There is a blockbuster religious freedom case that is currently pending before the United States Supreme Court. Courts have generally believed that federal employment discrimination statutes do not apply to church employees performing religious functions.

However, in Hosanna-Tabor Evangelical Lutheran Church and School v. EEOC, the question has been raised as to whether the “ministerial exception” applies not simply to religious leaders, but also to teachers at religious schools – particularly someone who teaches the full secular curriculum, but also teaches daily religion classes, is a commissioned minister and regularly leads students in prayer and worship.

Specifically, the case revolves around a teacher in a religious elementary school in Michigan who was diagnosed with narcolepsy and eventually fired.

The religious tenants of the school’s sponsoring denomination – the Lutheran Church-Missouri Synod (LCMS) – required any disputes be handled by the church tribunal; however, the teacher did not abide with the policies of the denomination regarding dispute resolution, but rather sued the church and school in secular court under the Americans with Disabilities Act (ADA), claiming her termination was due to her disability (which, of course, is not a permissible action by employers under the ADA).

Religious reasons
The church and school insist that the terminated employee was a “commissioned minister” and that her termination was for religious reasons; therefore, that the case is subject to the ministerial exception (i.e., dismissal from the secular courts).

As described in the petition for certiorari filed with the Supreme Court:

“The ‘ministerial exception’ bars lawsuits that interfere in the relationship between a religious organization and employees who perform religious functions — most obviously, lawsuits seeking to compel a religious organization to reinstate such an employee or seeking to impose monetary liability for the selection of such employees. As the first court adopting the ministerial exception explained: ‘The relationship between an organized church and its ministers is its lifeblood’; allowing the state to interfere in that relationship — effectively allowing judges and juries to pick ministers — would produce ‘the very opposite of that separation of church and State contemplated by the First Amendment.’ McClure v. Salvation Army, 460 F.2d 553, 558, 560 (5th Cir. 1972).

“Based on this principle, every circuit has agreed that the ministerial exception bars most lawsuits between a religious organization and its leaders. Every circuit has also agreed that the ministerial exception extends beyond formally designated ‘ministers’ to include other employees who play an important religious role in the organization.”

Tenets of faith
The ministerial exception to employment law was established to give religious groups the freedom to hire and fire people performing religious functions, in order to uphold the tenets of their particular faith. The rationale is that the ministerial exception lets religious organizations practice their religion and convey their beliefs without being subject to employment discrimination laws.

For example, the Catholic Church does not permit women to serve as priests; however, the church is free from a discrimination claim due to the ministerial exception to federal employment laws.

In a common employment claim scenario, a church employs a minister and then that minister sues the church alleging some violation of either Title VII (such as retaliation, racial discrimination, gender discrimination, or sexual harassment), the Age Discrimination in Employment Act (ADEA), or the ADA. In such a scenario, the majority of courts will apply the ministerial exception, which results in the case being dismissed.

However, in the Hosanna-Tabor case, the issue at hand is whether the ministerial exception can be extended to an employee who, though a commissioned minister who taught religious studies and lead children in prayer, mostly taught secular subjects such as math and English. In this case, the teacher filed a discrimination claim, and the church filed a motion to dismiss based on the ministerial exception. The U.S. Court of Appeals for the Sixth Circuit sided with the teacher, and the church appealed to the U.S. Supreme Court.

Freedom of religion
Generally, courts feel that they cannot get involved in such issues without coming into conflict with the freedom of religion clauses in the First Amendment. Many commentators argue that the ministerial exception is wrong and should not be applicable based on the fact that it does not matter whether the church had a religious basis for making its decision; rather, the mere fact that a church and a minister are involved are enough to warrant dismissal of the case.

These same commentators argue that, instead of being applied as a blanket rule, the ministerial exception should only be applied when the employees claim is grounded in a religious context (rather than a strictly employment-related context, such as sexual harassment for example).

