Recent Development in Indiana Regarding Employment Practices

A federal court in Indiana rejected the claims of a 61-year-old employee of a church-operated hospital that she had been a victim of age discrimination.

Church Law and Tax1999-05-01

Employment Practices

Key point. An employer does not necessarily commit unlawful age discrimination by dismissing an employee, or converting a full-time employee to part-time status, on the basis of economic necessity.

Key point. Church retirement plans are exempt from regulation under the Employee Retirement Income Security Act of 1974 (ERISA), unless they specifically elect to be covered.

A federal court in Indiana rejected the claims of a 61-year-old employee of a church-operated hospital that she had been a victim of age discrimination. The court also rejected her claim that the hospital’s amendments to its pension program, which unfavorably affected some retirees, violated the Employee Retirement Income Security Act (ERISA). A woman (the “plaintiff”) began working for a church-operated hospital as a full-time cashier in 1978. In 1994, the hospital needed to make financial cutbacks, and underwent a reduction in force (RIF) that included decreasing the number of employees. The plaintiff’s cashier position was reduced to part-time. Her duties changed somewhat when she dropped to part-time. She was given the duty of posting private checks, and several of her other responsibilities were transferred to other employees, including filing, processing returned mail, and posting fees from collection agencies. She discussed her reduction in hours with the hospital’s director of human resources, but did not complain to anyone about the reduction and did not file a charge of discrimination with the Equal Employment Opportunity Commission (“EEOC”). In 1995, hospital managers decided that further cost-cutting was needed, and a decision was made to terminate the plaintiff’s position. She was 61 years old at the time. In making this decision, hospital management considered that others in the department were already performing the plaintiff’s duties when she was not there, that the plaintiff would have needed additional training to perform billing and collection functions, and that the plaintiff was the only part-time employee in the department. The plaintiff was offered a part-time registrar position in the emergency room, working the “midnight” shift. She submitted a letter of resignation stating that she intended to retire because she found working midnights very difficult and because of the changes in the health insurance plan. A few weeks later, the plaintiff filed a “charge of discrimination” with a local civil rights commission, alleging that she was being demoted, receiving less pay, and her benefits were in jeopardy because of her age. She also filed a lawsuit in federal court, alleging that the hospital interfered with her pension rights under the Employee Retirement Income Security Act of 1974 (ERISA), and discriminated against her on the basis of her age in violation of the Age Discrimination in Employment Act.

The ERISA Claim

The plaintiff alleged that the hospital, as part of its cost-cutting campaign, made changes to its pension plan that directly and unfavorably affected her and other retirees. The hospital countered by pointing out that its pension plan was a “church plan” and as such was exempt from ERISA. ERISA specifies that it “shall not apply to any employee benefit plan if … such plan is a church plan with respect to which no election has been made ….” The term church plan is defined as a plan “established and maintained … for its employees (or their beneficiaries) by a church or by a convention or association of churches which is exempt from tax ….” ERISA further provides:

A plan established and maintained for its employees (or their beneficiaries) by a church or by a convention or association of churches includes a plan maintained by an organization, whether a civil law corporation or otherwise, the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits, or both, for the employees of a church or a convention or association of churches, if such organization is controlled by or associated with a church or a convention or association of churches.

The term employee of a church or a convention or association of churches is defined to include a “duly ordained, commissioned, or licensed minister of a church in the exercise of his ministry, regardless of the source of his compensation,” and an employee of an organization “which is exempt from tax … and which is controlled by or associated with a church or a convention or association of churches.” ERISA further provides that an organization “is associated with a church or a convention or association of churches if it shares common religious bonds and convictions with that church or convention or association of churches.”

The hospital relied on a letter from the IRS acknowledging that the hospital’s pension plan was a church plan. The plaintiff questioned the pension plan’s “church plan” status. She asserted that the hospital had not demonstrated that it was controlled by a church or that its retirement plan was established and maintained by a church. She claimed that ERISA is construed liberally, and exemptions to its coverage defined narrowly, to further its purposes of preventing deprivations of benefits.

The court rejected the plaintiff’s arguments, relying entirely on the IRS determination that the hospital’s pension plan was a church plan.

The Age Discrimination Claim

The plaintiff claimed that she was performing satisfactorily, but her position was eliminated and a younger employee continued to perform her duties in a full-time position. This, she asserts, shows that her position was not eliminated because it was no longer necessary or because the hospital could not afford to keep someone in the position at full-time hours. She also insisted that pressure was put on her, and not other employees, to retire.

The federal Age Discrimination in Employment Act (ADEA) makes it unlawful for an employer to discharge or otherwise discriminate against an individual (who is at least 40 years of age) on the basis of age. To prevail in an ADEA claim, a plaintiff may establish age discrimination by (1) presenting direct or circumstantial evidence that age was a determining factor in the decision at issue, or (2) may use the indirect, “burden-shifting” method of proof. Since the plaintiff did not present direct evidence that her age played a role in the decision to reduce her to part-time, the court applied the burden-shifting analysis. Under this analysis, the plaintiff must first show a “prima facie case” of age discrimination, thereby shifting the burden of proof to the employer to articulate a legitimate non-discriminatory reason for the decision. Once the employer does so, the plaintiff must come forward with evidence that would allow a jury to conclude that the reason given is a “pretext” for age discrimination. A plaintiff can establish pretext by showing either that a discriminatory reason more likely motivated the employer or that the employer’s explanation is not credible. The court observed:

These formulations are simply different ways of recognizing that when the sincerity of an employer’s asserted reasons for discharging an employee is cast into doubt, a [jury] may reasonably infer that unlawful discrimination was the true motivation: If the only reason an employer offers for firing an employee is a lie, the inference that the real reason was a forbidden one, such as age, may rationally be drawn.

Applying these principles to this case, the court must determine whether a [jury] could find that the hospital’s true reason for reducing her hours was the RIF going on at that time, and not whether that decision was a sound business decision. The evidence on which [the plaintiff] relies does not call into doubt the hospital’s proffered reason for eliminating her cashier position. The hospital asserts that [the plaintiff’s] position was eliminated because it was the department’s only part-time position (and elimination of part-time positions was a suggested method of cutting costs) and other full-time employees had the skills necessary to perform her duties, while she would have required additional training to perform their duties. [The plaintiff’s] assertions that she was performing satisfactorily, that her duties still needed to be performed, and that a younger employee continued to perform her duties simply do not refute the specific reason given for her elimination, and therefore could not support a finding that the reason is a pretext for age discrimination ….

Application. This case presents one of the few discussions of the application of ERISA to churches or church-controlled organizations. The court’s liberal interpretation of the “church plan” exemption will be a useful precedent to any religious organization that is sued for an alleged violation of ERISA in the administration of a retirement or employee benefit plan. The case also confirms that employment decisions that adversely impact older employees do not necessarily constitute age discrimination-if the employer can demonstrate that the decision was based on economic necessity. Humphrey v. Sisters of St. Francis Health Services, Inc., 979 F. Supp. 781 (N.D. Ind. 1997). [The Civil Rights Act of 1964]

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