Labor Laws

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: m43

Congress has enacted a variety of labor laws that apply to some churches and religious organizations. These include the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the National Labor Relations Act, the Fair Labor Standards Act, and the Occupational Safety and Health Act. Before turning to a direct examination of these laws, it is important to recognize that they all were enacted by Congress under its constitutional authority to regulate interstate commerce. As a result, most of these laws apply only to employers engaged in a business, industry, or activity “affecting commerce.”1 The National Labor Relations Act defines affecting commerce as “in commerce, or burdening or obstructing commerce or the free flow of commerce, or having led to or tending to lead to a labor dispute burdening or obstructing commerce or the free flow of commerce.”2

Besides being narrowed to those employers affecting commerce, some federal labor laws apply only to employers having more than a prescribed number of employees. For example, Title VII of the Civil Rights Act of 1964 applies only to employers engaged in an industry affecting commerce that have 15 or more employees for each working day in each of 20 or more calendar weeks in the current or preceding calendar year.3 And, the Age Discrimination in Employment Act applies only to employers engaged in an industry affecting commerce that have 20 or more employees for each working day in each of 20 or more calendar weeks in the current or preceding tax year.4

Is a church engaged in a business, industry, or activity affecting commerce? This is a complex question for which no simple answer can be given. In general, the answer in a particular case will depend upon how narrowly or expansively a court construes the term affecting commerce, and upon the size of the church and the nature of its operations. Small churches employing no more than one or two person ordinarily are not engaged in an activity affecting commerce. Such churches serve primarily the local community and their activities ordinarily are local as well. They typically engage in few if any interstate transactions, and no commercial activities. Congress has observed that nonprofit employers in general are “not engaged in `commerce' and certainly not in interstate commerce . . . [and] frequently assist local governments in carrying out their essential functions, and for this reason should be subject to exclusively local jurisdiction.”5

Nevertheless, a church or other religious organization engaged in significant commercial activities may be considered to be affecting commerce. For example, the United States Supreme Court concluded that an evangelistic association was engaged in activities affecting commerce since it was engaged in several commercial enterprises, including advertising, landscaping, service stations, restaurants, manufacture and sale of candy and clothing, record keeping, construction, plumbing, sand and gravel, electrical contracting, hog farms, feed and farm supplies, real estate development, and freight hauling.6 Similarly, a federal appeals court concluded that a religious organization that operated a hotel on a commercial basis was engaged in a business or activity affecting commerce.7

The United States Department of Labor has enacted a regulation specifying that

blockquote> [a]ctivities of eleemosynary, religious, or educational organizations may be performed for a business purpose. Thus, where such organizations engage in ordinary commercial activities, such as operating a printing and publishing plant, the business activities will be treated under the Act the same as when they are performed by the ordinary business enterprise.1

The National Labor Relations Board has ruled that the publishing and distribution of Sunday school literature by a religious denomination is an activity affecting commerce.2 It is also possible that a church that operates a child care facility, an elementary school, a home for the aged, or an orphanage is engaged in an activity affecting commerce.

But most churches are not involved in commercial activities, and the correct view is that such churches, regardless of size, are not involved in an activity affecting commerce. They sell no product or service, they are financed through voluntary contributions, they exist to fulfill noncommercial purposes, and they function outside the economic marketplace. Further, governmental regulation of churches carries with it the hazard of excessive governmental entanglement with religion, which is prohibited by the first amendment.3 Certainly most churches have an insubstantial effect on commerce, and therefore should be beyond the reach of federal labor laws.

1. AGE DISCRIMINATION IN EMPLOYMENT ACT

In 1967, Congress enacted the Age Discrimination in Employment Act to prohibit employers engaged in an industry affecting commerce and employing at least 50 employees from making employment decisions that discriminate against individuals from 40 to 65 years old on account of age.4 Congress later amended the Act to apply to employers employing 20 or more employees for each working day in each of 20 or more calendar weeks in the current or preceding year. Congress also expanded the class of protected employees to include all persons 40 years of age and older.

Most churches employ fewer than 20 individuals and thus are exempt from the age discrimination law. Churches employing 20 or more employees and not engaged in commercial activities may be exempt on the ground that they are not engaged in an activity affecting commerce. Consider the following decisions. A federal court in Missouri ruled that it lacked jurisdiction to resolve a seminary employee's claim that his dismissal violated federal age discrimination law.5 The seminary asked the court for a “summary judgment” rejecting the former employee's claims on the ground that the first amendment guaranty of religious freedom prohibited the court from resolving the dispute. The court agreed with the seminary and granted the summary judgment. In reaching its decision, the court relied on the United States Supreme Court's 1979 ruling in NLRB v. Catholic Bishop.6 In the Catholic Bishop decision, the Supreme Court ruled that in deciding whether of not a federal law applies to religious organizations, a civil court first must ask if applying the law to religious organizations “would give rise to serious constitutional questions.” If it would, then the law cannot be applied to religious organizations without an “affirmative expression of congressional intent” to apply the law to such organizations. Would application of the federal Age Discrimination in Employment Act to a seminary create “serious constitutional questions”? Yes, concluded the court. First, it emphasized that the seminary was “primarily a religious institution” whose objective was the preparation of students for the priesthood and the dissemination of religious values to its students. The court noted that “all faculty members, both lay and clerical, are expected to serve as religious role models, participate in spiritual activities and `carry religious fervor and conviction' into the classroom.”

The court concluded that applying the federal age discrimination law to such an institution “would give rise to serious constitutional questions.” In particular, it noted that discrimination claims would require courts to determine whether a dismissal was based on religious considerations or age, and such inquiries “are fraught with the sort of entanglement [between church and state] that the Constitution forbids.” Further, application of the Act to the seminary would cause the seminary to be more cautious in its religion--based employment decisions, thereby “imposing a chilling effect on the [seminary's] exercise of control over its religious mission.” If “serious constitutional questions” would arise by applying a federal law to a religious organization, then the law cannot be applied without an affirmative and clear expression of congressional intent to apply the law to such organizations. The court found no clear indication that Congress intended the Act to apply to religious seminaries. Accordingly, it concluded: “Because Congress has not clearly expressed an intent to apply the [Age Discrimination in Employment Act] to church--operated schools, Congress did not contemplate that the Act would be applied to such schools.” As a result, the court granted the seminary's motion for summary judgment.

