Why do I need lawyer experienced in representing churches?

Recently, the 11th Circuit Court of Appeals reversed and remanded a case that the Christian School has won at the trial court.  http://www.ca11.uscourts.gov/opinions/ops/201113696.pdf.  The facts are fairly simple. Engaged teacher became pregnant and asked the Christian school for maternity leave the following year.  School fired teacher for engaging in extramarital sex. Teacher maintained that she was fired by because she asked for maternity leave. 

The 11th Circuit Court observed that the attorneys representing the Christian school did not adequately raise and brief whether the ministerial exemption could apply to deprive the court of jurisdiction over the dispute.  The ministerial exclusion states that a civil court does not have jurisdiction to decide disputes arising between ministers and their churches.  The ministerial exemption was affirmed in January 2012 in the Hosanna Tabor Evangelical Luther Church and School v. EEOC. This case involved a teacher fired from a Christian school, arguably violating the Americans with Disabilities Act. The US Supreme Court unanimously found that the ministerial exemption applied and the court had no jurisdiction over that dispute.

Along the same lines, I recently had a conversation with the Human Resource Director at a mega-church who had extensive HR experience in industry but was new to the religious organization world.  She was questioning my advice that the ministerial exemption might apply to a situation.  She said that she had checked with all her HR contacts through SHRM and none of them had ever heard about the ministerial exemption.  She was questioning my credibility since my advice contradicted all her credible sources. After our conversation, I was able to point her to several credible resources that talked about the ministerial exemption. She learned something new, though she already had years of experience.  Now she is better equipped to handle this issue as it applies in her church.

Without commenting the merits (or lack thereof) of 11th Circuit case or the HR director's SHRM resources, I want to point out that churches, schools and other religious organizations do themselves a great disservice by engaging attorneys and other professionals that do not have extensive experience representing religious organizations. The truth of the matter is that some laws do not apply to some religious organizations. Further complicating the matter, some laws apply only to certain employees of certain religious organizations. These nuances are often missed by attorneys and other professionals who do not have adequate experience practicing with religious organizations.

Religious organizations should ask questions of the attorneys and other professionals they are considering to engage.  Even if the attorney has extensive knowledge and experience in labor law, the church should pass unless that attorney has extensive knowledge and experience with labor law as it applies in a religious organization. Otherwise, the religious organization may have made a costly mistake.

Who Owns Teacher's Lesson Plans

Recently, Teachers Paying Teachers reported that a kindergarten teacher earned $700,000 from selling her lesson plans through their website.  But the NEA reports that school districts own lesson plans if they are created within the scope of the duties and responsibilities of a teacher.  http://www.nea.org/home/37583.htm. Who is right?  It appears that the NEA is right and some school districts have successfully sued teachers to recover the profits the teachers have made selling lesson plans.  Teacher Pay Teachers covers its potential liability by requiring selling teachers to represent that they own the lesson plans. If the teachers do not own the lesson plans, then Teachers Paying Teachers can sue the teacher to recover its damages for copyright infringement.  Teachers have asserted that they created the lesson plans on their own time using their own resources and, therefore, own the lesson plans.  The problem with that argument is that it fails under the US Copyright Act. Since teachers are salaried, they are on the clock 24/7.  If they used their resources, it does not change the fact that they created the lesson plans as part of their duties as an employee/teacher.

This issue is really the same song, second verse of the ministers and ownership of sermons.  If the sermon or lesson plan is created as part of the job duties, the employer owns it.  If the employer wants to transfer ownership to the employee via a written contract, then the employee must pay at least fair market value for the intellectual property or it could cost the employer it's tax exempt status. 

New DOL Background Check Rules

Department of Labor issued new rules regarding employers' use of background checks on applicants on April 26, 2012.  These new rules make it clear that employers may not ask applicants about arrests in their application and cannot use arrests that appear on background checks in making their hiring decision.  Further, every employer must justify the need for the type of background check used for each position.  Every employer must develop a process of targeted screening of applicants that includes a detailed examination of the nature of the crime, the time elapsed, and the nature of the job for every applicant with adverse entries in the background check.  Every employer must also adopt a policy that provides an opportunity for an individualized assessment for those individuals identified with adverse entries in the background check, to determine if the screening policy as applied is job related and consistent with business necessity.

Facebook and Employer Access

The general counsel for Facebook has warned employers (and potential employers) not to ask for Facebook passwords because that inquiry constitutes an invasion of privacy. According to the general counsel, this inquiry opens up the employer to liability, though it is unclear how a liability is created. Facebook's chief privacy officer claims that such an inquiry could create a claim for unlawful discrimination if the employee or applicant is a member of a protected class of individuals. Again, I am not clear how unlawful discrimination occurs if the employer asked for all applicants for this information. Finally, Facebook is threatening employers with a lawsuit if they ask for the applicant's passwords but does not say what cause of action could apply.

This controversy arises out of the social media world where few laws clearly delineate the rules of the employment relationship. It should remind nonprofit employers that they should proceed with caution if they intend to monitor an employee's social media. If your nonprofit secures password, you should check with you attorney.

Airline miles are taxable?

Recently, Citibank started issuing Form 1099s to customers who opened accounts at the bank and received airline miles as a prize. The bank valued the miles at 2.5 cents per mile. According to Citibank, the airline miles are considered a prize and, therefore, taxable under Internal Revenue Code Section 74.

