Reducing Fringe Benefits

An important question for church treasurers.

Alston v. City of Camden, 471 S.E.2d 174 (S.C. 1996)

Background. Many churches have policies or handbooks that describe employee “fringe benefits.” Common examples include vacation leave, sick leave, medical and life insurance, and retirement plans.What happens when a church decides that it cannot maintain fringe benefits at current levels? Does it have a legal right to reduce these benefits? This is a complex and controversial question that was addressed in a recent ruling.

Facts. A city issued a new employee handbook that replaced its old one. All employees were notified of the change and were informed of reductions in certain fringe benefits. These included (1) a reduction in the maximum accrual of annual leave from 60 days to 45 days; (2) discontinuance of a policy that had permitted employees to “redeem” accrued sick leave for cash; and (3) a reduction in the amount contributed by the city for employees’ health insurance. When employees learned of these reductions in fringe benefits under the new employment handbook, they sued the city claiming that their contractual rights under the old handbook had been violated.

A court rejects the employees’ claim. The South Carolina Supreme Court rejected the employees’ claim. It observed:

The contracts (if any) created by the original employee handbook did not give rise to any legitimate expectation that the fringe benefits provided for therein would continue for any specific amount of time. Recent rulings by this court make clear that contractual rights created by employee handbooks are subject to unilateral modification at any time, provided the employees received actual notice of the modifications. This rule rests on the recognition that the employer-employee relationship is not static. Employers must have a mechanism which allows them to alter the employee handbook to meet the changing needs of both [the employer] and employees. This is especially true where, as here, employees concede their “at will” status.

The court added that any other conclusion would “cripple the efficient operation” of employers.

Relevance to church treasurers. This case illustrates that in some cases it may be legally permissible for a church to reduce fringe benefits offered to employees. The court concluded that modifications in employee handbooks that reduce fringe benefits are legally permissible so long as the employees receive actual notice of the changes, and the changes do not operate retroactively.

This is a controversial area of law. The importance of this case is that it demonstrates that some courts liberally permit employers to modify and reduce fringe benefits. Of course, a church should not consider reducing fringe benefits without the assistance of legal counsel.

Checklist. In general, reductions in fringe benefits are more likely to be upheld by the courts if the following conditions are met:

(1) The employee handbook contains a conspicuous disclaimer on the title page (in bold, capital letters) informing employees that it is not a contract, and no provision, benefit, or policy shall be deemed to be contractual in nature.

(2) The employee handbook specifically permits the employer to modify any provision, including increases or reductions in any employee benefit. Such a statement should be conspicuous, and appear on the title page.

(3) At the time of hire, all new employees should sign a statement confirming receipt of the employee handbook, and acknowledging their understanding and agreement that the handbook is not contractual in nature and is subject to unilateral modification by the employer (including reductions in employee benefits).

(4) At the time of any modification in an employee handbook, or the replacement of employee handbook with an updated version, all employees should sign a statement acknowledging that the employer fully explained the new provisions to them, and that they understand and accept them.

This article originally appeared in Church Treasurer Alert, November 1997.

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

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

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