Key point 8-07.2. 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.

The Arkansas Supreme Court ruled that the exclusive remedy of a female employee who was sexually assaulted by a manager was workers’ compensation, and accordingly the woman’s lawsuit for monetary damages based on her employer’s negligence had to be dismissed.

A woman claimed she was sexually assaulted by a store manager where she worked. She sued her employer alleging that it was negligent in its supervision, retention, and hiring of the manager. The store filed a motion to dismiss the complaint on the basis of the “exclusive remedy” afforded by the state workers’ compensation law. The state supreme court agreed that the lawsuit had to be dismissed:

An employer who has secured for its employees the benefits of workers’ compensation is immune from liability for damages in a tort action brought by an injured employee. This rule, known as the exclusivity doctrine, arises from [the state workers’ compensation law] which provides that “the rights and remedies granted to an employee subject to the provisions of this chapter, on account of injury or death, shall be exclusive of all other rights and remedies of the employee, his legal representative, dependents, [or] next of kin.” Essentially, if an employee is granted a right or remedy under the Workers’ Compensation Act, the employee is limited to the relief provided under the Act.

What this means for churches

Many churches have been sued by an employee for emotional or physical injuries stemming from the sexual harassment, sexual assault, or other sexual offense by a supervisor or fellow employee. In many states, workers’ compensation is the sole remedy available to an employee in such cases so long as the injury is work related and no exception applies.

Some church leaders wrongly assume that churches are exempt from workers’ compensation law, exposing their church to potentially sizable uninsured claims and eliminating the exclusive remedy of workers’ compensation benefits for work-related injuries. Truman Arnold Companies v. Circuit Court, 513 S.W.3d 838 (Ark. 2017).

Key Point 8-07.1. 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. Workers’ compensation laws were enacted to give injured workers’ a quicker, less costly, and more certain recovery than was possible by suing an employer directly for negligence.

Prior to the general acceptance of workers’ compensation statutes in the early part of the 20th century, injured employees were often unsuccessful in collecting damages from their employers. When they did collect, the awards were sometimes so high that they threatened the solvency of the employer. In every case, the costs to the injured employee of suing an employer were high. Churches are subject to workers’ compensation laws in most states.

A New York court ruled that workers’ compensation insurance is an exclusive benefit for job-related injuries, and therefore a worship leader who was injured when she tripped over a bass guitar cable could not bring a civil lawsuit against her church.

A volunteer worship leader (the “plaintiff”) was injured during a church service when she tripped and fell over an exposed power cord. The church is a parish within a Roman Catholic Diocese, which was self-insured with a workers’ compensation policy that extended coverage to volunteers.

The church applied to the Workers’ Compensation Board for a determination of the injured plaintiff’s eligibility for benefits. The injured plaintiff was notified on multiple occasions by the Diocese’s claims adjuster that a claim had been filed and her exclusive remedy was workers’ compensation.

Thinking that she would receive more benefits if she pursued a civil lawsuit, the plaintiff did not seek workers’ compensation benefits and instead filed a lawsuit against her church. The church asked the court to dismiss the lawsuit on the ground that the workers’ compensation is the exclusive benefit for employees injured on the job.

The court declined to do so since it was unclear if the plaintiff was acting as a volunteer covered under workers’ compensation at the time of her accident. On appeal, a state appeals court agreed with the church that the plaintiff was a volunteer covered by the state workers’ compensation law, and this coverage was exclusive and precluded the plaintiff’s civil lawsuit.

The court concluded: “[A] plaintiff cannot elect to waive benefits under the Workers’ Compensation Law and proceed on a tort cause of action … . Accordingly, the [trial] court should have granted the church’s motion, in effect, for summary judgment dismissing the complaint based on the exclusivity provisions of the Workers’ Compensation Law.”

What this means for churches

This case illustrates two important points. First, workers’ compensation benefits are an exclusive remedy for church employees who are injured on the job. As a result, these employees are precluded from electing to sue their employing church in a civil lawsuit in an attempt to obtain greater damages. Second, in some states, workers’ compensation law covers volunteers as well as employees. Usually, conditions apply. Church leaders should confirm with an attorney or the church’s insurance agent if volunteers are covered under the state workers’ compensation law, and if so, if any conditions apply. Aprile-Sci v. St. Raymond Church, 151 A.D.3d 671 (N.Y. App. 2017).