Citibank claims that miles earned by using their credit cards is different and not taxable. The bank considers airline miles like a discount or rebate and pricing discounts are clearly not taxable. The discount in price or rebate is simply a reduction in the price paid by the consumer.

IRS is processing Citibank's filing and trying to come up with a straight forward answer. Unfortunately, a straight forward answer is not associated with the IRS.

No More Multiple Parsonages for Ministers

Yesterday the 11th Circuit Court of Appeals in Atlanta reversed the Tax Court (Driscoll v. Commissioner) decision that granted ministers the right to claim expenses on more than home as part of their housing allowance. In a concise, strong opinion the court affirmed the historical understanding that a minister may not claim housing expenses on more than one home as part of their housing allowance.

If a minister claimed expenses on more than one home in reliance on the Tax Court decision, the minister should amend their return to remove those expenses.

Jury Awards Punitive damages for broken gift restrictions

This week a jury awarded $1 million in damages ($500k in actual damages and $500k in punitive damages) to Garth Brooks from a hospital that Brooks claimed reneged on its gift agreement. Mr. Brooks gave the hospital a $500,000 gift and asked that the Women's Center be named after his mother. The hospital claimed that it made no promises at the time of the gift, but that Mr. Brooks later mentioned the request. The jury decided that the hospital should repay the donation, plus it punished the hospital so that they would not deny a similar deal in the future.

The lesson for charities is to require that all restricted gifts be documented with a written gift agreement. Further, if the charity later changes its mind about the restrictions, it should return the gift.

Political Speech for Pastors?

The new US Supreme Court decision in Hosanna Tabor Evangelical Lutheran Church and School v. EEOC makes a strong argument that the Internal Revenue Code restriction on political speech is unconstitutional as applied to churches. While the EEOC argued that the Americans with Disabilities Act was neutral law and should be enforced against church, the Court observed that the government has NO role in the internal affairs of a church. If the government involved itself in the internal affairs of a church, it would violate the First Amendment Establishment clause. It follows that the government has NO ability to govern what a minister says from the pulpit because that would amount to government interference with the internal affairs of the church. This analysis may explain why the IRS has no projects or plans to police political activity by churches this election year.

Church operated coffee house NOT exempt!

In PLR 201150034, the IRS denied tax exempt status for a separate corporation formed by a church to operate its community outreach, a coffee house. The coffee house was operated every morning and only evenings when an event was held at the shop. The church and it's various groups would use the house for their meetings. The coffee house sold coffee from $2 to $4. The coffee house would rent the facility to anyone at for an hourly rate. They will allow outside caterers as long as they get to sell coffee to the attendees.

The biggest problem arises because the coffee house operates in a commercial like manner. It expects that less than 15% of its income would come frm donations.

The lesson for churches is that if you operate a bookstore, coffee house or other community outreach in a business like manner, it will create unrelated business income, at best, and cost the church it's tax exemption.

Penalties Double for 2012

For the Form 1099s that are due on February 28, 2012, the failure to timely file Form 1099s penalty is doubling from $50 per Form 1099 to $100 per Form 1099. If you do not have all the information needed to complete a Form 1099 (such as the Social Security number), you can still file it incomplete by February 28. As long as you secure the missing information and file the amended Form 1099 before August 1, 2012, then no penalties will apply.

By the way, if you file the Form 1099 within 30 days after February 28, the $100 penalty is reduced to $30. If you file Form 1099 more than 30 days after February 28 but before August 1, 2012, the penalty is reduced to $60 per Form 1099.

The IRS is projecting to collect big bucks from these penalties over the next few years. You should be checking and double checking that you are issuing a Form 1099 to all businesses providing services to you that is not incorporated and you paid them at least $600 during 2011. This would include sole proprietorships, partnerships and LLCs. You can verify the business information via Form W-9.

Criminal backgroud checks result in $3 million fine!

Pepsi paid $3.1 million in financial relief and agreed to change its policy regarding criminal background checks. More than 300 black applicants were denied job opportunities because something appeared in the criminal background check that caused the applicant to be denied a job. According to the EEOC, excluding applicants based on the results of a criminal background check can create an adverse impact based on race in violation of Title VII.

If background checks are conducted, the EEOC recommends that employers take into consideration the nature and gravity of the offense, the time that has passed since the conviction and/or completion of the sentence, and the nature of the job sought in order to be sure that the exclusion is important for the particular position.

Church Musicians are Employees?

This past year we have had several clients question whether musicians are properly classified as employees of the church, including musicians engaged only for a special events. Two separate organizations have also reached the conclusion that musicians are employees of the organizations engaging them.

In December 2011, the National Labor Relations Board ruled that musicians engaged by the Lancaster Symphony Orchestra and the Plano Symphony Orchestra are employees. In both cases, the Board reversed lower rulings holding that musicians were independent contractors. While musicians were free to decline performing in any program, the symphonies selected the music, dictated the dress, set performance and rehearsal times. In sum, the symphonies exercise sufficient control over the details of the musicians' performance to make them employees. See http://www.foxnews.com/politics/2011/12/30/labor-board-rules-local-symphony-musicians-can-join-union/.

Recently, the American Guild of Organists published a salary survey of organists performing in religious institutions. At the bottom of the salary survey, the Guild observed that according to IRS guidelines the majority of organists working for religious institutions were properly classified as employees. See http://www.agohq.org/profession/salary.htm.

These two decisions reaffirm our position that most musicians engaged by churches are employees, even if they are engaged for only one program.