Disclosing Staff Compensation

Should churches disclose how much their employees are paid?

Church Finance Today

Disclosing Staff Compensation

Should churches disclose how much their employees are paid?

Teamsters Local 856 v. Priceless, LLC, 5 Cal.Rptr.3d 847 (Cal. App. 2003)

Background. Should a church share with members the amount of compensation it pays to employees? This is a controversial question. Some church leaders view salary information as private, and refuse to disclose it. Others believe that members who “pay” the salaries through their weekly contributions have a right to know how much church employees are being paid. Those who favor disclosure of staff compensation often point to the public disclosure of compensation paid to state and local government employees. The logic goes like this, “If taxpayers who pay government employees’ compensation have a right to know how much these employees are being paid, shouldn’t church members have a right to know how much church employees are being paid?”

A recent case. A newspaper company in California contacted several cities to find out how much compensation they were paying to their employees. The newspaper asked for the “names, titles and W-2 wages of all city employees for the last 12 months.” A government employees union informed the newspaper that the identity and compensation of city employees would not be disclosed, and that it would seek a court order prohibiting the newspaper from obtaining this information.

The union insisted that release of the employees’ names and compensation would be an invasion of privacy and would cause irreparable harm. It also claimed that the salary of individual employees was considered “confidential information” by the cities. The newspaper argued that the names of city employees, and their compensation, would not infringe on any privacy interests.

An attorney for one of the cities stated that the city would release information only upon “proper identification of the inquirer and acceptable reasons for the inquiry.” Such information would be limited to verification of employment, length of employment and verification of salary if the inquirer first indicates the correct salary. Release of more specific information would only be disclosed with the written consent of an employee. The city attorney noted that the newspaper had requested “W-2 wages,” and he pointed out that federal law specifies that information provided on Form W-2 is confidential, subject to specific, limited disclosure.

A trial court ordered the disclosure of each city employee’s W-2 wages by “job category” without identifying the employees by name. The newspaper appealed. It argued that by accepting public employment, an individual loses “some anonymity.” Further, how a city spends the public’s money is a critical public concern that must be available for public scrutiny. Based on this loss of anonymity, public employees, unlike their private counterparts, have no legally recognized privacy right to control dissemination of their salary information.

The appeals court concluded that public employees do have a legally protected right of privacy in their personnel files and that the trial court did not err in allowing only the disclosure of salary information by job title instead of with the names of individual employees. It observed,

The protection of one’s personal financial affairs and those of his (or her) spouse and children against compulsory public disclosure is an aspect of the zone of privacy which is protected by the fourth amendment and which also falls within that penumbra of constitutional rights into which the government may not intrude absent a showing of compelling need and that the intrusion is not overly broad… .

The court noted that an invasion of privacy claim under state law requires (1) a legally protected privacy interest; (2) a reasonable expectation of privacy; and (3) a serious invasion of the privacy interest. One class of legally protected privacy interests is “informational privacy, or the right to preclude dissemination of personal, confidential information. That entitlement is the fundamental right at issue in this case.”

The court concluded,

The union has presented persuasive case law that refuses to mandate disclosure of public employee salaries linked to the specific individual by name when no valid purpose is served. The critical point we extract from these cases is that financial privacy is a recognized interest and that each case is decided according to its facts after a careful balancing of the public interest in nondisclosure of individuals’ names against the public interest in disclosure of that information… . The public interest in disclosure asserted by the newspaper in this case is the right to know how public money is spent and how much government employees at various levels earn. The newspaper sets out several hypothetical situations designed to show how disclosure of the names of the specific employees serves the public interest. For example, it argues that without a name, the public could not explore the reason for a transit supervisor earning more than the governor. It contends that names are needed to know why a city had overruns of $800,000 in police and fire overtime. It speculates that improper relationships between the city council and the individual employees may explain the errant compensation level. But none of these speculative possibilities present a relationship between indiscriminate, mass disclosure of all employee names with salaries and the public’s right to know how public funds are spent. The name of a particular city employee does not tend to shed light on the city’s performance of its duties. The release of salaries, broken down by position, title, base salary, overtime and bonus compensation serves the public purposes that appellants urge at this stage of the proceedings.

Relevance to church treasurers. Here are some considerations that may help church leaders decide whether or not to disclose salary information.

1. A church’s governing documents (charter, bylaws, etc.) may mandate the disclosure of salary information. If so, this must be followed. Church leaders should be familiar with any such provision.

2. State nonprofit corporation law gives members a limited right to inspect corporate documents at a reasonable time and for a “proper purpose.” Churches that are incorporated under state law may be subject to such a provision. However, note that such a provision is typically limited in the following three ways:

  • only members are given a right of inspection
  • the right of inspection only pertains to specified corporate records
  • the right of inspection only applies to requests prompted by a “proper purpose”

Does such a right of inspection give church members the legal right to obtain salary data on all church employees? This question has never been addressed by any court. The answer will depend on the following factors: (1) Is the church incorporated? (2) What records may members inspect according to the state nonprofit corporation law under which the church is incorporated? (3) Does the member have a “proper purpose”? This third factor is perhaps the most difficult to evaluate. Certainly, idle curiosity is probably not a proper purpose. But there doubtless are cases in which members may have a “proper purpose” in requesting inspection of salary information, at least for some staff members. An example would be members’ concern that the church’s tax-exempt status (and their charitable contribution deductions) may be jeopardized by excessive compensation paid to the senior pastor.

3. The case summarized in this article involved municipal employees. While the relevance to church employees is not exact, it is close. In both cases, the employees’ compensation is being paid by persons (taxpayers or donors) who have a legitimate interest in knowing how much employees are being paid. The court acknowledged that the news media and taxpaying public have a legitimate right to know the salaries being paid to employees who are compensated with their tax dollars. But, this right is not absolute, and in fact is outweighed by the employees’ privacy rights. This result is relevant to church leaders who are evaluating whether or not to disclose the salaries paid to each employee. It suggests that church leaders have a reasonable basis (and a helpful analogy) if they choose not to disclose this information, on privacy grounds.

While it is true that some cities and states do publish the names and salaries of their employees, this practice is not followed by other jurisdictions. Therefore, church leaders should not feel constrained to disclose salary information on the ground that some cities and states follow such a practice.

The court in this case balanced the “right to know” against the right of privacy by permitting the limited disclosure of salaries and job titles. While this obviously is not a reasonable option in most churches (the limited number of employees would make it easy to link job titles with specific persons), other options are available. For example, some churches balance the right to know against the right of privacy by publishing “total compensation” paid to all staff members collectively in the church budget and financial statements.

This article first appeared in Church Treasurer Alert, September 2004.

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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