A federal appeals court ruled that the first amendment guaranty of religious freedom prevented it from resolving a Methodist minister's claim that his dismissal violated federal age discrimination law.7 The 63--year--old minister was employed by the Baltimore annual conference of the United Methodist Church. After serving ten years as a counselor, he requested that he be returned to a pastoral appointment. He was assigned to a temporary post at a local church. The minister claimed that the new position paid him less than what a pastor with his qualifications and experience would normally receive. He complained to his district superintendent who, he alleged, assured him that he would be “moved to a congregation more suited to his training and skills, and more appropriate in level of income, at the earliest opportunity.” The minister made repeated requests for reassignment, but four years passed without any change in his position. He then filed a lawsuit in federal court, alleging that he had been denied a rightful “promotion” solely on the basis of his age. He asserted that his bishop (who is responsible for all pastoral appointments) informed him that “he should not expect a new better level appointment and that Methodist pastors in their fifties cannot expect growth opportunities in new appointments.” He also claimed that younger pastors were selected for many open appointments. The lawsuit alleged that his annual conference and bishop violated the federal Age Discrimination in Employment Act.

The defendants claimed that the lawsuit was barred by the first amendment guaranty of religious freedom, and a federal district court agreed. The minister appealed to a federal appeals court, arguing that the first amendment only protects religious beliefs, and since the church has declared its opposition to age discrimination, it cannot claim that this lawsuit violates any constitutionally protected religious belief. The federal appeals court disagreed with the minister, and ruled in favor of the annual conference and bishop. The court based its conclusion on a number of factors, including the following: (1) The Methodist Book of Discipline did mention age as one factor to consider in assigning clergy, and therefore a judicial finding that the church violated a minister's rights under federal age discrimination law could conceivably violate the church's right to freely exercise its religion. (2) The determination of “whose voice speaks for the church” is “per se a religious matter.” The court noted that “we cannot imagine an area of inquiry less suited to a temporal court for decision; evaluation of the `gifts and graces' of a minister must be left to ecclesiastical institutions. This is the view of every court that has been confronted by this [kind] of dispute.” The court cited with approval another federal appeals court's observation that “the free exercise [of religion] clause precludes governmental interference with ecclesiastical hierarchies, church administration, and appointment of clergy. Not only may a church adopt its own idiosyncratic reasons for appointing pastors, but also it has a legitimate claim to autonomy in the elaboration and pursuit of that goal.” The court rejected the minister's claim that the rule of judicial non--intervention in disputes regarding the selection of dismissal of clergy could lead to serious “human rights violations.” For example, the minister suggested that under this rule the civil courts “would be prevented from enforcing [criminal] statutes against churches that selected their pastors by making them play russian roulette.” Such a claim was not true, the court observed, since religious activities (including the selection or appointment of clergy) can be limited by state law if they conflict with a fundamental and compelling governmental interest (such as the prevention of homicide). (3) The court acknowledged that churches have less protection when it comes to employment decisions involving non--clergy employees. However, cases reaching this conclusion were not relevant in this case, since a minister was involved. In conclusion, the court noted that “the decision to appoint a minister is uniquely within a church's ecclesiastical discretion. . . . Courts must always be wary of efforts to invoke their temporal powers in place of churchly powers.”

A few courts have concluded that the Age Discrimination in Employment Act does apply to religious organizations in some situations. To illustrate, a federal district court in Ohio rejected a religious school's claim that it was exempt from federal age discrimination law.8 Xavier University is a Catholic institution of higher education operated by the Order of Jesuits. An employee brought an age discrimination lawsuit against the University. The University claimed that the court lacked jurisdiction over the case, since, as a religious institution, it was exempt from the antidiscrimination provisions of the federal Age Discrimination in Employment Act. The court agreed with the employee that the Act “gives no indication that religious institutions are exempt from its provisions.” However, it also acknowledged that a religious institution could be exempted on the basis of the constitutional guaranty of religious freedom if application of the Act to the institution would “give rise to serious constitutional questions” under the religious freedom clause of the first amendment. The court concluded that no “serious constitutional questions” were implicated by an application of the Act to the University and accordingly the claim of an exemption was rejected.  

Finally, the Act specifies that “it shall not be unlawful for an employer . . . to observe the terms of . . . a bona fide employee benefit plan such as a retirement, pension, or insurance plan, which is not a subterfuge to evade the purposes of [the Act] . . . or to discharge or otherwise discipline an individual for good cause.”9 Ordinarily, an employee benefit plan will be considered to be “bona fide” if it is genuine and pays substantial benefits.

2. THE CIVIL RIGHTS ACT OF 1964

Title VII of the Civil Rights Act of 1964 makes it unlawful for an employer to “fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual's race, color, religion, sex, or national origin.” This general ban on discrimination applies to all employers (including any church or religious organization) engaged in any “industry affecting commerce that has fifteen or more employees for each working day in each of twenty or more calendar weeks in the current or preceding calendar year . . . .”10 The Act defines industry affecting commerce as “any activity, business, or industry in commerce or in which a labor dispute would hinder or obstruct commerce or the free flow of commerce . . . .”11

The Act exempts religious corporations and associations, including churches, from the prohibition of religious--based discrimination in employment decisions.12 However, churches and religious organizations are not automatically exempted from those provisions of Title VII banning discrimination in employment decisions on the basis of race, color, sex, or national origin.

The Civil Rights Act of 1964, and its application to churches and religious organizations, is considered in detail in chapter 11 The Civil Rights Act of 1964.