Some who argue in favor of doing away with the ministerial exception concede (albeit grudgingly) that there may be instances of exception for certain employees who perform “exclusively” religious function.

However, this “exception” would be fairly difficult to implement considering that most church employees, including the ministers, perform at least some nonreligious administrative duties on a regular, if not daily, basis.

Religious enough?
If the government’s argument is accepted, the courts would be involved in disputes about the selection and termination of clergy at all levels and in every denomination. Basically, this would mean that, in every future case, a court – and not the church itself – could decide whether the church’s reasons for firing or not hiring a minister were good (i.e., religious) enough.

As you can see, based on the facts alone, this is a case about whether a teacher in a faith-based school who teaches a non-religious subject but who has some religious duties should be considered a “ministerial” employee, such that the school is largely free to make decisions about her employment without running afoul of employment laws.

However, for many this is a vitally important case dealing with the separation of church and state.

Supporting the school’s decision to invoke the ministerial exception are multiple and various groups, including Roman Catholics, Mormons, Presbyterians, United Methodists, Seventh-day Adventists, Hindus, United Sikhs, Muslims, Episcopalians, Reform Jews and Orthodox Jews.

These groups hope the high court will hold that the ministerial exception applies not only to religious leaders but also to others within a religious organization, which would provide religious organizations with a broad-based protection from discrimination lawsuits. A ruling is not expected until next spring or summer.

David Middlebrook is a partner and Wendi L. Hodges is an attorney of Anthony and Middlebrook, The Church Law Group, Grapeville, TX. www.churchlawgroup.com

“A good name is more desirable than great riches,” says Proverbs 22:1 but it takes an effort to keep it that way.

For two years Father Luke Strand, a young priest at Holy Family Catholic Community in Fond du Lac, WI, had driven a car emblazoned with a “God Squad” logo. Unfortunately for him, the electronics retail giant Best Buy did not find much redeeming quality in his attempt at adding a little levity to his ministry. It sent Father Strand a cease and desist letter for infringing on its registered Geek Squad trademark.

What was once strictly a concern of for-profit businesses, today “branding” is just as important for nonprofits, including churches and ministries, as they are for corporations. Although churches and ministries do not market products and services in the same way that for-profit companies do, they nevertheless rely on their names, logos, slogans and other trademarks to express their identities and convey messages to the public.

Trademarks and ministries
Trademarks are important to churches, ministries, church networks and denominations, and other nonprofits for a number of reasons:

Trademarks embody the goodwill and reputation of an organization. The goodwill and reputation of an organization and its programs takes years of hard work to establish. Such goodwill and reputation is key to successful operation of your organization’s mission.

The public judges the quality of ministry services and the credibility of teachings from an organization based on the reputation of the source. Proper protection of a trademark helps to strengthen your ministry’s goodwill.

Adequate trademark protection prevents public confusion. Without trademark protection, other organizations may intentionally or unintentionally use a name similar to your church or ministry, leading to confusion among the public. Today, instead of traditional names like “First Baptist,” churches are increasingly adopting highly distinctive names such as “Mosaic” or “The Vine.” Such contemporary names are “brands” that convey certain messages in reaching particular audiences.

Trademark protection allows churches to prevent others from copying or unintentionally adopting similar names and creating confusion. Public confusion may result in anything from seekers driving to the wrong location, or worse, people finding a different ministry that espouses teachings contrary to yours. And in situations where the media is involved, confusion can result in a public relations nightmare.

Trademarks enable a ministry or church network to maintain doctrinal integrity. In the Christian community, people need to know whether a church or ministry’s underlying teachings are trustworthy. Trademarks help the public to associate a name, a church network or association with certain beliefs. Failure to protect the association or ministry name can lead to disputes about the right to use the name. If a trademark is properly protected, the association can compel an individual church whose teachings stray from its core beliefs to cease using the association’s name.

