Terminating Employees for Misappropriating Church Funds

Court cautions churches to be consistent in treatment of wayward employees.

Gonzalez v. Parish of Trinity Church, 2004 WL 1161175 (S.D.N.Y.)

Background. A woman of Puerto Rican descent (Martha) was employed by a church as a secretary in the accounting office. Her job involved the preparation and transmittal of data to the church’s outside payroll service as well as other responsibilities including the deposit of donations into church bank accounts.

Church officials noted that for one month payroll expense exceeded the budget, and the accounting office performed an analysis to determine the source of the variance. The church discovered that on one day during the month in question Martha had received seventy hours of advance vacation pay, totaling $1,217, in addition to her regular paycheck. This advance vacation pay was not deducted in any subsequent period, resulting in an overpayment to her.

In order to receive advance vacation pay, the church required an employee to submit a written request, signed by a supervisor, at least three weeks in advance of the first scheduled vacation day. This procedure ensured that the advance was properly recorded and that the employee was not overpaid. Martha did not notify the church of her advance vacation pay request, nor did she obtain the consent of her supervisor. Rather, she arranged for the payment directly through the outside payroll service. She did nothing to correct the overpayment until confronted about it four months later. Arrangements were then made to deduct the overpayment from subsequent paychecks.

Based on this incident the church launched an investigation of (1) Martha’s timesheets on which she recorded her hours of work; (2) the church’s payroll transmittals which were prepared by Martha; and (3) her earnings statements for two years. This investigation revealed more than four separate occasions when she arranged to receive unauthorized overtime pay. Because all discrepancies were in her favor, the church determined that she had misappropriated church funds.

Martha’s direct supervisor and two other employees met with her, and informed her that based on the results of the investigation she was being terminated. Martha sued the church, claiming that her termination was a form of “national origin” discrimination prohibited by Title VII of the Civil Rights Act of 1964.

The court’s ruling. The court noted that a plaintiff alleging employment discrimination under Title VII has the “initial burden of establishing a prima facie case of discrimination by showing that (1) she belongs to a protected minority; (2) she was qualified for the position; (3) she suffered an adverse employment action; and (4) the adverse employment action occurred in circumstances giving rise to an inference of racial discrimination.” If the plaintiff meets this burden, the employer “must produce evidence that the adverse employment action was taken for a legitimate, nondiscriminatory reason.” In order to overcome this defense, the plaintiff must demonstrate that the employer’s reason is simply a “pretext” for discrimination.

Martha asserted the church had committed unlawful discrimination in violation of Title VII because (1) employees under “similar positions” as herself were given severance packages after being terminated, and (2) other employees who had received unauthorized pay and failed to report it had not been terminated.

The court concluded that these allegations failed to establish a prima facie case of discrimination. It acknowledged that a plaintiff “can raise an inference of discrimination by showing that the employer … treated her less favorably than a similarly situated employee outside her protected group.” But, while Martha alleged that she was treated differently from other church employees, “she has failed to submit evidence showing that these employees were outside her protected group or that they were similarly situated.” The court referred to the testimony of a church financial officer who stated that in the eleven years she had worked for the church no former employee was found to have committed acts such as those committed by Martha, nor received severance pay after being discharged for such conduct.

The court conceded that other employees who had received overpayments relating to vacation pay were not terminated, but it concluded that Martha had “submitted no evidence that those employees held positions involving the transmission of payroll data. Moreover, these employees had followed the appropriate procedures for requesting advance overtime pay, and there is no evidence that they had any history of misappropriating church funds.”

The court concluded that even if Martha had established a prima facie case of discrimination, the church had shown a “legitimate, nondiscriminatory reason” for her termination since “misappropriation of church funds by an employee charged with the sensitive task of transmitting payroll data to an outside payroll service certainly represents a valid, nondiscriminatory basis for termination.” Martha did not deny that she misappropriated church funds, and she failed to show that other church employees who committed such acts were allowed to continue their employment. Therefore, her Title VII claim had to be dismissed because she had not shown that the church’s reason for her discharge was “pretextual.”

Significance to church treasurers. This case illustrates an important point. Churches can discipline or dismiss employees for misappropriating funds, but they must do so consistently. That is, if an employee who is a member of a protected class under applicable federal or state discrimination law is treated less favorably than other employees guilty of the same kind of misconduct (but not members of a protected class), then the church may be liable for discrimination.

This article first appeared in Church Treasurer Alert, April 2005.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

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