Many church leaders wear “the hat” of an employer. Therefore, they should be aware of key legal principles affecting employment. Here are five such principles:

Principle #1 Ministerial Exception:

In the Hosanna-Tabor case, the U.S. Supreme Court held that churches may hire and fire ministers based on the church’s religious beliefs without fear of violating employment laws. This case is critically important because it protects a church’s ability to shape its mission and future through faithful leadership. Churches should clearly define ministerial employees as “ministerial” even if this seems redundant, should tie job descriptions to the scriptural purposes for the job, and should heavily document the religious responsibilities of positions in employment contracts and personnel handbooks. Courts operate with a very narrow view of what is sacred rather than secular, so the burden is on the Church to explain in its documentation and activities why a particular position is a ministerial position.

Principle #2 Worker’s Compensation

Though worker’s compensation laws vary from state to state, most states require churches to carry worker’s compensation for their employees. This is also good stewardship and risk management because worker’s compensation is normally an exclusive remedy, is fairly inexpensive and can help prevent personal injury lawsuits against the church.

Principle #3 Unemployment Compensation

In contrast to Worker’s Compensation laws, churches are generally exempt from unemployment compensation requirements. Though this is beneficial to churches because they do not have to pay unemployment taxes, church leaders should consider the financial situation of an employee that is “let go.” These dismissed employees do not have the unemployment “safety net.” In summary, churches can voluntarily participate in the unemployment system but are not required to do so.

Principle #4 Employee Termination

Though church leaders generally see terminations as a measure of last resort, a termination is sometimes necessary for the financial, spiritual or legal health of the church. In addition to the general difficulty of a termination, such decisions raise a host of legal issues. One tool that we have found helpful in terminations is a severance agreement. Such as agreement promises pay for a terminated pastor or staff member (note the general unavailability of unemployment for church employees) in exchange for a release of any legal claims against an employer. Such an agreement can also include mutual non-compete, non-disclosure and non-disparagement provisions. Severance agreements have four important requirements: the agreement (1) must be in writing and signed, (2) must be voluntary, (3) must include consideration (something of value exchanged) by both sides and (4) and should include a waiver of all legal claims (specific legal claims should be listed; general waivers are often not enforceable) by the employee against the employer.

Principle #5 The Alphabet Soup

Employers are subject to or should at least review the numerous state and federal labor laws. Attorneys often refer to these laws as the “alphabet soup” because of their acronyms. These laws include but are not limited to the Fair Labor Standards Act (FLSA)(churches must pay minimum wage and overtime pay unless an employee is in an exempt category), the Affordable Care Act (ACA)(churches with more than fifty employees must provide health insurance to their employees; this law may be changed in the next year), the Age Discrimination in Employment Act (ADEA)(churches with more than twenty employees may not discriminate in an employment decision on the basis that a person is 40 years of age or older), Title VII of the Civil Rights Act (42 U.S.C. § 1981)( churches with fifteen or more employees may not discriminate in any employment decision on the basis of race, color, national origin, or gender. Note that religious organizations are exempt from the ban on religious discrimination, but not from the other prohibited forms of discrimination); the Older Workers Benefit Protection Act (OWBPA)(Churches with more than fifteen employees must pay the same benefits to older workers and younger workers); the Family and Medical Leave Act (FMLA)(churches with 50 or more employees must give up to 12 weeks of unpaid, job-protected leave to eligible employees) and the Equal Pay Act (requires that churches provide equal pay to male and female employees who are doing equal work). Many states have similar laws that require compliance at lower employee levels. Furthermore, these laws are subject to change. In summary, churches should monitor employment laws just like any other employer and should consult an attorney with more complex questions about the application of these laws.

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