Employment Practices

Legal Developments

FMLA Requirements

A federal court in New York ruled that a church pension board did not violate the Americans with Disabilities Act of the Family and Medical Leave Act when it dismissed an HIV-positive employee.

Richard R. Hammar, Attorney, CPA
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Church Law & Tax Report

FMLA Requirements

A federal court in New York ruled that a church pension board did not violate the Americans with Disabilities Act of the Family and Medical Leave Act when it dismissed an HIV-positive employee.

Richard R. Hammar, J.D., LL.M., CPA

Key point 8-10. The federal Americans with Disabilities Act prohibits employers with at least 15 employees, and that are engaged in interstate commerce, from discriminating in any employment decision against a qualified individual with a disability who is able, with or without reasonable accommodation from the employer, to perform the essential functions of the job. Accommodations that impose an undue hardship upon an employer are not required. Religious organizations may give preference to nondisabled members of their faith over disabled persons who are members of a different faith.

Key point 8-21. The federal Family and Medical Leave Act requires employers with 50 or more employees and engaged in interstate commerce to allow employees up to 12 weeks of unpaid leave each year on account of certain medical and family needs. There is no exemption for religious organizations.

* A federal court in New York ruled that a church pension board did not violate the Americans with Disabilities Act of the Family and Medical Leave Act when it dismissed an HIV-positive employee. A man (the “plaintiff”) was employed by a church pension board (the “defendant”). The defendant had many different employment-related policies, which were printed in an employee manual. These included policies pertaining to equal employment opportunity; punctuality and attendance; sick leave; FMLA; leaves of absence; grievance procedures; and disciplinary procedures. The defendant also provided a Health Insurance Portability and Accountability Act (” HIPPA” ) handbook as an appendix to the employee manual to advise employees of the issues regarding confidentiality and disclosure of health and medical information. The defendant claims to maintain a ” zero tolerance policy” for discrimination and harassment.

With regard to sick leave, the employee manual requires employees to call their supervisor prior to the beginning of each workday if they will be absent due to illness. Moreover, the manual specifically states: “An employee who fails to report to work for two consecutive days and fails to notify his or her supervisor of absence due to illness, shall be considered to have abandoned his/her position and will be discharged, unless there are extenuating circumstances satisfactory to the defendant.”

Although the plaintiff received the employee handbook, he stated that he never reviewed it. Despite not reading the handbook, the plaintiff conceded that he understood that if he was going to be absent from work, he was required to contact the office.

On January 27, 2004, plaintiff called the defendant to report that he would not be coming into work that day. He did the same on the following day. On January 29, 2004, defendant received a handwritten note from a physician stating that the plaintiff was under his care “for an exacerbation of chronic illness and has been unable to work since this past Monday. He will be able to return to work February 9, 2004.” The note did not specify the nature of the illness. According to the physician, the chronic illness to which the note referred was Human Immunodeficiency Virus (“HIV”), and the exacerbation was part of the typical progression of the disease. The plaintiff had begun treatment for HIV infection in 1998. In late January 2004, his HIV condition had worsened considerably. The physician further stated that by January of 2004 the plaintiff was exhibiting the most severe signs of anxiety and depression that he had exhibited in the previous six years. The source of this anxiety, the physician concluded, was the plaintiff’s fear of his disease process.

During plaintiff’s time out of work pursuant to his doctor’s note, the defendant made several attempts to contact him, all of which were unsuccessful. On February 5, the defendant learned that the plaintiff was in Costa Rica. The plaintiff did not report to work on February 9, 2004, nor did he contact defendant that day.

On February 10, the defendant terminated the plaintiff’s employment due to his failure to contact the defendant despite his ability to do so, and that the defendant had no facts, such as a doctor’s statement, indicating any medical reason for his absence. The defendant asserted that had there been timely medical documentation that plaintiff was absent on February 9 and 10 for medical reasons, he would not have been terminated. Plaintiff was informed by letter that the termination was for job abandonment and cited the employee manual. Before plaintiff, no other employee of the defendant had abandoned his job by failing to call or report to work for two straight days.

On February 11, 2004, the day after the decision to terminate him. the plaintiff contacted the defendant from Costa Rica by telephone. He stated that he had had a nervous breakdown, described some of his symptoms, and said that a doctor’s note would be forthcoming.

On March 1, 2004, the plaintiff’s physician examined him and concluded that plaintiff would have been unable to work on February 9 and February 10, and that he remained incapable of working. Consequently, the physician wrote another note excusing plaintiff from work. The note indicated that plaintiff was under his care “for chronic illness recently complicated by a nervous condition requiring psychiatric care” and that plaintiff was “unable to work until he becomes stable on appropriate medication.”

The plaintiff sued the defendant for discrimination based on disability in violation of the Americans with Disabilities Act, and a violation of the Family and Medical Leave Act (FMLA).

Americans with Disabilities Act

The court noted that an evaluation of a disability discrimination claim requires the following “burden shifting” analysis: The plaintiff bears the initial burden of proving that the employer engaged in the discriminatory practice. This can be done by direct evidence of discrimination, but more often it is done by showing “disparate treatment”—that is, the plaintiff was treated less favorably than other employees who were not members of a protected group. The courts have ruled that a plaintiff can meet the initial burden of proof by establishing a “prima facie case” of discrimination by a preponderance of the evidence. This is done by showing that (1) the plaintiff is a member of a class protected by the Americans with Disabilities Act; (2) the plaintiff suffered an adverse employment decision (such as not being hired if a job applicant, or being dismissed or disciplined if an employee); (3) a direct relationship exists between membership in the protected class and the adverse employment decision. If the plaintiff is successful in making out a prima facie case of discrimination, then a presumption of discrimination exists, and the burden shifts to the employer to show a legitimate, nondiscriminatory reason for the adverse employment decision. If the employer demonstrates a nondiscriminatory reason for the adverse employment action, then the presumption is rebutted and the plaintiff must prove that the nondiscriminatory reason was a pretext for discrimination.

The defendant conceded that the plaintiff had proven the first two elements of a prima facie case, but it vigorously challenged the third element (a direct connection existed between plaintiff’s HIV status and his termination). The defendant insisted that it had no knowledge that the plaintiff was HIV positive at the time it fired him. The court agreed that the defendant was unaware of the plaintiff’s illness, and noted that “at a minimum, the employer must have knowledge of the disability.” Similarly, the court ruled that the defendant was not aware that the plaintiff had a mental condition that was a disability.

But even if plaintiff had established a prima facie case, the court concluded that he had failed to demonstrate that the defendant’s reason for the termination was a “pretext” for what amounted to discrimination. It noted that the plaintiff’s actions “provided a reasonable basis to terminate his employment. His behavior was simply conduct which an employer could legitimately determine was inappropriate and unacceptable in the workplace. Plaintiff was terminated for violating company policy requiring an employee to call in to work if he or she was going to be absent for any reason. Certainly, an employer is entitled to discharge an employee who fails to follow company rules and fails to appear for work without notification, even if the absences are attributable to a medical problem. The record indicates that plaintiff was capable of complying with the call-in policy despite his alleged disability, especially in light of the fact that he was in daily telephone contact with his mother while in Costa Rica before his termination.”

In summary, the evidence disclosed “no connection between plaintiff’s alleged disabilities and his termination. The record contains no statement that plaintiff was terminated due to a disability, no comments were made to indicate a bias against HIV positive individuals or those suffering mental health impairments. Plaintiff has contended that defendant would have wanted to terminate him because of the costs associated with employing people with disabilities, however, no such cost considerations are contained in the record. Plaintiff has not established that defendant knew he had a qualifying disability, that the disability was the reason for his discharge or even actions to show a prior bias by defendant against individuals with disabilities. The failure to call in during audit time constituted an abandonment of his obligations as [an employee]. Moreover, he has not demonstrated that this policy was unevenly applied. To the contrary, plaintiff was the only person who ever failed to call or appear for work for two consecutive days. In short, he has failed to establish that the termination was due to discrimination based on disability status.”

FMLA

Under the FMLA, eligible employees are entitled to twelve weeks per year of unpaid leave “because of a serious health condition that makes the employee unable to perform the functions of the position of such employee.” At the conclusion of an employee’s FMLA leave, he is entitled to return to the same position or its equivalent. The FMLA allows employees to seek money damages against any employer that violates their FMLA rights. The plaintiff claimed that the defendant interfered with his FMLA rights.

The court noted that to state a claim for interference with FMLA rights, plaintiff must demonstrate that: (1) he was an eligible employee under the FMLA; (2) the defendant is an employer under the FMLA; (3) plaintiff was entitled to leave under the FMLA; (4) plaintiff gave notice to defendant of his intention to take leave; and (5) plaintiff was denied benefits to which he was entitled under the FMLA. The defendant asserted that plaintiff failed to prove the fourth and fifth elements of his interference claim (i.e., notice and denial of benefits).

The court noted that under FMLA, employees are required to provide, whenever possible, at least 30 days’ notice for leave that is foreseeable. However, where the need for leave has arisen unexpectedly, the regulations provide that:

(a) When the approximate timing of the need for leave is not foreseeable, an employee should give notice to the employer of the need for FMLA leave as soon as practicable under the facts and circumstances of the particular case. It is expected that an employee will give notice to the employer within no more than one or two working days of learning of the need for leave, except in extraordinary circumstances where such notice is not feasible. In the case of a medical emergency requiring leave because of an employee’s own serious health condition or to care for a family member with a serious health condition, written advance notice pursuant to an employer’s internal rules and procedures may not be required when FMLA leave is involved.

(b) The employee should provide notice to the employer either in person or by telephone, telegraph, facsimile (“fax”) machine or other electronic means. Notice may be given by the employee’s spokesperson (e.g., spouse, adult family member or other responsible party) if the employee is unable to do so personally. The employee need not expressly assert rights under the FMLA or even mention the FMLA, but may only state that leave is needed. The employer will be expected to obtain any additional required information through informal means. The employee or spokesperson will be expected to provide more information when it can readily be accomplished as a practical matter, taking into consideration the exigencies of the situation.

Employees seeking FMLA leave need not expressly invoke the FMLA in the notification to their employer; it is sufficient that they “give a basis for their leave that qualifies under the FMLA.” After the employee provides the required notice, “the burden shifts to the employer to inquire further if it needs further information to ascertain whether the leave is FMLA-qualifying.” The plaintiff insisted that his phone call to defendant on January 27, and his physician’s letter of January 29, constituted adequate notice under the FMLA. The court disagreed: “Merely calling in sick, as plaintiff did on January 27, is insufficient to put a company on notice that an employee is requesting leave that may be eligible under the FMLA. There is no evidence in the record that plaintiff provided any information in his calls that his absence was due to a condition that could be eligible for FMLA coverage. [His physician’s] letter was similarly vague, in that it stated that plaintiff was suffering from ‘an exacerbation of chronic illness’ and in any event stated that plaintiff would be able to return to work on February 9.” Finally, the court noted that communications that the plaintiff’s mother and sister made to the defendant did not constitute FMLA notice, since the FMLA regulations specify that a spokesperson for the employee may give notice on his behalf “only if the employee is unable to do so personally …. There is nothing in the record to suggest that plaintiff was unable to contact defendant himself; indeed, the record indicates that plaintiff was in fact able to do so. Thus, the statements of plaintiff’s mother and sister do not constitute adequate notice under the FMLA.” Brown v. The Pension Board, 488 F.Supp.2d 395 (S.D.N.Y. 2007).

* See also “Clergy—removal,” Leavy v. Congregation Beth Shalom, 490 F.Supp.2d 1011 (N.D. Iowa 2007), in the recent developments section of this newsletter.

Legal Developments

Age Discrimination Lawsuits

A federal court in Ohio ruled that a dismissed church employee could sue her church for age discrimination.

Richard R. Hammar, Attorney, CPA
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Church Law & Tax Report

Age Discrimination Lawsuits

A federal court in Ohio ruled that a dismissed church employee could sue her church for age discrimination.

Richard R. Hammar, J.D., LL.M., CPA

Key point 8-07. Employees and applicants for employment who believe that an employer has violated a federal civil rights law must pursue their claim according to a specific procedure. Failure to do so will result in the dismissal of their claim.

Key point 8-09. The federal Age Discrimination in Employment Act prohibits employers with 20 or more employees, and engaged in interstate commerce, from discriminating in any employment decision on the basis of the age of an employee or applicant for employment who is 40 years of age or older. The Act does not exempt religious organizations. Many states have similar laws that often apply to employers having fewer than 20 employees.

* A federal court in Ohio ruled that a dismissed church employee could sue her church for age discrimination. A church hired a 63-year-old woman (Nancy) as an office secretary. Her duties included preparing the church bulletin and maintaining the church calendar, along with a number of other office and administrative tasks. Nancy’s supervisor considered her job performance to be less than satisfactory. As a result, Nancy was placed on probation for three months. At the end of her probationary period, her supervisor felt that she was still making too many mistakes. Examples included a missed home communion visit; double-booking of events caused by errors in the calendar; wrong names placed on baptismal certificates; and an incident involving a volunteer whom Nancy told to come back another time because she was too busy to do the project the volunteer had come to the church to do.

Nancy’s supervisor, and the senior pastor, met with her and told her she would be “retired.” Nancy protested that she didn’t want to retire, but was told the church needed someone better on the computers. She asked what would happen if she did not retire; her supervisor told her she would be fired. Nancy also asked about her pension, because her five-year vesting period would not expire for several months. She was offered the option of staying with the church in a part-time position, at a lower hourly rate, to qualify her for a pension. Nancy declined the offer of a part-time job, and her employment was terminated.

The church’s “Personnel Policy Guidelines” state that “dismissal is generally a last resort and occurs after the employee has received a written warning and has been given an opportunity to improve performance or conduct.” The written warning is to be signed by the employee and the supervisor, and placed in the employee’s personnel file. The church never gave Nancy a formal written warning about her job performance.

Another church employee claimed that Nancy’s supervisor informed her, prior to Nancy’s termination, that the church would probably have to let her go because she was “old and losing it.”