Church Law and Tax Report

Volunteer Worker Injured on Church Property Not Eligible for Workers’ Compensation

Key point 8-07.2. 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 Kansas court ruled that a volunteer worker who was injured while removing a tree from church property was not an employee of the church and therefore was not eligible for workers’ compensation benefits. A church board agreed to cut down two large trees on the church’s property that were hanging over a neighbor’s property. The church could not afford to pay someone to remove the trees, so a board member rounded up about 15 people to help cut down and remove the trees. Several people brought their own chainsaws to help with the project. One of the volunteers (the “victim”) was a board member’s son, and the board member asked him if he would use his truck to pull a trailer to haul away the wood. The board selected the day the trees would be removed. The church provided lunch for the workers that day. The board told the victim that he could have the wood since he was hauling it away.

The first day, the victim and the rest of the group cut down the trees and removed the wood. The victim was the only person who received the wood from the felled trees. While the board member told the workers to cut the trees down, he did not tell them how to do it or how to cut up the tree branches. No one from the church gave any training to the victim on how to cut down the trees. The board member later testified that his son was not an employee of the church at any time. The church did not provide any of the chainsaws or equipment.

On the second day of trimming—approximately a week later—the pastor told the victim that he wanted the remaining stumps cut to the ground. The victim cut his hand with a chainsaw as he attempted to cut one of the stumps. The saw kicked back, caused him to lose his balance, and then the saw struck the fingers on his right hand. He was taken to the emergency room and later had reparative surgery. He missed six weeks of work from his regular job. He has lingering grip and sensitivity issues in this right hand.

The victim testified he was not an employee of the church at the time. Rather, he was employed as a forklift driver for a distribution company. He was not a member of the church but attended on occasion. He also testified that this was a one-time job and he did not have an ongoing relationship with the church. He said there were no set hours for the job, just that the job be completed.

The victim filed a workers’ compensation claim for the injuries to his right hand. He incurred over $50,000 in medical bills. A physician testified that the victim suffered a 34 percent permanent impairment to his right upper extremity. The church had workers’ compensation insurance, but its policy did not contain an inclusion, amendment, or endorsement covering volunteers.

After a full hearing, an administrative law judge (ALJ) denied workers’ compensation benefits because the victim had failed to prove the existence of an employer-employee relationship. The ALJ found that neither the victim nor the church considered him an employee of the church and there was never any intent to create an employment contract. Rather, the ALJ found the working relationship was that of an independent contractor, if anything at all, based on the victim using his own equipment and there was no evidence of the right of the church to control the method or manner of performing the work. The ALJ also stated that the victim was paid in-kind on a one-time basis with cords of wood and that such payment does not constitute “wages.” The Workers’ Compensation Appeals Board agreed with the ALJ’s conclusion that the victim was an independent contractor and added: “[He] was simply doing his father a favor and agreed, along with 15 others, to cut down two trees and haul away the wood. He was not an employee of the church.”

On appeal to a state appeals court, the victim argued that the ALJ and Board erred in finding that he was an independent contractor, not an employee of the church, and therefore not entitled to workers’ compensation benefits.

The Court began its opinion by noting that “there is no absolute rule for determining whether one is an independent contractor or an employee. Generally, each case must be determined on its own facts.” However,the Court noted that “there are some well-recognized tests which courts have used in determining whether one is an independent contractor or an employee,” and that “the principal test is based upon the control exercised: Who has the right to direct what work will be done and when and how the work will be performed? This test is commonly referred to as the ‘right of control’ test.”

The victim argued that he was an employee of the church, not an independent contractor. He had no control over the 15 volunteers who helped remove the wood. He did not set the date and time to remove the trees, and he was working under the supervision of his father and the pastor. He asserted that it was undisputed that he was specifically instructed by the pastor to cut the stumps as close to the ground as possible, and that he received wages in the form of wood from the fallen trees and no other person involved received any type of payment or compensation. Since he had no control over the job, he could not be an independent contractor.

