Recent Developments in the Supreme Court Regarding Employment Practices

The United States Supreme Court ruled that a church-operated camp was engaged in “commerce.”

Church Law and Tax1998-03-01

Employment Practices

Key point. Many federal employment and civil rights laws apply to employers that are engaged in interstate commerce. Churches and other religious organizations may satisfy this test in some situations.

The United States Supreme Court ruled that a church—operated camp was engaged in “commerce.” A Maine law exempted church camps from property taxes so long as most of their visitors were from within the state. A church camp that attracted most of its visitors from out—of—state was assessed property taxes. The camp challenged the tax, claiming that it violated the “commerce clause” of the federal constitution by discriminating against camps solely on the basis of interstate travel. The Supreme Court agreed. The Court ruled that a religious camp is engaged in interstate commerce:

Even though [the camp] does not make a profit, it is unquestionably engaged in commerce, not only as a purchaser … but also as a provider of goods and services. It markets those services, together with an opportunity to enjoy the natural beauty of an inland lake in Maine, to campers who are attracted to its facility from all parts of the Nation. The record reflects that [the camp] “advertises for campers in [out—of—state] periodicals … and sends its executive director annually on camper recruiting trips across the country.” [The camp’s] efforts are quite successful; 95 percent of its campers come from out of state. The attendance of these campers necessarily generates the transportation of persons across state lines that has long been recognized as a form of “commerce.” Summer camps are comparable to hotels that offer their guests goods and services that are consumed locally.

The Court also ruled that the “commerce clause” applies to nonprofit organizations:

Our cases have frequently applied laws regulating commerce to not—for—profit institutions …. The nonprofit character of an enterprise does not place it beyond the purview of federal laws regulating commerce. We have already held that the Commerce Clause is applicable to activities undertaken without the intention of earning a profit …. We see no reason why the nonprofit character of an enterprise should exclude it from the coverage of either the affirmative or the negative aspect of the Commerce Clause. There are a number of lines of commerce in which both for—profit and nonprofit entities participate. Some educational institutions, some hospitals, some child—care facilities, some research organizations, and some museums generate significant earnings; and some are operated by not—for—profit corporations. A nonprofit entity is ordinarily understood to differ from a for—profit corporation principally because it “is barred from distributing its net earnings, if any, to individuals who exercise control over it, such as members, officers, directors, or trustees.” Nothing intrinsic to the nature of nonprofit entities prevents them from engaging in interstate commerce. Summer camps may be operated as for—profit or nonprofit entities; nonprofits may depend-as here-in substantial part on fees charged for their services. Whether operated on a for—profit or nonprofit basis, they purchase goods and services in competitive markets, offer their facilities to a variety of patrons, and derive revenues from a variety of sources, some of which are local and some out of State.

For purposes of Commerce Clause analysis, any categorical distinction between the activities of profit—making enterprises and not—for—profit entities is therefore wholly illusory. Entities in both categories are major participants in interstate markets. And, although the summer camp involved in this case may have a relatively insignificant impact on the commerce of the entire Nation, the interstate commercial activities of nonprofit entities as a class are unquestionably significant …. We are informed … that “the nonprofit sector spends over $389 billion each year in operating expenses-approximately seven percent of the gross national product.” In recent years, nonprofits have employed approximately seven percent of the Nation’s paid workers, roughly 9.3 million people in 1990 …. Nonprofit participation in these sectors [nursing homes and child care] is substantial. Nationally, nonprofit nursing homes had estimated revenues of $18 billion in 1994. These entities compete with a sizeable for—profit nursing home sector, which had revenues of approximately $40 billion in 1994. Similarly, the $5 billion nonprofit market in child day care services competes with an $11 billion for—profit industry. Nonprofit hospitals and health maintenance organizations also receive an exemption from Maine’s property tax. While operating as nonprofit entities, their activities are serious business …. Nonprofit hospitals had national revenues of roughly $305 billion in 1994, considerably more than the $34 billion in revenues collected by hospitals operated on a for—profit basis …. If there is need for a special exception for nonprofits, Congress not only has the power to create it, but also is in a far better position than we to determine its dimensions …. The states are, of course, free to provide generally applicable nondiscriminatory tax exemptions without running afoul of the Commerce Clause.

Application. The importance of this case is the Court’s broad definition of “commerce” in the context of nonprofit organizations. As a result of this decision, it is more likely that churches and other religious organizations will be deemed to be engaged in “commerce.” The significance of such a conclusion is that many federal employment and civil rights laws apply to organizations that are engaged in commerce. Some of these laws were summarized in a table in a feature article in this newsletter. It is now more likely that churches and other religious organizations will be deemed to be subject to such laws. Camps Newfound/Owatonna v. Town of Harrison, 117 S. Ct. 1590 (1997). [Labor Laws, The Civil Rights Act of 1964, Americans with Disabilities Act]

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