Federal

Legal Developments

Public Schools, Churches, and Rental Discrimination

Court rules public school cannot charge higher rental fees to church groups than other community groups.

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax 1995-03-01 Recent Developments

Freedom of Religion

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

• Key point: A public school that permits any community group to rent its facilities cannot charge churches a higher rental fee in order to encourage them to build their own facilities.

• A federal appeals court ruled that a public school violated the constitutional rights of a church by charging it more rent than it charged other community organizations for the use of school facilities. A public school board permitted a wide variety of civic and community groups to use its facilities. Most such groups paid a rental fee substantially less than the commercial rate. Churches were permitted to use school facilities, and they were charged the same rate as other civic and community groups for the first 5 years they rented school facilities. However, after 5 years, churches paid a substantially higher rental fee. No other civic or community group paid the higher fee after 5 years. School officials freely acknowledged that the policy singled out churches for higher rent, but it insisted that the purpose was to encourage churches to go elsewhere out of a concern that continued use by churches of public school facilities might violate the first amendment’s prohibition of an establishment of religion. A church that organized in 1980 began renting school facilities. For 5 years it paid the discounted rate, and later began paying the commercial rate. The church estimated that it paid $290,000 in additional rent because of the school board’s policy regarding churches. The church sued the school board, claiming that the rental policy for churches violated the first amendment guarantees of speech and religion. It also demanded a refund of the excess rent it had paid. A trial court agreed with the church that the school board’s policy was unconstitutional, but it refused to award the church the excess rent it paid because of the policy. The church appealed. In a significant ruling, a federal appeals court agreed with the trial court that the policy was unconstitutional, and it ruled that the church was entitled to sue for a return of the excess rent it paid under the policy.

The court based its decision on a 1981 decision of the United States Supreme Court holding that when a state university creates a “public forum” by making its facilities available to diverse student groups, it can deny a religious group access to those same facilities only by showing some compelling state interest. Widmar v. Vincent, 454 U.S. 263 (1981). The Supreme Court recognized that state institutions are not required by the constitution to transform their facilities into a public forum, but when they do they cannot discriminate against or exclude student groups that wish to engage in religious worship and discussion absent proof of a compelling state interest. The Supreme Court rejected a state university’s argument that the first amendment’s ban on the establishment of religion was a sufficiently compelling interest to justify the exclusion of religious groups from using university facilities that were available to other groups. It observed that “an open forum in a public university does not confer any imprimatur of state approval on religious sects or practices,” especially when the forum is open to a “broad class of nonreligious as well as religious speakers.” It concluded: “[W]e are unable to recognize the state’s interest [in maintaining a greater separation of church and state] as sufficiently compelling to justify content-based discrimination against [students’] religious speech.” The appeals court summed up the Supreme Court’s 1981 decision by noting that “a policy of equal access to a public forum which allows for religious uses does not conflict with the [nonestablishment of religion clause of the first amendment].” Finding “no basis” to distinguish the Supreme Court’s 1981 decision from the present case, the court ruled that the school board’s policy of charging higher rental fees to churches violated the first amendment guaranty of free speech. The court further found that the policy violated the constitutional right of religious organizations to freely exercise their religion. It referred to a 1993 decision of the Supreme Court holding that laws which discriminate on the basis of religion are valid only if narrowly tailored to serve a compelling state interest. Once again, if found such a compelling interest lacking.

The court then responded to the school board’s claim that below-market rents combined with long-term or permanent use of school facilities by a church violates the nonestablishment of religious clause. The school board noted that the Supreme Court in the Widmar case (discussed above) observed that a state may have a compelling interest in excluding religion from a public forum if religious organizations “dominate” the forum. The appeals court concluded that such was not the case here: “The school board created a public forum to which it provides access to all sorts of uses, including religious uses. In a given year, it receives approximately 8,500 applications for use of its 172 schools, about 50 of which are from churches.” This was not “domination” of the public forum by religious organizations. The court also rejected the school board’s claim that by allowing churches to pay a below-market rental fee, it was “subsidizing” religion. Churches would be paying the same rental fees as other civic and community groups, at a rate designed to reimburse schools for the direct expenses of using their facilities.

Finally, the court allowed the church to sue the school board for a return of the excess rents it paid under the unconstitutional rental policy. In rejecting the school board’s claim that requiring it to refund excess rents back to the church would “cripple” it financially, the court observed: “[W]e are not impressed. In this case, the claim is for slightly more than $280,000, plus interest …. Against an annual [public school] budget of $850 million, we cannot say that the potential award in this case is so substantial” as to relieve the school board from liability. This case will be relevant to those many religious organizations that use public school facilities. Not only does this case strongly endorse the right of churches to use public school facilities that are available to other civic and community groups, but it demonstrates that churches cannot be charged more rent than other organizations. Perhaps as important, the court rejected the school board’s suggestion that allowing a church to rent school facilities at a below-market rate for a long period of time automatically violates the first amendment prohibition of the establishment of religion. Such may be the case, but only if religious use of the public forum is “dominant.” This case is controlling in the 4th federal circuit, which includes the states of Maryland, North Carolina, South Carolina, Virginia, and West Virginia. It will be persuasive but not controlling in other jurisdictions. Fairfax Covenant Church v. Fairfax County School Board, 17 F.3d 703 (4th Cir. 1994).

See Also: Use of Public Property for Religious Purposes

© Copyright 1995, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m47 c0295

Legal Developments

Lawsuits by Victims of Child Abuse

Court rules that man abused as child can sue his former diocese for injuries.

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax1994-09-01Recent Developments

Sexual Misconduct by Clergy and Church Workers

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

• Key point: Minors who are sexually molested by church workers may not sue their church after the statute of limitations has expired. Generally, the statute of limitations begins to run on a minor’s 18th birthday. In some states the statute of limitations does not begin to run until an adult survivor of child sexual molestation “discovers” that he or she has experienced physical or emotional suffering as a result of the molestation. Other states do not recognize this so-called “discovery rule.”

• A federal court in Vermont ruled that an adult who claimed to have been sexually abused by a nun some 40 years earlier could sue a Catholic diocese for his alleged injuries. In 1992, an adult male (the plaintiff) began receiving intensive psychotherapy for what he alleges were severe emotional problems. As a result of this therapy, the plaintiff claims that he discovered he was the victim of “childhood sexual abuse, physical abuse and psychological abuse” allegedly occurring forty years ago when he was a resident of a church orphanage. The plaintiff filed a lawsuit in 1993 against “Sister Jane Doe,” the alleged perpetrator whose identity is yet unknown, and various religious organizations allegedly responsible for hiring and supervising Sister Jane Doe. The plaintiff alleged in his lawsuit that he has “used all due diligence, given the nature, extent, and severity of his psychological injuries and the circumstances of their infliction, to discover the fact that he has been injured by the sexual abuse.” The lawsuit listed the following five theories of liability against Sister Jane Doe: childhood sexual abuse, assault and battery, intentional infliction of emotional distress, negligent infliction of emotional distress, and invasion of privacy. In addition, the lawsuit claimed that the orphanage and Catholic diocese were liable for his injuries on the basis of negligence. The diocese urged the court to dismiss the case on the ground that the statute of limitations had expired long before. Under Vermont law, when a plaintiff sues to recover damages for injuries “suffered as a result of childhood sexual abuse,” the lawsuit must be brought within “six years of the act alleged to have caused the injury or condition, or six years of the time the victim discovered that the injury or condition was caused by that act, whichever period expires later.” The diocese claimed that since the alleged abuse occurred over forty years ago it is reasonable to assume that the plaintiff should have discovered the cause of his injuries long ago. It also argued that forcing it to defend against an alleged injury occurring so long ago violates the very purpose of a statute of limitations—relieving defendants of the difficult if not impossible task of defending against such claims. The court rejected these arguments, and ruled that the statute of limitations had not expired on any of the plaintiff’s claims (except for assault and battery, which the court deemed to be unrelated to childhood sexual abuse). The court observed that under Vermont law the test is when the plaintiff in fact discovered that his injuries were caused by childhood abuse, and not when he reasonably could have made this discovery.

The diocese also argued that forcing it to defend against an alleged injury occurring 40 years ago violates due process of law because there is no meaningful way to defend against a claim that is so old. The diocese would be without recourse to witnesses and records because of the passage of time. In rejecting this argument, the court observed: “[The diocese] provides no support for its theory that the prospect of an absence of records or witnesses violates a defendant’s constitutional due process rights. [It] has made no showing that it has no access to records or witnesses, only that it will be burdensome for it to attempt to locate records and witnesses. That burden alone does not implicate an individual’s due process rights.”

Finally, the court rejected the argument of the diocese that the plaintiff’s lawsuit was barred by the first amendment guaranty of religious freedom. Specifically, it argued that by permitting the plaintiff to sue the diocese, the court will be forced to determine what is acceptable behavior by a minister or other religious practitioner in a religious institution such as a church-run orphanage. The court agreed in part with this argument:

This argument has some merit. However, in this case it is unclear whether the actions taken by Sister Jane Doe had their origin in secular or religious activities. Tort claims which are based on purely secular activities do not invoke the protections of the [Constitution] because they are unrelated to the religious efforts of a cleric (for example, negligent operation of church van). But to the extent that a cleric’s actions are related to his or her religious endeavors, judicial review may foster excessive entanglement. Not having a sufficient factual basis for determining the circumstances surrounding Sister Jane Doe’s alleged misconduct, it is not clear to the Court that a first amendment defense would lie. Dismissal of the claims against her … would thus be premature at this stage.

