Government Regulation of Child Care Facilities

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: m11

Many churches operate preschools or child care facilities. The operation of such facilities raises a number of legal and tax questions, some of which are addressed in other sections of this chapter in the context of private elementary and secondary schools. Some of the more important considerations are summarized below.

The courts consistently have rejected the claim that the first amendment guaranty of religious freedom insulates church--operated child care facilities from reasonable state regulation.¹ To illustrate, a federal district court in Virginia held that state licensing of church--run child care facilities to certify compliance with health, safety and welfare standards would not burden a church's free exercise of religion. The court concluded that “the operation of a child care facility, even by a church, is a secular activity not entitling it to free exercise protection.” Even if such an activity were deemed to be religious, the state's licensing requirements would be justified on the basis of the state's compelling interest in protecting the health and safety of small children. The court also rejected the contention that church--run child care facilities should be exempted from the law's financial disclosure requirements, prohibition of corporal punishment, child abuse reporting requirement, and program content requirements.²

A federal court in California ruled that a California law requiring church child care facilities to be licensed by the state did not violate the constitutional guaranty of religious freedom.³ The law was challenged by a Baptist church on the ground that obtaining a license to operate its child care facility represented “a clear violation of the Lordship of Jesus Christ over our church.” In determining whether the law violated the guaranty of religious freedom, the court applied a three--pronged test: (1) whether the law in fact imposed a substantial burden on the church's exercise of its religious beliefs; (2) whether the law was supported by a compelling state interest that justified the burden on religious freedom; and (3) whether an exemption from the statute would interfere with the state's interest.

The court concluded that the law in question did impose a substantial burden on the church's religious convictions regarding the Lordship of Christ over the activities and ministries of the church (even though the church had sought and obtained a license for several years prior to challenging the law). However, the court concluded that the law was supported by a compelling state interest: “[T]he licensure requirement of the [law] is designed to protect the health and safety of children receiving care outside their home. Without hesitation, the court finds this to be a compelling state interest of the highest order.” Hazards that the licensing requirement was designed to protect against included “over--capacity, lack of supervision, accessibility to chemicals, structural hazards, and sexual or physical abuse.” To obtain a license, a child care facility had to comply with various requirements in the areas of physical structure, nutrition, immunizations, child/staff ratios, record keeping, and financial disclosure. In addition, caretakers were required to provide fingerprints that were used by the state in conducting a criminal background check (the state could prohibit persons who had been convicted of certain crimes from working in child care facilities). Finally, the court concluded that recognizing an exemption for church child care facilities would interfere with the state's compelling interest in providing for the health and safety of children. The court referred to court rulings in several other states rejecting the claim that application of child care licensing laws to churches violated the constitutional guaranty of religious freedom.

The Michigan Supreme Court ruled that a state law requiring church--operated child care facilities to be licensed by the state did not violate the constitutional guaranty of religious freedom.⁴ A child care facility operated by a Baptist church applied for state licenses from 1974 through 1978. However, in 1979, the church informed the state that it no longer wanted its preschool licensed. The church claimed that the licensing requirement violated its religious beliefs. The church also objected to administrative rules adopted by the state that (1) required preschool directors to be accredited by the state, (2) required preschools to teach specified courses that conflicted with the church's religious beliefs, and (3) prohibited corporal punishment. When the church continued operating the preschool without a license, the state sought a court order prohibiting the preschool from operating. The church countered by claiming that the licensing requirement violated its constitutional rights. A trial court ruled that the church preschool was subject to the licensing requirement, and the church appealed. The state supreme court agreed that the state had the authority to require church--operated preschools to be licensed. It also upheld the state rule prohibiting corporal punishment. However, the court agreed with the church that the program curriculum requirements and director--accreditation rules were invalid.

In rejecting the church's constitutional arguments with respect to state licensure and corporal punishment, the court acknowledged that the church was opposed to licensure on the basis of fundamental religious doctrine. The court noted that the church viewed state licensure of its preschool as akin to “Moloch or Baal worship,” and that this aversion to state control “also stems from the experience of Baptists in colonial America who faced religious repression for failing to submit to licensing of their religious ministers.” Nevertheless, the court concluded that the state's interest in licensing preschools was an interest of the highest order that outweighed the church's constitutional rights.

The Illinois Supreme Court rejected the claim that the exemption of certain church--operated child care facilities from state licensing amounted to an unconstitutional “religious preference.”⁵ The exemption was available only to church--operated child care facilities that were “a component of a religious, nonprofit elementary school,” and was set forth in a statute that exempted a variety of child care facilities operated in conjunction with schools. Such an exemption, concluded the court, was permissible since it was narrowly drawn and did not “single out” religious facilities for favored treatment.

Incorporation and Tax Exemption addresses the issue of incorporation and tax exemption of private schools. The information presented in that section generally applies to church--operated child care facilities and preschools.

