“Equal Pay Act” and Church-Run Schools

Do federal labor laws apply to church schools?

Richard R. Hammar, Attorney, CPA

Bio

State: Indiana
Categories: Employment Practices, Schools

Church Law and Tax 1992-07-01 Recent Developments

Employment Practices

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

• A federal district court in Indiana ruled that the “Equal Pay Act” applies to a church-operated school. A Baptist church operated a private school. The federal Equal Employment Opportunity Commission (“EEOC”) sued the church for alleged violations of the Equal Pay Act. The EEOC alleged that the church unlawfully paid higher wages and benefits to male teachers than to a class of female teachers performing equal work, and further that the church unlawfully reduced the male teachers’ wages in an attempt to comply with the Equal Pay Act. The Equal Pay Act was enacted in 1963 as an amendment to the Fair Labor Standards Act (the federal minimum wage and overtime law). The Equal Pay Act provides that no employer covered by the Act shall discriminate … between employees on the basis of sex by paying wages to employees … at a rate less than the rate at which he pays wages to employees of the opposite sex … for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions …. provided, that an employer who is paying a wage rate differential in violation of this subsection shall not, in order to comply with the provisions of this subsection, reduce the wage rate of any employee.

The church claimed that the EEOC had no jurisdiction over the school, since the Equal Pay Act did not apply to church schools. The church claimed that Congress did not intend for the Fair Labor Standards Act, or the Equal Pay Act, to apply to churches or church-operated schools. Accordingly, the church claimed that neither the EEOC nor the federal court had “jurisdiction over the church” under either the Fair Labor Standards Act or the Equal Pay Act. The church relied primarily on a 1979 decision of the United States Supreme Court (NLRB v. Catholic Bishop) addressing the applicability of the National Labor Relations Act to church-operated schools. The National Labor Relations Act is a federal law guarantying the right to organize labor unions. The Supreme Court devised a test for determining the applicability of the Act to church schools. The test (known as the Catholic Bishop test) provides that if the exercise of jurisdiction by a federal agency over a religious organization would give rise to serious constitutional questions under the first amendment religion clauses, then the agency may not exercise jurisdiction without showing an “affirmative intention of the Congress clearly expressed” to confer such jurisdiction. The EEOC rejected the application of the Catholic Bishop test, arguing that it applied to the National Labor Relations Act and not the Fair Labor Standards Act or Equal Pay Act. It pointed out that every federal court that has addressed the Equal Pay Act’s applicability to church-operated schools has found that such organizations are subject to the Act and that no court has extended the holding in Catholic Bishop to the Equal Pay Act or Fair Labor Standards Act.

The court agreed with the EEOC’s interpretation of the Catholic Bishop case. It noted that the Catholic Bishop case addressed the National Labor Relations Act—a statute without expressed congressional intent with respect to church-operated schools. Further, the Supreme Court, in the Catholic Bishop case, pointed out the significant risk of infringement upon the first amendment guaranty of religious freedom in applying the Act to church-operated schools. The Court also found that neither the Act’s language nor its legislative history disclosed any “affirmative intention of the Congress clearly expressed” to subject church-operated schools to the Act.

The court noted that the Fair Labor Standards Act does specifically apply to church-operated schools. It “explicitly includes schools (public or private) and other not for profit organizations within the definition of `enterprises’ subject to that statute.” It referred to several court decisions reaching this same conclusion. Moreover, the court noted that “when parties have relied on Catholic Bishop as a basis for the argument that the Fair Labor Standards Act is not applicable to churches or church-operated schools, federal courts have rejected that position.” The court concluded:

Accordingly, the court rejects the church’s contention that Catholic Bishop deprives this court of the subject matter jurisdiction to entertain actions against church-operated schools brought under the Equal Pay Act. Catholic Bishop addressed the National Labor Relations Act and no other federal statute. Moreover, several courts addressing the applicability of Catholic Bishop to the Fair Labor Standards Act have found the Court’s holding distinguishable. The courts that have been faced with Equal Pay Act complaints brought against church-operated schools by the EEOC or the Department of Labor have found the jurisdiction to hear those claims.

