Key point. State laws exempt churches and some other religious organizations from coverage under unemployment laws, but such an exemption may not apply to church-created schools and other institutions that are separately incorporated.
A Pennsylvania court ruled that a church-related school was not an exempt employer under the state's unemployment law and therefore was required to pay benefits to an unemployed principal. A church school terminated an assistant principal (the "plaintiff"), and the plaintiff thereafter applied for unemployment benefits. A state agency acknowledged that the church had founded the school, but ruled that an exemption in the unemployment law for "a church or convention or association of churches or an organization that is operated primarily for religious purposes and that is operated, supervised, controlled or primarily supported by a church, or convention or association of churches" did not apply to the school since it was separately incorporated and therefore was "a separate entity operating independently from [the church]" that was operated primarily for educational purposes. The agency also noted that the school received no funding from the church, and had purchased it own facility.
A state appeals court agreed with the agency's conclusion that the school was not a religious employer exempt from the state's unemployment law. It based this conclusion on the school's alleged failure to introduce evidence that it was a religious institution rather than a purely educational institution. The court concluded that the agency "did not err in determining that the plaintiff's employment is not exempt from coverage … because the school does not operate primarily for religious purposes based on the agency's findings."