Similarly, dismissal of plaintiff’s indirect and direct claims against [the diocese] is premature. Although the prohibitions of the first amendment may be implicated when a plaintiff seeks to hold a religious organization vicariously liable for wrongful conduct of its servant, it is not yet apparent whether the underlying claims against Sister Jane Doe are related to secular or religious activities, nor whether or to what extent the alleged activities were conducted within the scope of her employment at the orphanage. Thus, just as the claims against Sister Jane Doe must await further factual development, so must the claims of respondeat superior against [the diocese].

The plaintiff’s allegations of intentional and negligent conduct on the part of [the diocese] in hiring and supervising Sister Jane Doe and in fostering an environment in which sexual and physical abuse could occur give rise to serious constitutional concerns. Inquiry by a court or jury into the policies and practices of a religious organization in supervising and hiring clergy and other religious officials may foster excessive entanglement with religion. On the other hand, if hiring was done with knowledge that a prospective employee had perverted sexual proclivities, the institution might well be held accountable even though the hiring was part of the administration of a religious facility. Resolution of these issues must await further factual development.

What is the significance of this case to churches and denominational agencies? Consider the following: (1) It illustrates the possibility, in some states, of facing lawsuits for the alleged abuse of children occurring decades ago. According to this court, such a prospect does not violate due process of law. Of course, plaintiffs themselves will have a difficult time convincing skeptical juries that abuse occurred so long ago, particularly when the plaintiff cannot even identify the offender. (2) The court conceded that the first amendment guaranty of religious freedom may prevent the civil courts from deciding whether or not a religious institution is responsible on the basis of the “respondeat superior” doctrine for the acts of ministers or other religious practitioners occurring in the course of their religious duties. The respondeat superior doctrine imposes liability upon employers for the negligent acts of their employees committed within the scope of their employment. The court also conceded that a religious institution would not be liable under this theory for the acts of an employee that were not committed within the scope of his or her employment. (3) Perhaps most importantly, the court recognized that any attempt by a civil court to find a church or denominational agency liable for a minister’s sexual misconduct on the basis of “negligent hiring” or “negligent supervision” would “give rise to serious constitutional concerns”. Why? Because it would entangle the court in internal ecclesiastical determinations including the selection, training and fitness of clergy. Further proceedings in this case will be discussed in future issues of this newsletter. Barquin v. Roman Catholic Diocese, 839 F. Supp. 275 (D. Vt. 1993).

See Also: Seduction of Counselees and Church Members | Negligent Selection | Negligent Supervision | Negligence as a Basis for Liability – Defenses | Denominational Liability

© Copyright 1994, 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: m67 m10 m86 c0594

Legal Developments

Age Discrimination Law and Religious Organizations

Does federal age discrimination law apply to churches and religious schools?

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax 1994-09-01 Recent Developments

Employment Practices

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

• Key point: Federal age discrimination law prohibits discrimination in employment decisions on the basis of the age of an applicant or employee who is 40 years of age or older. This law applies to some religious organizations.

• A federal court in Pennsylvania issued an important ruling on the application of federal age discrimination law to religious organizations. A chef formed a food service company and later entered into a contract to provide meals for a Catholic monastery. The chef served for ten years, and was then dismissed. A monastery spokesman explained the dismissal by stating that the quality and variety of food had deteriorated. The chef sued the monastery claiming that it violated the federal Age Discrimination in Employment Act, which prevents employers with at least 20 employees and engaged in interstate commerce from discriminating in any employment decision on the basis of the age of an employee who is at least 40 years of age. The monastery asked the court to dismiss the case on the ground that the chef was not protected by the Act since he was not an employee of the monastery. It also claimed that the lawsuit was barred by the constitutional guaranty of religious freedom. The court refused to dismiss the case and ordered that it proceed to trial. It acknowledged that there was some evidence to support the conclusion that the chef was not an employee, including: (1) he insisted on being treated as an independent contractor for tax purposes, and received a 1099 rather than a W-2; (2) the monastery contracted with the chef’s corporation for his services; (3) the monastery did not withhold taxes from the chef’s pay; and (4) the monastery did not pay social security taxes for the chef, or extend to him any employee fringe benefit. However, the court concluded that there was evidence that the chef was an employee, and accordingly it could not dismiss the case. The court noted that in deciding whether or not a worker is an employee for purposes of federal civil rights laws, the courts must apply the “common law employee test”. It quoted from a recent Supreme Court ruling that described this test (note the similarity to the test the IRS uses in defining employees for federal tax purposes):

In determining whether a hired party is an employee under the general common law of agency, we consider the hiring party’s right to control the manner and means by which the product is accomplished. Among the other factors relevant to this inquiry are the skill required; the source of the instrumentalities and tools; the location of the work; the duration of the relationship between the parties; whether the hiring party has the right to assign additional projects to the hired party; the extent of the hired party’s discretion over when and how long to work; the method of payment; the hired party’s role in hiring and paying assistants; whether the work is part of the regular business of the hiring party; whether the hiring party is in business; the provision of employee benefits; and the tax treatment of the hired party.

The court cited the following factors the indicated employee status: (1) the monastery provided the chef’s equipment; (2) the monastery hired and paid the chef’s assistants; (3) the chef had worked for ten years at the monastery, and was required to work five or six days each week; (4) the chef had to comply with various reporting requirements imposed by the monastery; and (5) the chef’s work was done at the monastery. The court concluded that from this evidence “there is a genuine issue whether [the chef] was an employee of the [monastery].”

After concluding that there was sufficient evidence of employee status to send the case to trial, the court addressed the question of whether or not the basis for the chef’s dismissal was unlawful age discrimination. The monastery claimed that it dismissed the chef because of dissatisfaction with the quality and variety of food he prepared. However, the chef claimed that this was a mere “pretext” to disguise the fact that he had been dismissed on account of age. In support of his case, the chef produced a letter from a representative of the monastery, dated just a few months before the chef’s dismissal, that stated in part:

I am writing to commend the talents and services of [the chef]. I have known [the chef] for about eleven years, since he first came to [the monastery]. His performance quickly earned him appointment as head chef, a position he has held for about ten years …. [H]is indomitable spirit and friendly manner made each and all feel that their needs were important and were addressed and served. Special celebrations for feasts, holidays and a weekly cocktail party all served to bring [the chef’s] culinary creativity to special performance level. Each special occasion was concluded with a round of applause for [the chef] and his staff. To have served the food needs for such a demanding and varied public with style and sensitivity is a true achievement. To have done so with distinction for a decade is achievement of the very highest order. [The chef] will not disappoint the client that entrusts with him their fondest culinary expectations.

The court concluded that this letter, praising the chef’s performance, and written just a few months before his dismissal, “creates a genuine issue of fact as to whether the proffered reason for his termination was the true reason.” It left to the jury the task of deciding whether the monastery’s dismissal was in fact based on unacceptable quality, or upon the chef’s age.

This case is important for two reasons: (1) It illustrates the liberal definition of “employee” under the federal age discrimination law. A worker may be deemed to be an employee for purposes of federal age discrimination law despite the fact that the employer treats the worker as an independent contractor for tax purposes. (2) Churches must recognize the potential effect of issuing complimentary letters or evaluations to employees that are later dismissed. The court in this case viewed such an apparent contradiction as proof that the employer may have dismissed the employee on account of unlawful age discrimination and not on the basis of unacceptable performance (as the employer insisted). One final point—few local churches are covered by the federal age discrimination law since they have fewer than 20 employees. Even churches with 20 or more employees will not be covered by the law unless they are engaged in interstate commerce. Very few local churches have been found by the courts to be engaged in commerce for purposes of federal civil rights laws. Stouch v. Brothers of the Order of Hermits of St. Augustine, 836 F. Supp. 1134 (E.D. Pa. 1993).

See Also: Age Discrimination in Employment Act

© Copyright 1994, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m43 c0594

Legal Developments

Profits from the Sale of Donated Land

IRS rules that these profits are not taxable.

Richard R. Hammar, Attorney, CPA
Bio

Many churches have realized a gain from the sale of property. In some cases, the church is selling property that it purchased in the past. In other cases the church is selling property that it received as a gift. Are these gains taxable to the church? That was the issue addressed by the IRS in a recent private letter ruling.

The case

An owner of timberland proposed to donate portions of the property to a charity over a number of years. The charity's board of directors wanted to sell the timberland upon receipt in order to satisfy its fiduciary duty under state law to avoid speculative and nonproductive investments.

The board planned to use real estate brokers to sell the donated land in parcels at a price sufficient to satisfy the board's fiduciary duty. The board was concerned that gains realized from the sale of donated timberland would be taxable to the charity. As a result, the board asked the IRS if the gains would be taxable.

IRS ruling

The IRS ruled (Letter Ruling9412039) that any gain realized by the charity from the sale of donated timberland would not be taxable. The IRS noted that federal law imposes a tax on the "unrelated business income" of tax-exempt organizations (including churches). However, "all gains or losses from the sale, exchange, or other disposition of property" are excluded from this tax, other than gains from the sale of property "held primarily for sale to customers in the ordinary course of the trade or business."