The court pointed to the following additional factors to support its conclusion that the victim was a contractor rather than a church employee:

The existence of the right of the employer to require compliance with instructions.
The extent of any training by the employer.
The degree of integration of the worker’s services into the employer’s business.
A requirement that the services be provided personally by the worker.
The existence of hiring, supervising, and paying assistants by the worker.
The existence of a continuing relationship between the worker and the employer.
The degree of establishment of set hours of work.
The requirement of full-time work.
The degree of performance of work on the employer’s premises.
The degree to which the employer sets the order and sequence of work.
Whether payment is by the hour, day, or job.
The extent to which the employer pays the worker’s business or travel expenses.
The degree to which the employer furnishes tools, equipment, and materials.
Whether the employer has the right to discharge or terminate the worker.
Whether the worker is engaged in a distinct occupation or business.
Whether the work is part of the regular business of the employer.
Whether the parties believe they are creating the relation of employer and employee.

The court concluded that these factors overwhelmingly demonstrated that the victim was a contractor rather than a church employee, and therefore was ineligible for workers’ compensation benefits:

Here, it is our opinion that when measured by the foregoing standards, the recorded evidence sufficiently supported the findings adopted by the ALJ and Board. Ample substantial competent evidence in the record before us, as echoed in the factual findings below, demonstrates that the church did not possess a right of control over the victim in his completion of the job of cutting down the trees, loading them into his truck and trailer, and cutting the stumps to the ground. There were no conditions of his employment or rules regarding completion of the job. An independent contractor is one who, in the exercise of an independent employment, contracts to do a piece of work according to his or her own methods and who is subject to his or her employer’s control only as to the end product or final result of his or her work. The evidence, therefore, leads to one reasonable inference, i.e., the victim was an independent contractor and is not entitled to workers’ compensation.

What This Means For Churches:

Though the victim in this case was ultimately considered an independent contractor, and thus not eligible to receive workers’ compensation, church leaders should still consider the following four points:

1. Are we subject to workers’ compensation law? Church treasurers should know whether their church is subject to state workers’ compensation law. If you are not sure if your church is covered, consider one or more of the following steps: (1) ask a local attorney; (2) ask your church insurance agent; or (3) call the agency in your state that administers the workers’ compensation program.

2. The risk of being uninsured. Employers that are covered by workers’ compensation law generally pay insurance premiums to cover the cost of benefits paid to injured workers. However, many churches have failed to obtain workers’ compensation insurance, often because of a false assumption that they are “exempt” from workers’ compensation laws. This can expose a church to significant liability for two reasons. First, an injured employee may be able to sue the church for damages in a civil lawsuit. Unlike workers’ compensation benefits, there is no limit on the amount a court can award in a civil lawsuit. Second, the damages a court awards in a civil lawsuit will not be covered under most church insurance policies. Often, general liability policies exclude employee injuries on the assumption that they are covered under a workers’ compensation policy. This can create a dangerous gap in coverage.

Workers, like the victim in this case, who are deemed to be contractors rather than employees, are not eligible for workers’ compensation benefits. However, they may be able to bring a civil law claim against a church for which they perform services. Such a claim ordinarily is covered by the church’s general liability insurance policy.

3. Do we have workers’ compensation insurance? If your church is subject to workers’ compensation law, then be sure you have obtained workers’ compensation insurance. If in doubt, ask your church insurance agent.

4. Employees. Workers’ compensation laws only cover injuries and illnesses suffered by employees on the job. While the courts generally define the term “employee” broadly, there are limits, as this case demonstrates. And note that the fact that a church treats a worker as self-employed for income tax reporting purposes does not mean that the worker is self-employed for workers’ compensation. Miller, 2015 WL 5458679 (Kansas App. 2015).

Church Law & Tax Report

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).

Background

Most churches utilize volunteers to perform a variety of routine maintenance tasks, including cleaning, snow and ice removal, painting, roof repair, and grass cutting. If a church member is injured while performing such tasks, is the injury compensable under the state's workers’ compensation law? If so, what are the consequences to the church? These are important issues that were addressed by the Pennsylvania Supreme Court in a recent case.