Federal law specifically mentions church--operated preschools among the list of employers that are subject to the minimum wage and overtime compensation requirements of the Fair Labor Standards Act.⁶ Accordingly, church--operated preschools must pay the minimum wage to their employees, and also must pay overtime compensation (one and one--half times the regular pay rate) to employees working more than 40 hours in one week. The coverage of preschools under the Fair Labor Standards Act is discussed fully Labor Laws.

The term “child care certificate” means a certificate (that may be a check or other disbursement) that is issued by a state or local government under this subchapter directly to a parent who may use such certificate only as payment for child care services. Nothing in this subchapter shall preclude the use of such certificates for sectarian child care services if freely chosen by the parent.⁸

Section 658M(a) of the Act specifies that “[n]o financial assistance provided under this subchapter, pursuant to the choice of a parent under section 658E(c)(2)(A)(i)(I) or through any other grant or contract under the state plan, shall be expended for any sectarian purpose or activity, including sectarian worship or instruction.” Significantly, this limitation pertains only to a parent's choice to send his or her children to a facility that is paid directly through state grants or contracts. Eligible parents, however, do not have to send their children to facilities that receive direct assistance through state grants or contracts. Rather, they may elect to receive “child care certificates” that they can use to provide care for their children at any eligible facility. This right is set forth in section 658E(c)(2)(A)(i)(II) of the Act.⁹ The prohibition of financial assistance for sectarian activities only applies to section 658E(c)(2)(A)(i)(I), and not to section 658E(c)(2)(A)(i)(II). Accordingly, eligible parents can use child care certificates to provide child care at eligible church--operated child care facilities, even if those facilities engage in sectarian activities.

The Act further provides that “[a] sectarian organization may require that employees adhere to the religious tenets and teachings of such organization, and such organization may require that employees adhere to rules forbidding the use of drugs or alcohol.”¹⁰ The Act also provides:

(A) A child care provider that receives assistance under this subchapter shall not discriminate in employment on the basis of the religion of the prospective employee if such employee's primary responsibility is or will be working directly with children in the provision of child care services.

(B) If two or more prospective employees are qualified for any position with a child care provider receiving assistance under this subchapter, nothing in this section shall prohibit such child care provider from employing a prospective employee who is already participating on a regular basis in other activities of the organization that owns or operates such provider.¹¹

The second quoted paragraph apparently would permit a qualified church--operated facility to prefer an applicant who is a member of the church over an equally qualified non--member. Note, however, that the Act also provides that child care facilities that receive 80 percent or more of their operating budget from state or federal funding sources may “not discriminate against any individual in employment, if such employee's primary responsibility is or will be working directly with children in the provision of child care, or admissions because of the religion of such individual.”¹²

There is no doubt that this legislation will be challenged on the ground that it violates the first amendment's “nonestablishment of religion” clause. Will such a challenge be successful? Probably not. The United States Supreme Court has issued two rulings that strongly suggest that the child care legislation will be upheld by the courts, despite its approval of the use of child care certificates to obtain child care in qualified church--operated facilities that engage in sectarian activities.¹³ Of course, if the courts sustain the constitutionality of this legislation, then there is no reason why the government could not provide parents with “certificates” to obtain education for their elementary and secondary school children at the school of their choice—including church--operated private schools. Such a result could revolutionize the educational system of this nation, for it is likely that large numbers of parents, if given financial assistance, would send their children to church--operated schools.

Church--operated preschools must file an annual certificate of racial nondiscrimination (Form 5578) with the IRS by the 15th day of the fifth month following the end of the organization's fiscal year. This is May 15 of the following year for organizations that operate on a calendar year basis. This requirement is discussed further in Proof of Nondiscrimination and  Taxation section 6.

Preschools and child care facilities present unique legal risks because of the variety of ways in which young children can be injured. The theories of legal liability in such cases generally include one or more of the following: “respondeat superior,” negligent hiring, negligent supervision, and premises liability. These theories of liability are explained in Negligence as a Basis for Liability and Premises Liability.

Most states require child care workers to report to designated state officials actual or reasonably suspected cases of child abuse. This important requirement is discussed in Child Abuse Reporting.¹⁴ In addition, a number of states require church--operated child care facilities to conduct criminal records checks of all applicants for employment. It is imperative for churches that operate a child care facility, or that are considering doing so, to familiarize themselves with the legal requirements imposed by state and local law. The services of a local attorney should be sought to ensure full compliance, and to evaluate the applicability of any exemptions that may apply to specific requirements.

Incorporation and Tax Exemption of Private Religious Schools

Proof of Nondiscrimination in Private Schools

Right to Attend Private Schools

The Distinction Between Public and Private Education

Discharge and Discipline of Students of Private Schools

Discharge and Discipline of Teachers

Application of Federal Labor and Discrimination Laws to Private Schools

Tuition Refunds

Government Regulation of Private Schools

Zoning Laws and Private Schools

Safety and Health Regulations for Private Schools

Taxation of Private Religious Schools

Child Abuse Reporting Requirements for Private Schools

Legal Liability for Student Injuries

“Homeschools”

Use of Public School Teachers in Private Schools