The IRS referred to a Supreme Court ruling addressing the standard to be applied in determining whether property is held "primarily" for sale to customers in the ordinary course of business. The Court interpreted the word "primarily" to mean "of first importance" or "principally." The IRS concluded that "by this standard, ordinary income would not result unless a sales purpose is dominant." The IRS concluded:

[Y]ou have determined that it is in your best interest to sell the land …. You will engage an independent broker to liquidate the assets of timberlands. You will retain oversight control; however, you will not perform any activities relating to the advertising or liquidation of the tracts. Neither you nor the timber management company will perform any development activity. Based on the fair market value estimate, the broker will set a minimum price and will request bids for all tracts in a single transaction.

Although a sale of the parcels in a single transaction is not assured, you will instruct the broker to sell the timberlands in as few parcels as possible at a price consistent with the prudence standards of [your] state law. You believe that the compensation arrangement with the broker will provide an incentive to the broker to sell the timberlands in a few large transactions rather than many small transactions.

These facts distinguish the proposed transaction from the sale of property held primarily for sale to customers in the ordinary course of business. Utilizing the services of a real estate broker in the manner described is not a determinative factor …. [W]e have concluded that this transaction does not involve property held primarily for sale to customers in the ordinary course of business. Therefore, income from the sale of this property is excluded from the computation of unrelated business taxable income ….

Relevance to church leaders

Church treasurers often wonder if gains realized from the sale of church property are taxable. This ruling illustrates an important point—any gain realized by a tax-exempt organization from the sale of property is not taxable as unrelated business income unless the gain is from the sale of property "held primarily for sale to customers in the ordinary course of the trade or business."

Churches that realize gain from an occasional sale of donated property, or from the sale of current property as part of a relocation, ordinarily will not be subject to the tax on unrelated business income since the property in such cases is not "held primarily for sale to customers in the ordinary course of the trade or business."

There are situations in which a church could be subject to the tax on unrelated business income as a result of gains realized from the sale of property. For example, assume that a church receives a large tract of donated property and subdivides it into individual lots that it attempts to market as a revenue-making project. It is likely that any gains realized from the sale of the lots would be taxable since the property in such a case could be viewed as "held primarily for sale to customers in the ordinary course of the [church's] trade or business."

Recommendation. If you have any questions regarding the application of the unrelated business income tax to a particular transaction, consult with a tax attorney or CPA.

Legal Developments

Former Minister Sues for Race and Sex Discrimination

Civil courts cannot interfere with the dismissal of clergy.

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax 1994-07-01 Recent Developments

Clergy – Removal

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

• Key point: The civil courts are compelled by the first amendment guaranty of religious freedom to refrain from interfering with the internal decisions of hierarchical churches, including decisions regarding the discipline or dismissal of clergy.

• A federal appeals court ruled that a black female could not sue her denomination on the basis of alleged race and sex discrimination for its decision to revoke her ministerial status. After several years serving as a probationary minister of the United Methodist Church, a black female applied for a promotion to the position of “clergy member in full connection” or “elder.” A review panel of a Methodist Conference denied her request for a promotion and terminated her employment. She notified the EEOC of her termination. It found no probable cause that the United Methodist Church had engaged in either race or sex discrimination. The woman later filed a lawsuit in federal court alleging that the United Methodist Church denied her promotion and fired her because of her race and sex and because of her opposition to the Church’s discriminatory practices. She claimed that the Church’s actions violated Title VII of the Civil Rights Act of 1964 which prohibits employers (with 15 or more employees, and that are engaged in interstate commerce) from discriminating in any employment decision on the basis of race, color, national origin, sex, or religion. The woman asked the court to grant her several forms of relief including reinstating her as a probationary minister, back pay, compensatory damages, punitive damages, fees, and costs. The Church asked the court to dismiss the lawsuit on the basis of a lack of jurisdiction. It claimed that the first amendment guaranty of religious freedom forbids the civil courts from interfering with “the internal ecclesiastical workings and discipline of religious bodies.” The trial court found that it could not decide the case without reaching the constitutional issue, and that the first amendment deprived it of jurisdiction over the case. It dismissed the lawsuit against the church, and the woman appealed.

The appeals court upheld the trial court’s dismissal of the lawsuit. It relied primarily on another federal appeals court ruling in the case of Rayburn v. General Conference of Seventh Day Adventists, 772 F.2d 1164 (4th Cir. 1985). In the Rayburn case the plaintiff alleged sex discrimination in violation of Title VII when her application to serve as an “associate in pastoral care” was rejected by a denominational agency. In rejecting this lawsuit, the Rayburn court observed:

[C]ourts must distinguish incidental burdens on free exercise in the service of a compelling state interest from burdens where the “inroad on religious liberty” is too substantial to be permissible. … This case is of the latter sort: introduction of government standards to the selection of spiritual leaders would significantly, and perniciously, rearrange the relationship between church and state. While an unfettered church may create minimal infidelity to the objective of Title VII, it provides maximum protection of the first amendment right to the free exercise of religious beliefs. In other words, in a direct clash of “highest order” interests, the interest in protecting the free exercise of religion embodied in the first amendment to the Constitution prevails over the interest in ending discrimination embodied in Title VII.

Having determined that the position was “important to the spiritual and pastoral mission of the church,” the Rayburn court held that “the free exercise clause of the first amendment protects the act of a decision rather than a motivation behind it. In these sensitive areas, the state may no more require a minimum basis in doctrinal reasoning than it may supervise doctrinal content.”

The dismissed Methodist minister insisted that her lawsuit “only involves secular issues and will not require any entanglements over religious issues.” The appeals court disagreed, citing the United States Supreme Court’s landmark ruling in Serbian Eastern Orthodox Diocese v. Milivojevich, 426 U.S. 696, 717, 96 S.Ct. 2372, 2384, 49 L.Ed.2d 151 (1976). In Milivojevich the Supreme Court refused to overturn the dismissal of a minister on the ground that his church had acted “arbitrarily” by not following its own bylaws. The Supreme Court observed:

No “arbitrariness” exception—in the sense of an inquiry whether the decisions of the highest ecclesiastical tribunal of a hierarchical church complied with church laws and regulations—is consistent with the constitutional mandate that civil courts are bound to accept the decisions of the highest judicatories of a religious organization of hierarchical polity on matters of discipline, faith, internal organization, or ecclesiastical rule, custom, or law.

The Supreme Court went on to hold that allowing review of “arbitrary” decisions, which in this sense means decisions which do not comply with a church’s own rules or practices, is:

[E]xactly the kind of inquiry that the first amendment prohibits. Recognition of such an exception would undermine the general rule that religious controversies are not the proper subject of civil court inquiry, and that a civil court must accept the ecclesiastical decisions of church tribunals as it finds them.

The appeals court summed up this precedent by noting that “[i]n other words, religious bodies may make apparently arbitrary decisions affecting the employment status of their clergy members and be free from civil review having done so.” The court added:

Milivojevich, read in its entirety, holds that civil court review of ecclesiastical decisions of church tribunals, particularly those pertaining to the hiring or firing of clergy, are in themselves an “extensive inquiry” into religious law and practice, and hence forbidden by the first amendment. [The dismissed minister’s] argument, that Title VII may be applied to decisions by churches affecting the employment of their clergy, is fruitless.

The court concluded:

Although this is the first time this precise issue has been presented to us, its resolution is straightforward. As we have indicated, Milivojevich holds that the free exercise [of religion] clause of the first amendment forbids a review of a church’s procedures when it makes employment decisions affecting its clergy. In fact, in Milivojevich it was the precise issue of a change in internal procedure, as in this case, which the Supreme Court refused to review. The Supreme Court found this to be “exactly the kind of inquiry that the first amendment prohibits.” The inquiry [the dismissed minister in this case] seeks is no different, and it too is prohibited …. To accept [her] position would require us to cast a blind eye to the overwhelming weight of precedent going back over a century in order to limit the scope of the protection granted to religious bodies by the free exercise clause. There is nothing advocated by [the dismissed minister] which raises any doubt about the correctness of the district court’s decision. Young v. Northern Illinois Conference of the United Methodist Church, 21 F.3d 184 (7th Cir. 1994).

See Also: Termination

© Copyright 1994, 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: m31 m39 m43 c0494

Legal Developments

Age Discrimination and Religious Schools

Court rules that federal age discrimination law applies to church-run school.

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax 1994-07-01 Recent Developments

Employment Practices

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

• Key point: Federal age discrimination law prohibits discrimination in employment decisions on the basis of the age of an applicant or employee who is 40 years of age or older. This law applies to some religious organizations.