Nancy sued the church in federal court for age discrimination in violation of the federal Age Discrimination in Employment Act, which prohibits employers with 20 or more employees and engaged in interstate commerce from discriminating in employment decisions on the basis of the age of employees who are 40 years of age or older. The church filed a motion for summary judgment with the court.

The court noted that an employee may establish an age discrimination claim by offering either direct or circumstantial evidence of age discrimination.

direct evidence

The court concluded that Nancy had produced sufficient “direct evidence” of age discrimination to overcome the church’s motion for summary judgment. The court defined direct evidence as “evidence that proves the existence of a fact without requiring any inferences,” or, in this case, “evidence that leads directly to the conclusion that age discrimination was a motivating factor in Nancy’s termination.”

The court referred to the following two cases: (1) A federal appeals court ruled that a supervisor’s statement that he and a co-supervisor had a plan to get rid of older workers and replace them with younger, faster workers was direct evidence of discriminatory intent. Ezell v. Potter, 400 F.3d 1041 (7th Cir.2005). (2) A federal appeals court characterized as direct evidence a supervisor’s statement in response to a question about why the plaintiff had been terminated: “Think of it like this. In a forest you have to cut down the old, big trees so the little trees underneath can grow.” Wichmann v. Board of Trustees of Southern Illinois University, 180 F.3d 791 (7th Cir.1999).

The court concluded that the comments attributed to Nancy’s supervisor regarding the reason for her termination were sufficient to defeat the church’s motion for summary judgment. The court stressed that “the evidence must show that the employee’s age was a substantial factor in her termination.” This test was met, the court concluded.

The court ordered Nancy’s direct evidence claim to proceed to trial. It noted that once direct evidence of age discrimination is presented, the burden shifts to the employer to convince the jury that it was more likely than not that the church would have terminated Nancy absent consideration of her age. For its part, the church “can present its evidence to the jury that Nancy’s termination was premised upon her job performance and not upon her age.” That is, if the church convinces a jury that Nancy was fired for poor job performance rather than her age, then her discrimination claim will fail.

circumstantial evidence

Age discrimination can be proven with circumstantial as well as direct evidence. The court defined circumstantial evidence as “evidence that does not on its face establish discriminatory intent, but does allow a jury to draw a reasonable inference that discrimination occurred.” It noted that for a plaintiff to establish an age discrimination claim based on circumstantial evidence, she must initially prove a “prima facie case” by showing that “she is a member of a protected class, she suffered an adverse employment action, she was qualified for her job, and she was replaced by a substantially younger person.” If a plaintiff is successful in proving a prima facie case of discrimination, then a presumption of discrimination arises, and the burden shifts to the employer to show a legitimate, nondiscriminatory reason for the adverse employment decision. If the employer demonstrates a nondiscriminatory reason for the adverse employment action, then the presumption is rebutted and the plaintiff must prove that the nondiscriminatory reason was a pretext for discrimination.

The court concluded that Nancy failed to prove the fourth element of her prima facie case (that she was replaced by a substantially younger person) and therefore it granted the church’s motion for summary judgment with respect to her age discrimination claim based on circumstantial evidence.

Application. This case is important for two reasons. First, it demonstrates that discrimination claims can be proven by either direct evidence or circumstantial evidence. And second, it illustrates how the “burden shifting” analysis that is applied in employment discrimination claims is generally limited to those claims of discrimination that are based on circumstantial rather than direct evidence. Listermann v. Roman Catholic Archdiocese, 2007 WL 1057381 (S.D. Ohio 2007).

Legal Developments

Liability for Ex-Employees

Churches generally cannot be liable for the acts of employees that are committed in their own residences apart from an official church activity, or after the termination of their employment.

Richard R. Hammar, Attorney, CPA
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Church Law & Tax Report

Liability for Ex-Employees

Churches generally cannot be liable for the acts of employees that are committed in their own residences apart from an official church activity, or after the termination of their employment.

Richard R. Hammar, J.D., LL.M., CPA

Key point. Churches generally cannot be liable for the acts of employees that are committed in their own residences apart from an official church activity, or after the termination of their employment.

* A New York court ruled that a church was not liable for the molestation of a young girl by a church’s youth pastor that occurred after his employment was terminated, and in his own home. A minor female was sexually molested by a youth pastor. She sued her church, claiming that it was responsible on the basis of negligent hiring, negligent retention, and negligent supervision for the youth pastor’s wrongful acts. A trial court dismissed the lawsuit, and a state appeals court affirmed this ruling. It concluded that the church could not be liable for the youth pastor’s acts since he was no longer employed by the church at the time he abused the victim. Further, the court pointed out that the abuse occurred in the youth pastor’s apartment, and so “there was no connection between his employment and the abuse of the plaintiff, as it was severed by time, place, and the intervening independent acts of the youth pastor.”

Application. This case is important for two reasons. First, it illustrates the general rule that a church is not liable for the acts of employees committed after the termination of their employment. Second, it demonstrates that a church generally is not liable for the acts of an employee committed in his or her own home, and unconnected to any official church activity. Farrell v. Maiello, 831 N.Y.S.2d 506 (N.Y.A.D. 2007).

* See also the feature article “Church Liability for the Sexual Molestation of Minors” in this newsletter.

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Legal Developments

Non-Ministers and Wrongful Termination Claims

A former church employee’s job and duties did not trigger the ministerial exception, and a resolution of her wrongful discharge claim did not require the court to delve into religious doctrine.

Richard R. Hammar, Attorney, CPA
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Church Law & Tax Report

Non-Ministers and Wrongful Termination Claims

A former church employee’s job and duties did not trigger the ministerial exception, and a resolution of her wrongful discharge claim did not require the court to delve into religious doctrine.

Richard R. Hammar, J.D., LL.M., CPA

Key point 8-04. 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.”

* A federal court in Washington ruled that the First Amendment did not prevent it from resolving a dismissed lay employee’s claim of wrongful termination against her former church. The parties in this case were the same as in the previous case. In this case, Beth sued her church and denominational agencies (the “church defendants”) for wrongful termination rather than sexual harassment discrimination under Title VII. She asserted that the church’s termination of her employment based on her accusations of sexual harassment against the senior pastor violated a “public policy against sex discrimination.”

The court noted that “there is no dispute that Beth was subjected to unwelcome and persistent sexual advances from [the senior pastor] contrary to Washington’s strong public policy against such behavior.” After she complained to the pastor about his conduct, he informed her that she would have to resign. The church’s associate pastor, also a member of the board, confirmed this decision. Beth later communicated to the other members of the church board the severity and frequency of the pastor’s misconduct. Nonetheless, the board did not question the pastors’ decision to terminate her.

The church claimed that questioning its justification for Beth’s termination would intrude upon its First Amendment right to the free exercise of its religion. The court acknowledged that the First Amendment “precludes claims that would require a jury to evaluate religious doctrine or the reasonableness of the religious practices followed [by a religious organization].” However, this principle “does not provide churches with absolute immunity to engage in [wrongful] conduct. So long as liability is predicated on secular conduct and does not involve the interpretation of church doctrine or religious beliefs, it does not offend constitutional principles.”

The court concluded that Beth’s wrongful discharge claim “turns on secular conduct because it, unlike her negligent supervision or sexual harassment claims, concerns a single decision by her employer: the only relevant decision that [the court] can reasonably attribute to [the church] is the decision by the pastors, unchallenged by the [other board members] to terminate Beth after she complained about the pastor’s harassing conduct.”

The court stressed that Beth was employed in an administrative role in which her “primary functions [did not] serve the church’s spiritual and pastoral mission,” and therefore she was not covered by the so-called ministerial exception (which generally prevents the civil courts from resolving employment disputes between churches and ministers).

The church also argued that Beth’s termination was “inextricably intertwined” with church discipline, deference to the senior pastor, and protection of the pastoral relation. The court disagreed. Although the senior pastor was disciplined and ultimately deposed, these developments were not relevant in assessing Beth’s claims. The court noted that “sexual harassment claims involving religious institutions often require analysis of a minister’s interactions, appropriate or otherwise, with members of his congregation. This necessity does not bring such cases within the ministerial exception: the constitutional guarantee of religious freedom cannot be construed to protect secular beliefs and behavior, even when they comprise part of an otherwise religious relationship between a minister and a member of his or her congregation. To hold otherwise would impermissibly place a religious leader in a preferred position in our society.”

The church also claimed that it was guided in its actions towards Beth by the church’s doctrine of discipline. The court acknowledged that “the propriety of her own conduct with respect to [the senior pastor] was a subject of the board’s inquiry. But a credibility dispute between accuser and accused is no different than might face any other secular employer investigating workplace sexual harassment. The board may well have had questions about Beth’s religious or moral transgressions, but the wrongfulness of her termination from a secular administrative position after reporting sexual harassment need not rest on questions of discipline, or of faith, or ecclesiastical rule, custom, or law ….”

The court concluded that the church’s attempt to inject doctrine in this lawsuit “does not of itself transform Beth’s wrongful-discharge claim into an ecclesiastical dispute. Nor would it preclude a jury from finding that [the church] lacked an overriding justification for her discharge.”

Application. As noted in the previous case summarized in this newsletter, Beth’s sexual harassment claim under Title VII was dismissed by a federal appeals court. However, as this case demonstrates, this did not prevent her from pursuing other claims against the church. In this case, the court rejected the church’s motion to dismiss her wrongful discharge claim. It concluded that Beth’s job and duties did not trigger the ministerial exception, and a resolution of her wrongful discharge claim would not require the court to delve into religious doctrine in violation of the First Amendment. Macdonald v. Grace Church Seattle, 2006 WL 2252866 (W.D. Wash. 2006).

Legal Developments

Workers Compensation Benefits

A New Jersey court denied workers compensation benefits to an employee of a church-operated charity on the ground that she left her job voluntarily without good cause.

Richard R. Hammar, Attorney, CPA
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Workers Compensation Benefits

A New Jersey court denied workers compensation benefits to an employee of a church-operated charity on the ground that she left her job voluntarily without good cause.

Richard R. Hammar, J.D., LL.M., CPA

Key point 8-02. All states have enacted workers compensation laws to provide benefits to employees who are injured or become ill in the course of their employment. Benefits generally are financed through insurance premiums paid by employers. Churches are subject to workers compensation laws in most states.

* A New Jersey court denied workers compensation benefits to an employee of a church-operated charity on the ground that she left her job voluntarily without good cause. An employee (the plaintiff) of a church-operated charity took a medical leave of absence as a result of the effects of hypertension and diabetes. The plaintiff later had her doctor send a letter to her supervisor indicating that she could return to work for up to 30 hours per week. When the charity responded that the plaintiff’s position was a full-time position, requiring more time on the job than thirty hours per week, she agreed to obtain a note from her doctor indicating that she could return to work on a full-time basis. When no such doctor’s note was submitted, her employment was terminated. The plaintiff sued for workers compensation benefits. The New Jersey workers compensation law mandates the payment of benefits to employees who are injured, or who become ill, in the course of their employment. However, the workers compensation law denies benefits to an employee “for the week in which the individual has left work voluntarily without good cause attributable to such work, and for each week thereafter until the individual becomes reemployed and works four weeks in employment.”

The charity asserted that the plaintiff had “left work voluntarily without good cause” and therefore was barred from receiving workers compensation benefits. A state court agreed:

In scrutinizing an employee’s reason for leaving, the test is one of ordinary common sense and prudence. Mere dissatisfaction with working conditions which are not shown to be abnormal or do not affect health, does not constitute good cause for leaving work voluntarily. The decision to leave employment must be compelled by real, substantial and reasonable circumstances not imaginary trifling and whimsical ones …. It is the employee’s responsibility to do what is necessary and reasonable in order to remain employed.

The court noted that the plaintiff was hired to work full-time; that medically she could not continue to do so; and that, by advising her employer that “she could only remain part-time with no date to resume working full-time,” she “severed the employment relationship, voluntarily leaving the job without good cause attributable to the work.” Covington v. Board Of Review, 2007 WL 249251 (N.J. Super. 2006).

Legal Developments

Discrimination Lawsuit Time Limits

Federal courts will not resolve Title VII discrimination claims unless the aggrieved employee files a claim of discrimination with the EEOC within 180 days of the last discriminatory act.

Richard R. Hammar, Attorney, CPA
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Church Law & Tax Report

Discrimination Lawsuit Time Limits

Federal courts will not resolve Title VII discrimination claims unless the aggrieved employee files a claim of discrimination with the EEOC within 180 days of the last discriminatory act.

Richard R. Hammar, J.D., LL.M., CPA

Key point 8-07. Employees and applicants for employment who believe that an employer has violated a federal civil rights law must pursue their claim according to a specific procedure. Failure to do so will result in the dismissal of their claim.

Key point 8-08.2. Sexual harassment is a form of sex discrimination prohibited by Title VII of the Civil Rights Act of 1964. It consists of both “quid pro quo” harassment and “hostile environment” harassment. Religious organizations that are subject to Title VII are covered by this prohibition. An employer is automatically liable for supervisory employees’ acts of harassment, but a defense is available to claims of hostile environment harassment if they have adopted a written harassment policy and an alleged victim fails to pursue remedies available under the policy. In some cases, an employer may be liable for acts of sexual harassment committed by non-supervisory employees, and even non-employees.

* A federal appeals court ruled that a female church employee’s lawsuit alleging sexual harassment and retaliation against her employer had to be dismissed because she failed to file a claim of discrimination with the EEOC within 180 days of the last offending act. A female church employee (Beth) alleged that she had been sexually harassed by the church’s senior pastor, who was her supervisor. She claimed that the last discriminatory act occurred on April 30, 2002, when she was terminated from her employment in retaliation for reporting the pastor’s sexual harassment. She filed charges of discrimination with the EEOC and a state agency more than 180 days, but less than 300 days, after the last act of alleged discrimination. On July 2, 2003, the EEOC dismissed the charges. Beth later sued her church, and regional and national denominational agencies (the “church defendants”), in federal court alleging sex discrimination and retaliation under Title VII of the Civil Rights Act of 1964. She claimed that all three church defendants were her “employer” under Title VII, which prohibits covered employers from engaging in sex discrimination (including sexual harassment and retaliation).