An elderly man (Burt) and his wife began attending a small church. Because contributions were meager, church members performed most church maintenance. The church constitution designated the board of trustees as the persons responsible for "maintenance and protection of church building, grounds, furnishings and equipment." These duties were carried out on a voluntary basis. The single exception to the obligations of the board was that the church paid to have the grass cut on its 1.5-acre property. The trustees completed all other grounds maintenance, such as edging the lawn, planting flowers, and pruning the shrubs and trees.

Burt and his wife became members of the church, and a short time later Burt was appointed a church trustee. As a trustee, he performed various maintenance duties for the church such as painting the men's bathroom, changing light bulbs, vacuuming rugs, washing windows, cleaning restrooms, and other chores. He also began cutting grass on church property for $25 per week using a tractor and gasoline provided by the church.

On one occasion Burt took his hedge cutting shears with him when going to church to cut grass. When another trustee arrived at the church at 8:30 a.m., Burt was trimming the bushes beneath one of the church windows. The trustee waived at Burt, and then went into the church and began cleaning. Within a few minutes he heard a loud noise, saw a cloud of black smoke, and observed Burt emerge from the smoke engulfed in flames. Apparently, Burt had gathered up the shrub clippings, piled them on the grass in the far corner of the church driveway, and set fire to them using a can of gasoline.

The fire department and an ambulance were called, with the fire chief arriving moments later. Burt was conscious and said, "I think I screwed up." Burt died from severe burns a month later.

Burt's widow filed a workers’ compensation claim with the state, claiming that her husband died as a result of the work-related injuries he sustained while acting within the scope of his "employment" with the church. The church objected to the workers’ compensation claim. It asserted that Burt was a "volunteer" and that the money he received for cutting the grass was a "nominal honorarium." The church further noted that Burt was not cutting the grass when he sustained the fatal injury, but rather was performing volunteer services for the church by trimming the bushes. As a result, his efforts to trim the bushes (which led to his injury) were uncompensated trustee duties.

A workers’ compensation tribunal found that Burt's widow was entitled to workers’ compensation benefits since: (1) Burt was employed to cut the grass; (2) the church provided all of the materials and equipment necessary to carry out the task; (3) trimming the bushes was "incidental and necessary for Burt to accomplish his task of grass cutting"; and (4) Burt was paid on a weekly basis. The church appealed, arguing that Burt was either a volunteer or an independent contractor, and that the $25 paid to him was an honorarium rather than compensation.

A state appeals court ruled that Burt was an employee of the church because he received "valuable consideration" for his services. It relied on a previous case in which a church member fell from the roof of the church he attended while it was under construction. The victim had volunteered to help with the construction of the church and, in exchange, the value of his labor was to be applied toward the payment of his tithes. The court found that the victim was an employee and had received valuable consideration. Schreckengost v. Gospel Tabernacle, 149 A.2d 542 (Pa. Super. 1959). A dissenting judge concluded that Burt was "a volunteer, or possibly an independent contractor, but definitely not an employee." She noted that the church exercised little, if any, control over the grass-cutting activities, and that Burt alone decided when and how to cut the grass.

The supreme court's ruling

The state supreme court agreed to review the case. It began its opinion by noting that the state workers’ compensation law "defined the liability of an employer to pay damages for injuries received by an employee in the course of employment." The law defined an "employee" as "all persons who perform services for another for a valuable consideration, exclusive of persons whose employment is casual in character and not in the regular course of the business of the employer." The court noted that according to this definition a finding of employee status requires a consideration of three factors: (1) the presence of valuable consideration; (2) whether the employment was casual in character; and (3) whether the employment was in the regular course of employer's business. The court considered each factor individually.

Valuable consideration

The court acknowledged that Burt "performed numerous services for the church, among them were painting, interior maintenance, exterior maintenance, and grass cutting." Though his wife testified that he "was not compensated in this life for the majority of the tasks he performed," the court noted that he was paid by either an honorarium or an actual fee to cut the grass. The court observed: "Ordinarily, if services are performed for the payor directly, the presumption is that the amount received is for the service and it is not a gift or honorarium. The fact that the parties may have called the payment an honorarium is important, but not conclusive, for in light of all the circumstances, the term is often loosely or inaccurately used."

