Workers Compensation
By Richard R. Hammar, J.D., LL.M., CPA
© Copyright 1991, 1998 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: m81
1. IN GENERAL
Workers compensation laws have been enacted in all fifty states. Such laws provide compensation to employees for injuries and illnesses resulting from employment. The amount of compensation payable is determined by law and generally is based upon the nature and extent of the employee's disability. In exchange for such benefits, employees give up the right to sue an employer directly. Fault is irrelevant under workers compensation laws. As one court has observed, “workmen's compensation, like the gentle rain from heaven, falls on the just and unjust alike.”1 The only inquiries are
1. Did an employment relationship exist?
2. Did the injury occur during the course of employment?
3. What were the nature and extent of the injuries?
Workers compensation laws were enacted to give injured workers a quicker, less costly, and more certain recovery than was possible by suing an employer directly for negligence. Prior to the general acceptance of workers compensation statutes in the early part of the twentieth century, injured employees were often unsuccessful in collecting damages from their employers. When they did collect, the awards were sometimes so high that they threatened the solvency of the employer. In every case, the costs to the injured employee of suing an employer were high.
Workers compensation laws are founded on the premise that employee injuries and illnesses resulting from the employment relationship are inevitable and accordingly should be distributed between the employer and the consumer as a cost of business. This is accomplished, in most cases, by the employer purchasing insurance to cover the costs of workers compensation benefits, with the cost of such insurance being passed on to the consumer through price adjustments.2 Thus, the ultimate cost of an employee's work--related injury or illness is borne by the consumers of the product or service that the employee was hired to produce.
2. TREATMENT OF CHURCHES
Churches are exempted from workers compensation laws in a few states.3 A few more states exempt activities not carried on for monetary gain, and twelve states exempt any employer having fewer than a prescribed number of employees.4 The crucial inquiry is whether churches are exempt from those workers compensation laws that contain no specific exemption of churches, nonprofit organizations, or organizations employing less than a prescribed number of employees.
Although very few courts have considered the question, the prevailing view is that religious organizations are subject to workers compensation laws unless specifically exempted.5 One court stated the rule as follows:
[T]he fact that [a religious organization] is a purely charitable enterprise does not of itself release [it] from the obligations of our workers compensation act, which, unlike the acts of some states, does not except charitable or religious institutions, as such, from its operation, nor exclude their employees from its benefits. Where the relationship of employer and employee actually exists between a charitable institution and an injured workman, the latter is entitled to the benefits of our act, otherwise not.1
A federal district court rejected the claim that subjecting churches to workers compensation laws violates their constitutional rights.2 A Baptist church argued that the state of Ohio, through its workers compensation system, had “assumed lordship over the church in direct contravention to the biblical principle that Jesus is `head over all things to the church' (Eph. 1:22) and that `in all things [Christ] might have preeminence' (Col. 1:18).” In addition, the church argued that “it would be a sin to contribute workers compensation out of church funds designated for biblical purposes and that tithe and offering money . . . belongs to God.” The court concluded that these allegations were “sufficient to allege infringement of [the church's] religious beliefs.” However, “the mere fact that a religious practice is burdened by a governmental program does not mean that an exemption accommodating the practice must be granted,” since “the state may justify a limitation on religious liberty by showing that it is essential to accomplish an overriding governmental interest.” The court concluded that a state's interest in assuring the efficient administration and financial soundness of the workers compensation fund, and in protecting the interests of injured workers, amounted to a compelling interest that overrode the church's religious beliefs. The court noted that the Ohio law did exempt clergy from coverage under the workers compensation, and this limited exemption sought “to obviate excessive interference with the religious ministry of churches.” Also rejected was the church's claim that the workers compensation program would impermissibly “entangle” government and church, since other courts had upheld even greater reporting requirements as constitutionally permissible. Finally, the court observed that exempting churches from coverage under the workers compensation law would force injured workers to sue churches in the civil courts, “an even more undesirable result from a scriptural standpoint.”