3. NATIONAL LABOR RELATIONS ACT

In 1935 Congress decided that disturbances in the area of labor relations led to undesirable burdens on and obstructions of interstate commerce, and passed the National Labor Relations Act.13 The Act, building on the National Industrial Recovery Act (1933), gave employees a federally protected right to join labor organizations and bargain collectively through their chosen representatives on issues affecting their employment. Congress also created the National Labor Relations Board (NLRB) to supervise the collective bargaining process. The Board was empowered to investigate disputes about which union, if any, represented employees, and to certify the appropriate representatives as the designated collective bargaining agent. The employer was then required to bargain with these representatives, and the Board was authorized to make sure that such bargaining did in fact occur. In general, the Act stipulated that an employer's refusal to bargain was an unfair labor practice. Thus a general process was established that would ensure that employees as a group could express their opinions and exert their influence over the terms and conditions of their employment. The Board would act to see that the process worked.

Congress enacted the Labor Management Relations Act in 1947 to adjust and minimize any differences in the rights granted to unions, employees, and employers.

Does the National Labor Relations Act apply to religious organizations? This question has caused considerable controversy. Initially, it should be noted that the stated purpose of the Act was to

eliminate the causes of certain substantial obstructions to the free flow of commerce and to mitigate and eliminate these obstructions when they have occurred by encouraging the practice and procedure of collective bargaining and by protecting the exercise by workers of full freedom of association, self--organization, and designation of representatives of their own choosing, for the purpose of negotiating the terms and conditions of their employment or other mutual aid or protection.14

Clearly, then, the Act was designed to apply only to those employment relationships that affect commerce. The Act defines the term affecting commerce to mean “in commerce, or burdening or obstructing commerce or the free flow of commerce, or having led or tending to lead to a labor dispute burdening or obstructing commerce or the free flow of commerce.”15 Further, the Act defines employer as

any person acting as an agent of an employer, directly or indirectly, but shall not include the United States or any wholly owned Government corporation, or any Federal Reserve Bank, or any State or political subdivision thereof, or any person subject to the Railway Labor Act, as amended from time to time, or any labor organization (other than when acting as an employer), or anyone acting in the capacity of officer or agent of such labor organization.16

Thus the Act covers all employers not within one of the eight express exceptions. Since religious organizations do not fit within any of the eight exempted categories, the National Labor Relations Board has held that such organizations are covered by the Act at least to the extent that they are engaged in some proprietary activity affecting commerce.17 To illustrate, the NLRB has asserted jurisdiction over the Sunday School Board of the Southern Baptist Convention since it was engaged in the sale of literature on a nationwide basis and thus could be viewed as being involved in a proprietary activity affecting commerce. The NLRB observed:

The employer asserts that as it is a nonprofit organization which is engaged in purely religious activities, it is not engaged in commerce within the meaning of the Act. We find no merit in this contention. . . . As this Board and the courts have held, it is immaterial that the employer may be a nonprofit organization, or that its activities may be motivated by considerations other than those applicable to enterprises which are, in the generally accepted sense, commercial.18

Similarly, the Board asserted jurisdiction over an evangelistic organization that was engaged in substantial commercial activities that were unrelated, except as a revenue source, to the organization's religious activities.19

A number of religious organizations have challenged the constitutionality of NLRB determinations that they are covered by the Act. In a leading case, the United States Supreme Court was faced with the issue of whether lay teachers in church--operated schools were under the jurisdiction of the NLRB. The Court found that neither the language nor the legislative history of the National Labor Relations Act disclosed “an affirmative intention . . . clearly expressed” that the NLRB have such jurisdiction. Therefore, the Court declined to construe the Act in a manner that would require the resolution of “difficult and sensitive questions arising out of the guarantees of the First Amendment Religion Clauses.”20

The Court's test for determining the validity of an exercise of jurisdiction by the NLRB over a religious organization may be summarized as follows:

a. Determine if the exercise of jurisdiction by the NLRB over a religious organization would give rise to serious constitutional questions under the first amendment (which guarantees the free exercise of religion).

b. If a serious constitutional question would arise, then the NLRB may not exercise jurisdiction over the religious organization without a showing of an “affirmative intention of the Congress clearly expressed” to confer such jurisdiction.

c. If serious constitutional questions are not implicated by an exercise of jurisdiction by the NLRB over a religious organization, then no inquiry is necessary as to whether Congress clearly expressed an intention to confer jurisdiction.21

In applying this test, one court has upheld an exercise of jurisdiction by the NLRB over a Christian evangelistic organization engaged in substantial commercial activities. The court noted that no serious first amendment questions were raised since NLRB jurisdiction resulted in only a “minimal infringement” on the organization's constitutional rights.22 Serious constitutional questions are raised by an NLRB assertion of jurisdiction over church school teachers, concluded the court, but this is not true of an exercise of jurisdiction over lay employees engaged in the commercial activities of a religious organization. NLRB assertions of jurisdiction similarly have been upheld over church--affiliated hospitals23 and nursing homes24 that (1) receive a substantial percentage of their income from governmental sources; (2) hire employees without regard to religious beliefs; and (3) engage in no specific religious indoctrination of patients or employees. A number of courts have concluded that Congress has “clearly expressed an intention to confer [NLRB] jurisdiction” over church--affiliated hospitals, since in 1974 it removed the pre--existing exemption of all nonprofit hospitals under section 2(2) of the National Labor Relations Act, and rejected an amendment that would have retained the exemption for church--affiliated hospitals.

Another court reached the same conclusion with respect to employees of a church--operated home for neglected children.25 The court agreed with the Supreme Court that an exercise of jurisdiction by the NLRB over church--operated schools raised serious constitutional questions since such schools actively propagate religious faith. However, the court did not believe that serious constitutional questions were raised by an assertion of jurisdiction by the NLRB over church--operated homes for neglected children since such institutions are not devoted to the propagation of religion. Since no serious constitutional question was raised, the court concluded that an “affirmative intention of Congress clearly expressed” to confer jurisdiction over church--operated homes for neglected children was not necessary.

Significantly, the court emphasized that (1) governmental funding comprised over half of the home's income; (2) the home hired employees without regard to their religious affiliation; (3) the home accepted only abused children and kept them an average of six weeks during which time they remained wards of the state; (4) all children were referrals from a state agency; and (5) children could not attend religious services contrary to the beliefs of their parents without parental consent. The court concluded that under these facts the home was indistinguishable from a nonreligious institution, and, accordingly, no serious first amendment questions were implicated.

