Tag: para-church organizations

DREADED ERISA DOES NOT APPLY

The Employment Retirement Income Security Act of 1980 was a logical attempt to structure and organize employee retirement plans to take pressure off social security, improve employee confidence sufficiently to encourage savings, and to regulate the tax sheltered nature of retirement savings. Like all federal mandates that are also entangled with the federal income tax it is complicated and regulations it spawned were more so.

From inception ERISA exempted churches. Church employers could create less regulated employment retirement plans. The question then became whether para-church organizations could do so. In Medina v Catholic Health Initiatives, Slip Op. (10^th Cir. 2017), the United States Court of Appeals for the Tenth Circuit affirmed a Colorado trial court. The question was whether Catholic Health Initiatives (“CHI”), a para-church organization of the Roman Catholic Church was a “principal-purpose organization” that would be exempt from ERISA. CHI operated 92 hospitals, had 90,000 employees in its retirement plan, and the plan had $3 billion in assets. While the historic connection between churches and hospitals is becoming lost in the mists of time, it remains, and many hospitals in existence would not have existed in the author’s life time had no church stepped up to found them. But, in the post-modern era, the church hospitals, those that have not been bought or replaced by secular ownership, have grown to proportions that obscure the roots. Because of the size of these institutions, they must be managed by modern methods and that tends to make them look less like para-church organizations. Nevertheless, the 10^th Circuit upheld the ruling that CHI was a para-church organization, i.e., a principal-purpose organization, and therefore, exempt from ERISA.

The opinion omits a discussion of why the Plaintiff was aggrieved by an employee retirement plan that was not subject to ERISA. The Plaintiff sought class action status so the compliant had to be the same for many participants to meet the numericity requirement.

RELIGIOUS SCHOOL LAWSUITS

It seems accepted that churches are shielded by the Ecclesiastical Abstention Doctrine and most cases against them will simply be dismissed. The outer edge of the doctrine is still uncertain at times. The para-church organization must be proven to be religious in purpose and operation to be shielded by the Doctrine.

In the opinion styled In Re Episcopal the Episcopal School of Dallas, Inc., Slip Op. (Tex. App. 5^th, 2017), the Plaintiff was a student. The Plaintiff allegedly left campus during lunch without permission, parked in front of a residence and smoked Marijuana, denied it even though the other student involved confessed, refused to allow a search of his car, substituted another student’s sample for his urine for a drug test, and failed a drug test once the right urine was tested. The student was dismissed from the school. The trial court refused to dismiss the case. The Plaintiff argued to the trial court that the school was not owned or operated by a church and that the dispute was governed by the admissions contract between the school and the student thus making the Ecclesiastical Abstention Doctrine inapplicable. The Court of Appeals, however, examined the school’s articles of incorporation, composition of its governing board, worship service schedule, faculty, and determined there was “only one reasonable conclusion.”

The Court of Appeals held that the school was a “religious school” or a “faith based institution.” The school had on the faculty Episcopal priests that led the student body in daily worship. The Bishop of the Diocese sometimes officiated. There was mandatory religious instruction. The student’s claims derived “solely from the calculus of the school’s internal policies and management of its internal affairs.” The school’s lack of a formal affiliation with a church or denomination did not make inapplicable the Ecclesiastical Abstention Doctrine. The “secular contract approach” urged by the student “did not apply when the claimed breach of contract arises from an enrollment agreement at a faith based institution.” That the dispute was not in all respects about religious doctrine was not the test. Enough of the dispute was entangled in religious considerations to require application of the Doctrine.

CHURCH ETHICS CODES

United States courts will not entangle themselves in the ecclesiastical affairs of a church or denomination. Some churches and denominations include in their governing documents ethics codes. Sometimes the codes are specific and other times they are simply referenced. Sometimes when the codes are specific, certain behaviors are included within the scope of the ethics code that might be included in non-church contexts.

In Dermody v Presbyterian Church (USA), 2017 WL 3495911 (Ky. App. 2017), the Plaintiff claimed he was defamed by the church’s classification of his behavior as an ethics violation and the transmission of that information to various other sectors in the church. The court dismissed the case and it was affirmed by the appellate court. The behavior classified as “unethical” was failure to detect that subordinates had incorporated and transferred some funds to the entity without obtaining advance approval of the incorporation from the denominational governing body. Involuntary termination resulted.

The Concurring Opinion suggested the failure to know the subordinates had improperly incorporated the entity was poor management but not “unethical” as the term “unethical” would be generally understood. However, the denominational control document expressly defined improper incorporation as an ethics violation. As a result, all of the judges ruled that pursuant to the Ecclesiastical Abstention Doctrine and Ministerial Exception the denomination could set the scope of its ethics code in any manner and impose it on their employees. The courts would not interfere. The defamation claim was dismissed.

CHURCH EMPLOYMENT CONTRACTS

Generally, an employment contract in writing will be enforced even if one of the contracting parties is a church or para-church organization. “A church is always free to burden its activities voluntarily through contracts, and such contracts are fully enforceable in civil court.” Mis v Fairfield College Preparatory School, Slip. Op., 2017 WL 3174422 (Sup. Conn. 2017) (unpublished) (quoting).

The Mis opinion was a trial court order overruling a Motion to Dismiss. Thus, the case continued and the opinion was not the final word. Also, in Connecticut, like most states, obtaining a dismissal is difficult because the factual record has not been developed through any discovery and the Court has only the Plaintiff’s pleading before it which must generally be treated as true regardless of whether it is true unless it is implausible.

In Mis, the Plaintiff was a tenured teacher. The school employment handbook contained a morals clause. For tenured faculty, it also contained a right to a hearing on involuntary termination. The Plaintiff during a school fundraiser was alleged by a church leader to have engaged in immoral conduct, the nature of which was not specified in the Court’s opinion. Upon termination, the teacher demanded the hearing accorded in the handbook. The hearing was conducted and the teacher was exonerated. But, the church terminated the Plaintiff. The opinion of the Court does not explain the reason the church disregarded or overruled the hearing finding, but the Plaintiff sued for breach of contract. The Plaintiff alleged the handbook constituted an employment contract.

One lesson of this opinion might be that a church school should not provide a right to a hearing if the church school does not want to be bound by the outcome of the hearing. Also, the whole concept of “tenure” generally acts to create a contract that has to be limited by specific language in the handbook or contract that would fit tenure to the church school circumstance.