• A federal appeals court ruled that federal age discrimination law applied to a church school. A Catholic parochial school did not offer a teaching contract to a math teacher who had taught at the school for 5 years. The school noted that the teacher did not open classes with prayer and did not attend Mass with students. The former teacher sued the school for age discrimination. A federal district court dismissed the lawsuit, concluding that a religious school is exempt from federal age discrimination law. The teacher appealed, and a federal appeals court reversed the district court and ruled that the school was subject to the age discrimination law. The court began its opinion by noting that the federal Age Discrimination in Employment Act makes it unlawful for an employer to discriminate on the basis of age against any applicant or employee who is at least 40 years of age. The Act applies to any employer that is “engaged in an industry affecting commerce who has twenty or more employees.” The Act does not specifically say whether religious employers are subject to or exempt from its provisions. The school argued that subjecting it to the provisions of the Act would create an “excessive entanglement” between church and state in violation of the first amendment. The court disagreed on the basis of the Supreme Court’s 1979 decision in N.L.R.B. Catholic Bishop of Chicago, 440 U.S. 490 (1979). In the Catholic Bishop decision, the Supreme Court ruled that in deciding whether of not a federal law applies to religious organizations, a civil court first must ask if applying the law “would give rise to serious constitutional questions.” If it would, then the law cannot be applied to religious organizations without an “affirmative expression of congressional intent” to apply the law to such organizations. The federal appeals court noted that

[t]he majority of courts considering the issue have determined that application of the [Age Discrimination in Employment Act] to religious institutions generally, and to lay teachers specifically, does not pose a serious risk of excessive entanglement. These courts have recognized … the limited inquiry required in anti-discrimination disputes …. [Age discrimination] actions do not require extensive or continuous administrative or judicial intrusion into the functions of religious institutions. The sole question at issue … is whether the plaintiff was unjustifiably treated differently because of his age …. The Supreme Court has stated that “routine regulatory interaction which involves no inquiries into religious doctrine, no delegation of state power to a religious body, and no detailed monitoring and close administrative contact between secular and religious bodies, does not of itself violate the [Establishment Clause’s] nonentanglement command.” Hernandez v. Commissioner, 490 U.S. 680 (1989). Application of the [Act] to the case at bar requires just such routine regulatory interaction between government and a religious institution.

The court acknowledged that the Act is not applicable to claims brought by members of the clergy against their religious employers, since these cases involve “the pervasively religious relationship between a member of the clergy and his religious employer.” The court conceded that “[t]here may be cases involving lay employees in which the relationship between employee and employer is so pervasively religious that it is impossible to engage in an age-discrimination inquiry without serious risk of offending the [first amendment]. This is not such a case.”

The court noted that even if this case did present serious entanglement concerns, “we would still find the [Act] applicable under the reasoning of Catholic Bishop because … we are convinced that Congress implicitly expressed an intention to apply the [the Act] to religious institutions.” It based this conclusion on the fact that Congress modelled the Act after Title VII of the Civil Rights Act of 1964, which prohibits discrimination in employment decisions on the basis of race, color, national origin, gender, or religion. While Title VII specifically exempts religious organizations from the ban on employment discrimination based on religion, it does not exempt them from the other forms of discrimination (based on race, color, national origin, or gender). The court continued:

As several courts have noted, the legislative history of Title VII makes clear that Congress formulated the limited exemptions for religious institutions to discrimination based on religion with the understanding that provisions relating to non-religious discrimination would apply to such institutions. Given that Congress intended to apply Title VII to religious institutions, and that Congress modelled the [Age Discrimination in Employment Act’s] coverage upon that of Title VII, we are convinced that they also intended to apply the [Act] to such institutions.

The court sent the case back to the trial court for a trial on the issue of whether the school did not renew the teacher’s contract as a result of age, or religion. The court expressed confidence that “the able district judge will be able to focus the trial upon whether [the teacher] was fired because of his age or because of failure to perform religious duties, and that this can be done without putting into issue the validity or truthfulness of Catholic religious teaching.” DeMarco v. Holy Cross High School, 4 F.3d 166 (2nd Cir. 1993). [PCL10E1]

See Also: Age Discrimination in Employment Act

© Copyright 1994, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m43 m65 c0494

Legal Developments

Church Daycares and Non-Establishment of Religion

Court rules that city’s ordinance does not violate the First Amendment.

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax 1994-03-01 Recent Developments

Child care

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

• Key point: A city ordinance may exempt church-operated child care facilities from a requirement that child care facilities obtain a special permit before operating in residential neighborhoods.

• A federal appeals court ruled that a city ordinance that allowed churches to operate child care facilities in residential neighborhoods, but required other facilities to obtain a special use permit to do so, did not violate the first amendment prohibition of the establishment of religion. A woman who was denied a permit to open a secular child care center in a residential neighborhood challenged the constitutionality of the city ordinance that exempted churches from the permit requirement. A district court agreed that the ordinance constituted the establishment of religion in violation of the first amendment, noting that it conferred a benefit upon churches that is unavailable to others who wish to operate child care centers in residential areas. The court awarded the woman nearly $1 million in damages. The city appealed, and a federal appeals court ruled that the ordinance did not violate the first amendment. The court applied the Supreme Court’s three-part Lemon test for determining whether or not the ordinance constituted an impermissible establishment of religion. Under this test, first announced in a 1971 decision (Lemon v. Kurtzman), a law or government practice challenged as an establishment of religion will be valid only if it satisfies the following three conditions—a secular purpose, a primary effect that neither advances nor inhibits religion, and no excessive entanglement between church and state. The court concluded that the ordinance satisfied all three of these conditions. It observed that “the ordinance has the secular purpose of minimizing governmental meddling in religious affairs notwithstanding that the ordinance does not explicitly state that nursery schools (or day care centers) operated in churches in residential areas must give care or instruction defined as ‘religious.'” The court added, “we are wary of holding that the … ordinance would pass muster under Lemon’s purpose requirement only if it stated that nursery school and day care center activities must be ‘religious’ in nature …. [I]t is not up to the legislatures (or to courts for that matter) to say what activities are sufficiently ‘religious.’ Any legislative or judicial attempt at such a definition would surely fail. Worse, it would almost certainly undercut the neutral posture required of every branch of government under the [nonestablishment of religion clause of the first amendment].” The court also concluded that the ordinance met the second Lemon requirement—a primary effect that does not advance religion—so long as only nonprofit child care facilities operated by churches were exempted from the permit requirement. Finally, the court concluded that the ordinance did not foster an excessive entanglement with religion, and accordingly satisfied Lemon’s third requirement. The court added “[i]ndeed, as construed, the ordinance effectuates a separation between the two and avoids intrusive inquiry into religious belief and practice.” This case is important for two reasons. First, it is a strong recognition of the inadvisability of legislatures and courts attempting to define what is religious. The woman who brought the lawsuit against the city conceded that church-operated child care facilities that were “religious” or “taught religion” could legitimately be exempted from the permit requirement, but not those that were “secular” in their operation. The court wisely chose to avoid such a distinction, relying in part on a 1987 decision of the Supreme Court rejecting a claim that religious organizations can discriminate in employment decisions on the basis of religion only with respect to “religious” (and not “secular”) positions. The Supreme Court observed in that decision that “it is a significant burden on a religious organization to require it, on pain of substantial liability, to predict which of its activities a secular court will consider religious. The line is hardly a bright one, and an organization might understandably be concerned that a judge would not understand its religious tenets and sense of mission. Fear of potential liability might affect the way an organization carried out what it understood to be its religious mission.” Corporation of Presiding Bishop v. Amos, 483 U.S. 327 (1987). Second, the court recognized that “it is clear that the legitimate purpose of minimizing governmental interference with the decision making processes of a religious organization can extend to seemingly secular activities of the organization.” Cohen v. City of Des Plaines, 8 F.3d 484 (7th Cir. 1993).

See Also: Child Care Facilities

© Copyright 1994, 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: m11 m47 c0294

Legal Developments

Government Employee Dismissed for Engaging in Religious Activities

Court rules that man’s rights were not violated.

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax 1994-03-01 Recent Developments

Freedom of Religion

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

• Key point: Government employees may not have a constitutionally protected right to proselytize fellow employees, or even to display some religious items in their offices.

• A federal district court in Iowa ruled that the constitutional rights of a county employee were not violated when he was dismissed for his religious activities on the job. The dismissed employee had been a supervisor in a computer department. He, and a group of the 50 employees under his supervision, were evangelical Christians who regularly met for prayer and discussion of personal needs. The county, responding to complaints of some of the other employees, investigated the religious activities. This investigation revealed that the supervisor had engaged in various religious activities on the job. The supervisor was issued a reprimand that stated: “You will immediately cease any activities that could be considered to be religious proselytizing, witnessing, or counseling and will further cease to utilize county resources that in any way could be perceived as to be supporting a religious activity or religious organization.” Soon after this reprimand, the supervisor was ordered to remove all religious items from his office, including a wall plaque, a framed wall poster, a ceramic item with the Lord’s prayer, a small folding stained glass plaque, and a small Bible which he kept in his desk. The supervisor complied with all of these demands. Nevertheless, he was fired a few months later. The dismissed supervisor sued the county, claiming that his constitutional right to freely exercise his religion had been violated by the county’s actions. He also claimed that the county violated Title VII of the Civil Rights Act of 1964, which prohibits employers from discriminating against any employee on the basis of an employee’s religion. A federal court rejected the supervisor’s claims and upheld his dismissal. The court acknowledged that federal law requires employers to accommodate the religious practices of employees, so long as such accommodation does not impose an undue hardship on the employer or interfere with the rights of co-employees. However, the court concluded that accommodating the supervisor’s religious practices in this case would have created an undue hardship for the county and infringed on the rights of co-workers: “Allowing supervisors and employees to witness and pray on county time would work an undue hardship on the county’s duty of religious neutrality. As a supervisor [the dismissed employee’s] testimonials could be viewed by employees as religious endorsements attributable to county government. Moreover, religious activity may lend itself to the type of conduct prohibited by Iowa’s own civil rights laws forbidding religious harassment and discrimination.” The court also pointed out that there was ample evidence that the supervisor had been dismissed for inadequate performance rather than for his religious activities. Finally, the court concluded that “the religious items kept in [the supervisor’s] office do not constitute the type of expression subject to first amendment protections. Moreover [the supervisor] has not established that the removal of religious items from his office inhibited his ability to freely exercise his religion. Accordingly [the county’s] directive to remove the items, although arguably overzealous, does not rise to the level of a constitutional violation.” The court added: “Although this court has concluded that such a directive does not rise to the level of a constitutional violation, it is somewhat troubled by [the order]. [The supervisor] complied with the county’s order to cease witnessing, counseling and proselytizing. [The county] however felt it was necessary to also order [him] to remove all evidence of his faith from his personal work space. [The county’s] prohibition required [the supervisor] to remove from his office items of personal meaning, such as the stained glass plaque which belonged to his deceased brother. Generally [his] religious items were positioned for his viewing, not to inundate others with a religious message. The Bible was kept in a drawer for [his] retrieval. Under these circumstances, the court is not convinced that removal of all these items from [the supervisor’s] office was essential to prevent the county’s excessive entanglement with religion, In this court’s view, a reasonable compromise could have been achieved.” Brown v. Polk County, 832 F. Supp. 1305 (S.D. Iowa 1993).

