• Key point. State unemployment compensation laws generally do not apply to persons employed by church-operated child-care centers.
• Key point. Independent religious schools that are not affiliated with a church or association of churches were exempted from coverage under federal unemployment law in 1997. However, states are not required to adopt this exemption.
* The Vermont Supreme Court ruled that an independent Christian school that was not affiliated with any church was not exempt from the state’s unemployment compensation law. An independent Christian school had 160 students from preschool through grade 12. In addition to a traditional curriculum that included subjects such as math, science, history, and computer science, the school integrated teachings from the Bible throughout its curriculum. Students are also required to attend daily Bible classes and weekly chapel. The school’s stated mission was ‘to provide a sound, effective educational program that is well-integrated with Biblical principles directed toward the end that children may occupy their places worthily in community, church, state … and world.’ All faculty, staff, and board members were required to declare their unconditional agreement with the school’s statement of faith, be regular participants of a church, and be scripturally sound in their belief and lead ‘exemplary lives.’
The school was not a church nor was it owned by or affiliated with any church. It did, however, receive financial and promotional support from about 25 churches. Annually, these churches contributed $60,000 or so toward the school’s $900,000 operating budget.
The state of Vermont sent the school a notice informing it that it was subject to the state’s unemployment compensation law. This meant that the school was responsible for payment into the state unemployment compensation fund at its assigned contribution rate, and that school employees would be entitled to unemployment compensation benefits. Prior to receipt of this notice, the school had assumed that it was exempt from the unemployment compensation law. The school appealed the state’s ruling, claiming that it was exempt from the federal unemployment compensation law, and that this exemption had to be recognized by the state of Vermont even though its own unemployment compensation law would not exempt an independent religious school.
The Vermont unemployment law exempts services performed ‘in the employ of a church or convention or association of churches, or an organization which is operated primarily for religious purposes and which is operated, supervised, controlled, or principally supported by a church or convention or association of churches.’ The state claimed that the school was not exempt since it was not a church or convention or association of churches, and was operated primarily for educational rather than religious purposes and so was not exempt whether or not it was operated, supervised, controlled, or principally supported by a church or convention or association of churches.
Unemployment compensation is a cooperative federal-state program of benefits to unemployed workers. Under the Federal Unemployment Tax Act (FUTA), the Secretary of Labor must annually certify that a state’s unemployment compensation program meets certain minimum standards in order for that state to be eligible for federal grant money and for the state’s employers to qualify for tax credits under the program. The minimum standards of coverage required to meet federal certification list several allowable exemptions from participation in the compensation program for certain nonprofit and government employment. This list was amended in 1997 to include ‘an elementary or secondary school which is operated primarily for religious purposes, which is described in section 501(c)(3)’ of the federal tax code. The state of Vermont has not adopted this exemption.
The school argued that the 1997 FUTA amendment compels every state to exempt these religious schools from participation in the state programs, and, that if a state refuses to enact the 1997 amendment, a qualifying religious school is nevertheless entitled to the federal exemption because the federal exemption preempts the nonconforming state law.
The state supreme court rejected the school’s arguments, and ruled that it was not exempt from the state unemployment law. It noted that ‘the states remain free to expand their unemployment compensation coverage beyond the federal minimum standards,’ and that ‘the federal law creates a floor on state eligibility, but not a ceiling.’ As a result, states are free to expand the coverage specified under FUTA, but not provide benefits less than what FUTA provides. In this case, ‘Vermont has opted to include independent, non-church affiliated religious schools within the scope of the unemployment compensation program. By doing so, it provides more expansive coverage than the federal scheme, as permitted under the federal law.’
The court rejected the school’s argument that the state law’s distinction between religious schools that were operated by a church, and those that were not, was unconstitutional. It noted that under the state’s interpretation of the law there was no unlawful discrimination since all religious schools were deemed to be operated for educational rather than religious purposes and so were ineligible for exemption whether or not they were operated, supervised, controlled, or principally supported by a church or convention or association of churches.
Application. This case suggests that religious schools in states that have not adopted the 1997 FUTA exemption may be covered by state unemployment compensation laws even though they would be exempt under FUTA, whether or not they are operated, supervised, controlled, or principally supported by a church or convention or association of churches. In effect, the state of Vermont avoided any unlawful discrimination by holding that religious schools are not operated primarily for religious purposes and therefore do not qualify for exemption whether or not they are operated, supervised, controlled, or principally supported by a church or convention or association of churches. The court acknowledged that courts in some other states have reached a different conclusion, but it declined to follow those rulings. Mid Vermont Christian School v. Department of Employment and Training, 885 A.2d 1210 (Vt. 2005).
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