Similarly, an Ohio state appeals court, in upholding the coverage of church employees under a state workers compensation law, observed:
The workers compensation law has been characterized by the broadest possible coverage with frequent amendments to insure that no class of employers or employees was unintentionally excluded. If the legislature had intended to exclude religious institutions, it had ample opportunity to do so. We believe that the legislature intended for employees of religious institutions to come under the protections of the [law].3
The court rejected the church's claim that subjecting it to the workers compensation law violated the constitutional guaranty of religious freedom. It relied on a 1982 decision of the United States Supreme Court rejecting the claim of Amish employers that their constitutional rights were violated by subjecting them to social security taxes.4 The Supreme Court had agreed that the religious beliefs and practices of Amish employers were burdened by the social security tax, but it concluded that “because the broad public interest in maintaining a sound tax system is of such a high order, religious belief in conflict with the payment of taxes affords no basis for resisting the tax.” Similarly, the Ohio court concluded:
[T]he state has an “overriding governmental interest” in compensating workers and their dependents for death, occupational disease, and injury arising out of and occurring during the course of employment. To accomplish this purpose, the state has enacted comprehensive legislation creating a system which requires support by mandatory contributions by covered employers. Widespread voluntary coverage would undermine the soundness of the program and be difficult, if not impossible, to administer with a myriad of exceptions flowing from a wide variety of religious beliefs. The assessments imposed on employers to support the system are uniformly applicable to all, except as the [legislature] provides explicitly otherwise. Thus, we find no constitutionally required exemption for [a church] from the operation of the Workers Compensation Act.5
This same rationale has been articulated by many of the courts finding that churches are covered by workers compensation laws. As one commentator has observed: “The basic reason . . . is straightforward. It is that the compensation act expressly covers all employers, then specifically exempts such employers as it wants to exempt, so that if charitable [or religious] employers are not expressly exempted the only possible conclusion is that they are covered.”6
This logic was directly repudiated by the United States Supreme Court in a significant ruling. In 1979, the Court ruled that in determining whether or not the National Labor Relations Board (NLRB) could assert jurisdiction over parochial school teachers, the courts must first ask whether an assertion of jurisdiction would give rise to serious constitutional questions under the first amendment.7 If serious constitutional questions would arise, then the agency cannot assert jurisdiction over religious institutions without demonstrating an “affirmative intentions of the Congress clearly expressed” to confer such jurisdiction. This same analysis should apply to the application of workers compensation laws to churches that are opposed, on the basis of doctrinal considerations, to coverage. Obviously, few if any states expressly include churches among the employers who are covered, and accordingly there is no “affirmative intention of [the legislature] clearly expressed” to cover churches. Unfortunately, this argument has not been made by churches opposing coverage under workers compensation laws.
Some have maintained that workers compensation laws were intended to apply only to commercial businesses and thus should not be extended to nonbusiness activities such as the operation of a church. Many courts have rejected this reasoning as a basis for exempting charitable organizations from workers compensation laws, largely on the ground that the term business is so broad that it encompasses charitable activities.8 One court has observed: “[I]t is well to remember that in His earthly career the Head of the Christian Church seriously declared, `I must be about my Father's business.' Wherefore does not church activity qualify as business? This term has such recognition apart from pecuniary gain.”9 Another court, in holding that a church is engaged in a “business” subject to the state's workers compensation law when constructing a new sanctuary, observed: “The business of a church is not strictly confined to charitable purposes, spiritual uplift, and the saving of souls. Such, no doubt, is the ultimate object and purpose of all church associations; but it is a matter of common knowledge that, in order to attain such ends, it is also necessary to construct and maintain houses of worship in which the business of the church is carried on.”10 The court also noted that a church could be a business under a state workers compensation law since there was no requirement that covered business be “profit--seeking.”
If a church is not exempt from workers compensation law, what is the effect of its failure to obtain workers compensation insurance? First, it should be noted that a few states permit employers to elect coverage under workers compensation law. To coerce employers into electing coverage, workers compensation laws typically impose various legal disabilities upon employers that do not elect coverage. Most workers compensation laws are compulsory, however. The employer has no prerogative to remain outside the system. In a “compulsory” jurisdiction, a covered employer that fails to obtain workers compensation insurance will ordinarily be subject to a direct action by an injured employee, or may be treated as a “self--insurer” and accordingly liable for the damages prescribed by the workers compensation law.11
Workers compensation laws only cover injuries and illnesses suffered by employees on the job. The term employee generally is defined very broadly to effectuate the objectives of the workers compensation law.12 As a result, persons whom a church may deem self--employed for income tax purposes may be deemed employees for purposes of the workers compensation law. In some cases, however, a court may conclude that a particular worker in fact is self--employed and accordingly not covered by the workers compensation law. To illustrate, a South Carolina state appeals court ruled that a construction company president who donated his labor in constructing a new church was not eligible for workers compensation benefits following an injury on the job.13 The court noted that workers compensation benefits are available only to “employees,” and that state law defined the term employee as one who works for wages under a written or oral contract of hire. The injured worker in this case “donated his labor in the construction of the church. There is no evidence he was paid wages or had a right to demand payment. There is also no evidence [that he] entered into a tithing agreement with [the church] so that his work could be considered as a credit toward his tithe obligation. We find no evidence of an employment relationship between [him and the church]. He was not hired by [the church] and he was not performing any paid service for [the church].” As a result, the court concluded that the worker “was a volunteer and not an employee” under the state workers compensation law. Accordingly, the church, through its workers compensation insurance carrier, was not obligated to pay benefits to the injured worker.
In summary, churches are subject to workers compensation laws in most states. Nevertheless, very few churches have obtained workers compensation insurance. This will render some churches directly liable to injured employees.14 Churches should review their liability insurance policies to ascertain what, if any, coverage exists for injured employees. Often, general liability policies exclude the insured's employees on the assumption that they are covered under a workers compensation policy. This can create a dangerous gap in coverage.
For related information on this topic see the following articles:The Church as Employer—Unemployment Taxes