See Also: Display of Religious Symbols on Public Property

© Copyright 1994, 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: m47 c0294

Legal Developments

Tax Deductibility of Donations to Benevolence Funds

Key is the size of the “class of potential beneficiaries.”

Richard R. Hammar, Attorney, CPA
Bio

Key point: Contributions to a church benevolence or scholarship fund may not be tax deductible if the "class of potential beneficiaries" is only one or a few people.

The IRS recently addressed the issue of "benevolence funds" established by charitable organizations.

Here are the facts. A hospital employing 2,900 people established a restricted fund (the "fund") to provide emergency assistance to financially needy persons who suffer economic hardship due to accident, loss, or disaster. Over 9,000 people, including approximately 2,900 current employees, 600 former employees, 400 volunteers, and their immediate families (the "beneficiaries") are eligible to receive assistance from the fund. The fund consists of contributions received from the hospital and its employees and former employees. The fund is administered by an employee committee made up of approximately 25 employees. Members of the committee serve without compensation and are not eligible to benefit from the fund while serving. In accordance with the fund bylaws, the committee reviews a potential beneficiary's application to determine the need for emergency financial assistance and the availability of resources in the fund to meet that need. A typical grant might consist of $200 to $500 paid to a utility company or other provider of an essential service to a beneficiary, or a grant of food vouchers redeemable for groceries. No beneficiary has any vested right to receive assistance, nor is there any guarantee that funds will be available at any time.

Contributions to the fund are made on a voluntary basis and may not be earmarked for a particular recipient. Employees may make cash contributions, either directly to the fund or through payroll deductions. Once each year, employees may donate the cash equivalent of all or part of their accumulated earned time, which consists of vacation, sick, and holiday benefits, to the fund. Where the employee donates earned time to fund, that earned time is reported as taxable income to the employee. In 1991, 541 employees, or 19%, made donations to the fund averaging $25.00 per donation. The hospital asked the IRS if employees' cash contributions to the fund were deductible as charitable contributions. The IRS began its ruling by noting that a tax-deductible charitable contribution must be made "to or for the benefit of" a tax-exempt charitable organization, and that the donor must intend to benefit the charity rather than a specific individual or small group of individuals. As a result, a deduction may be denied if the class of potential beneficiaries of a donor's contribution is too small. The IRS observed:

A class of beneficiaries designated by the donor … may be challenged where the class of prospective beneficiaries is so limited in size that the donee organization is considered to benefit specified individuals. Such contributions must be examined in light of the totality of the surrounding facts and circumstances to determine if the class of beneficiaries is too narrow to qualify the contributions for a deduction under section 170 of the Code. An example of too small a class can be seen in Charleston Chair Co. v. U.S., 203 F. Supp. 126 (E.D.S.C. 1962). In that case, a corporation was denied a deduction for amounts given to a foundation established to provide educational opportunities for employees and their children where the foundation's educational benefits inured to only four children of the corporation's employees and where 30 percent of the foundation's income was paid to the son of the corporation's president and foundation trustee.

In this case, the IRS concluded that the class of potential beneficiaries was sufficiently large:

[A]ll awards of the fund are payable only after a determination of need in the discretion of the committee. Contributions may not be earmarked and there is no guarantee that funds will even be available for past contributors should they have a need arise and apply to the fund for assistance. Thus, contributions cannot be made to the fund with an expectation of procuring a financial benefit. The fund derives its income from voluntary contributions and no part of its income inures to the benefit of any individual. The class of potential beneficiaries consists of several thousand employees … as well as their families. Such a class of beneficiaries is not so limited in size that the donee organization is considered to benefit specified individuals.

As a result, the IRS concluded that employees' cash contributions to the fund were tax-deductible. What is the significance of this ruling to church leaders? First, note that it was a private letter ruling, and that such a ruling is directed only to the organization that requested it. Further, federal law prohibits such rulings from being used or cited as precedent in other cases. However, private letter rulings are useful in predicting how the IRS will rule in similar cases, and in this sense they are relevant. This ruling suggests that donations to church benevolence funds or scholarship funds may not be tax deductible if the "class of potential beneficiaries" is too small. For example, assume that a church establishes a "scholarship fund" to benefit members who are attending seminary, and that only one member currently attends a seminary. Can that student's parents contribute thousands of dollars to the church's scholarship fund and then claim a tax deduction for their contributions? Obviously not, since the class of potential beneficiaries is too small. In each case, the IRS noted that "[s]uch contributions must be examined in light of the totality of the surrounding facts and circumstances to determine if the class of beneficiaries is too narrow to qualify the contributions for a deduction under section 170 of the Code." IRS Private Letter Ruling 9316051.

Legal Developments

Court Concluded That Churches Can Be Used for Polling Places

Benefits of holding elections at churches outweighs slight burden on freedom of religion.

Richard R. Hammar, Attorney, CPA
Bio

Key point: The use of churches as polling places in local elections does not violate the constitutional prohibition of the establishment of a religion.

A federal appeals court rejected an atheist's contention that the use of churches as polling places violated the first amendment.

The court observed that "we find frivolous plaintiff's argument that his atheistic beliefs do not permit him to enter a church and that, therefore, he is denied his right to vote when his precinct polling place is an Episcopal church."

A state election board defended the practice of using churches as polling places as follows: "Church buildings are located throughout a city, including in the residential areas of which many precincts consist; they have parking lots; and they typically have a commons areal, parish hall, foyer, nursery or some other such nonconsecrated portion of the church building which can be used as a polling place." The election board pointed out that churches representing several denominations were used, and that none was favored.

The court concluded: "[W]e conclude that by voting in a church building plaintiff is not required to attest to the nature of his religious beliefs, and that the burden of free exercise of religious beliefs is so slight that it does not begin to outweigh the interest of the state in having available to it the additional polling places which the use of the churches affords." Otero v. State Election Board of Oklahoma, 975 F.2d 738 (10th Cir. 1992).

Legal Developments

Nonsectarian Invocations Allowed at Public Schools

Such prayers must meet certain requirements.

Richard R. Hammar, Attorney, CPA
Bio

Jones v. Clear Creek Independent School District, 977 F.2d 963 (5th Cir. 1992)

Key point: Not all prayers offered at public high school graduation ceremonies necessarily violate the first amendment's nonestablishment of religion clause.

A federal appeals court ruled that allowing public high school seniors to choose student volunteers to deliver nonsectarian, nonproselytizing invocations at their graduation ceremonies does not violate the first amendment's nonestablishment of religion clause.

A public school district in Texas adopted the following resolution: "The use of an invocation and/or benediction at high school graduation exercises shall rest within the discretion of the graduating senior class, with the advice and counsel of the senior class principal; the invocation and benediction, if used, shall be given by a student volunteer; and consistent with the principle of equal liberty of conscience, the invocation and benediction shall be nonsectarian and nonproselytizing in nature." Pursuant to this resolution, prayers were offered by graduating seniors at public high school graduation ceremonies within the district.

A lawsuit was filed challenging the constitutionality of this practice, and a trial court ruled that the practice did not violate the first amendment. A federal appeals court agreed, concluding that the Supreme Court's recent school prayer decision (Lee v. Weisman) did not change the result. In the Lee case, the Supreme Court ruled that a public high school principal violated the first amendment by inviting a local clergyman to deliver a nonsectarian, nonproselytizing invocation at a graduation ceremony. The Court reasoned that the principal's actions represented governmental coercion to participate in religious activities.

The appeals court acknowledged that it was bound by the Supreme Court's decision in Lee, but concluded that the Lee case did not require that the school district resolution at issue in this case be invalidated. The court noted many critical differences in this case that distinguished it from Lee. First, the graduating seniors themselves decided whether or not they wanted an invocation during their graduation ceremony. In Lee, a high school principal made this decision. Second, the invocation (if desired by the graduating seniors) was offered by a student. In Lee, the invocation was offered by a member of the clergy. Third, the student selected to offer the invocation was free to compose it without any participation by the school (other than the requirement that it be nonsectarian and nonproselytizing). There was no requirement that the invocation mention God or contain any other religious references. In Lee, there was some school involvement in the composition of the prayers, and it was understood that the prayers would be "religious". Fourth, and perhaps most importantly, there was little if any of the "psychological pressure" upon students to participate in the invocation than there was in Lee.

The court observed: "We think that the graduation prayers permitted by the resolution place less psychological pressure on students than the prayers at issue in Lee because all students, after having participated in the decision of whether prayers will be given, are aware that any prayers represent the will of their peers, who are less able to coerce participation than an authority figure from the state or clergy."

