Is Our Church Engaged in Commerce?

© Copyright 2001 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m43 m47 c0601

an important question-United States v. Terry, 2001 WL 789160 (4th Cir. 2001)

Key point Labor Laws Congress has enacted a number of employment and civil rights laws regulating employers. These laws generally apply only to employers that are engaged in interstate commerce. This is because the legal basis for such laws is the constitutional power of Congress to regulate interstate commerce. As a result, religious organizations that are not engaged in commerce generally are not subject to these laws. In addition, several of these laws require that an employer have a minimum number of employees. The courts have defined "commerce" very broadly, and so many churches will be deemed to be engaged in commerce.

Article summary. It is often difficult to determine if a federal employment or civil rights law applies to a church. This is because most if not all federal employment and civil rights laws only apply to entities that are engaged in interstate commerce. Unfortunately, few courts have addressed the question of whether a church satisfies the commerce requirement. A recent federal appeals court addressed this important question in the context of a federal arson statute making it a crime to commit arson on a church building that is used in interstate commerce. This case provides church leaders with guidance on the meaning of the commerce, and thereby clarifies the application of federal employment and civil rights laws to churches.

Congress has enacted a variety of employment and civil rights laws that apply to some churches and religious organizations. These include Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with Disabilities Act, the Fair Labor Standards Act, the National Labor Relations Act, the Employee Polygraph Protection Act, and the Occupational Safety and Health Act. All of these laws were enacted by Congress under its constitutional authority to regulate interstate commerce. As a result, these laws apply only to employers engaged in a business, industry, or activity "affecting commerce." The importance of the commerce requirement cannot be overstated. If a church is not engaged in commerce, then it will be exempt from most federal employment and civil rights laws. Even if a church is engaged in interstate commerce, it normally must have a minimum number of employees to be subject to most of these laws.

Under what circumstances, then, will a church be deemed to be engaged in commerce? Unfortunately, very few cases have addressed this question, and this makes the few that do very significant. Such a case was decided recently by a federal appeals court. The case involved the criminal prosecution of two adult males (the "defendants") under a federal arson statute making it a crime to "damage or destroy by means of fire or an explosive, any building . . . or personal property used in interstate or foreign commerce."

facts

The defendants, who had set fire to a church in North Carolina, claimed that they could not be guilty of violating the federal arson statute since the church was not engaged in commerce. A federal prosecutor conceded that the church building was first and foremost a place of worship. Nevertheless, he presented the following evidence to show a connection between the church and interstate commerce:

(1) the church employed and paid salaries to pastors, associate pastors, and a cleaning staff

(2) some church employees had health insurance and retirement benefits administered through an annuity board of the Southern Baptist Convention, based in Dallas, Texas

(3) the church was affiliated with the Cooperative Baptist Fellowship, based in Atlanta, Georgia

(4) church members paid tithes to the church

(5) the church had partnerships with organizations in other countries

(6) the church subsidized charitable missions in various parts of the United States and internationally

(7) the church provided food and clothing to members of the public

(9) the church purchased bus tickets for needy persons

(10) the church received Sunday school materials from a publisher in Macon, Georgia

(11) the church hosted out-of-state speakers

(12) the church had out-of-state members

The prosecutor also presented evidence about a daycare center operating within the church building. The center was open from 7:30 a.m. to 5:30 p.m. daily, and occupied a main part of the church building. An organization independent of the church ran the daycare center. Parents who used the daycare center paid a monthly fee of $700. The daycare teachers were employed and paid by the center, not the church. The church did not collect rent from the daycare center. The daycare center did not make a profit.

The trial court ruled that the defendants could not be guilty of violating the federal arson statute since the government had failed to prove that the church building was used in interstate commerce. The government appealed.

the court's ruling

The appeals court ruled that the church was engaged in commerce. In reaching this decision, it concluded that both the building itself, and the functions that occurred there, were sufficiently connected to interstate commerce. With regard to the building, the court concluded,