A federal appeals court ruled that a child care center operated by the Salvation Army was subject to NLRB jurisdiction.26 The court emphasized that serious constitutional questions were not created by NLRB jurisdiction over the facility, since

[t]he program's function is primarily to provide care for the children, not education. It involves no religious instruction, indoctrination, or extracurricular activities. Neither the teachers, children, nor parents are chosen for their religious affiliation. Nor do they receive any religious training. The director, who oversees the workplace, need not be, and is not presently, a clergyman. . . . [T]here is not evidence that the [facility] serves anything other than a secular function with respect to the children, parents, and teachers.27

The court emphasized that

if the [facility] provided not just day care for children but also religious instruction and religiously oriented extracurricular activities, a different result might be required. Instead, we have an institution whose primary business is the provision of care and whose operation is indistinguishable from that of secular day care centers. The risk of serious constitutional questions being raised in these circumstances is simply too insignificant and speculative . . . . [W]ere we not to find jurisdiction, we might inadvertently be offering all private day care centers and other private providers of care a formalistic means of circumventing federal labor laws. By articulating some religious affiliation and mission, no matter how little effect it might have on the social programs' functions or operations, providers of care could easily avoid the Board's jurisdiction . . . .28

Many children's homes affiliated with churches are not subject to NLRB jurisdiction because their activities are inherently religious. The New Testament itself states: “Pure religion and undefiled before God and the Father is this, To visit the fatherless and widows in their affliction . . . .”29 Children's homes that are affiliated with and controlled by bona fide churches, that receive all or most of their income from nongovernmental sources, that actively propagate the church's religious tenets to their children, and that require employees to be members of the church, undoubtedly are exempt from NLRB jurisdiction under the Supreme Court's three--part test. However, church--affiliated children's homes that lack most of these characteristics may be subject to NLRB jurisdiction.

It appears likely that the NLRB will continue to exercise jurisdiction over religious organizations engaged in substantial commercial activities, and that the courts will uphold such exercises of jurisdiction. As one court has observed, when a religious or nonprofit organization operates in the same way as a secular institution, the NLRB may treat such an organization like a secular institution.30 Nevertheless, NLRB assertions of jurisdiction over religious organizations probably will not be upheld in any of the following contexts:

a. The organization is not involved in substantial commercial activities.31

b. The organization is not engaged in a business or activity affecting commerce. Commerce is defined by the National Labor Relations Act as trade, traffic, commerce, transportation, or communication among the several states.32 Thus, to affect commerce, an organization must engage in interstate purchases, sales, communications, or other business transactions of a substantial nature. A religious organization that purchases all of its supplies from local suppliers and sells no product or service to persons residing in other states may not be engaged in any activity affecting commerce. Note, however, that the Act defines commerce to include “communication” among the several states. It has been held that the use of a telephone, even for purely local uses, involves an organization in interstate commerce since the telephone company is engaged in interstate commerce. Also, the purchase of electricity and natural gas from a utility company engaged in interstate commerce may involve a religious organization in commerce.33

c. An assertion of NLRB jurisdiction inhibits a religious organization's ability to propagate its beliefs.34

d. An assertion of NLRB jurisdiction raises serious constitutional questions under the first amendment and no “affirmative intention of Congress clearly expressed” confers jurisdiction.35

4. FAIR LABOR STANDARDS ACT

a. In General

In 1938 Congress enacted the Fair Labor Standards Act to protect employees engaged in interstate commerce from substandard wages and excessive working hours. The Act achieves its purpose by prescribing a maximum workweek of 40 hours for an employee engaged in commerce, unless the employee is paid at the rate of one and one--half times the regular rate of compensation for all hours worked over 40, and by prescribing a minimum wage for all employees engaged in interstate commerce. The Act also requires equal pay for equal work regardless of gender, and restricts the employment of underage children. The Act initially covered only those employees “engaged in commerce or in the production of goods for commerce.” Congress greatly expanded the Act's coverage in 1961 by amending the Act to cover “enterprises” as well as individual employees. The Act now provides that employers must pay the minimum wage and overtime compensation not only to employees actually engaged in commerce or in the production of goods for commerce, but also to any employee “employed in an enterprise engaged in commerce or in the production of goods for commerce.”

In summary, for the minimum wage and overtime compensation requirements to apply to a particular worker, the following two requirements must be satisfied:

(1) the worker must either be

(a) engaged directly in commerce or in the production of goods for commerce, or

(b) employed by an enterprise engaged in commerce or in the production of goods for commerce, and

(2) the worker must be an employee.

The more important of these terms are discussed in the following paragraphs, along with pertinent exemptions.

(1) Enterprises

The Act defines an enterprise as “the related activities performed . . . by any person or persons for a common business purpose.”36 The United States Supreme Court has noted that this definition excludes most religious and charitable organizations to the extent that they are not operating for profit and are not pursuing a “business purpose.”37 On the other hand, religious and charitable organizations will be deemed to be an “enterprise” subject to the minimum wage and overtime compensation requirements if they are engaged in commercial or business activities. Further, in 1966 Congress amended the Act to include within the definition of “enterprise” any “preschool, elementary or secondary school, or an institution of higher education (regardless of whether or not such . . . institution or school is public or private or operated for profit or not for profit).”38 The Act now provides that schools and preschools, even those operated by churches, are “deemed to be activities performed for a common business purpose.”39

The fact that a church school or preschool is now deemed to be an “enterprise” does not end the analysis. As noted above, the enterprise must be “engaged in commerce or in the production of goods for commerce,” and the worker must be an employee. The Act defines the term enterprise engaged in commerce or in the production of goods for commerce to include an enterprise that:

(1) “has employees engaged in commerce or in the production of goods for commerce, or that has employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person, and is an enterprise whose annual gross volume of sales made or business done is not less than $500,000”; or

(2) “is engaged in the operation of a . . . preschool, elementary or secondary school, or an institution of higher education (regardless of whether or not such . . . institution or school is public or private or operated for profit or not for profit).”40

According to this provision, church--operated schools and preschools are deemed to be “enterprises engaged in commerce or in the production of goods for commerce.”

