Para-church organizations, like a school owned by a church, that take federal funds may not be permitted as a condition of receiving the federal funds to post religious materials, offer religious education, or directly associate with clergy and church staff. We have posted about such cases before. Another disadvantage to taking federal money is that such a school will likely have employees that are considered secular and not religious (their personal beliefs or memberships notwithstanding). As a result, there might be no First Amendment shield for employment claims.
In Mosaic United Methodist Church v Maureen Hammond, et al., Slip Op. (Ky. App., 2018), the director of the school for twenty years did not recover from the passing of her husband allegedly resulting in absences and other signs of depression. Eventually, after a student was injured, she was terminated. Her termination was allegedly because of dereliction leading to safety concerns. The Plaintiff, however, claimed the reason for termination was pretextual and brought an employment disability discrimination suit. Her supervisor was the pastor of the church. A jury entered a verdict in her favor and the court entered a judgment for attorney fees, too. The school was operated under a separate policy and procedure manual. The alleged absences and other failures were not documented and did not result in disciplinary review prior to termination. The church tried to raise an ecclesiastical abstention doctrine defense but it initially did so in a one sentence motion and did not raise the issue again until two and a half years of discovery was completed.
Churches that found para-church organizations like schools that evolve into federal funding dependents should be transferred to another non-profit corporation or separately incorporated. Another possibility might be to form a trust to own the school and merely allow the church or its leadership to serve as trustee. An out right sale of the school to another entity on marginally favorable terms might be advisable. At the least, the pastor should not be supervisor; pastors are spiritual leaders and not secular employers by training or inclination. The church board might fill the role, but the other alternatives are better. Otherwise, the church will have the exposure of a secular non-church employer and possibly an invitee of children, but will have the income stream of a church, which is not usually enough to cover such exposures. Insurance when it is available will be necessary. However, although a capacity crunch is only a distant memory, affordable insurance is not always available. If a para-church organization must be operated as a separate “secular” entity, maybe it should be one.