Accordingly, the court upheld EEOC jurisdiction over the church-operated school. Equal Employment Opportunity Commission v. First Baptist Church, 1991 WL 270110 (N.D. Ind. 1991 unpublished).

See also the feature article in this issue entitled “Liability of a Church and Parent Denomination for Acts of Sexual Harassment by Clergy.”

Screening for Child Care Workers

Washington is enacting a law requiring fingerprint checks for certain child care workers.

Richard R. Hammar, Attorney, CPA

Bio

State: Washington
Categories: Employment Practices

Church Law and Tax 1992-07-01 Recent Developments

Legislation

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

• The Washington legislature has enacted a law requiring certain child care workers to have fingerprint checks. The new law begins with the statement that “the legislature finds that additional safeguards are necessary to ensure the safety of Washington’s school children” and that “the results from state patrol record checks are more complete when fingerprints of individuals are provided, and that information from the federal bureau of investigation also is necessary to obtain information on out-of-state criminal records.” Accordingly, the legislature enacted the following law:

School districts, educational service districts, and their contractors hiring employees who will have regularly scheduled unsupervised access to children shall require a record check through the Washington state patrol criminal identification system … and through the federal bureau of investigation before hiring an employee. The record check shall include a fingerprint check using a complete Washington state criminal identification fingerprint card. The requesting entity shall provide a copy of the record report to the applicant. When necessary, applicants may be employed on a conditional basis pending completion of the investigation. If the applicant has had a record check within the previous two years, the district or contractor may waive the requirement. Section 28A.400 of the Revised Code of Washington.

While this legislation will not directly apply to churches, it does illustrate the concern being expressed by a state government over the risk that some child workers pose to children. A number of other states have enacted similar laws.

Dismissing Employees Who Develop AIDS

A lawsuit over the matter was dismissed for technical reasons.

Richard R. Hammar, Attorney, CPA

Bio

State: Louisiana
Categories: Employment Practices

Church Law and Tax 1992-05-01 Recent Developments

Employee Relations

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

• Can a church be sued for dismissing an employee who develops AIDS? That was the issue before a Louisiana state appeals court. An AIDS victim worked for a church. A lawsuit brought against the church following his death claimed that the church had wrongfully terminated the employee on account of AIDS in violation of a state civil rights law. A trial court dismissed the case, and the estate appealed. A state appeals court upheld the dismissal of the case. It relied on a state law that permits certain classes of relatives to bring a lawsuit on behalf of a deceased person within one year of the person’s death. In this case, the lawsuit was brought by the decedent’s estate, and not his surviving relatives (a father and several siblings). By the time this procedural error was detected, the one-year time period for filing a lawsuit had expired. Accordingly, the case was dismissed for technical reasons. Overpeck v. Christ Episcopal Church, 577 So.2d 364 (La. App. 1991).

Defamation and Employer References

Talk with an attorney before making potentially defamatory statements about former employees.

Richard R. Hammar, Attorney, CPA

Bio

Church Law and Tax 1991-11-01 Recent Developments

Employee Relations

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

• A federal court in the District of Columbia threw out a lawsuit brought by a worker against his former employer for allegedly defamatory references given to prospective employers. The worker was employed as a bookkeeper for a secular company. His employment was marked by difficulties with fellow employees. On one occasion, a disagreement escalated into a fist fight. Without explanation or advance notice, the worker quit his job. He later applied for another job, and the prospective employer sought references from the former employer. One supervisor stated that the worker was “wholly incompetent” and “not eligible for rehire.” Another supervisor stated that the worker was “undesirable as a candidate for rehire,” and that he had “personality conflicts” with co-workers. The worker sued his former employer, and these supervisors, for defamation on the basis of these statements. The defendants asked the court to dismiss the case, and the court did so. It emphasized that all of the allegedly defamatory statements were protected by a “qualified privilege” which it defined as follows:

One who in the regular course of business is asked by a prospective employer … for information concerning a person, is entitled to the defense of qualified privilege if his reply would otherwise be regarded as defamatory …. The qualified privilege serves an important public function in the employment context. Without the privilege, references would be even more hesitant than they are to provide candid evaluations of former employees. In order to overcome the qualified privilege, the plaintiff must show that the statements were made with malice. Once a communication is deemed privileged, the burden of proof to demonstrate malice rests with the plaintiff. To show malice, the plaintiff must show either that the statements were made with knowing falsity, in bad faith, or with reckless disregard of the truth.