The United States Department of Labor has issued a number of publications that help to clarify the meaning of key provisions in the Act. For example, the Act covers church--operated preschool employees, but it does not define the term preschool. In Publication 1364, the Department addresses this issue by noting:

A preschool is any enterprise . . . which provides for the care and protection of infants or preschool children outside their own homes during any portion of a 24--hour day. The term “preschool” includes any establishment or institution which accepts for enrollment children of preschool age for purposes of providing custodial, educational, or developmental services designed to prepare the children for school in the years before they enter the elementary school grades. This includes day care centers, nursery schools, kindergartens, head start programs and any similar facility primarily engaged in the care and protection of preschool children.

Employees of preschools employed at central locations where the operations of the centers are administered or services and whose work involves duties in connection with the operation of the centers are within the coverage of the Act. For example, coverage extends to clerical workers performing duties in connection with the purchasing or distribution of supplies or equipment for the centers, and to mechanics servicing vehicles or other equipment used in the centers' operations.

This language leaves no doubt that the Department of Labor interprets the term preschool to include a church--operated child care facility even if the facility is primarily a custodial rather than an educational institution.

(2) Employees

For a worker to be entitled to the minimum wage and overtime compensation, he or she must be an “employee.” The Act defines the term employee as “any individual employed by an employer,” and adds that an employee includes a person who is “suffered or permitted” to work.41

(3) Volunteers

Are “volunteers” subject to the minimum wage and overtime compensation requirements? The Department of Labor, in its Publication 1364, addresses the issue of volunteer workers:

Individuals who volunteer their services, usually on a part--time basis, to a preschool not as employees or in contemplation of pay are not considered employees within the meaning of the Act. For example, mothers may assist in a preschool as a public duty to maintain effective services for their children, or fathers may drive a bus to take a group of children on a trip without creating an employer--employee relationship. On the other hand, a bookkeeper could not be treated both as an employee and an unpaid volunteer bookkeeper for the same institution. Nuns, priests, lay brothers, ministers, deacons, and other members of religious orders who serve pursuant to their religious obligations in a preschool operated by their church or religious order are not considered to be employees. However, the fact that such a person is a member of a religious order does not preclude an employee--employer relationship with the state or secular institution.

(4) Self--Employed Persons

Only employees are covered by the minimum wage and overtime compensation provisions of the Act. Self--employed persons (or independent contractors) are not entitled to the minimum wage or overtime pay. However, note that the term employee is defined very broadly. The Department of Labor states in Publication 1297 that “mere knowledge by an employer of work done for him by another is sufficient to create the employment relationship under the Act.” This is a very broad definition—much broader than the so--called “common law employee test” that is used to determine whether a person is an employee or self--employed for federal income tax reporting purposes. As a result, churches will seldom be able to demonstrate that child care workers are not covered by the Act on the basis of self--employed status.

(5) Exemptions

Certain workers are exempted from coverage under the minimum wage and overtime compensation requirements. Two exemptions are of interest to churches and religious organizations. First, the Act exempts “any employee employed by an establishment which is an . . . organized camp, or religious or nonprofit educational conference center, if (A) it does not operate for more than seven months in any calendar year, or (B) during the preceding calendar year, its average receipts for any six months of such year were not more than [one--third] of its average receipts for the other six months of such year . . . .”42 Second, the Act exempts “any employee employed in a bona fide executive, administrative, or professional capacity (including any employee employed in the capacity of academic administrative personnel or teacher in elementary or secondary schools).”43 The definitions of employees “employed in a bona fide executive, administrative, or professional capacity” are complex, and they are contained in regulations issued by the Department of Labor.44 The key elements of the definitions are set forth below:

Executive employees. The term “employee employed in a bona fide executive capacity” means any employee (a) whose primary duty consists of management level responsibilities, (b) who customarily and regularly directs the work of two or more other employees, (c) who has the authority to hire or fire other employees, or whose recommendations regarding the hiring or firing of other employees is given special weight, (d) who customarily and regularly exercises discretionary powers, (e) who does not devote more than 20% of his or her hours to activities not mentioned in (a) through (d), and (f) who is paid on a salary basis at a rate of not less than $130 per week, exclusive of board, lodging, or other facilities.45 A regulation proposed in 1981 would have increased the dollar amount described in (f) to $345 per week. This regulation was postponed indefinitely by order of President Reagan.

Administrative employees. The term “employee employed in a bona fide administrative capacity” means any employee (a) whose primary duty consists of either the performance of office or nonmanual work directly related to management policies or general business operations of the employer, or the performance of functions in the administration of a school system in work directly related to the academic instruction or training carried on there, (b) who customarily and regularly exercises discretion and independent judgment, (c) who regularly and directly assists an employee employed in a bona fide executive or administrative capacity, or who performs work along specialized or technical lines requiring special training, experience, or knowledge, or who executes under only general supervision special assignments and tasks, (d) who does not devote more than 20% of his or her hours to activities not mentioned in (a) through (c), and (e) who is paid on a salary or fee basis at a rate of not less than $130 per week, exclusive of board, lodging, or other facilities, or who is paid on a salary basis that is at least equal to the entrance salary for teachers in the school system.46 A regulation proposed in 1981 would have increased the dollar amount described in (e) to $250 per week. This regulation was postponed indefinitely by order of President Reagan. The regulation further provides that for school employees to be deemed employees employed in an administrative capacity, the employment generally must be in connection with the operation of an elementary or secondary school system or an institution of higher education.47 Elementary and secondary schools are defined to include those schools that provide elementary and secondary education as determined under state law. In some states, this includes grades 1 through 12. In others, it includes kindergarten through 12.

Professional employee. The term “employee employed in a bona fide professional capacity” means any employee (a) whose primary duty consists of the performance of (i) work requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study, as distinguished from a general academic education, (ii) work that is original and creative in character in a recognized field of artistic endeavor, and that is based on invention, imagination, or talent, or (iii) teaching, tutoring, instructing, or lecturing as a teacher in a school system, (b) whose work requires the consistent exercise of discretion and judgment, (c) whose work is predominantly intellectual and varied in character, (d) who does not devote more than 20% of his or her hours to activities not mentioned in (a) through (c), (e) who is paid on a salary or fee basis at a rate of not less than $150 per week, exclusive of board, lodging, or other facilities (this requirement does not apply to teachers).48 Clergy are included in the list of professional employees.49 A regulation proposed in 1981 would have increased the dollar amount described in (e) to $280 per week. This regulation was postponed indefinitely by order of President Reagan.