The court concluded its decision with these words: "This case requires us to consider why so many people attach importance to graduation ceremonies. If they only seek achievement, diplomas suffice. If they only seek God's recognition, a privately-sponsored baccalaureate will do. But to experience the community's recognition of student achievement, they must attend the public ceremony that other interested community members also hold so dear. By attending graduation to experience and participate in the community's display of support for the graduates, people should not be surprised to find the event affected by community standards. The Constitution requires nothing different."

See also Clergy—removal, Lewis v. Seventh Day Adventists Lake Region Conference, 978 F.2d 940 (6th Cir. 1992).

Legal Developments

Denominational Agency Employment Dispute Won’t Go to Court

Court involvement would impede on First Amendment rights.

Richard R. Hammar, Attorney, CPA
Bio

Lewis v. Seventh Day Adventists Lake Region Conference, 978 F.2d 940 (6th Cir. 1992)

Key point: The dismissal of a minister by a denominational agency generally will not be reviewed by the civil courts, even if the agency does not comply with its bylaws in dismissing the minister.

A federal appeals court ruled that the first amendment guaranty of religious freedom prevents the civil courts from reviewing the decision of a denomination agency to dismiss a minister.

A Seventh Day Adventist minister was employed by a denominational agency as a minister to a number of churches. Disputes arose between the minister and the agency over a number of issues including the agency's handling of church finances. The agency eventually dismissed the minister. Soon after the dismissal, the minister filed a lawsuit in federal court claiming that the agency was guilty of breach of contract and intentional infliction of emotional distress.

The trial court dismissed the lawsuit, and the minister appealed. A federal appeals court upheld the dismissal of the lawsuit. It began its opinion by noting that "the Supreme Court has long held that on matters of church discipline, faith, practice, and religious law, the [first amendment's guaranty of religious freedom] requires civil courts to refrain from interfering with the determinations of [denominational tribunals]." It quoted with approval from a landmark 1976 decision of the Supreme Court:

[W]hether or not there is room for "marginal civil court review" under the narrow rubrics of "fraud" or "collusion" when church tribunals act in bad faith for secular purposes, no "arbitrariness" exception—in the sense of an inquiry whether the decisions of the highest ecclesiastical tribunal of a hierarchical church complied with church laws and regulations—is consistent with the constitutional mandate that civil courts are bound to accept the decisions of the highest judicatories of a religious organization of hierarchical polity on matters of discipline, faith, internal organization, or ecclesiastical rule, custom or law. For civil courts to analyze whether the ecclesiastical actions of a church judicatory are in that sense "arbitrary" must inherently entail inquiry into the procedures that canon or ecclesiastical law supposedly require the church adjudicatory to follow, or else into the substantive criteria by which they are supposedly to decide the ecclesiastical question. But this is exactly the inquiry that the first amendment prohibits . . . . Serbian Eastern Orthodox Diocese v. Milivojevich, 423 U.S. 696 (1976).

The appeals court concluded that "the first amendment bars civil courts from reviewing decisions of religious judicatory bodies relating to the employment of clergy. Even when, as here, [a dismissed minister] alleges that the religious tribunal's decision was based on a misapplication of its own procedures and laws, the civil courts may not intervene." The court rejected the minister's claim that the "highest" church agency had not yet ruled on his dismissal and accordingly the civil courts were not barred from reviewing it. The court observed that this argument, "if upheld, would require a civil court to conduct a review of ecclesiastical law to determine which tribunal is the highest. This is exactly the sort of inquiry that the first amendment forbids."

See Employment practices, Welter v. Seton Hall University, 608 A.2d 206 (N.J. 1992) and Alicea v. New Brunswick Theological Seminary, 608 A.2d 218 (N.J. 1992).

Legal Developments

Deductibility of Designated Contributions

IRS says contributions meant for specific individuals aren’t deductible.

Richard R. Hammar, Attorney, CPA
Bio

The IRS has clarified the deductibility of contributions that "earmark" a specific individual.

Many churches have collected special offerings for the benefit of a particular individual. For example, a church collects an offering to help pay the medical expenses of a person with a catastrophic and uninsured illness. Or, a church collects an offering to benefit an unemployed family, or a family whose house has been destroyed by fire or some other disaster. Are such "designated" offerings tax-deductible as charitable contributions by the donors? This has been a very difficult question to answer. The problem is that charitable contributions are tax-deductible only to the extent that they are made to a tax-exempt organization. The IRS ruled in 1962:

If contributions to the fund are earmarked by the donor for a particular individual, they are treated, in effect, as being gifts to the designated individual and are not deductible. However, a deduction will be allowable where it is established that a gift is intended by a donor for the use of the organization and not as a gift to an individual. The test in each case is whether the organization has full control of the donated funds, and discretion as to their use, so as to insure that they will be used to carry out its functions and purposes. Revenue Ruling 62-113.

In other words, if a donor contributes funds to a church, and stipulates that the funds must be used for a particular individual (for example, a named student or needy person), then the contribution is not tax-deductible since the church does not have "full control of the donated funds, and discretion as to their use, so as to insure that they will be used to carry out its functions and purposes." This is the conclusion reached by the IRS in a recent announcement.

In Announcement 92-128, the IRS addressed the question of the deductibility of contributions made for the benefit of victims of Hurricane Andrew. The IRS noted that it had "received questions from taxpayers regarding the tax consequences of contributions earmarked for Hurricane Andrew relief to organizations currently recognized by the IRS as tax exempt."

The IRS concluded that "such contributions will be fully deductible," but cautioned that "taxpayers may not deduct contributions earmarked for relief of a particular individual or family." What does this mean? The IRS is saying that donors can make tax-deductible contributions to a church or other charity even if those contributions specify that they are to be used for "Hurricane Andrew relief." Such contributions are deductible since the donor does not know who the ultimate recipient will be.

Therefore, it is reasonable to assume that the intent of the donor is to contribute to the charity which in turn will make the decision of how the funds will be distributed. In other words, the charity in such a case exercises "full control of the donated funds, and discretion as to their use, so as to insure that they will be used to carry out its functions and purposes." On the other hand, if a donor contributes funds to a church for hurricane relief, but specifies a particular individual or family who is to receive the contributed funds, then this contribution is not tax-deductible since the church did not maintain "full control of the donated funds, and discretion as to their use, so as to insure that they will be used to carry out its functions and purposes."

Note, however, that the IRS ruled privately in 1987 that a contribution to a charity may be tax-deductible even if it designates a particular individual so long as the designation is "advisory" rather than mandatory. The IRS concluded: "From the information submitted and representations made, [the charity] is to have complete legal and equitable control over the funds contributed by [the donor]. [The donor's] right to suggest distributees will be advisory in nature and will not be binding on [the charity]. Moreover, the fund will be used in the furtherance of [the charity's] stated purposes. Private Letter Ruling 8752031.

What this means for churches

While private letter rulings apply only to the parties covered by the ruling and may not be used as precedent in support of a particular position, they reflect the thinking of the IRS on a particular issue and as a result can be of considerable relevance.

This private letter ruling suggests that contributions to a church benevolence fund can be deductible even if the donor mentions a beneficiary, if the facts demonstrate that (1) the donor's recommendation is advisory only, (2) the church retains "full control of the donated funds, and discretion as to their use," and (3) the donor understands that his or her recommendation is advisory only and that the church retains full control over the donated funds, including the authority to accept or reject the donor's recommendations.

How can these facts be established? One possible way would be for a church to adopt a "benevolence fund policy" making all distributions from a benevolence fund subject to the unrestricted control and discretion of the church board, and to communicate such a policy to all prospective donors. It can be argued that donors willing to make a designated contribution to a church benevolence fund under these conditions are manifesting an intent to make a contribution to the church rather than to the designated individual.

Churches adopting such a policy should make copies available to any person wanting to make a designated contribution to the church benevolence fund. A sample policy is reproduced in the Richard Hammar's Church and Clergy Tax Guide. There is no guaranty that such a policy will render a designated contribution deductible. But it does appear that such an interpretation is reasonable, if the church in fact exercises full control over the earmarked funds.

Obviously, a church can administer a program in such a way as to jeopardize the deductibility of contributions. For example, a church can adopt a benevolence fund policy yet honor every "recommendation" made by a donor. Clearly, it is doubtful that donors could deduct their earmarked contributions under these circumstances, since the "control" exercised by the church is illusory. IRS Announcement 92-128.

Legal Developments

The Deason Rule

This rule was recently reaffirmed by the U.S. Tax Court.

Richard R. Hammar, Attorney, CPA
Bio

The United States Tax Court reaffirmed the so-called Deason rule in a recent decision.

In 1964, the Tax Court ruled that section 265 of the Code (which denies a deduction for any expense "allocable" to tax-exempt income) prevented a minister from deducting his unreimbursed transportation expenses to the extent that they were "allocable" to his tax-exempt housing allowance. Deason v. Commissioner, 41 T.C. 465 (1964).

To illustrate this principle, assume that a minister receives compensation of $30,000, of which $10,000 is an excludable housing allowance, and incurs unreimbursed business expenses of $3,000. Since one-third of the minister's compensation is "tax-exempt" ($10,000 of $30,000) he should not be permitted to deduct one-third of his business expenses since they are "allocable" to tax-exempt income and their deduction would amount to a "double deduction."

Accordingly, the minister should be able to deduct only $2,000 of the $3,000 of business expenses. This was the conclusion reached by the Tax Court in the Deason decision in 1964. The IRS agreed with the Deason ruling, but did not enforce it for several years. Unfortunately, this position changed following a 1988 decision of the United States Tax Court Dalan v. Commissioner, T.C. Memo. 1988-106.