A federal district court dismissed all of Beth’s VII claims. It dismissed her Title VII claims on the ground that she failed to file her charge of discrimination with the EEOC within 180 days of the last alleged discriminatory employment practice. The district court held that a longer 300-day filing period available under state law did not apply since “nonprofit religious organizations are exempt from the Washington Law Against Discrimination’s employment discrimination provisions.” Beth appealed.

Title VII time limits for filing charges with the EEOC

Title VII establishes two potential time limitations periods within which a plaintiff must file a claim of discrimination with the EEOC. Generally, a Title VII plaintiff must file a claim with the EEOC within 180 days of the last act of discrimination. However, the limitations period is extended to 300 days if the plaintiff first institutes proceedings with a “state or local agency with authority to grant or seek relief from such practice.” 42 U.S.C. § 2000e-5(e)(1).

EEOC regulations provide that the 180-day time limit applies if the state or local “fair employment practices” agency lacks subject matter jurisdiction over a charge. In other words, a state having a fair employment practices agency having no jurisdiction over a religious employer “is equivalent to a jurisdiction having no fair employment practices agency. Charges over which a fair employment practices agency has no jurisdiction are … timely filed if received by the EEOC within 180 days from the date of the alleged violation.” 29 C.F.R. § 1601.13(a)(2).

The court concluded that the 180-day limit applied since the Washington State employment discrimination law does not apply to religious organizations. And, since Beth filed her claim with the EEOC more than 180 days after the last alleged discriminatory act, her lawsuit had to be dismissed.

Constitutionality of the religious exemption under state law

Beth argued that the exemption of nonprofit religious organizations from employment discrimination claims under the Washington Law Against Discrimination violated the First Amendment’s ban on the establishment of religion; and, since it was unconstitutional, the 300-day filing period applied and her claim was not late.

The court refused to address this claim since it had been raised for the first time on appeal, and not in the trial court.

Conclusion

The court concluded: “We read Washington State case law as exempting nonprofit religious employers, such as the defendants, from sexual harassment and retaliation charges under the Washington Law Against Discrimination. Thus, the Washington fair employment practices agency did not have jurisdiction over Beth’s charges. Accordingly, the 180-day time limit applies … and Beth is not entitled to the longer 300-day filing deadline. We affirm the district court’s dismissal of her Title VII claims.”

Application. This case illustrates two important points:

1. Churches and other religious organizations having at least 15 employees (including part-time employees), and engaged in interstate commerce, are subject to Title VII of the Civil Rights Act of 1964. Title VII prohibits covered employers from discriminating in any employment decisions on the basis of race, color, national origin, sex, or religion. Sex discrimination is defined to include both sexual harassment and retaliation.

Churches may be liable for acts of sexual harassment in various ways. When supervisory employees create an offensive working environment through unwelcome verbal or physical conduct of a sexual nature, this is “hostile environment” sexual harassment for which the employer will be legally responsible if the supervisor takes any “tangible employment action” against the employee. A tangible employment action includes “a significant change in employment status, such as hiring, firing, failing to promote, reassignment with significantly different responsibilities, or a decision causing a significant change in benefits.” The employer is liable under such circumstances whether or not it was aware of the harassment. In this case, Beth alleged that her supervisor (the senior pastor) engaged in a tangible employment action against her by terminating her employment.

2. Federal courts will not resolve Title VII discrimination claims unless the aggrieved employee files a claim of discrimination with the EEOC within 180 days of the last discriminatory act. A 300-day time limit applies if the employee first institutes proceedings with a “state or local agency with authority to grant or seek relief from such practice.” However, EEOC regulations specify that the 180-day time limit applies if the state or local fair employment practices agency lacks jurisdiction over the alleged discrimination. This can occur in two ways. First, the type of discrimination an employee alleges is not prohibited under state law. Second, religious employers are exempt from the state nondiscrimination law. This is exactly what happened in this case. Washington law exempts religious employers from employment discrimination claims, and so the 180-day time limit (rather than the 300-day limit) applied to Beth’s claims. Since she failed to file her claim with the EEOC within 180 days, the courts were required to dismiss her claim.

Many state employment discrimination laws exempt religious employers. In such states, aggrieved employees must file a claim of discrimination with the EEOC within 180 days. If they fail to do so, the federal courts will be barred from resolving their Title VII claims. MacDonald v. Grace Church, 457 F.3d 1079 (9th Cir. 2006).

Legal Developments

Discrimination Liability for Churches of Less Than 15 Employees

A federal district court in South Carolina ruled that only employers with at least 15 employees are subject to the nondiscrimination provisions of Title VII of the Civil Rights Act of 1964.

Richard R. Hammar, Attorney, CPA
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Church Law & Tax Report

Discrimination Liability for Churches of Less Than 15 Employees

A federal district court in South Carolina ruled that only employers with at least 15 employees are subject to the nondiscrimination provisions of Title VII of the Civil Rights Act of 1964.

Richard R. Hammar, J.D., LL.M., CPA

Key point 8-05.1. Many federal employment and civil rights laws apply only to those employers having a minimum number of employees. In determining whether or not an employer has the minimum number of employees, both full-time and part-time employees are counted. In addition, employees of unincorporated subsidiary ministries of a church are counted. The employees of incorporated subsidiary ministries may be counted if the church exercises sufficient control over the subsidiary.

* A federal district court in South Carolina ruled that only employers with at least 15 employees are subject to the nondiscrimination provisions of Title VII of the Civil Rights Act of 1964, and that the 15 employee requirement could not be achieved by combining a local church’s employees with the employees of a Diocese. A woman (Nancy) was employed by a church as a secretary. The church choir director used a sexually offensive term in speaking with Nancy on one occasion. When she complained, a member of the church board told her that the church could not guaranty that language offensive to her would not be used in the church office and suggested that she resign if she could not work without such a guaranty. Nancy quit shortly after this conversation, and later sued the church for sexual harassment and retaliation in violation of Title VII of the Civil Rights Act of 1964 (Title VII). At the time of Nancy’s resignation, the church had three other paid employees (the pastor, choir director, and a Sunday nursery worker).

Title VII prohibits employers that have at least 15 employees, and are engaged in interstate commerce, from discriminating in any employment decision on the basis of race, color, national origin, sex (including sexual harassment), and religion. Nancy conceded that Title VII only applied to employers having at least 15 employees, but she claimed that this requirement was met under the so-called “integrated employer” test by combining the church’s employees with those of the Diocese with which the church was affiliated.

The court conceded that under the integrated employer test, “several companies may be considered so interrelated that they constitute a single employer.” In deciding whether to treat separate corporate entities as an integrated employer, “the factors courts have considered include: (1) common management; (2) interrelation between operations; (3) centralized control of labor relations; and (4) degree of common ownership/financial control. However, no single factor is conclusive and the test is not uniformly applied.”

The court concluded that the facts in this case did not support application of the integrated employer test:

Taken in the light most favorable to the plaintiff the only evidence is that the church is part of the Diocese, the Diocese provides funding to the church and the church provides funding to the Diocese, the Diocese currently employs over 15 employees at the Diocese office, plaintiff was provided health insurance through the Diocese office, the Diocese provides resolutions to the church, and the church is organized under the Diocese.

More specifically the undisputed facts are that the rector manages the day-to-day operations of the church by supervising the staff as well as conducting planning and looking after the well-being of the parish. Plaintiff was hired by the church vestry, not the Diocese. Plaintiff has always been supervised by the current or former rector of the church. Plaintiff’s job essentially entailed performing whatever tasks the rector asked of her. The rectors of the church are hired by the church and not the Diocese. The vestry is a twelve member board of directors elected by members of the church. Each Episcopal church, or parish, operates pursuant to its own bylaws, and every parish’s bylaws are different. The rector, and not the Diocese, was responsible for supervising the staff of [the church]. Finally while the Diocese provided the church with income to finish a renovation, since then, the church has been fully self supporting but does send money each year to the Diocese.

The court concluded that “these facts fail to support the plaintiff’s claim of an integrated employer in order to meet the numerosity requirements of [Title VII].”

Application. This case is of great importance. If the employees of regional and national denominational agencies can be added to those of local churches in meeting Title VII’s 15-employee requirement, this would expose virtually every church in America with a denominational affiliation, regardless of size, to the proscriptions and potential liabilities of Title VII. Churches with only one or two employees would be subject to Title VII and EEOC scrutiny. The court’s decision in this case is reasonable and correct. The limited ties that generally characterize the relationship between churches and denominational agencies is far short of the “domination and control” needed to trigger “integrated employer” status. This case will be directly relevant to any church in defending against Title VII coverage based on the integrated employer doctrine. This doctrine is sometimes called the “single entity” or “single employer” doctrine. Cox v. St. Stephen’s Episcopal Church, 2006 WL 2668782 (D.S.C. 2006).

Legal Developments

Enforced Moral Codes

Churches can impose scriptural or moral standards on their employees, and such efforts will be fully protected by the civil courts?o long as they do so fairly and uniformly.

Richard R. Hammar, Attorney, CPA
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Church Law & Tax Report

Enforced Moral Codes

Churches can impose scriptural or moral standards on their employees, and such efforts will be fully protected by the civil courts—so long as they do so fairly and uniformly.

Richard R. Hammar, J.D., LL.M., CPA

Key point 8-06. The civil courts have consistently ruled that the First Amendment prevents the civil courts from applying civil rights laws to the relationship between a church and a minister.

Key point 8-08.1. Title VII of the Civil Rights Act of 1964 prohibits employers engaged in commerce and having at least 15 employees from discriminating in any employment decision on the basis of race, color, national origin, gender, or religion. Religious organizations are exempt from the ban on religious discrimination, but not from the other prohibited forms of discrimination.

* A federal court in New York ruled that church-operated schools can enforce “moral codes” on their employees, but only if they do so fairly and uniformly and not in ways that disproportionately and adversely affect persons (such as pregnant, since women) who are protected by employment discrimination law. A woman (the “plaintiff”) taught a fifth grade class at a church-operated school. She was required to teach one hour of Bible study per day and spent the remainder of her day teaching secular subjects. Shortly after the start of her third academic year, the plaintiff informed the school principal that she was pregnant; that she intended to follow through with the pregnancy; and that she did not intend to marry the father of the unborn child. Based on her decision not to marry the child’s father, the principal informed plaintiff that she would have to bring the matter to the attention of the governing board of the school and initiate termination proceedings. In a subsequent meeting, the board voted to terminate plaintiff “in that her pregnancy outside of marriage was evidence of fornication.” The principal thereafter sent the plaintiff a letter informing her that the board had voted to terminate her employment for exhibiting “immoral or unsatisfactory personal conduct inconsistent with the principles of the church.” The plaintiff sued the church that operated the school, claiming that it had unlawfully discriminated against her on the basis of pregnancy in violation of state and federal law.

The school required all teachers to sign an employment agreement prior to the start of each academic year. The employment agreement states that the employee and employer shall “be bound by” various specified policies. One of these policies stated: “Termination is discontinuance of salary and employment at any time by the employing organization, at their sole discretion. An employee may be terminated for, but not limited to, the following reasons: … Immoral or unsatisfactory personal conduct inconsistent with the principles of the church.” Another policy listed “fornication” under “grievous sins for which members shall be subject to discipline.” Plaintiff did not recall being given a copy of these policies and also denied being aware that “immoral or unsatisfactory personal conduct” could be grounds for termination. She claimed to be unaware that having sexual relations outside of marriage was contrary to the teachings of the church.

In arguing that she was singled out for termination because of her pregnancy, plaintiff maintained that other teachers at the school were having sexual relations outside of marriage, which she knew based on “talking with them about their relationships.” However, she admitted to having no knowledge whether any member of the school administration had ever been informed of such conduct. She testified that she was aware of one teacher who taught at the school while pregnant and separated from her husband during at least part of the pregnancy.

Ministerial exception

The church insisted that the “ministerial exception” required the plaintiff’s lawsuit to be dismissed. The ministerial exception generally prohibits the civil courts from resolving employment disputes between churches and their ministers. The court agreed that this rule has been applied in some cases to non-ordained church employees whose primary duties consist of “teaching, spreading the faith, church governance, supervision of a religious order, or supervision or participation in religious ritual and worship.” However, the court concluded that the ministerial exception did not apply in this case since plaintiff’s teaching duties were primarily secular, and her religious duties were limited to one hour of Bible instruction per day and attending religious ceremonies with students once per year. The court stressed that there was no evidence that the plaintiff included church teachings when she taught secular subjects.

Pregnancy discrimination

Title VII of the Civil Rights Act of 1964 prohibits discrimination in employment on the basis of gender or pregnancy. Title VII applies to any employer engaged in interstate commerce and having 15 or more employees. The court summarized the “burden shifting” analysis that is used in resolving Title VII discrimination claims.

First, the plaintiff must establish a prima facie case by showing that he or she (1) is a member of a protected class, (2) was qualified for the position in question, and (3) suffered an adverse employment action (4) under circumstances giving rise to an inference of discrimination. The prima facie case “raises an inference of discrimination” that the employer must rebut.

Second, the burden then shifts to the employer “to articulate some legitimate, nondiscriminatory reason for the employee’s rejection.” If the employer meets this burden, the presumption of discrimination set by the prima facie case is dropped.

Third, the burden or proof shifts back to the employee to show that the reasons given by the employer are a pretext for discrimination. Pretext may be shown “either directly by persuading the court that a discriminatory reason more likely motivated the employer or indirectly by showing that the employer’s purported explanation is unworthy of credence.”

