Most churches have adopted employment policies, either in a policy manual or as individual policies. Examples include:
- Employee standards
- Social media use
- Cell phone usage
- Expense reimbursements
- Overtime
- Privacy
- Personnel files
- Safety and security
- Insurance
- Compensation and benefits
- Discipline and dismissal
- Evaluations
- Intellectual property
- Conflicts of interest
- Leaves of absence
Changing Policies and Contract Law
For many churches, policies change over time. Additions and modifications are common. However, church leaders often assume that these changes automatically apply to both current and future employees.
This assumption can be incorrect due to a key principle in contract law: consideration.
- Consideration means each party to a contract must receive something of value in exchange for their commitment.
- Without consideration, a contract is generally not enforceable.
Example:
If X and Y enter a contract for the sale of X’s home:
- X’s consideration is the purchase price paid by Y.
- Y’s consideration is the home itself.
This requirement distinguishes a contract from a gift, where no value is exchanged by the recipient.
Consideration in Employment Agreements
When employees are hired, their employment itself can serve as valid consideration for their agreement to be bound by the employer’s policies—especially when documented properly.
However, for existing employees, courts often require additional consideration beyond continued employment to enforce new or amended policies.
Case Study: Lack of Consideration in a Non-Compete Agreement
Overview
A Pennsylvania case highlights this issue:
- Employer hired a salesman (plaintiff) in 2007.
- In 2010, the plaintiff was asked to sign a new employment contract with a two-year non-compete clause.
- In 2012, the plaintiff resigned and joined a competitor.
The employer tried to enforce the non-compete agreement, but the plaintiff sued, arguing it lacked consideration.
Court Rulings
Both the trial and appeals courts ruled:
- Because the plaintiff received no additional benefit when signing the new agreement, there was no valid consideration.
- Continued employment alone was not sufficient.
- Language like “intending to be legally bound” did not substitute for consideration.
Key Point:
For a restrictive covenant to be enforceable after employment begins, the employee must receive a corresponding benefit or change in status.
Case Reference:
Socko v. Mid-Atlantic Systems, 2014 WL 1898584 (Pa. Super. 2014)
Relevance for Church Leaders
(1) The Importance of Consideration
This case serves as a warning:
- Unfamiliarity with the requirement of consideration can make parts of a church’s policy manual unenforceable.
- Continued employment usually isn’t enough to bind employees to new policies.
- Some employers have employees sign agreements when they’re hired that say they agree to current and future policy changes. However, results for this approach vary by state, and legal counsel should be consulted before using it.
Common situations where consideration issues arise:
- New employment policies
- Non-compete clauses
- Promises of post-employment benefits
Real-Life Examples
Case Study 1: Widow’s Agreement for Continued Payments
A Tennessee court ruled that a church’s agreement to make payments to Darla, the widow of a former pastor, was unenforceable:
- Why? The widow provided no consideration in return.
- Promises like being the “first lady,” losing fringe benefits, or refraining from remarriage were not sufficient consideration.
Case Reference:
Cochran v. Robinwood Lane Baptist Church, 2005 WL 3527627 (Tenn. App. 2005)
Case Study 2: Distribution of Church Sale Proceeds
A Pennsylvania court addressed a church dissolving and selling its property:
- Proceeds were proposed to be given to the pastor for past services.
- Court ruled that past services are not valid consideration for current payments.
- Payments beyond the pastor’s salary were treated as gifts, which were not permitted.
Case Reference:
In re First Church, 2011 WL 2302540 (Pa. Common. 2011)
Case Study 3: Counseling Fees for Abuse Victim
An Indiana court ruled that an Archdiocese was not liable for reducing therapy payments to an abuse victim:
- The Archdiocese’s support was based on a moral obligation, not a legally enforceable contract.
- Its written policy explicitly stated it was not a contractual commitment.
Case Reference:
Doe v. Roman Catholic Archdiocese of Indianapolis, 958 N.E.2d 472 (Ind. App. 2011)
Exceptions to Consideration
Case Study 4: Detrimental Reliance
Courts sometimes enforce promises under the doctrine of promissory estoppel or detrimental reliance:
- If a party reasonably relies on a promise to their detriment, a court may enforce it.
- Example: A synagogue successfully enforced a member’s dues based on detrimental reliance.
Case Reference:
Temple Beth Am v. Tanenbaum, 789 N.Y.S.2d 658 (Dist. Ct. 2004)
Case Study 5: Widow’s Promissory Estoppel Claim
Darla, from Case Study 1, also argued promissory estoppel:
- She claimed her reliance (not remarrying) made the church’s promises enforceable.
- The court rejected this, because restraints on marriage are void as a matter of public policy.
(2) Non-Compete Clauses in Church Employment Contracts
Some churches have used non-compete clauses to prevent pastors or employees from starting a competing church after leaving.
However, non-compete clauses have generated immense controversy in employment law. Caution must be exercised before contemplating their use.
For instance, in August of 2024, the Federal Trade Commission (FTC) issued a final rule banning the use of non-compete clauses by employers. But a federal district court blocked the rule before it took effect and the FTC appealed. The situation remains unresolved, underscoring the importance of monitoring developments on this topic.
Important legal considerations:
- Non-compete clauses are disfavored and scrutinized closely by courts. They may even become prohibited at some point.
- For those that are used, note that—at a minimum—they must be reasonable in:
- Duration
- Geographic area
- Scope of restricted activities
Case Reference:
Central Indiana Podiatry, P.C. v. Krueger, 882 N.E.2d 723 (Ind. 2008)
Best Practice:
Churches should consult legal counsel before adopting non-compete clauses.
Final Note
While this article offers general legal principles for churches, it is always wise to seek professional legal counsel before making decisions regarding employment policies, contracts, or agreements.
We’ve used a combination of AI and human review to make this content easier to read and understand.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
