Are Churches and Affiliated Organizations Separate Entities?

A church and its affiliate may be considered a “single employer.”

Church Law & Tax Report

Are Churches and Affiliated Organizations Separate Entities?

A church and its affiliate may be considered a “single employer.”

Key point. There are several legal defenses available to a denominational agency that is sued as a result of the acts or obligations of affiliated clergy and churches. These include a lack of temporal control over clergy and churches; a lack of official notice of a minister’s prior wrongdoing in accordance with the denomination’s governing documents; lack of an agency relationship; the prohibition by the First Amendment of any attempt by the civil courts to impose liability on religious organizations in a way that would threaten or alter their polity; and elimination or modification of the principle of joint and several liability.

A New York court ruled that a church and an affiliated education center could be treated as a “single employer,” and therefore the church was jointly liable for the acts and obligations of the center. A church operated an “educational center” through which it conducted a summer camp for children. Two adolescent males (the “plaintiffs”) who worked at the camp claimed that they were sexually abused by an adult camp worker, and they sued the church for injuries they allegedly sustained.

The lawsuit referred to the church and its education center as one entity. The church asked the court to dismiss it from the case on the ground that it was a legally separate entity from the education center and as a result was not responsible for the plaintiffs’ injuries. It pointed out that:

  • the two entities were separately incorporated;
  • the center rented space in the church’s building;
  • the perpetrator and the plaintiffs were employees of the center;
  • the perpetrator had no employment relationship with the church; and
  • the boards and officers of the two entities are different.

However, the church’s pastor acknowledged that:

  • she is executive director of the center as well as in charge of the church;
  • there is no written lease between the church and the center;
  • the center pays rent only when it has available funds;
  • the perpetrator was employed by the church to run its office prior to being employed by the center; and
  • the offices of the center are in the church’s building.

Was the church responsible for the actions of an employee of its affiliate? The court observed:

To determine whether separate entities should be considered a “single employer” for liability purposes, courts have employed a four-factor test that examines the interrelation of operations, common management, centralized control of labor relations and common ownership. [Also] relevant are the use of common office facilities and equipment and family connections between or among the various enterprises … and ultimately single employer status depends on all the circumstances of the case and is characterized by absence of an arm’s length relationship found among unintegrated companies.

The court concluded that there was sufficient evidence that the church and education center were a “single employer” and as a result it rejected the church’s request to dismiss it from the case. It concluded:

Although the church and center are not commercial enterprises, the allegations of the complaint and the affidavits submitted showing, among other factors, control by the church pastor of the operations of the center and asserting grossly improper activity on the part of the perpetrator in his relationship with the very young plaintiffs working under his supervision, raise a triable issue of fact as to whether the church and the center should be considered an integral enterprise for the purposes of liability for the various claims asserted herein.

Application. Many churches operate affiliated entities. Common examples include schools and preschools. In some cases church leaders separately incorporate an affiliated entity in order to protect the church from liability for the acts and obligations of the affiliate and its employees. Unfortunately, such arrangements often do not work because the church fails to divest itself of control over the affiliate. As this case illustrates, the courts sometimes conclude that the church and its affiliate comprise a “single employer” for liability purposes, despite the fact that the affiliate is separately incorporated.

One of the first courts to recognize this theory noted that “superficially distinct entities may be exposed to liability upon a finding they represent a single, integrated enterprise: a single employer.” Trevino v. Celanese Corp., 701 F.2d 397 (5th Cir. 1983). The court gave the following definition, which has since been applied by many other courts (including the New York court in the case addressed in this article):

Factors considered in determining whether distinct entities constitute an integrated enterprise are (1) interrelation of operations, (2) centralized control of labor relations, (3) common management, and (4) common ownership or financial control.

As this case illustrates, the mere fact that an affiliate is separately incorporated does not, by itself, preclude single employer status. This is so even if the two entities have separate officers. The court concluded that the several examples of interrelationship between the two entities (summarized above) were sufficient to overcome the church’s argument that it and the center were not a single employer. Nunez v. Mariners Temple Baptist Church, 2009 WL 3254510 (N.Y. Sup. 2009).

This Recent Development first appeared in Church Law & Tax Report, November/December 2010.

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