Recent Developments

Issues that affect ministers and churches
Former Pastor Sues Church for Breach of Compensation Agreement
Have all important documents reviewed by legal counsel.

Key Point 2-03. Clergy compensation consists of a number of items that often are not well understood. Clergy compensation that is unreasonable in amount may jeopardize a church's tax-exempt status or trigger "intermediate sanctions" in the form of excise taxes that can be assessed against a recipient of unreasonable compensation.

Key Point 8-22. In most states, employees who are hired for an indefinite period are considered "at will" employees. This means that the employment relationship may be terminated at will by either the employer or employee, with or without cause, and with or without notice. The courts and state legislatures have created a number of exceptions to the at will employment rule. These exceptions limit the right of an employer to terminate an at will employee. Employees who are hired for a specific term are not at will employees, and they may be terminated only if the employer has "good cause."

An Indiana court ruled that a "compensation agreement" between a church and its new senior pastor was in effect a contract of employment that was violated by the church board. In 1994, a church hired a new pastor (the "plaintiff") to succeed a former pastor who died after 54 years of service. The plaintiff served as the pastor from 1994 through the end of 1996 without a written contract of compensation. At the end of 1996, the church board adopted an agreement governing "the full and complete terms and agreement for the employment compensation of [the plaintiff]." In 2001, the church board terminated the plaintiff's employment after a no confidence vote by the church's membership. The plaintiff sued the church, claiming that the termination of his employment constituted a breach of the compensation agreement. A jury ruled in favor of the plaintiff and awarded him $205,000 in damages.

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