The court, in concluding that the $25 the church paid Burt each week was "valuable consideration" for services performed, observed:

The church treasurer testified that Burt was paid $25 per week "because that's what he agreed to cut it for." This negotiation for payment indicates that the weekly payment amount was not truly in the form of an honorarium but in the form of wages. An honorarium, in common understanding, means a voluntary reward for a service for which no remuneration could be collected by law. Thus, an honorarium is given to one who performed services for little or nothing and its tender is decided by the one for whom the services were performed without an obligation to give it. Here, the amount to be paid was clearly the subject of some discussion between the church and Burt. The fact that he received $25 every week for cutting the grass, even though the checks were issued approximately every four weeks, clearly constitutes wages as well as valuable consideration. The church supplied the mower and the gasoline so that he had little in the way of expenses to diminish the consideration he was receiving.

"Casual employment"

The court noted that the workers’ compensation law exempted "persons whose employment is casual in character." It defined "casual employment" as employment that is "occasional, irregular, or incidental as distinguished from regular and continuous." The court concluded that Burt's employment was not casual:

He was employed on a regular basis to cut the grass once per week during the growing season. He negotiated the wage and utilized the materials and equipment supplied by his employer, the church. The employment was not irregular, sporadic, or incidental and was, therefore, not casual in nature. He is more properly a seasonal employee rather than a casual employee. Further, he had been employed by the church for nearly three years to perform the same task, the same way, and during the same time period. Thus … he was an employee of the church for purposes of cutting the grass.

Business of the church

The court noted that the workers’ compensation law exempted "persons whose employment [is] not in the regular course of the business of the employer." The court defined this exception as follows:

While there may be a certain reluctance to characterize the activities of a church or temple in terms of the marketplace, the term business does not always connote a profit objective. The business of a religious institution is not strictly confined to charitable purposes, spiritual uplift, ministering to the needy, conducting religious services, and saving souls. Those courts that have considered what constitutes the business of the church, have concluded that, in order to attain the goals of the church or the temple, it is also necessary to construct and maintain a house of worship in which the religious work is conducted …. The maintenance and repair of church property and keeping the property in presentable condition is generally considered the usual course of business conducted on those premises by the trustees or other church management personnel. Therefore, we conclude that Burt was employed in the business of the church when he was cutting the grass.

However, the court stressed that Burt was not cutting the grass when he was injured. Rather, he was trimming bushes, a task that he was expected to perform gratuitously and for which he received no compensation. The appeals court had concluded that trimming bushes was "incidental" to Burt's employment, and therefore was indistinguishable from it. But the supreme court disagreed:

Burt was clearly not cutting the grass at the time of his injury. Although the testimony of the individuals on site that day unanimously agreed that the tractor was still in the shed at the time of the injury, the lower court found that trimming the bushes was incidental to the task of cutting the grass …. However, the proper question is not whether trimming the bushes was incidental to the grass-cutting task, but whether that activity was part of the employment arrangement. We hold that in this case it was not.

Burt was intimately involved in the work of the church. He wore several "hats" during the years of his church membership for he was not only a member, he also served as a trustee as well as a seasonal employee. The duties of a trustee included building and grounds maintenance. Several witnesses testified as to the various activities of the trustees in this regard, but they were unanimous in stating that the only paid position was for running the tractor to cut the grass. In fact [another trustee] testified that he, not Burt, usually completed the hand mowing in those areas that could not be reached with the tractor, and for which he received no compensation …. No trimming of bushes and overhanging tree limbs, no edging, picking up sticks, hand mowing, or garden work, all of which are necessary to maintain the grounds of the church, were ever included in the fee to cut the grass. The church paid an individual for running the tractor to cut the grass …. The trustees were responsible for all other tasks included in grounds maintenance …. Accordingly, we must find that Burt was acting as a trustee while trimming the bushes, rather than as an employee, and was not in the course of his employment when he was injured.

What this means to churches

Consider the following points:

1. Are we subject to workers’ compensation? Churches should know whether their church is subject to state workers’ compensation law. If you are not sure if your church is covered, consider one or more of the following steps: (1) ask a local attorney; (2) ask your church insurance agent; or (3) call the agency in your state that administers the workers’ compensation program.