Here, there was no dispute that the plaintiff established a prima facie case of pregnancy discrimination. As a pregnant woman she was a member of a protected class; she was qualified for the teaching position at the school; and she suffered an adverse employment action by being terminated. The church countered that plaintiff was not terminated because of her pregnancy but because of her failure to abide by the church’s doctrine that fornication is a “grievous sin.”

Where an employer has articulated a religious reason for the allegedly discriminatory adverse employment action, the plaintiff may not challenge the plausibility of that religious reason. The court must presume that “an asserted religious motive is plausible in the sense that it is reasonably or validly held.”

The focus of the court’s inquiry then becomes pretext, including “factual questions such as whether the asserted reason for the challenged action comports with the defendant’s policies and rules, whether the rule applied to the plaintiff has been applied uniformly, and whether the alleged nondiscriminatory purpose was stated only after the allegation of discrimination.” The court concluded:

In cases where religious school employers have asserted fornication as a reason for terminating a pregnant unmarried woman, courts have held that an employer enforcing such a policy unevenly—e.g., only against women or only by observing or having knowledge of a woman’s pregnancy—is evidence of pretext. This is because a school violates Title VII if, due purely to the fact that women can become pregnant and men cannot, it punishes only women for sexual relations because those relations are revealed through pregnancy. Thus, while a religious school employer may validly seek to impose moral doctrine upon its teaching staff, punishment singularly directed at [women] without regard to [men] is not permissible.

The court noted that the church provided no evidence “that any other teacher has been terminated from the school for engaging in sexual relations outside of marriage. Knowledge of other teachers engaging in extramarital sexual relations, as reported by plaintiff, cannot be imputed to the defendant. But the church fails to explain how it has enforced a policy against such behavior, if it exists, to both males and females. Moreover, the church admits to considering plaintiff’s pregnancy as evidence of fornication.” The court concluded that “the issues raised by plaintiff … at least raise a question regarding whether the church’s policy is applied in a discriminatory fashion and whether plaintiff was terminated because of her sex and pregnancy, as prohibited by Title VII.”

The church insisted that the plaintiff knew about its policy against extramarital sexual relations and that the annual employment contracts she signed “legitimized” her termination. The court disagreed, noting that “there can be no prospective waiver of an employee’s rights under Title VII” and that “Title VII’s strictures are absolute and represent a congressional command that each employee be free from discriminatory practices.” Therefore, “employment contracts, no matter what the circumstances that justify their execution or what the terms, may not be used to waive protections granted to an individual under Title VII or any other Act of Congress.”

The sole issue was “whether the church terminated plaintiff because of her sex and pregnancy or because of an evenly applied religious and moral code.”

Application. This case is important for three reasons. First, it demonstrates that churches can impose scriptural or moral standards on their employees, and such efforts will be fully protected by the civil courts—so long as they do so fairly and uniformly and not in ways that disproportionately and adversely impact persons (such as pregnant women) who are protected by federal or state employment discrimination laws. As the court noted, “In cases where religious school employers have asserted fornication as a reason for terminating a pregnant unmarried woman, courts have held that an employer enforcing such a policy unevenly—e.g., only against women or only by observing or having knowledge of a woman’s pregnancy—is evidence of pretext. This is because a school violates Title VII if, due purely to the fact that women can become pregnant and men cannot, it punishes only women for sexual relations because those relations are revealed through pregnancy. Thus, while a religious school employer may validly seek to impose moral doctrine upon its teaching staff, punishment singularly directed at [women] without regard to [men] is not permissible.”

Second, the court rejected the church’s claim that the plaintiff consented to being terminated for immoral conduct when she signed her annual employment contract. The court disagreed, noting that “there can be no prospective waiver of an employee’s rights under Title VII” and that “Title VII’s strictures are absolute and represent a congressional command that each employee be free from discriminatory practices.” Therefore, “employment contracts, no matter what the circumstances that justify their execution or what the terms, may not be used to waive protections granted to an individual under Title VII or any other Act of Congress.”

Third, the court’s rejection of the application of the ministerial exception to the plaintiff represents a very narrow reading of the exception that has not been shared by several other courts. Redhead v. Conference of Seventh-Day Adventists, 440 F.Supp.2d 211 (E.D.N.Y. 2006).

Legal Developments

Age Discrimination Claims

Age discrimination requires proof that age was the basis for an adverse employment decision.

Richard R. Hammar, Attorney, CPA
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Church Law & Tax Report

Age Discrimination Claims

Age discrimination requires proof that age was the basis for an adverse employment decision.

Richard R. Hammar, J.D., LL.M., CPA

Key point 8-09. The federal Age Discrimination in Employment Act prohibits employers with 20 or more employees, and engaged in interstate commerce, from discriminating in any employment decision on the basis of the age of an employee or applicant for employment who is 40 years of age or older. The Act does not exempt religious organizations. Many states have similar laws that often apply to employers having fewer than 20 employees.

* A federal appeals court ruled that a church school had not violated a federal age discrimination law in its treatment of a custodian. The custodian complained that over a period of about five years he was subjected to several adverse employment actions as a result of his age. As examples, he asserted that he was harassed and criticized by his supervisor because of his age; he was unfairly sent home and docked pay on two occasions; he was denied overtime opportunities that went to younger employees; he was transferred to a less desirable shift; and was laid off with others on his new shift. The custodian claimed that these actions amounted to discrimination in violation of the federal Age Discrimination in Employment Act

The court noted that Under the ADEA, it is “unlawful for an employer to … discharge any individual or otherwise discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s age.” The court concluded that the school had “legitimate, non-discriminatory reasons” for each of its actions involving the custodian. First, he was not singled out when he was terminated, but rather was laid off as part of the school’s decision to “outsource” the entire custodial department to save money. Six out of the eight employees discharged were less than 40 years old. Second, the custodian had been sent home early from work as part of his supervisor’s efforts to discipline or motivate him after he performed unsatisfactorily on two occasions. Third, the custodian’s loss of overtime was attributable to the regular seasonal decrease in demand for custodial overtime work due to school being out of session during the summer months, and gym classes being held outside (leaving the gymnasium largely unused) during early Fall.

Application. This case illustrates that age discrimination requires proof that age was the basis for an adverse employment decision. An employer that dismisses an employee who is 40 years of age or older will not be guilty of age discrimination if it can prove a nondiscriminatory basis for its action. In this case, the court concluded that the school established that its actions involving the custodian were all based on legitimate, nondiscriminatory reasons dealing with the performance of his duties as well as cost-cutting decisions by the school. Abraham v. Abington Friends School, 2006 WL 3793380 (3rd Cir. 2006).

Legal Developments

Application of Laws to Specified Number of Employees

Some federal employment laws apply only to employers having a specified number of employees.

Richard R. Hammar, Attorney, CPA
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Church Law & Tax Report

Application of Laws to Specified Number of Employees

Some federal employment laws apply only to employers having a specified number of employees.

Richard R. Hammar, J.D., LL.M., CPA

Key point 8-05.1. Many federal employment and civil rights laws apply only to those employers having a minimum number of employees. In determining whether or not an employer has the minimum number of employees, both full-time and part-time employees are counted. In addition, employees of unincorporated subsidiary ministries of a church are counted. The employees of incorporated subsidiary ministries may be counted if the church exercises sufficient control over the subsidiary.

* The United States Supreme Court ruled that the “15 employee” requirement for employer coverage under Title VII of the Civil Rights Act of 1964 is not “jurisdictional,” and so employers with fewer than 15 employees lose this defense if they fail to raise it before the end of a trial. Title VII of the Civil Rights Act of 1964 prohibits employers engaged in interstate commerce and having at least 15 employees from discriminating in any employment decisions on the basis of race, color, national origin, gender, or religion. Some courts have ruled that the 15 employee requirement is “jurisdictional,” meaning that a court does not have the legal authority to resolve a Title VII case involving an employer with fewer than 15 employees. As a result, an employer can raise the “less than 15 employees” defense at any time, even after a court renders a judgment. Other courts have ruled that the 15 employee requirement is not jurisdictional, but rather is simply a requirement for a Title VII claim. Under this interpretation, the “less than 15 employees” defense must be asserted in an employer’s response to a lawsuit or it will be waived.

In a recent case, the United States Supreme Court ruled that the 15 employee requirement under Title VII is not jurisdictional, but rather is a requirement of a Title VII claim. As a result, it is waived if not raised in response to a lawsuit. The case involved a woman who was employed by a restaurant as a server. She sued her employer for sexual harassment (a form of sex discrimination prohibited by Title VII). A jury awarded her $40,000 in damages. After the jury’s verdict, the employer asked the court to dismiss the lawsuit and verdict on the ground that it had fewer than 15 employees and so was not subject to Title VII. This was the first time the employer had raised this defense. The trial court granted the employer’s request on the ground that the 15 employee requirement was jurisdictional rather than simply a requirement of a Title VII claim, and therefore the court had no authority to resolve the case.

The United States Supreme Court reversed the trial court’s ruling, and held that the 15 employee requirement is simply a requirement of a Title VII case that must be raised in response to a lawsuit. It found no language in Title VII making this a jurisdictional requirement that can be raised at any time, and concluded that “when Congress does not rank a statutory limitation on coverage as jurisdictional, courts should treat the restriction as non-jurisdictional in character.”

Application. Some federal employment laws apply only to employers having a specified number of employees. To illustrate, employers must have 15 or more employees to be subject to Title VII of the Civil Rights Act of 1964 and the Americans with Disabilities Act. An employer must have at least 20 employees to be subject to the federal age discrimination law, and 50 employees to be subject to the Family Medical Leave Act. According to the Supreme Court’s recent decision, churches that are sued for violations of any of these laws must assert in their answer to the original lawsuit the “affirmative defense” that they have fewer than the required number of employees. A failure to do so will constitute a waiver of this defense. Arbaugh v. Y&H Corporation, 126 S.Ct. 1235 (2006).

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Legal Developments

Religious and Sexual Orientation Discrimination

A New York court ruled that a church could be sued by a former employee for discriminating against him on the basis of his religion and sexual orientation.

Richard R. Hammar, Attorney, CPA
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Church Law & Tax Report

Religious and Sexual Orientation Discrimination

A New York court ruled that a church could be sued by a former employee for discriminating against him on the basis of his religion and sexual orientation.

Richard R. Hammar, J.D., LL.M., CPA

Key point 8-12. Many state civil rights laws prohibit employers with a specified number of employees from discriminating in any employment decision on the basis of the sexual orientation of an employee or applicant for employment. Such laws generally exempt religious organizations.

* A New York court ruled that a church could be sued by a former employee for discriminating against him on the basis of his religion and sexual orientation. A homosexual, Jewish man was employed by a church in an administrative capacity. The employee claimed that his supervisor acted in a hostile manner toward him because of his sexual orientation and religious background, and that she undermined him in his job performance and treated him differently than she did heterosexual employees. The employee alleged that on one occasion his supervisor said to him, “I wonder how the officers would feel if they knew they had a Jewish fag working for them.” The employee claimed that he reported the harassing behavior to church officials, but was reprimanded for doing so and within a few weeks was dismissed. The former employee sued the church, claiming that it was responsible for its supervisor’s acts of religious and sexual orientation discrimination. He asked the court to award him back pay, front pay or reinstatement, compensatory and punitive damages, interest, attorney’s fees, and costs.

The church argued that it was exempt from the anti-discrimination provisions of the civil rights laws of the State of New York and New York City. The court conceded that both laws permit religious organizations to limit employment or give preference to persons of the same religion or denomination, or to promote the religious principles of the organization. However, the court noted, “those limited exemptions for religious organizations are a far cry from letting them harass their employees and treat the employees in an odiously discriminatory manner during their employment, and to use derogatory expressions toward the employees …. Thus, the claims cannot be dismissed due to defendant’s status as a religious organization.”

The court did dismiss the sexual orientation discrimination claim under state law since it was not enacted until after the alleged discrimination. But, the court allowed the former employee to sue the church for sexual orientation discrimination under the city civil rights law, and for religious discrimination under both the state and city laws. It concluded, “Invidious discrimination, including by religious institutions, has no place in our society. If the allegations made by plaintiff are true, he should be compensated for defendant’s bad acts.”

Application. This case is important for three reasons. First, it is the first published case to find a church liable for discriminating against an employee on the basis of sexual orientation. The issue of discrimination by churches in employment decisions on the basis of sexual orientation was addressed fully in the July-August 2004 edition of this newsletter. Several states, like New York, have laws prohibiting private employers with a specified number of employees from discriminating in employment decisions on the basis of sexual orientation. Each of these laws has a broad exemption for religious organizations. To illustrate, the New York state law provides: “Nothing contained in this section shall be construed to bar any religious or denominational institution or organization, or any organization operated for charitable or educational purposes, which is operated, supervised or controlled by or in connection with a religious organization, from limiting employment … or giving preference to persons of the same religion or denomination or from taking such action as is calculated by such organization to promote the religious principles for which it is established or maintained.” The City of New York municipal code contains an almost identical provision. Such language clearly is broad enough to apply to the church in this case, and the court’s ruling to the contrary represents a very narrow interpretation of the law that may well be reversed on appeal.

Second, this case illustrates that some cities have enacted ordinances banning discrimination by employers on the basis of sexual orientation. It is imperative for church leaders to be familiar with their own municipal ordinances as well as federal and state employment laws. The court conceded that the state law banning sexual orientation discrimination in employment did not apply to the church since it was not enacted until after the alleged discrimination occurred. However, it ruled that the church could be sued for violating a similar ban contained under the municipal code.

Third, the court ruled that the church could be sued for religious discrimination. Once again, state and city laws contain a broad exemption from the ban on religious discrimination, and the court’s narrow interpretation of these exemptions is vulnerable to reversal on appeal. Logan v. Salvation Army, 809 N.Y.S.2d 846 (Sup. Ct. 2005).

Legal Developments

Disability Discrimination

The application of the ministerial exception to FMLA claims.

Richard R. Hammar, Attorney, CPA
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Church Law & Tax Report

Disability Discrimination

The application of the ministerial exception to FMLA claims.