Applying this standard, the court concluded that the former employer and supervisors were protected by the qualified privilege with regard to information they shared in their references, and that the former worker had the burden of proving that the reference statements were made with malice. The court concluded that the former worker had produced no evidence to demonstrate that any of the statements had been made with malice. With regard to the supervisor who stated that the worker was “wholly incompetent” and “ineligible for rehire,” the court observed:

[The supervisor’s] statement was made on the basis of her knowledge of plaintiff’s work and the circumstances surrounding his departure. She believed her statements to be true. Therefore, her statements were not knowingly false nor made in bad faith or reckless disregard of the truth. Moreover, [her] evaluation of plaintiff as “wholly incompetent” is a non-actionable statement of opinion. Accordingly, plaintiff cannot overcome the qualified privilege ….

The court reached the same conclusion with respect to the statements made by the other supervisor. It noted that the worker walked off the job without any advance notice or warning, and that he had documented problems with co-workers. Accordingly, the statements that he was “undesirable as a candidate for hire” and had “personality conflicts” with co-workers were true. Further, they were statements of opinion and as such could not be the basis for defamation. Finally, the court rejected the worker’s claim that his former employer’s evaluation of his performance as “OK” contradicted the supervisors’ statements that he would not be eligible for rehire. The court observed: “The circumstances of his departure from [his former employer] surely make him an undesirable candidate for rehire. Contrary to [his] contention that [his former employer’s] seemingly contradictory statements are evidence of bad faith, the record indicates that [the former employer and its supervisors] were simply trying to be charitable in evaluating [his] performance as ‘OK.'” This case illustrates three important principles that are of relevance to church leaders. First, truth is a defense to defamation. The statements made by the former supervisors were true, and could be documented to be true. Second, statements of opinion (as opposed to statements of fact) ordinarily cannot be defamatory. And third, in many states, employers are protected by a qualified privilege when giving references on former employees. This qualified privilege, where applicable, generally prohibits the employer from being guilty of defamation unless the former employee can prove that statements of fact given by the employer in a reference were false, and made with malice. Malice generally is interpreted to mean that the employer either knew the statements were false, or that it made them with a reckless disregard as to their truth or falsity. Note that not all states recognize the qualified privilege. As a result, employers should not make potentially defamatory statements about former employees without the advice of a local attorney. Hargrow v. Long, 760 F. Supp. 1 (D.D.C. 1991).

Termination of Employees

© Copyright 1991, 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: m42 m61 m53 c0691

Legal Developments

Minimum Wage Law and Private Schools

A court concluded that the minimum wage law applied to a church-run school.

Richard R. Hammar, Attorney, CPA

Bio

State: Arkansas
Categories: Employment Practices, Fair Labor Standards Acts, Schools

Church Law and Tax 1991-11-01 Recent Developments

Employee Relations

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

• A federal appeals court concluded that the federal minimum wage law applied to the staff of a church-operated school. A church in Little Rock, Arkansas, operates an elementary and secondary school that utilizes a self-study program that teaches all subjects from a biblical point of view. The school is an integral part of the church. Each class has a supervisor who is assisted by a classroom “monitor.” Both work with the children but do not conduct formal classroom instruction. Supervisors grade papers, answer students’ questions, conduct prayer, and counsel the students. Monitors perform duties equivalent to teachers’ aides in the public schools. The school requires that all supervisors and monitors be “born again” Christians. Supervisors receive compensation of $125 per week ($3.29 per hour for a 38-hour week), while monitors receive $100 per week ($2.63 per hour for a 38-hour week). The Department of Labor charged the church with violating the federal minimum wage law (Fair Labor Standards Act), and sought back wages of some $23,000 for 18 current and former supervisors and monitors. A federal district court upheld the government’s position, and the church appealed. A federal appeals court agreed that the federal minimum wage law applied to the school’s employees, and it upheld the award of back pay. It emphasized that the minimum wage law specifically applies to church-operated school employees, and it rejected the suggestion that the supervisors and monitors were exempt from coverage on the ground that they are “ministers.” The court relied heavily on another federal appeals court ruling in Dole v. Shenandoah Baptist Church (discussed in detail in previous issues of this newsletter). DeArment v. Harvey, 932 F.2d 721 (8th Cir. 1991).