The unchallenged primary function of the building was religious in nature. The building operated as a house of worship. But the [church] was more than just a sanctuary. Rather, a secondary and important function of the building was to house the daycare center. The daycare center occupied a main part of the church building. It was open from 7:30 to 5:30 Monday through Friday. It employed its own teachers. It charged a fee of $700 per month. The defendants argue, however, that the operation of the daycare center was not interstate commerce because the center was nothing more than a missionary outreach of the church. But it does not matter whether religion was one of the reasons or even the primary reason why the daycare center was located inside the church building. An activity can have both a religious aspect and an economic one. We cannot close our eyes to the commercial nature of an activity solely because non-commercial considerations also underlie it. A contrary rule would altogether prevent Congress from protecting places of worship from criminal misconduct, even when they served a plainly interstate commercial function. . . . The function of the daycare center was to provide child care services in exchange for payment. Contrary to the defendants' assertions, the daycare center had more than a passing or passive connection to interstate commerce. Instead, the daycare center was actively engaged in commercial activity by participating in the market for childcare services. The daycare center was not removed from or passively connected to commerce. Rather, the operation of the daycare center was itself a commercial activity. Regardless of the religious organization's effect on interstate commerce, the daycare center's presence transformed the building into one that was being actively employed for commercial purposes.

The fact that the daycare center did not make a profit "did not change the analysis of whether the operation of the daycare center was a commercial activity." The court referred to an earlier decision by the United States Supreme Court in which the Supreme Court concluded that "nothing intrinsic to the nature of nonprofit entities prevents them from engaging in interstate commerce."

The court cautioned that "not all buildings, and not all churches" are used in interstate commerce. For example, "buildings which merely receive electricity and gas from interstate sources are not subject to the arson statute." Here, however, "the presence of the daycare center makes clear that the building was actively employed in commercial activities." As a result, the court ordered the trial court to proceed with the indictment of the two defendants.

The court did not address the prosecutor's argument that the twelve factors listed above also proved that the church was engaged in commerce, since this was unnecessary. The court's conclusion that the building itself was connected to commerce was enough to satisfy the federal arson statute.

relevance to church leaders

1. Definition of "commerce." Our research demonstrates that employment-related claims are the single largest source of church litigation. Many of these cases are discrimination claims brought by current and former church employees under a variety of federal and state civil rights laws. It is therefore very important for church leaders to know if their church is subject to these laws. This case suggests that any church that operates a child care center will be deemed to be engaged in commerce and therefore will be subject to most federal employment and civil rights laws, assuming that it has the minimum number of employees specified by the applicable law. This is so whether the center is staffed by church employees or employees of an outside organization. The critical consideration is the fact that a church-based center charges a fee for providing this service.

2. Federal employment laws. A table accompanying this article summarizes the application of the major federal employment and civil rights laws to churches and other religious organizations. In addition to these federal laws, most states have their own civil rights laws, and it is more likely that these will apply to churches since there is no "commerce" requirement and the required number of employees is generally lower.

Application of Selected Federal
Employment and Civil Rights Laws to
Religious Organizations

Statute	Main Provisions	Covered Employers
Title VII of 1964 Civil Rights Act	bars discrimination in employment decisions on the basis of race, color, national origin, sex, or religion	15 or more employees + interstate commerce religious employers can discriminate on the basis of religion
Age Discrimination in Employment Act	bars discrimination in employment decisions on the basis of age (if 40 or over)	20 or more employees + interstate commerce
Americans with Disabilities Act	bars discrimination against a qualified individual with a disability who can perform essential job functions with or without reasonable employer accommodation (that does not impose undue hardship)	15 or more employees + interstate commerce religious employers can discriminate on the basis of religion
Statute	Main Provisions	Covered Employers
Employee Polygraph Protection Act	employers cannot require, request, suggest, or cause any employee or applicant to take a polygraph exam	interstate commerce (no minimum number of employees)
Immigra- tion Reform and Control Act	I-9 form must be completed by all new employees demonstrating identity and eligibility to work	all employers
Fair Labor Standards Act	requires minimum wage and overtime pay to be paid to employees	employers who employ employees who are engaged in commerce or in the production of goods for commerce, as well as any employee "employed in an enterprise engaged in commerce or in the production of goods for commerce"
Family and Medical Leave Act of 1993	eligible employees qualify for up to 12 weeks unpaid leave per year because of (1) birth or adoption of child, including care for such child, or (2) caring for spouse, child, or parent with a serious health condition, or (3) the employee's serious health condition	50 or more employees + interstate commerce
Occupa- tional Safety and Health Act	mandates a safe and healthy workplace for covered employees	an organization "engaged in a business affecting commerce who has employees"
Older Workers Benefit Protection Act of 1991	bars employees at least 40 years old from "waiving" their rights under age discrimination law unless the waiver meets strict legal standards	20 or more employees + interstate commerce

Resource. For a full explanation of the application of civil rights and employment laws to churches, see chapter 8 in the third edition of Richard Hammar's book, Pastor, Church & Law (3rd ed. 2000), available from the publisher of this newsletter by calling 1-800-222-1840.