The Dalan case involved an ordained minister who was employed by a public school system as a guidance counselor and who also served as minister of a local church. The minister's church compensation for the years under examination consisted of housing allowances of $4,800 in each year, and additional compensation of $600 in one year and $500 in the next. The minister claimed business and professional expenses of $5,917 and $3,462 in the years in question.

The IRS audited the minister's tax returns, and claimed that "since 89% and 91% of the income earned by [the minister during the years under examination] in the performance of his duties as a minister is not includable in gross income … by virtue of its designation as a housing allowance, the expenses allocable to such exempt income are not deductible under section 265" of the Internal Revenue Code, which provides that "no deduction shall be allowed for any amount otherwise allowable as a deduction which is allocable to one or more classes of income … wholly exempt from [federal income tax]."

Stated another way, since 89% of the minister's church compensation for the first year under examination was not included in gross income ($4,800 of total church compensation of $5,400 was excluded from gross income as a housing allowance), 89% of clergy business and professional expenses incurred in that year should not have been deducted. Similarly, since 91% of the next year's church compensation was not included in gross income ($4,800 of total church compensation of $5,300 was excluded from gross income as a housing allowance), 91% of clergy business and professional expenses in that year should not have been deducted. This left allowable deductions for business and professional expenses of $650.90 and $311.61 for the years in question (instead of the $5,917 and $3,462 claimed by the minister).

In a recent decision, the Tax Court again has reaffirmed the conclusions that it reached in the Deason and Dalan cases. A Presbyterian minister received church compensation of $28,829 and a housing allowance of an additional $10,280 in 1987, and church compensation of $27,300 and a housing allowance of an additional $12,285 in 1988. He reported his taxes as a self-employed worker on Schedule C, and claimed business expense deductions of $4,929 in 1987 and $3,832 in 1988.

The IRS audited the minister's tax returns for 1987 and 1988, and concluded that the business expenses were not deductible "to the extent such expenses are allocable to" the minister's tax-exempt housing allowance. The IRS relied entirely on the Tax Court's decisions in the Deason and Dalan cases. The minister appealed to the Tax Court. He argued that his case was distinguishable from the Dalan case because, in the Dalan case, the taxpayer was only a part-time minister who had other income, and the ministerial expenses far exceeded the ministerial earnings.

Accordingly, the disallowed expenses in the Dalan case were proper because the ministerial expenses necessarily had to be paid or borne by nonministerial earnings. In the present case, however, the taxpayer was a full-time minister, who had no income other than his ministerial earnings, and the ministerial earnings far exceeded the ministerial expenses. As a result, the ministerial expenses were fully paid out of ministerial income. Therefore, section 265 is not applicable.

The Tax Court rejected the minister's arguments. It noted that section 1.265-1(c) of the income tax regulations specifies that "if an expense or amount otherwise allowable is indirectly allocable to both a class of nonexempt income and a class of exempt income, a reasonable proportion thereof determined in the light of all the facts and circumstances in each case shall be allocated to each." The Court concluded:

The arguments advanced by [the minister] are not supported by section 265 and the cited regulation. The expenses incurred by [the minister] are indirectly allocable to a class of nonexempt income and a class of exempt income. Therefore, [the IRS] is sustained in disallowing the portion of the expenses allocable to the parsonage allowance which is excluded from gross income under section 107. For 1987, [the taxpayer's] total ministerial income was $39,109, which consisted of $28,829 taxable income and $10,280 exempt income. The exempt earnings, therefore, represent 26.29 percent of [the taxpayer's] total ministerial income. It follows that 26.29 percent of the $4,929 expenses otherwise allowable are not deductible. For 1988, total ministerial income was $39,585, comprised of $27,300 taxable and $12,285 tax-exempt income. The tax-exempt income, therefore, constitutes 31.03 percent of total ministerial earnings. Therefore, 31.03 percent of the $3,832 expenses for 1988 are not deductible.

This is a disturbing decision, because it perpetuates a completely erroneous position. A compelling argument can be made that the Deason and Dalan rulings make no sense. The IRS (and the Tax Court) are saying that clergy must reduce their business expenses by the percentage of their total compensation that consists of a tax-exempt housing allowance. This is nonsensical, since clergy cannot pay for business expenses out of such tax-exempt income because the tax-exempt income is used entirely to pay for housing expenses.

The housing allowance is excludable, under section 107 of the Code, only "to the extent used to rent or provide a home." That is, the housing allowance is excludable only to the extent that it is in fact used to pay for housing-related expenses. This being the case, it is absolutely impossible for one cent of the "tax-exempt" housing allowance to be used for paying a minister's business and professional expenses. Business and professional expenses are neither directly nor indirectly "allocable" to a minister's tax-free housing allowance. In some cases, non-clergy taxpayers doubtless receive tax-exempt income, and use that income to pay business expenses.

There may be some logic in requiring such taxpayers to reduce their business expense deductions by the percentage of their total compensation that is tax-free. However, this makes no sense in the case of a minister, whose "tax-exempt income" is tax-exempt only if it in fact is used exclusively for housing-related expenses.

There are practical reasons for not extending the Dalan and Deason rules to clergy. For starters, the IRS has provided clergy with no guidance whatever (in any official form or publication) regarding the Deason rule. As a result, most clergy have never heard of it. And what about clergy who live in church-owned parsonages? Will the Deason rule be applied to them too? If so, how is the reduction in business expenses to be calculated? Do clergy simply divide the fair rental value of their parsonage by their total compensation (including salary and the fair rental value of the parsonage) and then reduce their business expenses by this percentage? How is the fair rental value of the parsonage to be calculated?

Happily, since a housing allowance is not an exclusion for self-employment (social security) tax purposes, no "reduction" in business expenses is required in computing these taxes on Schedule SE. The IRS has confirmed this understanding in a letter to your editor. Further, it is reasonable to assume that the adverse impact of the Deason and Dalan rulings can be eliminated if a church simply adopts an accountable reimbursement arrangement. The reason for this interpretation is that section 265 reduces any deduction for business expenses allocable to tax-exempt income. Under an accountable reimbursement arrangement, however, there is no "deduction" claimed since the employer's reimbursements are not reported as income. The IRS has yet to rule on this interpretation of the law.

Some tax advisors have been advising clergy to disregard the Deason and Dalan rulings in computing their taxes. Until there is further clarification from the IRS or the courts, we categorically reject such counsel and urge clergy to comply. The comprehensive clergy tax reporting examples set forth in chapter 11 of Richard Hammar's Church and Clergy Tax Guide (available from the publisher of this newsletter) show how to incorporate the Deason rule in the preparation of clergy taxes. Your editor is currently engaged in efforts to exclude clergy from the Deason and Dalan rulings. Any developments will be reported to you immediately in this newsletter. McFarland v. Commissioner, T.C. Memo. 1992-440.

Example. Rev. Smith is senior minister of First Church. In 1992 he receives church compensation of $40,000, which includes a housing allowance of $10,000 (Rev. Smith's actual housing expenses exceeded $10,000 for the year). His business expenses for 1992 total $4,000. He did not "account" to his employer for any of this amount. Rev. Smith will be able to deduct only $3,000 of his business expenses in computing his income taxes. He must reduce his business expense deduction ($4,000) by the percentage of his total compensation that is "tax-exempt." Since 25% of his total compensation consists of a tax-exempt housing allowance (the $10,000 housing allowance is 25% of $40,000 total compensation), Rev. Smith must reduce his business expense deduction by 25%. Reducing $4,000 by 25% leaves a deduction of $3,000 for income tax purposes.

It is possible that this limitation could have been avoided completely had First Church adopted an accountable reimbursement arrangement agreeing to reimburse Rev. Smith for substantiated business expenses, and requiring him to return any excess reimbursements. Finally, note that Rev. Smith will be able to claim the full $4,000 of business expenses in computing his self-employment taxes on Schedule SE (since the housing allowance is not "tax-exempt" income for social security purposes).

Legal Developments

Income Taxes for Ministers

Court rejects ministers’ claim that he is exempt from income taxes.

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax 1992-09-01 Recent Developments

Clergy – Taxes

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

• A federal court in Colorado rejected a minister’s claim that he was not required to pay income taxes. The minister claimed that the religious tenets of his church forbid members to pay income tax, and therefore it would violate the first amendment guaranty of religious freedom for him to be required to pay taxes. The court summarily rejected this argument, noting that “imposing income taxes on individuals whose religious tenets forbid the payment of those taxes does not violate the first amendment,” and that “while the minister’s religious beliefs may be sincerely held, the payment of income taxes is not voluntary.” In responding to the fact that the minister purposely maintained no tax records, the court observed: “Under this scenario, the federal government is entitled to reconstruct his gross receipts and costs to arrive at an assessment for the unreported income. In this case, the IRS used Bureau of Labor statistics to estimate [the minister’s] gross income for the relevant years. While this method may result in some inaccuracies, such imperfections are permissible.” The court also repudiated the minister’s attempt to avoid an IRS lien on his property by transferring it to his church. Such a conveyance was a “fraudulent conveyance” that was void under state law. Finally, the court acknowledged that the minister had filed a timely application to exempt himself from self-employment taxes, but it noted that this exemption did not apply to any of the minister’s secular earnings. United States v. Gonzalez, 91-1 USTC 50,100 (D. Colo. 1991).