Richard R. Hammar, J.D., LL.M., CPA

Key point 2-04.1. Most courts have concluded that they are barred by the First Amendment guarantees of religious freedom and nonestablishment of religion from resolving challenges by dismissed clergy to the legal validity of their dismissals.

Key point 8-06. The civil courts have consistently ruled that the First Amendment prevents the civil courts from applying civil rights laws to the relationship between a church and a minister.

* A federal court in Pennsylvania ruled that it was barred by the First Amendment from resolving a church music director’s claims that her employing church discriminated against her on the basis of her disabilities, and violated the Family Medical Leave Act. A woman (Ann) performed ministerial responsibilities as the director of music for a church. As its director of music, the church considered Ann to be a non-ordained liturgical minister who was an integral part of the pastoral and spiritual mission of the church and not simply a member of the custodial, clerical, or office personnel. Ann herself repeatedly referred to her employment as her ministry, and, eventually, she admitted that her responsibilities were ministerial in nature.

Ann claimed that she had a neurological disorder, and, as a result of her condition, was experiencing physical difficulties and decreased stamina and energy. She claimed that she approached the senior pastor of the church and requested a break from her employment as director of music. The pastor reportedly denied her request after she informed him that she did not know how long of a break she would need. Ann claimed that at that point she had no choice but to resign from her position, which she did in writing. Later, she requested reinstatement, which was denied. She then filed a “Charge of Discrimination” with the Equal Employment Opportunity Commission (EEOC), and later sued the church in federal court. She eventually dropped her disability claim, and proceeded with her Family Medical Leave Act (FMLA) claim. The church asked the court to dismiss the case on the basis of the so-called “ministerial exception,” which exempts employment relationships between religious institutions and their ministers from various federal employment laws. Ann argued that the ministerial exception did not apply to FMLA claims.

The court concluded that Ann’s duties as director of music made her a “minister” for purposes of the ministerial exception, and that the ministerial exception applied to FMLA claims. As a result, the court dismissed Ann’s FMLA claim.

The church sought a court order compelling Ann to pay its attorneys’ fees. It based this request on Title 28, section 1927 of the United States Code, which specifies that “any attorney who multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses and attorneys’ fees reasonably incurred because of such conduct.” Specifically, the court noted that there must be “willful bad faith, which is evident when claims advanced were meritless, that counsel knew or should have known this, and that the motive for filing the suit was for an improper purpose such as harassment.” The court concluded that the behavior of Ann’s attorney was not “of an egregious nature, so stamped by bad faith that is violative of recognized standards in the conduct of litigation.” It conceded that Ann’s attorney “initially and obdurately refused to acknowledge that she was a minister in the church in the face of a significant evidentiary array that she was a minister and so considered herself, he ultimately acted reasonably by stipulating to that fact and by voluntarily dismissing the ADA claim.”

Application. This case is significant because it is the first court to address the application of the ministerial exception to FMLA claims. The court concluded that the exception applies. This ruling will be directly relevant to any church or denominational agency having 50 or more employees (the minimum number of employees required for FMLA coverage). Fassl v. Our Lady of Perpetual Help Roman Catholic Church, 2005 WL 3135921 (E.D. Pa. 2006).

* See also (1) “Defamation,” Trice v. Burress, 137 P.3d 1253 (Okla. App. 2006); (2) “Sexual misconduct by clergy, lay employees, and volunteers,” 2006 WL 1009283 (W.D. Wash. 2006), in the recent developments section of this newsletter.

Legal Developments

Age Discrimination and Denomination Policy

A minister’s age discrimination lawsuit challenging a denominational policy requiring the retirement of ministers at 70 years of age was barred by the federal Religious Freedom Restoration Act.

Richard R. Hammar, Attorney, CPA
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Church Law & Tax Report

Age Discrimination and Denomination Policy

A minister’s age discrimination lawsuit challenging a denominational policy requiring the retirement of ministers at 70 years of age was barred by the federal Religious Freedom Restoration Act.

Richard R. Hammar, J.D., LL.M., CPA

Key point 8-06. The civil courts have consistently ruled that the First Amendment prevents the civil courts from applying civil rights laws to the relationship between a church and a minister.

Key point 13-02.2. Congress enacted the Religious Freedom Restoration Act to prevent the government from enacting any law or adopting any practice that substantially burdens the free exercise of religion unless the law or practice is supported by a compelling government interest. The compelling government interest requirement applies to any law, including neutral laws of general applicability. The objective of the Act was to repudiate the Supreme Court’s decision in the Smith case (1990) in which the Court ruled that neutral laws of general applicability that burden the free exercise of religion do not need to be supported by a compelling government interest in order to satisfy the First Amendment. In 1997, the Supreme Court ruled that the Act was unconstitutional. However, other courts have limited this ruling to state and local legislation, and have concluded that the Act continues to apply to federal laws.

* A federal appeals court ruled that a minister’s age discrimination lawsuit challenging a denominational policy requiring the retirement of ministers at 70 years of age was barred by the federal Religious Freedom Restoration Act. A minister was forced into retirement at age 70 by a policy of his denomination. The minister sued his church and a denominational official for violating a federal age discrimination law making it unlawful for any employer with 20 or more employees that is engaged in commerce to discriminate in any employment decision on the basis of the age of any person who is at least 40 years of age. The minister asserted that the mandatory retirement policy was a “secular” matter that was not influenced by any religious considerations. He acknowledged that most courts refuse to intervene in employment disputes between churches and clergy as a result of the so-called “ministerial exception” to employment laws, but he insisted that the ministerial exception “should not insulate a church’s non-religious regulations that discriminate against ministers on the basis of age.” A federal district court dismissed the lawsuit on the basis of the ministerial exception.

A federal appeals court ignored the ministerial exception and ruled that the lawsuit was barred by the federal Religious Freedom Restoration Act (RFRA). It noted that the ministerial exception “has no basis in statutory text, whereas RFRA, if applicable, is explicit legislation that could not be more on point. Given the absence of other relevant statutory language, the RFRA must be deemed the full expression of Congress’s intent with regard to the religion-related issues before us and displace earlier judge-made doctrines that might have been used to ameliorate the age discrimination law’s impact on religious organizations and activities.”

RFRA provides: “Government shall not substantially burden a person’s exercise of religion even if the burden results from a rule of general applicability … [unless] it demonstrates that application of the burden to the person is in furtherance of a compelling governmental interest, and is the least restrictive means of furthering that compelling governmental interest.” The court reasoned that RFRA was broad enough to apply to a minister’s lawsuit against a church “since it applies to all federal law and the implementation of that law.” This language “easily covers the present action.”

The court rejected the minister’s claim that RFRA is unconstitutional. It concluded that RFRA represents a constitutional exercise of congressional power as it applies to the federal government.

One dissenting judge argued that RFRA has no application to disputes between private parties, such as the present case, and that the case should have been dismissed on the basis of the ministerial exception.

Application. This case suggests that the Religious Freedom Restoration Act can be used by churches to defend against discrimination claims under federal employment laws. This is the first court to reach such a conclusion. Other courts, and the dissenting judge in this case, apply the “ministerial exception” to such disputes. Hankins v. Lyght, 441 F.3d 96 (2nd Cir. 2006).

* See also (1) “Clergy—removal,” Fassl v. Our Lady of Perpetual Help Roman Catholic Church, 2005 WL 3135921 (E.D. Pa. 2006); (2) “Clergy—removal,” Celnik v. Congregation B’Nai Israel, 131 P.3d 102 (N.M. 2006), in the recent developments section of this newsletter.

Legal Developments

Unemployment

An Oregon court ruled that a church was required to pay state unemployment taxes on its pastor since he was an employee.

Richard R. Hammar, Attorney, CPA
Bio

Key point. Churches are exempt from paying unemployment taxes on their employees, except in Oregon.

An Oregon court ruled that a church was required to pay state unemployment taxes on its pastor since he was an employee.

Oregon is the only state that currently requires churches to pay unemployment taxes on their pastors. The church in this case argued that they were not required to pay unemployment taxes on their pastor since he was an independent contractor rather than an employee.

The court acknowledged that employers are not required to pay unemployment taxes on independent contractors, but it concluded that the pastor was not an independent contractor. In support of this conclusion, the court noted that the pastor was subject to dismissal by the church for failing to carry out his duties consistently with what the church regarded as biblical doctrine.

The court also rejected the church's argument that requiring it to pay unemployment taxes violated its constitutional right of religious freedom. The church had argued that requiring it to acknowledge that it was the pastor's "employer" conflicted with its religious belief that his employer was God, not the church.

The court concluded, "The state's unemployment taxation law applies to all employers, regardless of the religious beliefs of the employers or their employees, and is intended to protect the economic security of the state's residents, not to inhibit or promote any particular religious beliefs. Any effect on the religious beliefs of the church are purely incidental. Requiring the church to report to the department as an employer, therefore, is not prohibited by [the first amendment guaranty of religious freedom]." Church at 295 S. 18th Street v. Employment Department, 28 P.3d 1185 (Or. App. 2001).

Legal Developments

Landmark Supreme Court Ruling Favors Arbitration of Employment Disputes

What church leaders need to know.

Richard R. Hammar, Attorney, CPA
Bio

By a 5-4 vote, the United States Supreme Court ruled that a clause in an employment application requiring disputes to be settled through binding arbitration was legally enforceable. As a result, the Court threw out a lawsuit brought by an employee for alleged violations of a state nondiscrimination law and ordered the dispute to be resolved through arbitration. The Court did not address whether arbitration clauses in employment applications and contracts can preempt the EEOC of jurisdiction to process discrimination claims under federal laws. That issue will be addressed by the Supreme Court in another case later this year. However, the Court's conclusion that employers can compel employees to resolve their disputes under state law through binding arbitration is a significant victory for employers. Unlike federal law, most state nondiscrimination laws contain no limit on money damages and so the biggest exposure to liability is for state law violations. This article reviews the Court's historic ruling, describes the many advantages of arbitration, and provides church leaders with information that will help them evaluate whether or not they should implement an arbitration policy for employees.

• Key point Negligence as a Basis for Liability Churches have various defenses available to them if they are sued as a result of a personal injury. One such defense is an arbitration policy. By adopting an arbitration policy, a church can compel members to arbitrate specified disputes with their church rather than pursue their claim in the civil courts.

The arbitration of disputes has many advantages over litigation in the civil courts. Consider the following:

(1) a much faster resolution of disputes

(2) lower attorneys' fees

(3) arbitration awards are often less than civil court judgments

(4) little if any risk of punitive damages, or astronomical verdicts out of proportion to the alleged wrong

(5) disputes are resolved privately, with little or no media attention

(6) the spectacle of plaintiffs' attorneys appealing to the emotions of juries through courtroom theatrics is eliminated

(7) arbitration can reconcile the parties to a dispute unlike civil litigation in which the parties almost always enter and leave court as enemies

(8) no threatening letters from attorneys demanding exorbitant payoffs in order to avoid litigation

(9) parties to a dispute can select one or more arbitrators having specialized knowledge concerning the issues involved (unlike civil court judges who often have limited familiarity with applicable law)

(10) arbitration awards are final (no time-consuming appeals)

With these numerous advantages, arbitration is becoming an increasingly common way of resolving disputes. A recent decision by the United States Supreme Court will make arbitration of disputes even more common, especially for employment disputes. This article will review the facts of the Supreme Court's landmark ruling, summarize the court's ruling, and assess the significance of the case to churches.

Facts

In 1995 a man ("Brian") applied for a job at a local Circuit City store in California. Brian signed an employment application which included the following provision:

I agree that I will settle any and all previously unasserted claims, disputes or controversies arising out of or relating to my application or candidacy for employment, employment and/or cessation of employment with Circuit City, exclusively by final and binding arbitration before a neutral Arbitrator. By way of example only, such claims include claims under federal, state, and local statutory or common law, such as the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, as amended, including the amendments of the Civil Rights Act of 1991, the Americans with Disabilities Act, the law of contract and the law of tort.

Brian was hired as a sales counselor by the store. Two years later, Brian filed an employment discrimination lawsuit against Circuit City in state court, asserting claims under California's Fair Employment Act and other claims under California law. Circuit City asked a federal court to throw out Brian's lawsuit and compel arbitration of his claims pursuant to the arbitration provision in the employment application. The court granted Circuit City's requests. It concluded that Brian was obligated by the arbitration agreement to submit his claims against his employer to binding arbitration. Brian appealed. A federal appeals court ruled that the Federal Arbitration Act excluded all employment contracts from mandatory arbitration, and on that basis ruled that the arbitration provision in the Circuit City employment application was unenforceable. Circuit City appealed to the Supreme Court.

The Court's Ruling

Congress enacted the Federal Arbitration Act ("FAA") in 1925 as a response to the hostility of American courts to the enforcement of arbitration agreements. To give effect to this purpose, the FAA compels judicial enforcement of a wide range of written arbitration agreements. The FAA specifies that

[a] written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

The FAA excludes from coverage "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." As a result, arbitration cannot be mandated in employment contracts for these workers. But, does this exemption apply only to employment contracts of seamen, railroad employees, and other "transportation" employees, or does it apply to the employment contracts of all employees regardless of their occupation? Prior to the Supreme Court's ruling, most courts had interpreted this exemption to extend to employment contracts of transportation workers only, but not other employment contracts. The Supreme Court agreed with this interpretation. Since Brian was not engaged in the transportation industry, the arbitration provision in his employment application was enforceable pursuant to the FAA. The Court observed,

The exemption clause provides the Act shall not apply "to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." Most Courts of Appeals conclude the exclusion provision is limited to transportation workers, defined, for instance, as those workers "actually engaged in the movement of goods in interstate commerce" …. [The federal appeals court in this case] takes a different view and interprets the exception to exclude all contracts of employment from the reach of the FAA …. [T]he words "any other class of workers engaged in … commerce" constitute a residual phrase, following, in the same sentence, explicit reference to "seamen" and "railroad employees." Construing the residual phrase to exclude all employment contracts fails to give independent effect to the statute's enumeration of the specific categories of workers which precedes it; there would be no need for Congress to use the phrases "seamen" and "railroad employees" if those same classes of workers were subsumed within the meaning of the "engaged in … commerce" residual clause. The wording calls for the application of the maxim ejusdem generis, the statutory canon that "[w]here general words follow specific words in a statutory enumeration, the general words are construed to embrace only objects similar in nature to those objects enumerated by the preceding specific words." Under this rule of construction the residual clause should be read to give effect to the terms "seamen" and "railroad employees," and should itself be controlled and defined by reference to the enumerated categories of workers which are recited just before it; the interpretation of the clause pressed by respondent fails to produce these results …. [T]he FAA [exempts] only contracts of employment of transportation workers.