Fair Labor Standards Act

Legal Developments

Denial of Tenure at Seminaries

Can a court resolve a professor’s claim that he was improperly denied tenure?

Richard R. Hammar, Attorney, CPA

Bio

State: New Jersey
Categories: Employment Practices, Schools

Church Law and Tax1991-07-01Recent Developments

Schools

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

• Can a civil court resolve a seminary professor’s claim that he was improperly denied tenure? No, said a New Jersey appeals court. The professor had been hired to teach at New Brunswick Theological Seminary, an educational institution affiliated with the Reformed Church in America (the “Church”). The seminary was founded in 1784. Its purpose remains the preparation of “men and women for educational and faithful leadership in the church.” It offers no secular degrees or courses of study. Every president has been an ordained minister of the Reformed Church, and all faculty and administrators are ordained clergy. The seminary is accountable to the Church, and subject to the supervision of the Church’s Board of Theological Education. The seminary’s policies regarding appointments, tenure, and dismissals, are set forth in a comprehensive faculty personnel manual. A dispute arose at the seminary over the status of a professor who claimed to have been promised a tenured position at the completion of his doctoral studies by the previous seminary president. When the current president refused to honor the previous president’s alleged promise (which was not contained in any written agreement), the professor resigned and later sued the seminary for wrongfully denying him tenure, and for “forcing” him to resign. The professor argued that the former president had the legal authority to grant him a tenured position. The seminary vigorously denied the professor’s allegation, claiming that only the Board of Theological Education had such authority. The faculty manual was somewhat ambiguous on this point. The professor further insisted that the dispute did not involve religious doctrine, and accordingly the civil courts had jurisdiction. He urged the court to apply “neutral principles” of contract law in resolving the claim. A trial court dismissed the former professor’s lawsuit, and the case was appealed. A state appeals court agreed with the trial court, and affirmed the dismissal of the lawsuit. The court concluded that while the civil courts may resolve contract disputes involving religious organizations if no religious doctrine or practice is implicated, this was not the case here. On the contrary, a resolution of the professor’s claim that the former president (without the approval of the Board of Theological Education) had the authority to grant him a tenured position “would require a searching examination of the polity and administration of the [Reformed] Church. If, as presently appears, the locus of appointive authority is ambiguous, a careful scrutiny of past practices and customs would be necessary. To permit civil courts to probe deeply into the allocation of power within a religious organization would result in a pervasive secular intrusion into Church government and administration …. In short, insinuation by civil courts into the customs, usages of the bylaws and the constitution, into the administration and polity of the Church in the hope of uncovering clues with respect to where the power to grant tenure resides, would threaten the freedom of the Church from secular entanglement.” In support of its conclusion, the court cited with approval a case in which the United States Supreme Court ruled that the first amendment guaranty of religious freedom grants religious organizations “independence from secular control,” and the “power to decide for themselves, free from state interference, matters of church government as well as those of faith and doctrine.” The court emphasized that it was not leaving the former professor “without a remedy.” It observed that the faculty manual provides an optional grievance procedure, and concluded that the Church and seminary “are obliged by their established procedures to provide [the professor] with a forum for resolution of his claim.” This case is yet another in a long line of court decisions refusing to resolve ministers’ claims of wrongful discharge. Alicea v. New Brunswick Theological Seminary, 581 A.2d 900 (N.J. Super. A.D. 1990).

Termination | Decisions of State and Lower Federal Courts

Legal Developments

Duty to Warn Future Employers

Should a church disclose negative information about a former employee?