2. The risk of being uninsured. Employers that are covered by workers’ compensation law generally pay insurance premiums to cover the cost of benefits paid to injured workers. However, many churches have failed to obtain workers’ compensation insurance, often because of a false assumption that they are "exempt" from workers’ compensation law. This can expose a church to significant liability, for two reasons. First, an injured employee may be able to sue the church for damages in a civil lawsuit. Unlike workers’ compensation benefits, there is no limit on the amount a court can award in a civil lawsuit. Second, the damages a court awards in a civil lawsuit will not be covered under most church insurance policies. Often, general liability policies exclude employee injuries on the assumption that they are covered under a workers’ compensation policy. This can create a dangerous gap in coverage.

3. Do we have workers’ compensation insurance? If your church is subject to workers’ compensation law, then be sure you have obtained workers’ compensation insurance. If in doubt, ask your church insurance agent.

4. Employees. Workers’ compensation laws only cover injuries and illnesses suffered by employees on the job, but the term employee is defined very broadly to further the objectives of workers’ compensation laws. As a result, the fact that a church treats a worker as self-employed for income tax reporting purposes does not mean that the worker is self-employed for purposes of workers’ compensation.

However, as the case addressed in this article illustrates, workers’ compensation is available only to work-related injuries to employees. The court concluded that Burt's injuries occurred while he was performing duties as a trustee, and not as a compensated employee. Brookhaven Baptist Church v. Workers Compensation Appeal Board, 2006 WL 3798180 (Pa. 2006)

Key point: In some states, clergy are considered to be employees protected by workers compensation law. This may mean that their employing church must pay workers compensation insurance for both clergy and lay employees.

The Montana Supreme Court ruled that a Lutheran pastor was an employee of his church for purposes of workers compensation coverage, and accordingly the church had to pay workers compensation insurance for him.

The church argued that its pastor was self-employed rather than an employee, and pointed out that the pastor reported his federal income taxes and social security taxes as a self-employed person. It also vigorously maintained that the relationship between a church and its pastor is a purely theological matter, and that by "calling" a pastor a church "does not set up a relationship of employer to employee, but rather a relationship of pastor to a congregation, as a shepherd."

The church claimed that its constitutionally protected right to practice its religion would be violated if the state could force it to treat its pastor as an employee for purposes of workers compensation coverage. The state supreme court disagreed. It began its opinion by rejecting the church's contention that the pastor was self-employed rather than an employee. It acknowledged that self-employed persons were not covered by workers compensation, but it concluded that the pastor was an employee for purposes of workers compensation coverage despite the fact that he reported his income taxes and social security taxes as a self-employed person.

The court noted that the definition of the term employee is a broad one for workers compensation purposes, and that it can be established if an employer furnishes equipment and supplies to a worker. It noted that the church in this case provided most if not all of its pastors equipment and supplies, including an office, place of worship, and clerical vestments, and in addition provided a support staff consisting of a full-time secretary and a part-time bookkeeper. The court then noted: "[T]he furnishing of equipment is strong evidence of control and of a lack of independence and by itself is sufficient to establish the pastor's status as an employee. When an employer furnishes valuable equipment, an employment relationship almost invariably exists."

The court also rejected the church's claim that its first amendment rights were violated by the state's classification of its pastor as an employee. It noted that "the state may regulate affairs impacting religious activity when there is an overriding governmental interest in so doing." The provision of workers compensation benefits is such an interest, the court concluded. This conclusion was reinforced by the fact that the church had paid workers compensation insurance for its pastor for several years without objection.

The court acknowledged that the civil courts cannot interfere with the relationship between a church and its pastor, but it concluded that in this case only the relationship between the church and the workers compensation system was being scrutinized.

What this means for churches

This case is an important development for the following reasons. First, it illustrates that clergy will be considered "employees" subject to workers compensation law in a number of states, even if they report their income taxes and social security taxes as self-employed persons. In other words, the classification of a minister as an employee for purposes of workers compensation coverage is an entirely independent issue that is not affected by the minister's status for federal tax purposes. Second, this case illustrates that the definition of the term minister is very broad for purposes of workers compensation coverage. Third, the court in this case concluded that under the state constitutional guaranty of religious freedom a "compelling state interest" is still needed to justify an interference with religious freedom.