The Court noted that attorneys general of 22 states had filed briefs supporting the exemption of all employment contracts from mandatory arbitration under the FAA. They argued that, by requiring arbitration agreements in most employment contracts to be covered by the FAA, the Act in effect "pre-empts" those state employment laws which restrict or limit the ability of employees and employers to enter into arbitration agreements. They claimed that states should be permitted, pursuant to their traditional role in regulating employment relationships, to prohibit employees like Brian from contracting away their right to pursue state law discrimination claims in court. The Supreme Court simply noted that it had ruled in a previous case that Congress intended the FAA to apply in state courts, and to pre-empt state "anti-arbitration" laws to the contrary. Southland Corp. v. Keating, 465 U.S. 1 (1984).

The Court stressed the advantages of arbitration agreements:

There are real benefits to the enforcement of arbitration provisions. We have been clear in rejecting the supposition that the advantages of the arbitration process somehow disappear when transferred to the employment context. Arbitration agreements allow parties to avoid the costs of litigation, a benefit that may be of particular importance in employment litigation, which often involves smaller sums of money than disputes concerning commercial contracts. These litigation costs to parties (and the accompanying burden to the courts) would be compounded by the difficult choice-of-law questions that are often presented in disputes arising from the employment relationship and the necessity of bifurcation of proceedings in those cases where state law precludes arbitration of certain types of employment claims but not others.

The Court noted that expanding the FAA's exemption provision to include all employment contracts, as Brian urged, "would call into doubt the efficacy of alternative dispute resolution procedures adopted by many of the nation's employers, in the process undermining the FAA's pro-arbitration purposes and 'breeding litigation from a statute that seeks to avoid it.'"

The Court also noted that in prior rulings it had been "quite specific in holding that arbitration agreements can be enforced under the FAA without contravening the policies of congressional enactments giving employees specific protection against discrimination prohibited by federal law … [and that] by agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum."

Relevance To Church Leaders

Our research reveals that churches are increasingly being sued for employment-related claims. To illustrate, in 1999 (the most recent year we have examined) employment-related claims were the number one cause of church litigation. Employment-related claims include wrongful dismissal, unemployment benefits, workers compensation, the selection of ministers, and various kinds of discrimination claims (including race, national origin, sex, religion, age, and disability).

• Key point. According to Forbes magazine, employment disputes now represent one-third of all cases pending in federal court, and one-fifth of all cases pending in state court.

Employment-related claims are significant not only because of their number, but also because they represent an uninsured risk for most churches. Most church general liability insurance policies contain no coverage for such claims. This means that a church that is sued for such a claim will be compelled to hire and pay its own attorney, and pay any settlement or court judgment. The costs associated with even a single claim can be substantial, and this can force a church to divert funds budgeted for ministry to the payment of attorneys and possibly a settlement or judgment.

Further, if a discrimination complaint is filed by a current or former employee with the Equal Employment Opportunity Commission (EEOC) or its state or local counterparts, this can lead time-consuming and often unpleasant interaction with government investigators that many church leaders have found to be condescending if not hostile toward religion.

Clearly, it is in the best interests of every church to consider alternatives to civil litigation. The Supreme Court case addressed in this article demonstrates that arbitration is a legally valid alternative.

Here are some points for church leaders to consider:

1. the arbitration of employment claims under state law

In the past, some courts and state legislatures attempted to impose limits on the enforceability of arbitration provisions in employment contracts under state law. The Supreme Court's decision in the Circuit City case addressed the enforceability of arbitration provisions in the context of state employment or civil rights claims. The Court concluded that (1) arbitration provisions are enforceable, and are not barred by the Federal Arbitration Act (for employees not directly engaged in transportation); and (2) the FAA preempts states laws that seek to impose limits on the enforceability of arbitration provisions in employment contracts. It is now clear that employers can compel employees to arbitrate wrongful dismissal and discrimination claims under state law by inserting valid arbitration provisions in employment contracts and applications.

2. the arbitration of employment claims under federal law

Can a clause in an employment application or contract calling for binding arbitration of employment disputes pre-empt the jurisdiction of the EEOC under federal employment and civil rights laws? Consider the following example.

• Example. A church employs Barb as an office secretary. After working for the church for two years, Barb is dismissed because of extramarital sexual relations in violation of the church's religious and moral teachings. Barb files a complaint with the EEOC claiming that her dismissal constituted unlawful sex discrimination in violation of Title VII of the federal Civil Rights Act of 1964 since the church had not dismissed a male youth pastor who was guilty of the same kind of misconduct a year earlier. The church insists that the EEOC must drop its investigation since Barb signed an employment application prior to being hired in which she agreed to resolve all legal disputes with the church, including discrimination claims under Title VII, through binding arbitration.

Is the EEOC deprived of jurisdiction over this claim by virtue of the arbitration clause in the church's employment application? This issue was not addressed directly by the Supreme Court in the Circuit City case. The Court's decision contains language suggesting that arbitration clauses can compel employees to resolve disputes alleging violations of federal employment laws through arbitration. The Court has agreed to resolve this important issue, and a ruling is expected by the end of the year in the "Waffle House" case. EEOC v. Waffle House, Inc., 193 F.3d 805 (4th Cir. 1999). In the Waffle House case an applicant for employment (Eric) signed an employment application with a local Waffle House restaurant that required him to submit to binding arbitration "any dispute or claim concerning [his] employment with Waffle House, Inc., or any subsidiary or Franchisee of Waffle House, Inc., or the terms, conditions or benefits of such employment." Eric was hired, and a few weeks later he suffered a seizure while at work. Waffle House dismissed Eric, stating in the separation notice that "We decided that for [his] benefit and safety, and Waffle House, it would be best he not work here any more." Chris filed a charge of discrimination with the EEOC, complaining that his discharge violated the federal Americans With Disabilities Act of 1990 ("ADA"). The EEOC later sued Waffle House and sought (1) a court order prohibiting Waffle House from discriminating on the basis of disability in any employment decision; and (2) a court order requiring Waffle House to institute an anti-discrimination policy; (3) backpay for Chris and reinstatement in his job; and (4) compensatory and punitive damages for Chris. Waffle House insisted that the arbitration provision in the employment contract required the court to dismiss the ADA suit and refer the matter to arbitration.

A federal appeals court ruled that the arbitration provision was valid and enforceable, and was binding not only on Chris but also on the EEOC with respect to claims it brought on Chris's behalf. This meant that the claims for backpay, reinstatement, and compensatory and punitive damages had to be dismissed and referred to arbitration. On the other hand, the EEOC's requests for court orders compelling Waffle House to cease any further discrimination on the basis of disability, and to implement an anti-discrimination policy, could be resolved by the court because these claims were brought by the EEOC in its own right rather than as a representative of Chris. The court concluded,

[T]he EEOC, acting in its public role, is not bound by private arbitration agreements. Although a private arbitration agreement does bar an individual claimant from asserting claims in court, it does not prevent him from filing a charge with the EEOC. This rule demonstrates … that the EEOC's suit can accomplish aims-namely, combating discrimination on a societal level-that an individual's suit is not equipped, nor perhaps intended, to accomplish …. While we have thus observed that the important role of the EEOC in vindicating the public interest in preventing and eradicating workplace discrimination is not to be restricted by arbitration agreements to which it is not a party, its role in vindicating in federal court the individual interests of the charging party implicates the competing federal policy favoring the enforcement of arbitration agreements. When an individual and an employer agree to submit employment disputes to arbitration, it is the federal policy to give that contract effect in order to favor the arbitration mechanism for dispute resolution. To permit the EEOC to prosecute in court [Eric's] individual claim-the resolution of which he had earlier committed by contract to the arbitral forum-would significantly trample this strong policy favoring arbitration. Because [Eric's] own suit in court to enforce his ADA claim would be barred by his contract and by the federal policy embodied in the FAA, only a stronger, competing policy could justify allowing the EEOC to do for Eric what he could not have done himself. The EEOC's public mission to eradicate and to prevent discrimination may be such a policy in certain contexts, but, as we conclude herein, it cannot outweigh the policy favoring arbitration when the EEOC seeks relief specific to the charging party who assented to arbitrate his claims.

In summary, while the EEOC "may seek injunctive relief in the federal forum for employees even when those employees have entered into binding arbitration agreements," it may not pursue relief in court [such as money damages] specific to individuals who have waived their right to a judicial forum by signing an arbitration agreement." When the EEOC seeks reinstatement and monetary damages for an employee who claims to have been the victim of unlawful employment discrimination under federal law, "the federal policy favoring enforcement of private arbitration agreements outweighs the EEOC's right to proceed in federal court because in that circumstance, the EEOC's public interest is minimal, as the EEOC seeks primarily to vindicate private, rather than public, interests. On the other hand, when the EEOC is pursuing large-scale injunctive relief, the balance tips in favor of EEOC enforcement efforts in federal court because the public interest dominates the EEOC's action."

• Key point. If the Supreme Court affirms the federal appeals court's decision in the Waffle House case, this will be good news for employers since it will mean that they can compel employees to resolve their demands for money damages resulting from alleged violations of federal employment laws through binding arbitration. All of the advantages associated with arbitration (summarized at the beginning of this article) will be realized.

• Key point. If the Supreme Court reverses the federal appeals court's decision in the Waffle House case, this will mean that arbitration clauses in employment applications and contracts do not deprive the EEOC of jurisdiction to process discrimination complaints under federal law (including both injunctive relief and money damages for individual victims of discrimination). However, note that if the Supreme Court overturns the Waffle House case there is still a significant advantage to using arbitration clauses in employment applications and contracts. The Supreme Court concluded in the Circuit City case that arbitration clauses prevent employees from pursuing discrimination or wrongful dismissal claims under state law. And, it is these state law claims that expose employers to the greatest amount of money damages since there are limits on employer liability under Title VII of the federal Civil Rights Act of 1964. The Civil Rights Act of 1991 limits the amount of compensatory and punitive damages that are available to most discrimination victims. For example, employers with fewer than 101 employees (the vast majority of churches) cannot be liable for more than $50,000 to any one person. Because of these limits, plaintiffs' attorneys who represent current and former employees routinely file claims under state law. It is these state law claims that expose employers to substantial jury verdicts, and it is these that the Supreme Court has said may be pre-empted by arbitration provisions.

3. should our church compel employees to arbitrate employment claims?

This is a question that every church should consider. In answering this question, there are a number of points that should be considered:

(1) The advantages to arbitration, listed at the beginning of this article, should be reviewed.

(2) Remember that employment claims currently represent the most likely basis for lawsuits involving churches.

(3) Is your church subject to state or federal civil rights laws protecting employees against various forms of discrimination? What about other kinds of employment claims, such as wrongful dismissal?

(4) Employment lawsuits generally are not covered under church general liability insurance policies. This means that if your church is sued for such a claim, you may be required to hire and pay your own attorney, and pay any settlement or court judgment. The costs associated with a single claim can be substantial.

(5) Check with your insurance agent to see if your church has insurance to cover employment claims. Remember that such coverage may be available under a directors and officers insurance policy, if you have one, even if it is not provided under your general liability policy.

• Key point. If you don't have coverage for employment claims, then arbitration may help your church limit the costs associated with such claims. But remember, the costs associated with a single claim may be substantial. As a result, church leaders should discuss with their insurance agent or broker the availability of employment practices insurance coverage. And, they should take steps to minimize or manage the risk of employment-related legal claims. We publish three resources that can help: (1) Pastor, Church & Law (3rd ed. 2000) by Richard Hammar; (2) The Church Guide to Employment Law by Julie Bloss; and (3) Risk Management For Churches and Schools by Richard Hammar and James Cobble. All of these resources can be obtained by calling Christian Ministry Resources (1-800-222-1840), or by visiting the bookstore on our web site, www.iclonline.com.

(6) If you have insurance to cover employment claims, then check with your insurance company to be sure that an arbitration award would be honored under your insurance policy up to your coverage limits.

(7) Be sure to consult with an attorney concerning the advantages and disadvantages of an arbitration policy. You may want to have an attorney meet with your board or congregation concerning this issue. If possible, use an attorney who specializes in employment law.

(8) Many cite 1 Corinthians 6:1-8 as scriptural support for the arbitration of internal church disputes. This passage is quoted below:

if any of you has a dispute with another, dare he take it before the ungodly for judgment instead of before the saints? Do you not know that the saints will judge the world? And if you are to judge the world, are you not competent to judge trivial cases? Do you not know that we will judge angels? How much more the things of this life! Therefore, if you have disputes about such matters, appoint as judges even men of little account in the church! I say this to shame you. Is it possible that there is nobody among you wise enough to judge a dispute between believers? But instead, one brother goes to law against another-and this in front of unbelievers! The very fact that you have lawsuits among you means you have been completely defeated already. Why not rather be wronged? Why not rather be cheated? Instead, you yourselves cheat and do wrong, and you do this to your brothers.

4. how do we implement a policy for the arbitration of employment disputes?

If your church decides to implement an arbitration policy for the resolution of disputes with employees, how do you do so? Given the importance of having a policy that complies with local law, we recommend that any church wanting to adopt an arbitration policy retain the services of a local attorney who specializes in employment law. The last thing you want is a false sense of security based on a home-made and unenforceable arbitration policy. Here are some recommendations you may want to share with your attorney:

(1) Check with other churches in your state and find some that have adopted arbitration policies. Ask if you can see their policies.