For instance, after a theological dispute in 2006, a former member of the Seventh-Day Adventist Church founded his own church with three members under the name, “A Creation Seventh Day & Adventist Church.” Fortunately for the Seventh-Day Adventist Church, they had earlier registered the SEVENTH-DAY ADVENTIST trademark and used it to stop the dissident member from using his confusingly similar church name. The dissident member argued that the phrase was a generic term referring to a type of religious belief, but in 2010, a Tennessee court found that the Seventh-Day Adventist Church had properly used and protected the name as a trademark, and enjoined the dissident member from further use of his infringing church name.

Trademark protection can prevent deliberate infringement or tarnishment of an organization’s name. Often, Christian ministries have detractors who deliberately seek to tarnish the ministry’s name. For example, in 1997 an individual opposed to the group Jews for Jesus set up a website using the “Jews for Jesus” name, deliberately trying to draw people away from Jews for Jesus.

His website directed viewers to another website that attempted to show people “how the Jews for Jesus cult is founded upon deceit and distortion of fact.” By enforcing its federally registered trademark, Jews for Jesus successfully stopped the individual from continuing to tarnish its organizational name.

Protecting your trademarks
Churches, ministries and other nonprofits should take the following steps to protect their trademarks:

Conduct trademark searches prior to use. Prior to adopting a new trademark, an organization should have trademark counsel conduct a trademark search to determine if the proposed mark is available.

Register your trademarks. Registration of a mark with the U.S. Patent and Trademark Office entitles the owner to significant legal benefits.

Use the proper notice symbols. Prior to registration, a trademark should be tagged with the TM symbol. This symbol alerts the public to your claim to a mark. After registration, a mark should be tagged with the registered ® symbol.

Always enter into written license agreements with those whom you permit to use your marks. Such an agreement is an important means of preserving the integrity of your mark in the event of a dispute.

Monitor your marks and pursue infringers. For key marks, you may wish to consider subscribing to professional trademark “watch” services that monitor for confusingly similar marks. Once you are aware of marks that are confusingly similar to your organization’s marks, consult a trademark attorney for help in stopping the infringing use. Failure to stop infringing uses of the mark can result in the weakening of rights in the mark, and damage your ministry’s goodwill and reputation.

The most cost-effective time to begin protecting your brand is in the early stages of creating a new organizational name or launching a new program, service, or product.

Kenneth Liu is a partner in the intellectual property group of Gammon & Grange, P.C., McLean, VA.   www.gg-law.com

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Brands and trademarks

A “brand” is the public identity represented by a name, logo or other identifier. A “trademark” is a legal term for the intellectual property embodied within a brand. The two words are often used interchangeably.

Trademarks include not only organizational names, but also:

• Logos and designs
• Acronyms
• Slogans and jingles
• Program names
• Names of publications
• Anything that identifies a service or product – even colors and smell

By David Middlebrook and Robert W. Rucker

The federal Genetic Information Nondiscrimination Act  (GINA) which took effect on March 21, 2009, is intended to protect the privacy of Americans. It relates to genetic information and to prevent “genetic discrimination” in health insurance and employment situations.

For years there have been growing fears that with advanced testing capabilities, insurance companies would not grant insurance to and employers would not hire people who had greater possibilities of developing disabling diseases based upon their genetic makeup or family history.

For instance, with genetic testing it is now possible to predict, or at least assess the probability, if an employee is likely to contract diabetes, heart disease, cancer or Alzheimer’s disease. In passing the new law, Congress said it was worried that these advances in genetic testing give rise to the potential misuse of the genetic information.

Misuse of information

It described a time in the early 20th Century when some states passed sterilization laws to prevent certain persons with genetic diseases from reproducing, that such laws deprived many people of their constitutional freedoms and were ultimately repealed. Congress also cited the more recent example of the Lawrence-Berkeley Lab case from 1998 where employees were given pre-employment blood and urine tests to determine, among other things, their probability for having sickle cell anemia.