With respect to the exemption of “executive, administrative, and professional employees,” Department of Labor Publication 1364 provides:

Employees employed in a bona fide executive, administrative, or professional capacity (including any employee employed in the capacity of academic administrative personnel or teacher in elementary or secondary schools) . . . are exempt from the minimum wage and hours provisions of the Act. While preschools engage in some educational activities for the children, employees whose primary duty is to care for the physical needs of the children would not ordinarily meet the requirements for exemption as teachers. This is true even though the term “kindergarten” may be applied to the ordinary day care center. However, bona fide teachers in a kindergarten which is part of an elementary school system are still considered exempt under the same conditions as a teacher in an elementary school.

b. Preschools

Two federal courts have been asked to decide whether or not the Act's minimum wage and overtime pay requirements apply to employees of church--operated preschools. As noted above, the Act applies to any “enterprise engaged in commerce or in the production of goods for commerce.” The Act specifically includes church--operated preschools within this definition. In 1977, a federal district court in South Carolina ruled church--operated preschools are subject to the Act's minimum wage and overtime pay requirements.50 However, the court concluded that the term preschool suggests a facility that imparts education in an institutional setting, and that this term did not include child care centers that are primarily custodial in nature. The court observed: “A facility operating only as a nursery for babies and small children, such as that portion of [the church's] operation designated as a child care center would not, in the opinion of this court, be considered imparting education.” The court rejected the conclusion of the Department of Labor in its Publication 1364 that the term preschool included child care facilities. The court concluded: “The [church's] operation of the child care center is primarily designed to provide custodial care which is suitable to the age of the child. This is typical child care which is found in the home and, in the opinion of this court, is not intended by Congress to be within the meaning of `preschool.' It is not education in an institutional setting.” However, the court did conclude that the church's kindergarten was a preschool, and that its employees were entitled to the minimum wage and overtime pay.

In a second case, a federal district court in Texas ruled that a church had to provide information to the government in an investigation concerning the alleged failure of the church to pay the minimum wage to its child care workers.51 The church argued that its operation of a day care center was an integral part of the ministry of the church itself and therefore the subjecting of that center to minimum wage laws violated the constitutional guaranty of religious freedom. The church maintained that its day--care employees were church members who had received a divine call to Christian education and believed that it was their right and duty to serve God by working for minimal compensation. In rejecting the church's position, the court observed that “there is apparently no explicit exemption in the Fair Labor Standards Act for churches or church--related schools. The Court can find none and [the church] has not suggested any. Indeed, the Act specifically defines a covered enterprise to include a pre--school, even if it be private and operated on a non--profit basis.” The court then strongly suggested that workers at a church--operated preschool would be covered by the Act. It quoted with approval from an earlier federal appeals court decision noting that “neither the Supreme Court nor this court has held that the employment relationship between a church and all of its employees is a matter of purely ecclesiastical concern.” Further, with respect to the church's claim that all of its preschool workers were engaged in “ministry,” the court observed: “While religious organizations may designate persons as ministers for their religious purposes free from any governmental interference, bestowal of such a designation does not control their extra--religious legal status.”

A few other federal courts have ruled on the application of the minimum wage requirements to workers at secular child care facilities. To illustrate, one court concluded that preschools are covered by the Act, and that the word preschool includes child care facilities that are primarily custodial in nature.52 The child care facility in question was open from 6:00 AM to 6:00 PM, Monday through Friday and accepted children ranging in age from infancy to 12 years, with most children being three to five years of age. Children were accepted on a regular, occasional, or drop--in basis and charges were based on weekly, daily, or hourly periods. Most of the children were brought to the facility by working parents. The center was in a one--story building located within a fenced yard. One room was used as an office and another contained kitchen facilities. The other rooms were equipped with cribs, cots, tables, chairs, pictures, television, and a great variety of toys, books, and games. Playground equipment was in the yard. The center posted a schedule of activities, generally designating time periods for breakfast, morning activities, lunch, naps, snacks, and outdoor play. Occasionally children were taken on field trips. Children of school age were transported from the center to their school and back. The center employed no certified teachers and had no written lesson plans, achievement records or progress reports.

The center claimed that it was not covered by the minimum wage requirements since it was a purely custodial child care facility rather than a preschool with a primarily educational function. In rejecting this distinction, the court referred to the opinion of a noted expert in child development, who had testified for the government and emphasized the opportunities for learning in child care facilities. The expert testified that children learn from exposure to books, art, and music and from interaction with other children and with adults from outside the family, and that their learning process cannot be formalized because of limited attention spans. The expert defined “preschool” as a facility in which several children unrelated are supervised by adults and in which there are opportunities for learning. She stated that the term preschool produces confusion and professional discontent because it simply means “before school” but that professional consensus recognizes that institutions for the care of preschool aged children are generally educational in nature because they provide appropriate learning opportunities for preschool age children in a group setting with adult supervision. The court noted that this is the approach taken by the Department of Labor, and it concluded that it was reasonable. Accordingly, the court concluded that “[a]pplication of the Fair Labor Standards Act may not be avoided by the assertion of primary emphasis on custody and the rejection of the undenied learning opportunities afforded to the children.” The court further observed that the Act “was passed for humanitarian and remedial purposes” and accordingly that it “must be liberally construed to apply to the furthest reaches consistent with congressional direction.”