(2) Ask your insurance company if it has sample arbitration policies for churches.

(3) Be sure that the arbitration policy covers claims under federal, state, and local civil rights and employment laws. Ideally, you will want to refer to applicable laws by name. If you don't, then employees may be able to avoid arbitration by saying that they did not understand what they were agreeing to arbitrate because the arbitration clause was not specific enough.

(4) Be sure the arbitration policy contains a "severability" clause. Such a clause states that if any provision of the policy is determined to be invalid by a court of law, the remaining provisions will remain valid. To illustrate, if the Supreme Court reverses the Waffle House case, then employees cannot be compelled to arbitrate claims under federal civil rights laws. A church arbitration clause that covers both federal and state claims will likely remain valid as to state claims, and this conclusion will be reinforced by the presence of a savings clause.

Your attorney will assist you in deciding whether to place the arbitration policy in your employment application, in an employee handbook, or both.

A sample arbitration agreement drafted by the National Arbitration Forum is reproduced in this article. NAF is a nationwide network of retired judges, litigators, and law professors who share the Forum principle that disputes should be decided according to established legal principles. NAF is the only national arbitration provider whose arbitrators take an oath promising to render legal decisions according to the law, rather than undefined "equity." To meet NAF standards, each arbitrator has more than 15 years legal experience and has arbitrated commercial, financial, and business disputes. Each is qualified under local rules in their community and jurisdiction. As arbitrators, each understands that judgment must be made on the basis of applicable law rather than what "seems fair" to one person. Forum arbitrators and mediators are located in the federal judicial district of every state in the nation. Service is nationwide, no matter where the dispute arises. NAF can be reached at www.arb-forum.com, or by mail at P.O. Box 50191, Minneapolis, MN 55405, or by calling 1-800-474-2371.

• Key point. The NAF sample arbitration policy should not be used by churches without appropriate modifications and the assistance of a local attorney to ensure compliance with local law.

5. what about employment disputes regarding ministers?

There is no reason to exclude ministers from a church's arbitration policy. However, note the following unique rules:

(1) Most courts have ruled that ministers are not protected by federal and state civil rights laws since the first amendment religious clauses prevent the civil courts from deciding "who will preach from the pulpit." Therefore, you may want to exclude ministers, or those serving in positions that would be deemed "ministerial," from your arbitration policy. In other words, why submit claims to arbitration that the civil courts would not accept? On the other hand, some churches may prefer to arbitrate all employee claims, including those brought by ministers.

(2) Many churches have governing documents (such as bylaws) that prescribe how ministers are selected and removed. If a congregation acts to remove a minister in accordance with its governing document and the minister threatens to challenge the church's decision, you need to decide if this is the kind of claim you want to submit to arbitration. That is, if the church acts consistently with its bylaws in removing the pastor, should the pastor be able to use the church's arbitration policy to challenge the church's decision? Once again, the courts generally have not been willing to resolve such claims.

(3) In some churches, ministers are selected and removed only through action of a parent denominational agency. Employment claims involving ministers may be resolved within the denomination using existing procedures. Arbitrating such claims may conflict with denominational rules. This issue must be clarified with denominational officers before adopting an arbitration policy.

6. what about the arbitration of other claims?

This article is addressing only the arbitration of disputes involving employees. Church leaders may want to consider adopting a separate policy to resolve disputes involving members and the church, or disputes between members.

7. civil court review of arbitration awards

Note that the Federal Arbitration Act cautions that "an agreement in writing to submit to arbitration an existing controversy … shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." In other words, an agreement to arbitrate is a contract, and like any contract, is subject to challenge on the basis of a number of legal theories. This is why it is so important for churches to have arbitration policies drafted by an attorney who specializes in employment law.

8. what about current employees who have not signed an arbitration agreement?

Let's say that your church has 7 employees, and that you decide to adopt an arbitration policy this year. Will your policy be binding on existing employees, or only on new employees hired after implementation of the policy? The courts have reached conflicting answers to this question. Ask your attorney how to best ensure that your policy covers both current and future employees. The basic idea here is that new employment conditions, such as the arbitration of disputes, are not legally enforceable unless employees receive something of value (other then compensation or benefits to which they are already entitled). For example, some courts have ruled that an agreement to arbitrate future employment claims is enforceable if incorporated into current employees' annual performance reviews. Miller v. Public Storage Management, Inc., 121 F.3d 215 (5th Cir. 1997). Other courts have allowed an arbitration policy to apply to current employees so long as they agree in writing to be bound by the policy at the time they receive a pay raise.

Sample Agreement to Arbitrate Claims

[This document should not be construed as legal advice. If you need legal advice, consult an attorney in your area.]

In recognition of the fact that differences may arise between the Company, as defined below, and the undersigned ("Employee") during or after Employee's employment which may or may not be related to Employee's employment, and in recognition of the fact that resolution of any differences in the courts is rarely time or cost effective for either party, the Company and the Employee have entered into this Mutual Agreement to Arbitrate Claims ("Agreement") in order to establish and gain the benefits of a speedy, impartial and cost-effective dispute resolution procedure.

1. Agreement to Arbitrate; Designated Claims. The parties agree that all references to the "Company" in this Agreement shall include all of its subsidiary and affiliated entities, including all former, current and future officers, directors and employees of all such entities, in their capacity as such or otherwise; all benefit plans and their sponsors, fiduciaries, administrators, affiliates and agents, in their capacity as such and otherwise; and all successors and assigns of any of them. Except as otherwise provided in this Agreement, the Company and the Employee hereby consent to the resolution by arbitration of all claims or controversies for which a federal or state court or other dispute resolution body otherwise would be authorized to grant relief, whether or not arising out of, relating to or associated with the Employee's employment with the Company, or its termination, including, but not limited to, any claims or controversies arising out of, relating to or associated with the Employee's application for employment and the Company's hiring of the Employee, that the Employee may have against the Company or that the Company may have against the Employee. The Claims covered by this Agreement include, but are not limited to, claims for wages or other compensation due; claims for breach of any contract or covenant, express or implied; tort claims; claims for discrimination or harassment on bases which include but are not limited to race, sex, sexual orientation, religion, national origin, age, marital status, disability or medical condition; claims for benefits, except as excluded in paragraph 4; and claims for violation of any federal, state or other governmental constitution, statute, ordinance, regulation, or public policy. The purpose and effect of this Agreement is to substitute arbitration as the forum for resolution of the Claims; all responsibilities of the parties under the statutes applicable to the Claims shall be enforced.

2. Governing Law. The parties agree that the Company is engaged in transactions involving interstate commerce. Except as provided in this Agreement, the Federal Arbitration Act shall govern the interpretation, enforcement and all proceedings pursuant to this Agreement; and all arbitrations covered by this Agreement shall be adjudicated in accordance with the state or federal law which would be applied by a United States District Court sitting at the place of the hearing, including applicable statutes of limitations.

3. Waiver of Right to Jury. By entering into this Agreement, the Company and Employee each knowingly and voluntarily waive any and all rights they have under law to a trial before a jury.

4. Claims Not Covered by This Agreement. This Agreement does not apply to or cover claims for workers' compensation or unemployment compensation benefits; claims resulting from the default of any obligation of the Company or the Employee under a mortgage loan which was granted and/or serviced by the Company; claims for injunctive and/or other equitable relief for intellectual property violations, unfair competition and/or the use and/or unauthorized disclosure of trade secrets or confidential information; or claims based upon an employee pension or benefit plan that either (1) contains an arbitration or other non-judicial resolution procedure, in which case the provisions of such plan shall apply, or (2) is underwritten by a commercial insurer which decides claims. If either the Company or the Employee has more than one claim against the other, one or more of which is not covered by this Agreement, such claims shall be determined separately in the appropriate forum for resolution of those claims. Nothing in this Agreement shall preclude the parties from agreeing to resolve claims other than Claims covered by this Agreement pursuant to the provisions of this Agreement.

5. Initiation of the Arbitration Process. To initiate the arbitration process, the aggrieved party must file a written Claim. Claims can be filed with any office of the National Arbitration Forum ("NAF"), electronically at www. arb-forum.com. or by mail at Post Office Box 50191, Minneapolis, MN 55405. Service of the Claim upon the responding party shall be made in accordance with the NAF Code of Procedure ("Code"). Copies of the Code are available upon request from the Human Resources Department in each of the Company's major facilities and from each of the Regional Offices, as well as from the NAF at each of its offices, its web site or by calling (800)474-2371.

6. Arbitration Procedures. Arbitrations pursuant to this Agreement shall be conducted by the NAF in accordance with the procedures set forth in the Code, except where the Code conflicts with this Agreement, in which case the terms of this Agreement shall govern. Arbitration hearings covered by this Agreement are to be held within the Federal Judicial District in which Employee was last employed with the Company. In the event NAF is unable or unwilling to administer the arbitration, then JAMS/Endispute, Inc. will administer any arbitration required under the Agreement pursuant to its Arbitration Rules and Procedures for Employment Disputes, as modified by this Agreement.

7. Representation. Each party may be represented by an attorney at any arbitration covered by this Agreement.

8. Fees and Costs. The party requesting the arbitration shall pay to NAF its filing fee up to a minimum of $125. 00 when the Claim is filed. The Company shall pay for the remainder of the NAF filing fee. The Company shall pay for the first hearing day. All other arbitration costs shall be shared equally by the Company and the Employee. Each party shall pay for each party's own costs and attorneys' fees, if any. However, the arbitrator may, in his or her discretion, permit the prevailing party to recover fees and cost only to the extent permitted by applicable law.

9. Discovery. The parties shall be entitled to engage in discovery in the form of requests for documents, interrogatories, requests for admission, physical and/or mental examinations and depositions; however, each side shall be limited to three depositions and an aggregate of 30 discovery requests of any kind, including sub-parts, except as mutually agreed to by the parties. Physical and/or mental examinations must be justified under the standards set forth by the Federal Rules of Civil Procedure. A deposition of a corporate representative shall be limited to no more than four designated subjects. At a mutually agreeable date, the parties will exchange lists of experts who will testify at arbitration. Each side may depose the other side's experts, and obtain the documents they reviewed and relied upon, and these depositions will not be charged to the parties' aggregate limit on discovery requests or the three deposition limit. Any disputes concerning discovery shall be resolved by the arbitrator, with a presumption against increasing the aggregate limit of requests; additional discovery requests shall be granted only upon a showing of good cause.

10. Motions. The arbitrator will have the authority to grant motions dispositive of all or part of any Claim.

11. Exclusive Remedy. For Claims covered by this Agreement, arbitration is the parties' exclusive remedy. The arbitrator has exclusive authority to resolve any dispute relating to the applicability or enforceability of this Agreement. The decision of an arbitrator on any Claims submitted to arbitration as provided by this Agreement shall be in writing setting forth the findings of fact and law and the reasons supporting the decision and shall be final and binding upon the parties, except that both parties shall have the right to appeal to the appropriate court any errors of law in the decision rendered by the arbitrator.

12. Consideration. In addition to any other consideration, each party's promise to resolve Claims by arbitration in accordance with the provisions of this Agreement, rather than through the courts or other bodies, is consideration for the other party's like promise.

13. Not an Employment Agreement. This Agreement is not, and shall not be construed to create, any contract of employment, express or implied, nor shall this Agreement be construed in any way to change the status of the Employee from at-will.

14. Term, Modification, and Revocation. This Agreement shall survive the employer-employee relationship between the Company and the Employee and shall apply to any covered Claim whether it arises or is asserted during or after termination of the Employee's employment with the Company or the expiration of any benefit plan. This Agreement can be modified or revoked only by a writing signed by the Employee and an executive officer of the Company that references this Agreement and specifically states an intent to modify or revoke this Agreement.

15. Severability. If any provision of this Agreement or the Code is adjudged to be void or otherwise unenforceable, in whole or in part, such adjudication shall not affect the validity of the remainder of the Agreement or the Code.

16. Sole and Entire Agreement. This is the complete agreement of the parties on the subject of arbitration of disputes, except for any arbitration provision contained in any pension or benefit plan. This Agreement supersedes any prior or contemporaneous oral or written agreement or understanding on the subject. In executing this Agreement, neither party is relying on any representation, oral or written, on the subject of the effect, enforceability or meaning of this Agreement except as specifically set forth in this Agreement.

Each party to this agreement acknowledges carefully reading this agreement, understanding its terms, and entering into this agreement voluntarily and not in reliance on any promises or representations other than those contained in this agreement itself.

Each party further acknowledges having the opportunity to discuss this agreement with personal legal counsel and has used that opportunity to the extent desired.

Circuit City Stores, Inc. v. Adams,___ U.S. ___ (2001)

Legal Developments

Accrued Sick Leave

Use it or lose it, court says.

Richard R. Hammar, Attorney, CPA
Bio

Background. Many churches have adopted "sick leave" policies that provide employees with a specified number of "sick days" each year. Most employees do not use all of their available sick days, and so a question often arises as to the correct treatment of accumulated but unused sick leave. Do employees have a legal right to be paid for accrued but unused sick days, or do sick days represent a fringe benefit that is lost if not used? An Indiana court addressed this important issue in a recent case.

Facts of the case. A city adopted a sick leave policy for its firefighters that read:

Sick leave is time off work with pay due to the illness or injury of the employee. Sick leave is a privilege to assure the employee some continuity of compensation in times of illness or incapacity. If an employee is absent from work more than three days consecutively due to illness, a doctor's certification may be required. A supervisor can request such certification at any time if sick leave abuse is suspected. Sick leave is to be used only due to illness of the employee, non-job related injury, [or] an illness in the immediate family or the employee ….

Sick leave will be accumulated at the rate of one day per month not to exceed a total of sixty days accumulative leave. This will be retroactive to the date of employment of each individual officer.