Based upon these historical examples, the need to protect genetic information was found to be a matter of public interest. More importantly, Congress was concerned that if people were worried that having genetic testing might lead to being denied employment or insurance, they might be less likely to take advantage of the significant advances in testing and treatment. Having people afraid to get tested for genetic diseases and thus miss out on treatment opportunities are not in our best national interests.

The law says that it is an unlawful employment practice for an employer to request, require, or purchase genetic information from any employee, job applicant, or from a family member. “Genetic information” is obtained by genetic testing that includes an analysis of human DNA, RNA, chromosomes, proteins, or metabolites that detect genotypes, mutations, or chromosomal changes.

Routine testing that obtains such things as complete blood counts, cholesterol tests and liver-function tests are not considered to constitute genetic testing. Also, analysis of genetic information directly related to a disease that has already manifested itself may not be covered by the law.

Family members also protected

Under GINA, it is unlawful for an employer to discriminate in the hiring, firing, or terms, conditions, or privileges of employment based upon the genetic information of an employee, applicant, or one of their family members (“family member” means dependents and up to and including 4th degree relatives). However, GINA does not apply to employers with fewer than 15 employees.

There are also certain exceptions that may apply. The ones that are probably of most interest to a church employer include inadvertent requests or disclosures, requests related to leave sought under the Family Medical Leave Act (FMLA), and information obtained in public documents commercially and publicly available including newspapers, magazines, periodicals and books. But even in these exceptions, while it may have been lawful to obtain the information, it still cannot be used to discriminate.

Employers are now required to treat genetic information as part of confidential medical records and are supposed to keep such medical information under separate forms and files from other personnel records. Employers may disclose this information if asked by employee in writing, to certain health researchers under certain regulations, in response to a court order, to governmental agencies investigating GINA compliance, in association with certifying employee compliance with the FMLA or similar state laws, or to public health officials if the information concerns a contagious disease and notification is provided.

Violations of the law can be enforced by various governmental agencies and individuals who claim to be victims of genetic discrimination can also bring private lawsuits. Many churches may not have a lot of dealings with the genetic information of their employees and job applicants. The most likely way they would encounter it would be through health insurance documentation and related to disability and leave claims.

Maintain confidentiality

However, regardless of how the information is obtained, the church employer is responsible to maintain its confidentiality and not make use of it in a discriminatory way.

Churches should update employee manuals and personnel forms to make sure that it is clear that the church does not discriminate on the basis of genetic information and make sure there is a clear understanding of how employees or applicants can report suspicions of genetic discrimination.

Leaders should create procedures where if the church receives genetic information it is segregated from other more routine employee or applicant paperwork and kept in a secure location. It’s also important that there is a clear policy and understanding as to when such information can be released (such as pursuant to court order).

It’s necessary to make sure that the church is not asking for information that could be viewed as genetic information on job applications or in any other format. Leaders should not ask for genetic information when accessing leave requests and have some kind of standard request to medical professionals not to include genetic information when documenting medical conditions.

Church leaders also need to make sure that any employer-provided health or wellness plans comply with GINA.

Whether the church deals with these issues rarely or a lot, it still makes sense to be aware of the issue and have some policies and procedures in place.

David Middlebrook is a partner and Robert W. Rucker is an attorney of Anthony and Middlebrook, The Church Law Group, Grapevine, TX. www.churchlawgroup.com

In this modern era, many churches are offering more and more services to its congregants to attract new members, retain established members and create revenue to operate the church or fund its programs. Common examples may include a bookstore or coffee bar. As a general rule, a church is not taxed on its income or revenues from an activity that is substantially related to the religious or charitable purposes of the organization.

For example, a church’s income received from tithes and offerings is not taxable because the receipt of tithes and offerings is related to the church’s exempt religious purpose. People contribute money to the church as part of a religious conviction, to help the church offer religious services, and not because they expect anything of equal financial value in exchange. However, if a church regularly carries on business that is not substantially related to its exempt purpose then the organization is subject to tax on the unrelated business.