Richard R. Hammar, Attorney, CPA

Bio

State: Michigan
Categories: Employment Practices

Church Law and Tax 1991-03-01 Recent Developments

Employee Relations

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

• Does an employer have a legal duty to warn future employers of a former employee’s dangerous propensities? That was the issue before a Michigan appeals court in a recent case. A maintenance worker who worked for a nursing home received 24 disciplinary warnings from his employer for conduct ranging from violence to alcohol abuse. Eventually, the worker was dismissed. The worker was hired by another company, and soon after beginning work he savagely beat and murdered another employee. The victim’s estate sued the nursing home, alleging that it had been negligent in failing to disclose to the new employer the employee’s history of violent behavior. The nursing home in fact was never contacted by the new employer, but it acknowledged that it would not have provided any information other than the employee’s dates of employment even if it had been contacted. The victim’s estate asserted that as a matter of law a former employer should have a duty to disclose a former employee’s dangerous proclivities to a new employer—without fear of being sued for defamation. A trial court granted the nursing home’s motion to dismiss the lawsuit against it, and the victim’s estate appealed. A state appeals court agreed with the trial court’s dismissal of the lawsuit. The court observed that “a party cannot be said to owe a duty to protect another party who is endangered by a third person unless there exists some special relationship between the first employer and either the dangerous person or the potential victim. In determining whether there exists a relationship sufficient to impose a duty to act, the societal interests involved, the severity of the risks, the burden upon the defendant, and the likelihood of occurrence must be balanced.” The court rejected the estate’s claim that a “special relationship” exists between an employer and its former employees. It accordingly refused to impose an absolute duty on employers to disclose information about violent former employers to new or prospective employers. On the contrary, “there is a great societal interest in insuring that employment records are kept confidential. It is all too easy to envision a career destroyed by malefic information released by a disgruntled former employer …. [T]o require the release of deleterious information without fear of a defamation suit represents a major change in the law … which is best left to the legislature.” The court further observed that “in today’s society, with increased instances of child abuse and other types of violence directed towards readily identifiable classes of people, we may have reached a point where people should make this type of information known.” This case suggests that an employer has no duty to disclose to future or prospective employers any inappropriate behavior of a former employee, and that it cannot be legally accountable for failing to do so. On the contrary, the court emphasized the “societal interest in insuring that employment records are kept confidential.” But there will be times when church leaders may feel that they have a moral obligation to inform a prospective employer of the misconduct of a former employee. Should they do so? The Michigan court concluded that this would be a “moral or social” duty, not a legal duty. Further, a church that discloses negative information without authorization risks being sued for defamation of character (among other torts). Church leaders who feel that they have a moral duty to disclose harmful information about a former employee to a prospective employer should (1) not do so without a signed release from the former employee consenting to the disclosure of information and releasing the church from liability for disclosing information, (2) communicate only such information as is relevant, and that can be established as fact in a court of law (i.e., no opinions), and (3) consult with a local attorney before disclosing the information. Moore v. St. Joseph Nursing Home, Inc., 459 N.W.2d 100 (Mich. App. 1990).

Legal Developments

Church Schools and the Minimum Wage

Court rules that church-run schools must pay the minimum wage.

Richard R. Hammar, Attorney, CPA

Bio

State: Federal
Categories: Employment Practices, Schools

Church Law and Tax 1991-01-01 Recent Developments

Employee Relations

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

• Does a church school have to pay its employees the “minimum wage”? Yes, concluded a federal appeals court in a significant ruling. A fundamentalist Baptist church in Virginia opened a private school in 1973 with a full-time curriculum that included instruction in the Bible and traditional academic subjects taught from a Christian perspective. For the first few years of the school’s operation, teacher salaries were very low. To attract and retain teachers, the church began paying “salary supplements” to each teacher who was a “head of household.” Between 1976 and 1986, all married male teachers received a salary supplement, but married women were not eligible to receive the supplement, since “the Bible clearly teaches that the husband is the head of the house, head of the wife, head of the family.” Also, between 1976 and 1982, 91 persons who worked at the school as support personnel were paid less than the hourly minimum wage. These workers included bus drivers, custodians, kitchen workers, bookkeepers, and secretaries. In 1978, the United States Department of Labor asserted that the school violated the “Fair Labor Standards Act” by paying women less than men and by not paying the minimum wage. The church agreed that it paid women less than men, and that it did not pay some workers the minimum wage. However, it asserted that (1) the school was not covered by the Fair Labor Standards Act, (2) school employees were “ministers” and therefore excluded from coverage under the Act, and (3) that applying the Act to the church’s school would violate the constitutional guaranty of religious freedom. A trial court rejected the church’s arguments, and ordered it to distribute $177,680 among those female teachers who had been paid less than men, and $16,818 among those workers who had not received the minimum wage. The church appealed, and a federal appeals court upheld the trial court’s decision in favor of the government. In rejecting the church’s claim that the Fair Labor Standards Act did not apply to a church-operated school, the court noted that the Act was amended in 1966 to specifically cover nonprofit, private schools. The church also claimed that school employees were really church employees and therefore exempt from the Act. It pointed out that the school was “inextricably intertwined” with the church, that the church and school shared a common building and a common payroll account, and that school employees must subscribe to the church’s statement of faith. The court rejected this reasoning without explanation. The court also rejected the church’s claim that its school employees were exempt from the Act because they were “ministers” who considered teaching at the school “their personal ministry.” It noted that they “perform no sacerdotal functions, neither do they serve as church governors. They belong to no clearly delineated religious order.” Further, “the exemption of these teachers would create an exception capable of swallowing up the rule”—since it would mean that all teachers at church-operated schools would be exempt (contrary to the intent of the 1966 amendment to the Act that was designed include them). Finally, the court rejected the church’s claim that its constitutional right of religious freedom would be violated by subjecting its school employees to the minimum wage and “equal pay” provisions of the Act. The church claimed that its “head of household” salary supplements (paid to males) “was based on a sincerely-held belief derived from the Bible,” and that employee wages should be fixed by the church acting under divine guidance rather than by the government. The court acknowledged that the church might suffer a burden on the practice of its religion, but it insisted that any burden would be limited. It observed that although the church’s head of household salary supplement (for males) “was grounded on a biblical passage, church members testified that the Bible does not mandate a pay differential based on sex. They also testified that no [church] doctrine prevents [the school] from paying women as much as men or from paying the minimum wage. Indeed, the school now complies with the Fair Labor Standards Act ….” This limited burden on the church’s religious beliefs was outweighed by the government’s compelling interest in ensuring that workers receive the minimum wage. The court observed that school employees whose religious convictions were violated by the school’s coverage under the Act could simply return a portion of their compensation back to the church. Or, they could volunteer their services to the school. This ruling indicates that church-operated primary and elementary schools in the fourth federal circuit (which includes the states of Maryland, North Carolina, South Carolina, Virginia, and West Virginia) must comply with the Fair Labor Standards Act’s “equal pay” and minimum wage provisions. Note that this ruling only applies to church-operated primary and secondary schools. It does not apply to churches themselves. The Act has never been construed to apply to churches that are not engaged in commercial activities. However, the court’s rather cavalier rejection of the church’s religious beliefs suggests that any attempt by Congress to include church employees under the coverage of the Act would be deemed permissible. Coverage of church employees (not engaged in commercial activities) has not yet been contemplated by Congress. Note further that clergy are specifically exempt from the provisions of the Act. Dole v. Shenandoah Baptist Church, 899 F.2d 1389 (4th Cir. 1990).

Legal Developments

Failure to Renew Contracts

Can a school be sued for failing to renew an administrator’s contract?

Richard R. Hammar, Attorney, CPA

Bio

State: California
Categories: Contracts, Employment Practices, Schools

Church Law and Tax 1991-01-01 Recent Developments

Employee Relations

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

• Can a church school be sued for failing to renew an assistant principal’s one-year employment contract? No, concluded a California state appeals court. The assistant principal’s contract specified that “the term of the employment agreement shall be for a one-year period.” The contract further specified that “it is understood that [the assistant principal] is being employed for a one-year period and that there is no obligation on the part of the school [or the assistant principal] to renew this contract at the end of that term.” Prior to the expiration of the assistant principal’s one-year contract, the principal notified her in writing that her contract would not be renewed. She was offered and accepted a teaching position in the school, and she appealed her termination as assistant principal to the church. When her appeal was denied, she sued the church for actual and punitive damages. She alleged that due to her many years of faithful employment at the school (as both a teacher and assistant principal), her employment contract contained an “implied condition” to act in good faith that required the church to renew her contract unless it had “just reason” for not doing so. She also claimed that the church was guilty of “negligent discharge” because it failed to renew her contract without giving her any advance notice of any performance problems that she could correct. Finally, she claimed that the church had intentionally caused her emotional distress. A trial court granted the church’s request for a “summary judgment,” and the former employee appealed. A state appeals court upheld the trial court’s ruling in favor of the church. With regard to the former employee’s first claim, the court agreed that “the law imposes a duty of good faith and fair dealing in every contract.” However, it emphasized that this implied duty cannot be used to alter the terms of a clear, written agreement. The court observed: “Here, we are not confronted by a written employment contract which is uncertain in duration, or as to the parties’ obligation to renew. This written contract expressly limits the term of employment to one year and provides that neither party need renew the agreement. Consequently, by express language, the contract precludes the existence of any contrary implied agreement to employ [the former assistant principal] for more than a year or require renewal in the absence of good cause for not doing so.” Further, the court noted that the assistant principal had not been “fired.” Rather, her one-year contract had not been renewed. The court observed that “although termination contrary to the express terms of an employment contract may [be the basis of a lawsuit], a decision not to enter into a new contract or renew an expired one is not …. It is the general rule that when a contract specifies the period of its duration, it terminates on the expiration of such period.” The court also rejected the former employee’s claim that her long and faithful service prevented the church from not renewing her contract without good cause. It observed that “lengthy service combined by promotions and salary increases are natural occurrences for an employee who remains with an employer for a substantial length of time and does not create an implied agreement for permanent employment terminable within the context of nonrenewal only upon just cause.” The court also refused to recognize the former employee’s claim of “negligent discharge,” since no California court had ever recognized such a theory of liability. Finally, the court rejected the former employee’s claim that the church had intentionally caused her emotional distress. This would have required outrageous conduct on the part of the church, and this was something that the court refused to recognize. Tollefson v. Roman Catholic Bishop of San Diego, 268 Cal. Rptr. 550 (Cal. App. 1990).

Legal Developments

Case Demonstrates Legal Risks in Providing Negative References to Other Employers

An employee of a church-affiliated college was terminated for not returning a paycheck that had

Richard R. Hammar, Attorney, CPA

Bio

State: Massachusetts
Categories: Employment Practices

An employee of a church-affiliated college was terminated for not returning a paycheck that had been inadvertently issued to him for a time period in which he had performed no services. The employee applied for work at a local business as a security guard. A company supervisor called the college's personnel department for a reference. A supervisor in the personnel department responded to the reference request with laughter, and then advised the caller that the former employee "has a problem of dishonesty concerning money." Because of this negative reference, the company decided not to hire the individual.

He later sued the college for slander and "interference with business relations." A jury awarded $150,000 in damages, and the college appealed. The state appeals court agreed that there was enough evidence to support a verdict against the college. However, it held that the former employee could recover no more than $20,000 in damages because of a state "charitable immunity" law specifying that "it shall not constitute a defense to any cause of action based on tort brought against a corporation … that said corporation … is or at the time the cause of action arose was a charity; provided, that if the tort was committed in the course of any activity carried on to accomplish directly the charitable purposes of such corporation … liability in any such cause of action shall not exceed the sum of twenty thousand dollars."

This decision is significant for two reasons. First, it illustrates the legal risks that one assumes in providing negative references to other employers. This is particularly so when "opinions," as opposed to mere statement of facts, are expressed. Churches asked to give a reference on a former employee who did not perform satisfactorily should either not respond, or limit their response to statements of fact that can be verified with documents or testimony. In no case should opinions be expressed, since these are notoriously difficult to establish in a court of law. Because laws on these issues vary from state to state, it is also desirable for a church to check with its attorney before making a negative reference.

Second, the case illustrates the continuing effect of the doctrine of "charitable immunity." While this doctrine (which many years ago prevented charitable organizations from being sued for their negligence) has been rejected in many states, it is still recognized in a limited form in other states. The Massachusetts statute limiting awards against charitable organizations to $20,000 is an example of a modern-day limited charitable immunity law.

St. Clair v. Trustees of Boston University, 521 N.E.2d 1044 (Mass. App. 1988)

Legal Developments

Church Employees Not Paying Any Social Security Taxes

Many churches that filed a timely Form 8274 (waiving a church's obligation to pay the

Richard R. Hammar, Attorney, CPA

Bio

State: Federal
Categories: Employment Practices

Many churches that filed a timely Form 8274 (waiving a church's obligation to pay the employer's share of FICA taxes on the wages of nonminister employees) are not advising employees of their obligation to report and pay social security taxes as self-employed persons.

In many cases, the church employees are simply not paying any social security taxes. The nonminister employees of any church that filed a timely Form 8274 are treated as self-employed for social security purposes, meaning that they must estimate and prepay (in quarterly installments) their self-employment tax obligation.

Employees should obtain Form 1040-ES, and use the worksheet included with the form to estimate their self-employment tax liability. One-fourth of the total liability is then paid to the IRS with a payment voucher (included with the form) by April 15, June 15, September 15, and the following January 15 of each year. Alternatively, some churches are withholding additional taxes to cover the self-employment tax liability. The additional tax withholding of course requires that each employee complete a revised W-4 form and the additional withheld taxes are reported as withheld income taxes on the church's quarterly Form 941.

An employee's Schedule SE lists his or her total self-employment tax liability, but this is offset by the additional withholding reported as a credit on the employee's Form 1040. While the IRS has never specifically sanctioned this procedure, it is unlikely that it would object since the total tax liability is in fact paid.

The same approach is used by some ministers who elect voluntary income tax withholding and who increase their withholding to cover their self-employment tax liability.

Finally, churches that obtained a refund of FICA taxes after filing the Form 8274 must distribute to church employees that portion of the refunded taxes allocable to employee withholding.

Legal Developments

Is a Church Required to Give a Pregnant Employee Her Job Back?

Must a church guarantee a pregnant employee her job back after the birth of her

Richard R. Hammar, Attorney, CPA

Bio

State: California
Categories: Employment Practices

Must a church guarantee a pregnant employee her job back after the birth of her child?

This question is being asked by many churches as a result of a recent Supreme Court ruling. Title VII of the federal Civil Rights Act of 1964, as amended by the Pregnancy Discrimination Act of 1978, prohibits most employers from discriminating in any employment decision (including disability leave and job reinstatement) on the basis of pregnancy or childbirth. Among other things, this means that employees temporarily disabled by childbirth must be treated the same as employees temporarily disabled by any other disability (such as cancer, heart disease, or a bone fracture).

In 1978, the State of California enacted a law requiring employers subject to Title VII to provide unpaid disability leave and the assurance of job reinstatement to all female employees temporarily disabled by childbirth so long as they were physically unable to return to work (but in no event more than four months). No other group of employees received these special privileges. Accordingly, the law was challenged on the ground that it treated employees preferentially on the basis of childbirth contrary to Title VII's requirement of neutrality.

The Supreme Court, in upholding the California law, concluded that Title VII forbids less favorable but permits more favorable disability leave and reinstatement privileges on account of childbirth. Accordingly, the State of California could require unpaid disability leave of up to four months, plus job reinstatement guarantees, for employees temporarily disabled by childbirth without requiring similar guarantees for employees temporarily disabled by other conditions.

However, this ruling is of limited relevance to churches for two reasons. First, the Court merely upheld a California law; it did not declare a national policy. Second, the California law only applies to California employers subject to Title VII of the Civil Rights Act of 1964.

In general, covered employers include only those employing fifteen or more employees and who are engaged in a business or activity "affecting commerce." California churches and religious organizations employing fewer that fifteen persons are automatically excluded from the law. And, even those California churches and religious organizations employing fifteen or more persons are only covered to the extent that they are engaged in an activity affecting commerce.

Over the past several years the courts have so loosely interpreted the concept of "affecting commerce" that it is likely that some larger churches and religious organizations employing fifteen or more persons will be covered by the law. The nature and degree of commercial activities is a key consideration in making this determination. It remains to be seen whether other states will follow California in adopting legislation giving pregnant employees mandatory leave and job reinstatement privileges.

The Court observed that Montana and Connecticut already had similar provisions. California Federal Savings and Loan Association v. Guerra, 107 S. Ct. 683 (1987).