© Copyright 1992, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m27 c0592

Legal Developments

Plaintiffs’ Refusal to Swear Under Oath

Court rules that lawsuit cannot be dismissed because of a plaintiff’s refusal to swear under oath.

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax 1992-03-01 Recent Developments

Freedom of Religion

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

• Can a court dismiss a lawsuit because the plaintiff refuses, on religious grounds, to swear that her testimony would be truthful? No, said a federal appeals court. A woman brought a tax appeal before the Tax Court. However, she refused to “swear” or “affirm” under oath before testifying. Her objection to oaths and affirmations was based on two Biblical passages, Matthew 5:33-37, and James 5:12. The first passages says, in part, “But I say unto you, swear not at all … but let your communication be yea, yea, or nay, nay, for whatsoever is more than these cometh of evil.” The second passage says, “But above all things, my brethren, swear not, neither by heaven, neither by the earth, neither by any other oath; but let your yea be yea, and your nay, nay, lest you fall into condemnation.” The woman claimed that these passages prohibit both swearing of oaths and affirmations in a court of law. She did suggest to the trial judge that she simply be allowed to state that she would declare the facts to the best of her ability. The judge abruptly denied her request, commenting that “asking you to affirm that you will give true testimony does not violate any religious conviction that I have ever heard anybody had.” Because the woman was not permitted to testify without swearing an oath, her case was dismissed. She promptly appealed to a federal appeals court, which agreed that she could not be required to swear or affirm if doing so would violate her religious convictions. The court noted that the trial judge “erred not only in evaluating [the woman’s] religious belief, and concluding that it did not violate any ‘recognizable religious scruple,’ but also in conditioning her right to testify and present evidence on what she perceived as a violation of that belief.” The court concluded that a simple statement such as “I state that I will tell the truth in my testimony” would be sufficient, as would the woman’s own alternative, “I do hereby declare that the facts I am about to give are, to the best of my knowledge and belief, accurate, correct, and complete.” Ferguson v. Commissioner, 921 F.2d 588 (5th Cir. 1991).

See Also: The Present Meaning of the First Amendment Religion Clauses

© Copyright 1992, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m47 c0292

Legal Developments

Religious and Sex Discrimination in Religious Organizations

Can a former employee sue a religious organization for discrimination?

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax 1992-03-01 Recent Developments

Freedom of Religion

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

• A Minnesota appeals court ruled a local civil rights ordinance banning discrimination against homosexuals could not be applied to a religious organization. A Catholic “religious center” in Minneapolis rented space to a number of community groups, including Alcoholics Anonymous, Weight Watchers, and Dignity (an organization composed largely of homosexual Catholics). In 1986, the local archbishop was instructed by the Vatican to determine whether or not pastoral practices in the diocese were consistent with the Vatican’s “Letter to Bishops on the Pastoral Care of Homosexual Persons.” This letter prohibits church facilities from being used by organizations that oppose the Vatican’s position on homosexuality. Since Dignity’s beliefs were in conflict with the Vatican’s position, its lease of space in the religious center was terminated. Dignity filed a complaint with the Minneapolis “department of civil rights,” claiming that a municipal civil rights ordinance banning discrimination against homosexuals had been violated by the termination of its lease. It named the center along with the diocese and archbishop as defendants. The complaint was dismissed, and Dignity appealed to an appeals board which concluded that Dignity’s civil rights had been violated by the defendants. It assessed fines, and ordered the defendants to refrain from any further discrimination against homosexuals. The defendants appealed this order to a state appeals court. The court ruled that application of the civil rights ordinance to the center, diocese, and archbishop constituted prohibited “entanglement” of the government in religious affairs in violation of the first amendment. It concluded: “In determining whether state action constitutes excessive entanglement, a court must undertake an examination of the character and purposes of the groups involved, the nature of the state’s involvement, and the relationship that results between the state and religious authority. In this case, we conclude the nature of the state’s activity clearly evinces excessive entanglement …. A city or municipality is without jurisdiction to enforce civil rights protections against a religious organization enforcing conformity of its members to certain standards of conduct and morals. We therefore conclude the order of the [appeals board] must be reversed as excessive entanglement in religious affairs contrary to the first amendment of the United States Constitution.” This case is one of a few decisions recognizing that the first amendment permits a church to “enforce conformity of its members to certain standards of conduct or morals,” notwithstanding a civil rights law to the contrary. Dignity Twin Cities v. Newman Center and Chapel, 472 N.W.2d 355 (Minn. App. 1991).

See Also: The Civil Rights Act of 1964

© Copyright 1992, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m47 c0292

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

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

© 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 m43 c0691

Legal Developments

Accident Victim Refuses Blood Transfusion; Dies

Her family was not permitted to sue for damages.

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax 1991-11-01 Recent Developments

Freedom of Religion

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

• A federal appeals court ruled that the surviving relatives of an accident victim whose death was caused by her refusal to accept a blood transfusion were not entitled to money damages. A 2-vehicle accident resulted in physical injuries to a passenger in one of the cars. She was taken to a hospital and diagnosed as suffering from various injuries including a severed artery. She informed hospital staff upon arrival that she was a Jehovah’s Witness and would not accept blood transfusions. Responding to her deteriorating condition, doctors requested permission of the woman’s husband to perform a blood transfusion. The husband refused. He also refused to allow doctors to transfuse his wife’s own blood back into her body. The woman died on the operating table from a loss of blood. Doctors testified that she would have lived had she received a blood transfusion. The woman’s husband, and her minor children, sued the driver of the other vehicle. A jury refused to award any damages to the husband and children as a result of the woman’s death, on the ground that she would not have died had she accepted the transfusion. The husband appealed this decision, arguing that his religious rights were violated by the jury’s decision. A federal appeals court disagreed. It concluded that it was not impermissible for the jury to base its decision on the fact that the woman would have lived had she received a transfusion. It did not matter that the woman’s decision was based on her religious beliefs. The court noted that under applicable state law, an accident victim may not recover money damages that he did not take reasonable steps to avoid. It observed that controlling decisions of the Supreme Court have held that “generally applicable rules imposing incidental burdens on particular religions do not violate the free exercise [of religion] clause.” On this basis, the husband’s contention that his religious rights had been violated had to be rejected. Munn v. Algee, 924 F.2d 568 (5th Cir. 1991).

The Right to Refuse Medical Treatment

© 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: m47 c0691

Legal Developments

Employees’ Violation of Employer’s Moral Teachings

Is termination on such a basis discrimination?

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

• Can a teacher sue a church-operated school for discrimination when it refuses to renew her contract because of her violation of the church’s moral teachings? No, said a federal appeals court. A Catholic school hired a teacher in 1977. A few years later, she was divorced, though this did not affect her eligibility to teach. For the next several years, she served with distinction. However, in 1986, she remarried, and was later informed by the school that she would not be rehired for the following school term. The school based its decision on statements in the employment contract and employee handbook. The contract specified that the school had the authority to dismiss any teacher “for serious public immorality, public scandal, or public rejection of the official teachings, doctrine or laws of the Roman Catholic Church.” The employee handbook illustrated this provision by noting that an employee could be dismissed for “entering into a marriage that is not recognized by the Catholic Church.” The school informed the teacher that she would not be rehired because she had remarried without pursuing “proper canonical process available from the Roman Church to obtain validation of her second marriage,” and thereby had committed a serious offense against the “Church’s teachings and laws on the indissolubility of Christian marriage and the sacramental nature of the marriage bond.” The dismissed teacher sued the school, claiming that her dismissal violated Title VII of the Civil Rights of 1964 (which prohibits discrimination against employees on the basis of religion). A trial court rejected the teacher’s claim, and she appealed.

A federal appeals court also rejected the teacher’s claim. The court acknowledged that the Civil Rights Act prohibits employers from discriminating against an employee on the basis of religion. However, in deciding whether or not to apply this provision to a church-operated school, the court applied a 2-step analysis announced by the Supreme Court in a 1979 decision. In the previous case, the Supreme Court ruled that in evaluating whether or not to apply a government regulation to a religious organization, the following 2 questions must be asked—(1) whether application of the law to the religious organization would “raise substantial constitutional questions,” and (2) if so, whether the legislature clearly expressed an intent that the law apply to religious organizations. In this case, the court concluded that application of the Civil Rights Act’s prohibition of religious discrimination would raise substantial questions under the first amendment. It noted that “churches have a constitutionally protected interest in managing their own institutions free of government interference.” Accordingly, the Civil Rights Act’s prohibition of religious discrimination cannot apply to a church-operated school unless “Congress clearly intended that result.” The court concluded that there was no clear indication of such an intent. This conclusion was supported both the legislative history of the law, and even more importantly, by section 703(e), which specifically exempts religious educational institutions from the prohibition of religious discrimination. Section 703(e) specifies that “it shall not be an unlawful employment practice for a school … to hire and employ employees of a particular religion if such institution is … owned, supported, controlled, or managed by a particular religious [organization].” In conclusion, the court observed: “[I]t does not violate Title VII’s prohibition of religious discrimination for a parochial school to discharge a Catholic or a non-Catholic teacher who has publicly engaged in conduct regarded by the school as inconsistent with its religious principles. We therefore hold that the exemptions to Title VII cover the parish’s decision not to rehire [the teacher] because of her remarriage.” Little v. Wuerl, 929 F.2d 944 (3rd Cir. 1991).

The Civil Rights Act of 1964

© 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 m65 m43 c0691

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