If a church owns a commercial restaurant, any income that the restaurant generates will be taxed because it is not related to the church’s primary exempt purposes. The income from the restaurant is considered by the IRS to be unrelated business income tax or UBIT as it is commonly referred to by professionals in the industry.

This is the case even if the church were to use the profits of the restaurant for exempt purposes (i.e. it used the profits for church expenses or to fund a church mission trip). By the way, the restaurant example is based upon an actual case.

Three-part test of involvement

Whether or not a church is involved in an activity that could result in it owing UBIT is based upon a three-part test (all three have to be present):

1. Is the activity generally considered a trade or business? This usually means that the activity involves providing the sale of goods and services in exchange for payment. Potentially, a church bake sale could be characterized as a trade or business because it involves providing goods (cookies) in exchange for money, although for the reasons set out below, it is usually not going to be treated as generating UBIT.

2. Is the activity regularly carried on? Most church bake sales occur on certain designated weekends, and accordingly are not viewed as being regularly carried on. However, if the church sells baked goods every weekend, or even every day, this could satisfy the requirement.

3. Is the activity substantially related to an exempt purpose? If the activity does not contribute in an important way to the exempt purposes of the church, it could lead to tax liability. Many churches offer services that have an appearance of commerciality but are not treated that way because their underlying purpose is to help the church be effective in spreading religious understanding or promoting fellowship.

Bookstores and coffee bars run by the church are considered to be for the convenience of the church members and visitors. This makes it more likely that they will come to church and not leave to get coffee, have access to books that the church believes are relevant to religious study and similar matters of convenience.

On the other hand, if a church has a billboard on the highway advertising its bookstore or coffee bar, it begins to have a greater commercial appearance and will more likely be viewed as a commercial trade or business.

Raising red flags

Depending on how much UBIT is generated will depend on how the IRS is likely to respond. A church can generate an “insubstantial” amount of UBIT and not jeopardize its tax-exempt recognition (it would still need to pay tax on the unrelated business activity). If a church generates a “substantial” amount of UBIT, it will raise red flags to the IRS and potentially jeopardize the church’s tax-exempt recognition.

Unfortunately, there is usually no way to quantify what amounts to substantial unrelated business or to determine how much unrelated business an exempt organization can engage in. In certain circumstances the IRS will consider formulas such as an 85 percent rule regarding use of square footage at a church for religious purposes, meaning if the church uses less than 85 percent of its space for commercial activity, then this is considered not substantial. Rather, the IRS considers all of the facts and circumstances of the particular case.

If a substantial portion of the church’s income is from sources unrelated to its exempt purposes, then it’s likely risking its tax-exempt status by virtue of engaging in the unrelated business or is risking facing a tax bill. That being the case, the general rule of thumb regarding UBIT should be: Substantial revenue + unrelated activity = Jeopardizing of tax-exempt recognition.

If the church has UBIT of $1,000 or more annually then the church is required (as of this writing),  to file Form 990T with the IRS (generally, unlike other nonprofit organizations, a church is exempt from filing an annual Form 990). Many churches do want to have to file this form because it is a publicly available document and requires the church to disclose the salaries of its top employees and other financial information that they normally wish to remain confidential.

Growing sentiment for disclosure

Each church will have to balance their need for revenues compared with the desire for privacy in church financial matters. Incidentally, there appears to be some growing sentiment that churches should no longer be given special protection or status under the First Amendment and should have to disclose all financial activities just like any other charity.

Certain kinds of income or revenue are also usually considered exempt from unrelated business taxes. These include rental income, capital gains such as from the sale of a property, dividends, royalties and interest income. However, for each of these categories there will be factual differences and certain other rules that can affect whether or not a tax may be due.

The church should not just assume that because its income is derived from one of these sources that it is tax-exempt, but should have its tax, financial and legal professionals help make that determination.

David Middlebrook is a partner and Robert W. Rucker is an attorney with Anthony and Middlebrook P.C., The Church Law Group, Grapevine, TX. [www.churchlawgroup.com]