fair Labor Standards Act’s overtime pay and minimum wage provisions by keeping records showing that its preschool employees are rarely if ever engaged in interstate commerce? Probably not. As noted above, the Act defines the term enterprise engaged in commerce or in the production of goods for commerce to include an enterprise that (1) “has employees engaged in commerce or in the production of goods for commerce” with annual business income of $500,000 or more, or (2) is engaged in the operation of a school. There is no requirement that preschool employees actually be engaged in commerce. They are covered by the Act because of the “enterprise” status of their employer.

Church Board Minutes

• Example 24. A church custodian frequently works more than 40 hours per week, and is paid overtime compensation. The church board decides to place the custodian on a salary basis of $24,000 in order to avoid having to pay him overtime compensation. The board minutes state: “Custodian placed on salary of $24,000, to avoid overtime obligations.” Church board members can be personally liable for violating the FLSA. This liability may be either criminal (in the case of willful violations) or civil. The Act specifies that “any person” who willfully violates the overtime pay or minimum wage provisions is subject to criminal prosecution. In addition, the Act specifies that any employer that violates the minimum wage or overtime pay provisions of the Act “shall be liable to the employee or employees affected in the amount of their unpaid minimum wages, or their unpaid overtime compensation, as the case may be, and in an additional equal amount as liquidated damages.” In a recent federal court case, a church employee asserted that the church’s board members were personally liable for their failure to pay him overtime compensation. He pointed to an excerpt in the minutes of the church board entitled “Concerns of the Board” which expressed concern over “overtime and compensatory time as it applies to hourly staff and to management.” The court relied in part on this excerpt in concluding that the church and board may have “willfully” violated the overtime pay protections of the FLSA. Boekemeier v. Fourth Universalist Society, 86 F.Supp.2d 280 (S.D.N.Y. 2000).

10. State law. This article only addresses the federal Fair Labor Standards Act. Most states have their own minimum wage and overtime pay laws that should be consulted. Many states have minimum wages that exceed the federal minimum wage. When federal and state laws have different minimum wage rates, the higher standard applies.

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