Three firefighters voluntarily resigned from their employment. At the time of their resignations, they had each accumulated about 1,500 hours of unused sick leave. They asked the city to compensate them for all of these hours at their hourly rate of pay. The city refused to do so, and the firefighters filed a lawsuit asking a court to order the city to pay them for their unused sick leave. In particular, they argued that accumulated sick leave is actually "deferred compensation" to which employees are entitled when they terminate their employment.

The court's ruling. A trial court rejected the firefighters' argument, and ruled that they were not entitled to any compensation for their accrued but unused sick leave. It noted:

Sick leave, while defined … as wages, may only be received under the policy of the city when ill, injured, or when immediate family is ill or injured. Although sick leave is accumulated at one day per month and up to sixty days can be accumulated, it is payable only upon illness or injury …. One may accumulate it only for future illness or injury and you can receive it only if you are ill or injured or off work due to illness or injury.

Therefore, since [the three firefighters] terminated their employment and as such they can no longer satisfy the requirement of sick leave benefits, they forfeit the accumulated sick leave. There is no loss to them since they were paid for every day that they worked and every day they were off sick or injured. Vacation days are for idleness and to which an employee is entitled without regard to any other conditions.

The firefighters appealed, and a state appeals court agreed with the trial court and ruled that the city did not have to pay any compensation for the accrued but unused sick days. On appeal, the firefighters argued that sick leave benefits should be treated the same as vacation benefits. They cited other cases in which courts had ruled that employees are entitled to compensation for all accumulated and vested vacation benefits. The court conceded that employees have a right to compensation for accrued vacation benefits at the time of termination, but it refused to apply this principle to sick leave. It concluded:

[The firefighters] argue that sick leave benefits are analogous to vacation benefits. We disagree and are unwilling to [apply vacation benefits cases] to cases involving accumulated sick pay. There is an obvious difference between accumulated vacation pay and accumulated sick pay. Vacation time can be taken by an employee without any conditions after that benefit is earned. However, an employee may take sick leave only when that employee is ill or meets other conditions. [The city's] policy is clear that sick leave is payable only when an employee must take time off work for specific reasons. While employees may accumulate sick leave days under the city's policy, they may only use those days for a limited purpose. An employee must use be sick or other conditions must be present before an employee has right to use sick leave. As such, sick leave is not a benefit which automatically vests when earned. Absent some personnel policy language to the contrary, employees are not entitled to compensation for sick leave which has been accumulated but not used when the employee terminates employment.

Relevance to church treasurers. What is the relevance of this case to church treasurers? Consider the following points:

No vested right

The court concluded that "sick leave is not a benefit which automatically vests when earned. Absent some personnel policy language to the contrary, employees are not entitled to compensation for sick leave which has been accumulated but not used when the employee terminates employment."

Does your church have a written sick leave policy?

If so, be sure to review it carefully. In particular, be sure you can answer the following questions:

  • Does our church have a sick leave policy? Is it in writing? Has it been communicated to employees? Has it been amended? If so, have amendments been communicated to employees? Have employees agreed to be bound by such amendments? Is the policy explained to all new employees?
  • Which employees are eligible for sick leave?
  • What, if any, conditions trigger an employee's right to sick leave? Obviously, most policies condition this benefit on illness or injury to the employee or in some cases the illness or injury of a family member of the employee. Does your policy contain additional conditions? Whatever conditions your policy contains are of vital importance. The central ruling of the court in this case was that employees are not entitled to any compensation for accumulated but unused sick leave at the time of the termination of their employment since the conditions to payment of the benefit have not occurred (illness or injury).
  • Does our policy change the basic rule that employees are not entitled to compensation for accrued but unused sick leave at the time of their termination? The court stressed that employers are free to do so if they wish.
  • Does our policy limit the amount of sick leave that an employee can take in one year? If it does not, consider amending the policy to include such a provision.
  • Does our policy limit the amount of unused sick leave that an employee can accumulate during the year and carry over to the following year? If it does not, consider amending the policy to include such a provision.
  • Has our policy been reviewed by an attorney? This is a recommended practice.

Vacation benefits

The court pointed out that vacation benefits are different from sick leave. They are earned and "vested" during an employee's term of employment. Generally, there are no "conditions" (such as illness or injury) that must occur in order to qualify for the benefit. As such, employers should pay employees the value of their accrued but unused vacation days at the time of their termination—unless the right to compensation for accrued vacation days has been limited by policy or contract.

Check your state law

Some states have enacted laws or regulations addressing the legal status of accrued sick leave. This is why it is a good practice to have your sick leave policy reviewed by a local attorney.

Shorter v. City of Sullivan, 701 N.E.2d 890 (Ind. App. 1998)

Legal Developments

Age Discrimination and Religious Organizations

Court says religious organizations not applicable to most religious organizations.

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax 1995-01-01 Recent Developments

Employment Practices

Richard R. Hammar, J.D., LL.M., CPA

• Key point: The federal age discrimination does not apply to most religious organizations.

• A federal district court in Missouri ruled that it could not resolve a lawsuit brought against a synagogue by a former business administrator who claimed that he had been dismissed on the basis of age. The federal Age Discrimination in Employment Act prohibits covered employers from discriminating in any employment decision (hiring, firing, etc.) on the basis of the age of any individual who is at least 40 years of age. The Act applies to any employer with 20 or more employees that is involved in interstate commerce. In deciding that the Act did not apply to the synagogue, the court relied on the Supreme Court’s 1979 decision in N.L.R.B. Catholic Bishop of Chicago, 440 U.S. 490 (1979). In the Catholic Bishop decision, the Supreme Court ruled that in deciding whether of not a federal law applies to religious organizations, a civil court first must ask if applying the law “would give rise to serious constitutional questions.” If it would, then the law cannot be applied to religious organizations without a “clear expression of an affirmative intention” by Congress to apply the law to such organizations. The district court concluded that applying the Age Discrimination in Employment Act to a church or synagogue would “give rise to serious constitutional questions.” In reaching this conclusion, the court quoted from the business administrator’s job description, and noted that his duties included “implementing Temple policies” and “having a positive attitude towards Jewish life and a Jewish background, enabling the administrator to understand the work of the Temple, its purposes and highest ideals and goals.” The court noted that the synagogue terminated the business administrator in part because he was “not properly performing the position of administrator.” It concluded:

If, as [the synagogue] has argued, [the administrator] was not properly performing the position of Temple administrator, and because every aspect of [his] job description includes the religious element set out in [the job description], there is the risk that this case would infringe on the first amendment by requiring this court to inquire into whether [the administrator] understood “the work of the Temple, its purposes and highest ideals and goals,” as he went about performing his duties. This case, accordingly, “gives rise to serious constitutional questions.”

The court then observed, again referring to the Supreme Court’s test in the Catholic Bishop decision, that “[h]aving identified the existence of a ‘serious constitutional question’ the court next must ascertain whether Congress has provided a ‘clear expression of an affirmative intention’ that the [Act] apply to religious institutions.” The court emphasized that this test “leaves no room for deduction or inference” and that “[a]bsent a congressional mandate that the [Act] apply to religious institutions, Catholic Bishop requires this court to hold that the [Act] does not extend to a Temple.” Since the Act did not specifically apply to churches of synagogues, the court concluded that this test was not met and accordingly the Act could not apply. On this basis it dismissed the lawsuit. Weissman v. Congregation Shaare Emeth, 839 F. Supp. 680 (E.D. Mo. 1993).

See Also: Age Discrimination in Employment Act

© Copyright 1995, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided 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. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m43 c0195

Legal Developments

Discrimination on the Basis of Alcohol and Tobacco Use

Churches are exempted from a Missouri ban on this type of discrimination.

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax 1992-11-01 Recent Developments

Legislation

Richard R. Hammar, J.D., LL.M., CPA

• A new law recently took effect in Missouri which makes it unlawful for employers to discriminate against an employee because the individual uses lawful alcohol or tobacco products off the premises during non-working hours. However, churches are specifically exempted from this provision. The law provides: “It shall be an improper employment practice for an employer to refuse to hire, or to discharge, any individual, or to otherwise disadvantage any individual, with respect to compensation, terms or conditions of employment because the individual uses lawful alcohol or tobacco products off the premises of the employer during hours such individual is not working for the employer, unless such use interferes with the duties and performance of the employee, his coworkers, or the overall operation of the employer’s business. Religious organizations and church-operated institutions, and not for profit organizations whose principal business is health care promotion shall be exempt from the provisions of this section. The provisions of this section shall not be deemed to create a cause of action for injunctive relief, damages or other relief.” (S.B. 442, 509, 679; approved June 11, 1992, effective August 28, 1992.)

© Copyright 1992, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided 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. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m52 m43 c0692

Legal Developments

Employers’ Liability for Sexual Harassment

A Washington court recently ruled on this matter.

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax1992-11-01Recent Developments

Employment Practices

Richard R. Hammar, J.D., LL.M., CPA

• A Washington state appeals court ruled that the Catholic Archdiocese of Seattle was liable for handicap discrimination and negligent supervision of a supervisor who sexually harassed a female employee. The archdiocese maintains a conference facility that hired a female housekeeper. A few years later, the archdiocese hired a male as director of maintenance at the facility. The housekeeper alleged that the new maintenance director began sexually harassing her shortly after he began his job. The harassment consisted of numerous sexually explicit and offensive statements. The maintenance director eventually was fired. At about this same time, the housekeeper injured her hand while working, and had to have surgery. Following the surgery, the housekeeper returned to work for a brief time before she underwent a second surgery. When she left for this second surgery, she alleged that her new supervisor assured her that there “would always be a place for her” at the conference facility and that another employee would fill her position only on a temporary basis. Eight months later, the housekeeper was released by her doctor to return to work. When she returned to work, she was informed by her supervisor that her position had been filled after she had been absent for 60 days. She was not notified of any other job openings nor offered any other jobs with the archdiocese, even though there were 3 job openings at the conference facility following her discharge. The housekeeper sued the archdiocese, alleging handicap discrimination and negligent supervision of her former supervisor who had sexually harassed her. A jury awarded her $150,000 in damages, and the archdiocese appealed. A state appeals court upheld the jury’s verdict. In upholding the handicap discrimination portion of the verdict, the court noted that once the employee demonstrated that she was handicapped, and that she was qualified to fill vacant positions, then the burden “shifts” to the employer “to demonstrate a nondiscriminatory reason for refusing to accommodate” the employee. The court noted that the housekeeper had established that she was handicapped (because of her hand injury), and that 3 job openings later occurred that she was qualified to fill. Accordingly, the archdiocese then had the duty to demonstrate that it had a valid nondiscriminatory reason for not “accommodating” the housekeeper by taking affirmative measures to notify her of the job openings. The court insisted that when an employee becomes handicapped on the job, the employer has a continuing duty to inform the employee of job openings beyond the termination of the employer-employee relationship—until such time as “such attempts to accommodate become an undue burden rather than a reasonable requirement.” Since the archdiocese failed to notify the former employee of these job openings, and failed to demonstrate a nondiscriminatory reason for not doing so, the former employee had proven her claim of handicap discrimination. Finally, the court also upheld the jury’s conclusion that the archdiocese was liable for the former supervisor’s sexual harassment of the housekeeper on the basis of its “negligent supervision” of him. The archdiocese had claimed that the state workers compensation law provided an exclusive remedy to the former employee for her work-related injuries (including sexual harassment) that prevented her from suing for negligent supervision. The court rejected this argument, noting that the workers compensation law is an exclusive remedy only with respect to injuries that “arise naturally out of employment.” Sexual harassment, noted the court, “does not arise naturally out of employment because the physical proximity of victim and harasser occurs in the workplace only coincidentally.” This case is important for the following reasons. First, it suggests that employers (that are covered by handicap discrimination laws) may have a continuing duty to notify a former employee of job openings after the termination of the employer-employee relationship, if the former employee became disabled in the course of his or her employment. Second, the case demonstrates that religious employers can be liable on the basis of negligent supervision for the sexual harassment inflicted by their employees. This makes it essential for churches and denominational agencies to implement a sexual harassment policy. Tips on developing such a policy were discussed in a feature article in the March-April 1992 edition of this Church Law & Tax Report newsletter. Wheeler v. Catholic Archdiocese of Seattle, 829 P.2d 196 (Wash. App. 1992).

See Also: The Civil Rights Act of 1964 | Cases Finding Denominations Liable

© Copyright 1992, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided 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. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m43 m66 c0692

Legal Developments

Employee Personnel Files

A Minnesota law requires certain employers to make copies of these files upon request.

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax 1992-07-01 Recent Developments

Legislation

Richard R. Hammar, J.D., LL.M., CPA

• The Minnesota legislature enacted a law requiring certain employers to make copies of an employee’s personnel files upon request. The law applies to any employer having 20 or more employees. The new law provides that “upon written request by an employee, the employer shall provide the employee with an opportunity to review the employee’s personnel record. An employer is not required to provide an employee with an opportunity to review the employee’s personnel record if the employee has reviewed the personnel record during the previous six months.” The law further provides that “with respect to current employees, the personnel record or an accurate copy must be made available for review by the employee during the employer’s normal hours of operation at the employee’s place of employment or other reasonably nearby location, but need not be made available during the employee’s working hours. The employer may require that the review be made in the presence of the employer or the employer’s designee. After the review and upon the employee’s written request, the employer shall provide a copy of the record to the employee.” The law defines the term personnel record to include “any application for employment; wage or salary history; notices of commendation, warning, discipline, or termination; authorization for a deduction or withholding of pay; fringe benefit information; leave records; and employment history with the employer, including salary and compensation history, job titles, dates of promotions, transfers, and other changes, attendance records, performance evaluations, and retirement record.” The term does not include several items, including “written references respecting the employee, including letters of reference supplied to an employer by another person,” and, in some cases, “information relating to the investigation of a violation of a criminal or civil statute by an employee.” Section 181.961 of the Minnesota Statutes.

See also Clergy—personal liability (new section 709.15 of the Iowa Statutes).

© Copyright 1992, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided 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. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m52 m43 c0492

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