Key point: In some states, clergy are considered to be employees protected by workers compensation law. This may mean that their employing church must pay workers compensation insurance for both clergy and lay employees.
The Montana Supreme Court ruled that a Lutheran pastor was an employee of his church for purposes of workers compensation coverage, and accordingly the church had to pay workers compensation insurance for him.
The church argued that its pastor was self-employed rather than an employee, and pointed out that the pastor reported his federal income taxes and social security taxes as a self-employed person. It also vigorously maintained that the relationship between a church and its pastor is a purely theological matter, and that by "calling" a pastor a church "does not set up a relationship of employer to employee, but rather a relationship of pastor to a congregation, as a shepherd."
The church claimed that its constitutionally protected right to practice its religion would be violated if the state could force it to treat its pastor as an employee for purposes of workers compensation coverage. The state supreme court disagreed. It began its opinion by rejecting the church's contention that the pastor was self-employed rather than an employee. It acknowledged that self-employed persons were not covered by workers compensation, but it concluded that the pastor was an employee for purposes of workers compensation coverage despite the fact that he reported his income taxes and social security taxes as a self-employed person.
The court noted that the definition of the term employee is a broad one for workers compensation purposes, and that it can be established if an employer furnishes equipment and supplies to a worker. It noted that the church in this case provided most if not all of its pastors equipment and supplies, including an office, place of worship, and clerical vestments, and in addition provided a support staff consisting of a full-time secretary and a part-time bookkeeper. The court then noted: "[T]he furnishing of equipment is strong evidence of control and of a lack of independence and by itself is sufficient to establish the pastor's status as an employee. When an employer furnishes valuable equipment, an employment relationship almost invariably exists."
The court also rejected the church's claim that its first amendment rights were violated by the state's classification of its pastor as an employee. It noted that "the state may regulate affairs impacting religious activity when there is an overriding governmental interest in so doing." The provision of workers compensation benefits is such an interest, the court concluded. This conclusion was reinforced by the fact that the church had paid workers compensation insurance for its pastor for several years without objection.
The court acknowledged that the civil courts cannot interfere with the relationship between a church and its pastor, but it concluded that in this case only the relationship between the church and the workers compensation system was being scrutinized.
What this means for churches
This case is an important development for the following reasons. First, it illustrates that clergy will be considered "employees" subject to workers compensation law in a number of states, even if they report their income taxes and social security taxes as self-employed persons. In other words, the classification of a minister as an employee for purposes of workers compensation coverage is an entirely independent issue that is not affected by the minister's status for federal tax purposes. Second, this case illustrates that the definition of the term minister is very broad for purposes of workers compensation coverage. Third, the court in this case concluded that under the state constitutional guaranty of religious freedom a "compelling state interest" is still needed to justify an interference with religious freedom.
In 1990, the United States Supreme Court ruled that a compelling state interest no longer is necessary to justify an interference with religious freedom under the first amendment to the United States Constitution. The Montana case illustrates that the protection of religious liberty may be stronger under some state constitutions than under the United States Constitution.
Finally, this case suggests that churches should review carefully their ministers' status for workers compensation purposes. Do you pay workers compensation insurance for the ministers on your staff? If not, why not? Are you assuming that the ministers are self-employed? If so, this is a very risky assumption. Keep in mind that one of the most common exclusions in church insurance policies is for injuries sustained by employees in the course of their employment. Such injuries are excluded from coverage because it is assumed that such persons are covered under workers compensation. As a result, churches that do not pay workers compensation insurance premiums for their ministers may be incurring a significant uninsured risk. If you do not believe that your ministers are covered by workers compensation, you should discuss this with a local attorney for further clarification. St. John's Lutheran Church v. State Compensation Insurance Fund, 830 P.2d 1271 (Mont. 1992)