A few other courts, while agreeing that secular preschools are automatically covered under the Act, have concluded that the term preschool does not include child care facilities that are primarily custodial in nature and that are not licensed or regulated under state law.53

As noted previously, the Department of Labor interprets the term preschool to include child care facilities that are primarily custodial in nature.

c. Schools

As noted above, the Fair Labor Standards Act's minimum wage and overtime pay requirements apply to the employees of any “enterprise engaged in commerce or in the production of goods for commerce.” The Act specifically includes church--operated schools within this definition. The coverage of church--operated schools under the Act was affirmed by a federal appeals court in an important decision.54 The court concluded that a church--operated school violated the Act by paying employees less than the minimum wage and by paying women less than men for comparable work (the Act requires that males and females be paid equally for the same work). The church agreed that it paid women less than men, and that it did not pay some workers the minimum wage. However, it asserted that (1) the school was not covered by the Fair Labor Standards Act, (2) school employees were “ministers” and therefore excluded from coverage under the Act, and (3) applying the Act to the church's school would violate the constitutional guaranty of religious freedom.

A trial court rejected the church's arguments, and ordered it to distribute $177,680 among those female teachers who had been paid less than men, and $16,818 among those workers who had not received the minimum wage. The church appealed, and a federal appeals court upheld the trial court's decision in favor of the government. In rejecting the church's claim that the Fair Labor Standards Act did not apply to a church--operated school, the court noted that the Act was amended in 1966 to specifically cover nonprofit, private schools. The court also rejected without explanation the church's claim that its school employees were really church employees and therefore exempt from the Act. The church had demonstrated that the school was “inextricably intertwined” with the church, that the church and school shared a common building and a common payroll account, and that school employees must subscribe to the church's statement of faith. The court also rejected the church's claim that its school employees were exempt from the Act because they were “ministers” who considered teaching at the school “their personal ministry.” It noted that they “perform no sacerdotal functions, neither do they serve as church governors. They belong to no clearly delineated religious order.” Further, “the exemption of these teachers would create an exception capable of swallowing up the rule”—since it would mean that all teachers at church--operated schools would be exempt (contrary to the intent of the 1966 amendment to the Act that was designed include them).

Finally, the court rejected the church's claim that its constitutional right of religious freedom would be violated by subjecting its school employees to the minimum wage and “equal pay” provisions of the Act. The church claimed that its “head of household” salary supplements (paid to males) “was based on a sincerely--held belief derived from the Bible,” and that employee wages should be fixed by the church acting under divine guidance rather than by the government. The court acknowledged that the church might suffer a burden on the practice of its religion, but it insisted that any burden would be limited. It observed that although the church's head of household salary supplement (for males) “was grounded on a biblical passage, church members testified that the Bible does not mandate a pay differential based on sex. They also testified that no [church] doctrine prevents [the school] from paying women as much as men or from paying the minimum wage. Indeed, the school now complies with the Fair Labor Standards Act . . . .” This limited burden on the church's religious beliefs was outweighed by the government's compelling interest in ensuring that workers receive the minimum wage. The court observed that school employees whose religious convictions were violated by the school's coverage under the Act could simply return a portion of their compensation back to the church. Or, they could volunteer their services to the school.

This ruling indicates that church--operated primary and elementary schools in the fourth federal circuit (which includes the states of Maryland, North Carolina, South Carolina, Virginia, and West Virginia) must comply with the Fair Labor Standards Act's “equal pay” and minimum wage provisions. It is likely that other federal appeals courts will agree with this ruling, meaning that church--operated schools in other states should assume that their employees are protected by the Act. However, note that this ruling only applies to church--operated primary and secondary schools. It does not apply to churches themselves.

Other federal courts have concluded that church--operated schools are covered by the Act.55

d. Other Church Activities and Programs

The Act does not specifically exempt religious organizations from its provisions and accordingly it has been held that the Act covers the employees of such organizations to the extent that they are enterprises engaged in commerce. To illustrate, one court held that the Act applied to the employees of a religious denomination's publishing plant even though the plant was organized “to glorify God, publish the full Gospel to every nation, and promote the Christian religion by spreading religious knowledge.”56 The court observed that the amount of goods sent outside the state where they are produced does not have to be large in order to subject the producer to the provisions of the Act, since the shipment in commerce of “any” goods produced by employees employed in violation of the Act's overtime and minimum wage requirements is prohibited. The plant's interstate shipments were more than sufficient, concluded the court, to involve its employees in interstate commerce. In rejecting the plant's claim that it was engaged in religion and that religion is not commerce, the court observed:

If we grant that religion itself is not commerce, it still does not follow that a corporation organized for religious purposes may not engage in “commerce” as defined in the Fair Labor Standards Act, that is, by engaging in “trade, commerce, transportation, transmission, or communication among the several states.” By engaging in the printing business, as this defendant did, we think it was clearly engaged in “commerce” with the meaning of the Act.57

The court also rejected the plant's claim that its first amendment right to freely exercise its religion would be violated by subjecting it to the provisions of the Act. The court noted that first amendment rights are not without limit but may be restricted by the state if it has a sufficiently compelling interest. The objectives underlying the Fair Labor Standards Act, concluded the court, were sufficiently compelling to override a religious organization's first amendment rights under the circumstances of the present case.

In a related case, another court observed that “[o]rganizations affecting commerce may not escape coverage of social legislation by showing that they were created for fraternal or religious purposes.”58

In 1985, the United States Supreme Court unanimously held that the Fair Labor Standards Acts applied to some 300 “associates” who performed commercial work for a religious organization in exchange for lodging, food, transportation, and medical care.59 The foundation engaged in several commercial enterprises, including advertising, landscaping, service stations, restaurants, manufacture and sale of candy and clothing, record keeping, construction, plumbing, sand and gravel, electrical contracting, hog farms, feed and farm supplies, real estate development, and freight hauling. Most of the associates who performed such activities were former “derelicts, drug addicts, and criminals” who had been evangelized by the foundation.

The Court observed that the Act would apply to the foundation's commercial activities if two conditions were satisfied: (1) the activities comprised an enterprise engaged in commerce, and (2) the associates were “employees.” The Court concluded that both conditions were satisfied, and therefore the foundation's associates were entitled to the protections of the Act. In finding the foundation's commercial activities to be an enterprise engaged in commerce, the Court observed that “[t]he statute contains no express or implied exception for commercial activities conducted by religious or other nonprofit organizations, and the agency charged with its enforcement has consistently interpreted the statute to reach such businesses.” The Court rejected the foundation's assertion that its exemption from federal income taxation constituted governmental recognition of its status as a nonprofit religious and educational organization rather than a commercial one.