In 1990, the United States Supreme Court ruled that a compelling state interest no longer is necessary to justify an interference with religious freedom under the first amendment to the United States Constitution. The Montana case illustrates that the protection of religious liberty may be stronger under some state constitutions than under the United States Constitution.

Finally, this case suggests that churches should review carefully their ministers' status for workers compensation purposes. Do you pay workers compensation insurance for the ministers on your staff? If not, why not? Are you assuming that the ministers are self-employed? If so, this is a very risky assumption. Keep in mind that one of the most common exclusions in church insurance policies is for injuries sustained by employees in the course of their employment. Such injuries are excluded from coverage because it is assumed that such persons are covered under workers compensation. As a result, churches that do not pay workers compensation insurance premiums for their ministers may be incurring a significant uninsured risk. If you do not believe that your ministers are covered by workers compensation, you should discuss this with a local attorney for further clarification. St. John's Lutheran Church v. State Compensation Insurance Fund, 830 P.2d 1271 (Mont. 1992)

Church Law and Tax 1992-05-01 Recent Developments

Workers Compensation

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

• Is a homeless person who is paid $5 per hour by a church for performing miscellaneous services as part of a “charitable work program” an employee covered by state workers compensation law? Yes, concluded a California appeals court. A Baptist church operated a charitable program for homeless or transient persons. Sometimes, the church made small payments directly to needy individuals. In other cases, when persons “wished to maintain their dignity and asked to do work,” the church would attempt to find work for them to do (generally at a rate of $5 per hour). Most persons worked at most a day. However, one individual worked for nearly 4 weeks, performing a variety of tasks including roofing, gardening, digging, drywall work, painting, and laying a carpet. This individual sustained serious injuries when he fell off a ladder while doing roofing work. The victim later asserted that he had been an “employee” of the church and accordingly was entitled to workers compensation benefits. The church vigorously rejected this position, claiming that the victim was a volunteer who was paid an “honorarium” for participating in the church’s charitable work program. It pointed out that it did not withhold any payroll taxes from the victim’s compensation, and in no sense considered him an employee. A state agency ruled in favor of the church, noting that private charities should not be discouraged from providing aid by requiring them to pay workers compensation. The agency noted that “in fact, [the church] has apparently discontinued its benevolence fund program due to the litigation and liability issues raised in this case.” The victim appealed, and a state appeals court concluded that he was an employee of the church, and as such was entitled to workers compensation benefits. The court observed that the question is “whether to characterize the work as donated services, not within the scope of a traditional work for hire relationship, or as payment within a true employment relationship where services are provided, not out of charitable generosity, but for a living wage.” The court concluded: “[The victim] worked shoulder to shoulder with covered employees, did the same work, received wages, and ran the same risks …. He worked at a set hourly rate, for cash wages …. They were hourly wages, indistinguishable in any way from the wages paid to any laborer, except that they were probably considered below the prevailing wage rate for the kind of work done …. Where the pay is above the minimum wage and is not gauged by the recipient’s necessities, we believe that it can logically only be wages.” The court acknowledged that its decision might deter churches and other charities from hiring the needy. However, it emphasized that this is not a relevant consideration in deciding whether or not such individuals are employees. The church had argued that the victim “bit the hand that fed him” and that he was responsible for the discontinuance of the church’s charitable work program. In responding to this claim, the court observed:

One is tempted to observe that the hand that fed him did not go empty; the church got some 160 hours of work at $5 an hour in return for its alleged charity to [the victim]. And as [the victim’s] attorney points out, the cost to the church of providing workers compensation insurance for an annual payroll of $5,000 would have been $553 in 1987 when [the victim] was hired. If that cost sufficed to discourage the church’s “charity,” the church was easily discouraged. But whether or not charity is easily discouraged, the law confers employee status under the [workers compensation law] when an employment relationship is fact exists, and an employer cannot escape the obligations of such a relationship by characterizing his hiring of an employe as “charitable,” by failing to report it to the Internal Revenue Service, nor by paying below-scale wages. Where, as here, the normal incidents of an employment relationship are present, the concomitant legal obligations follow.

This case illustrates the complications that may be associated with the payment of compensation to needy persons who perform work on behalf of a church. Attempting to avoid those obligations by characterizing such persons as volunteers, or by characterizing their compensation as “honorariums,” will not succeed, if the persons in fact meet the liberal definition of an “employee.” Hoppmann v. Workers Compensation Appeals Board, 277 Cal. Rptr. 116 (Cal. App. 1991).

Workers’ Compensation

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

• A South Carolina state appeals court ruled that a construction company president who donated his labor in constructing a new church was not eligible for workers’ compensation benefits following an injury on the job. The court noted that workers’ compensation benefits are available only to “employees,” and that state law defined the term “employee” as one who works for wages under a written or oral contract of hire. The injured worker in this case “donated his labor in the construction of the church. There is no evidence he was paid wages or had a right to demand payment. There is also no evidence [that he] entered into a tithing agreement with [the church] so that his work could be considered as a credit toward his tithe obligation. We find no evidence of an employment relationship between [him and the church]. He was not hired by [the church] and he was not performing any paid service for [the church].” As a result, the court concluded that the worker “was a volunteer and not an employee” under the state workers’ compensation law. Accordingly, the church, through its workers’ compensation insurance carrier, was not obligated to pay benefits to the injured worker. McCreery v. Covenant Presbyterian Church, 383 S.E.2d 264 (S.C. App. 1989).

© Copyright 1990, 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: m81 m35 c0290

Does the application of a state workers' compensation statute to churches violate the constitutional guaranty of religious freedom? No, concluded a federal district court in Ohio.

A Baptist church argued that the state of Ohio, through its workers' compensation system, had "assumed lordship over the church in direct contravention to the biblical principle that Jesus is 'head over all things to the church' (Ephesians 1:22) and that 'in all things [Christ] might have preeminence' (Colossians 1:18)." In addition, the church argued that "it would be a sin to contribute workers' compensation out of church funds designated for biblical purposes and that tithe and offering money … belongs to God."

The court concluded that these allegations were "sufficient to allege infringement of [the church's] religious beliefs." However, "the mere fact that a religious practice is burdened by a governmental program does not mean that an exemption accommodating the practice must be granted," since "the state may justify a limitation on religious liberty by showing that it is essential to accomplish an overriding governmental interest."

The court concluded that a state's interest in assuring the efficient administration and financial soundness of the workers' compensation fund, and in protecting the interests of injured workers, amounted to a compelling interest that overrode the church's religious beliefs. The court noted that the Ohio law did exempt clergy from coverage under the workers' compensation, and this limited exemption sought "to obviate excessive interference with the religious ministry of churches."

Also rejected was the church's claim that the workers' compensation program would impermissibly "entangle" government and church, since other courts had upheld even greater reporting requirements as constitutionally permissible. Finally, the court observed that exempting churches from coverage under the workers' compensation law would force injured workers to sue churches in the civil courts, "an even more undesirable result from a scriptural standpoint." South Ridge Baptist Church v. Industrial Commission, 676 F. Supp. 799 (S.D. Ohio 1987)

Workers Compensation

Workers’ Compensation Sole Remedy for Sexually Assaulted Employee

What this means for churches

Court Rules Workers’ Compensation Insurance Is Exclusive Benefit for Job-Related Injuries

What this means for churches

Volunteer Worker Injured on Church Property Not Eligible for Workers’ Compensation

Volunteer Worker Injured on Church Property Not Eligible for Workers’ Compensation

What This Means For Churches:

Workers Compensation Benefits

Workers Compensation Benefits

Are Church Volunteers Eligible for Workers’ Compensation Benefits?

Background

The supreme court's ruling

What this means to churches

Court Ruled Pastor Was an Employee of His Church for Purposes of Workers Compensation Coverage

What this means for churches

Workers’ Compensation and “Charitable Work Program” Employees

Workers Compensation

Workers’ Compensation

Workers’ Compensation

State’s Interests Amounted to a Compelling Interest That Overrode the Church’s Religious Beliefs