As to the second condition, the Court concluded that the foundation's associates were employees despite the foundation's characterization of them as “volunteers” who worked without any expectation of compensation in any form. The Court acknowledged that an individual who “without promise or expectation of compensation, but solely for his personal purpose or pleasure, [works] in activities carried on by other persons either for their pleasure or profit” is not an employee. However, it noted that the Act defines wages to include in--kind benefits such as food, lodging, and medical care, and that the associates clearly were compensated employees under this definition. In response to the testimony of several associates that they expected no compensation for their labors and that they considered their work to be “ministry,” the Court held that “economic reality” rather than the views of the associates was determinative, and that under this test the associates were employees since they “must have expected to receive in--kind benefits—and expected them in exchange for their services.”

The Court rejected the foundation's claim that payment of wages to its associates would violate their right to freely exercise their religion. The Court noted that “[i]t is virtually self--evident that the free exercise of religion clause does not require an exemption from a governmental program unless, at a minimum, inclusion in the program actually burdens the claimant's freedom to exercise religious rights.” Since the foundation in fact compensated the associates by providing them with noncash benefits including food and lodging, the Court saw no merit in the associates' assertion that receipt of compensation would violate their religious rights.

The Court emphasized that if a religious organization could engage in a commercial activity in direct competition with ordinary commercial enterprises and remain exempt from the provisions of the Act, it would be free to pay substandard wages and thereby would realize an unfair advantage over its commercial competitors that would jeopardize the right of potentially large numbers of workers to receive minimum wage jobs. The Court also noted that there was no reason “to fear that . . . coverage of the foundation's business activities will lead to coverage of volunteers who drive the elderly to church, serve church suppers, or help remodel a church home for the needy,” since none of these activities is commercial in nature and those who perform such services ordinarily do so without any expectation of either cash or in--kind compensation.

A few courts have concluded that the Salvation Army, though a religious organization, is an employer engaged in an industry affecting commerce.60 However, one federal court ruled that a transient lodge operated by the Salvation Army was not subject to the Act, even though the Salvation Army as a whole was engaged in commerce.61 The court based this conclusion on the fact that the transient home was not a commercial operation, and the transients were required to perform only incidental services (e.g., making their beds, raking leaves).

e. Conclusions

In evaluating the potential application of the Fair Labor Standards Act to religious organizations, consider the following points.

1. The Act's minimum wage and overtime pay requirements only apply to employees who are either (a) engaged directly in commerce or in the production of goods for commerce, or (b) employed by an enterprise engaged in commerce or in the production of goods for commerce. Also note that the Act requires covered employers to pay males and females the same compensation for the same work.

2. The Act specifies that church--operated preschools are enterprises engaged in commerce. Accordingly, they are subject to the minimum wage, overtime compensation, and equal pay requirements. The courts have rejected the claim that subjecting church--operated preschools to these requirements violates the constitutional guaranty or religious freedom. Finally, while a few federal courts have concluded that the term preschool does not include child care facilities that are primarily custodial rather than educational in nature (and that are not regulated or licensed by state law), other courts have rejected this interpretation of the law. It is the position of the Department of Labor that the term preschool includes child care facilities that are primarily custodial in nature. Accordingly, churches that operate preschools or child care facilities should recognize that the federal government will consider the employees of such facilities to be covered under the Act. Prudence would dictate that churches follow the minimum wage, overtime compensation, and equal pay requirements of the Act with respect to such employees.

What about workers in a church nursery that is open during worship services, or workers in a church's Sunday School? Many churches operate a nursery for a few hours one day each week or month as an accommodation to mothers (often called “mothers day out”). Must churches pay workers in these programs the minimum wage? Clearly, if the workers are volunteers who work a few hours each week or month with no expectation of compensation, they are volunteers who are not covered by the Fair Labor Standards Act. The Supreme Court observed in the Alamo case62 that while the definition of an employee is broad, it does have limits. For example, “an individual who, without promise or expectation of compensation, but solely for his personal purpose or pleasure, works in activities carried on by other persons either for their pleasure or profit, is outside the sweep of the Act.” Further, Department of Labor Publication 1364 specifies that “[i]ndividuals who volunteer their services, usually on a part--time basis, to a preschool not as employees or in contemplation of pay are not considered employees within the meaning of the Act.” The same rule would apply to volunteer Sunday School teachers. On the other hand, many churches pay their nursery attendants a fee for their services. It would be difficult to argue that such persons are not employees, and accordingly they would be entitled to the minimum wage if they perform services for an enterprise that is engaged in commerce. Is a church such an enterprise? No court has addressed this question. Remember, however, that the definition of an enterprise engaged in commerce includes church--operated preschools. Further, the Department of Labor in its Publication 1364 sets forth a very broad definition of preschool. Whether this definition is broad enough to cover church nursery workers is not clear at this time. Until the federal courts provide clarification, churches must recognize that nursery workers who are compensated for their services may be covered by the Act's requirements (minimum wage, overtime compensation, and equal pay). This apparently is the position of the Department of Labor.

3. The Act specifies that church--operated schools are enterprises engaged in commerce. Accordingly, they are subject to the minimum wage, overtime compensation, and equal pay requirements. The courts have rejected the claim that subjecting church--operated schools to these requirements violates the constitutional guaranty of religious freedom.

4. Churches and religious organizations that are engaged in commercial activities may satisfy the definition of an enterprise. If they further satisfy the definition of an enterprise engaged in commerce or in the production of goods for commerce, they will be subject to the minimum wage, overtime compensation, and equal pay requirements of the Act. Note that to be an enterprise engaged in commerce or in the production of goods for commerce, they must not only be engaged in a business or commercial activity, but they also must (1) have two or more employees engaged in commerce or in the production of goods for commerce, or engaged in handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce, and (2) have annual gross revenues of at least $500,000. (These requirements do not apply to schools and preschools).

5. Churches that are not engaged in commercial or business activities generally will not be subject to the Act's minimum wage, overtime compensation, and equal pay requirements, for a number of reasons, including the following: