Despite their altruistic purposes, nonprofits generally face the same human resources (HR) problems common to for-profit organizations.  For example, sometimes they need to terminate an employee’s position – perhaps for work performance issues or lack of funding.  Many laws, however, protect employees against termination for the wrong reasons, such as age, gender, or racial discrimination.  A claim of employee discrimination can be extremely costly, time-consuming, and otherwise detrimental to any employer.  Consequently, to avoid such problems, it is crucial that nonprofit employers not only establish good employment documentation protocols but also have effective document retention policies.  Failure to observe proper HR document protocols may expose the organization to legal risk when it becomes necessary to terminate an employee. 

Documentation Can Save the Day

Consider the following case, decided this month:  A nonprofit fired an employee forattendance issues, inappropriate behavior, unsatisfactory performance, and insubordination.  The nonprofit asserted that the employee failed to timely complete required paperwork, used his personal computer to process client information in violation of the nonprofit’s policy, arrived at work late, left work early, and logged more absences than the nonprofit’s policy authorized.  The employee sued on the basis of age discrimination.^[1]

Under the Age Discrimination in Employment Act of 1967 (ADEA), it is unlawful for an employer to discharge an employee who is at least 40 years old because of the employee's age.^[2]  In this particular case, the plaintiff claimed that the nonprofit’s executives were biased against older workers.  He testified he had overheard a conversation between supervisors, during which someone said: “When they get old, they should get out of here.  I don't know why they would stay.  I don't know why they won't retire and just go.  I don't know why they would want to stay.”  The plaintiff contended this conversation occurred at least three times.  These statements, he claimed, were direct evidence of age discrimination, and that the employer’sstated reasons for discharging him were mere pretext for its discriminatory actions. The plaintiff claimed there was no documented evidence of misconduct or poor performance in the months preceding his discharge.

On February 28, 2015, the Internal Revenue Service issued Notice 2015-17, providing temporary transitional relief for employers that offer pre-tax reimbursement or payment of premiums, deductibles, and co-payments to multiple employees for their individual health individual

Are campus ministries exempt from anti-discrimination employment laws, with respect to their religious leaders?  The federal Sixth Circuit Court of Appeals has emphatically said, “Yes.”  Its decision expands application of the “ministerial exception” doctrine that protects faith-based organizations from certain discrimination claims.  The decision also raises important questions concerning judicial application of the doctrine.

1.         Background to the “ministerial exception” – religious exemptions from certain discrimination laws.

Most issues within churches and other religious institutions typically stay within such organizations as their own business.  But what happens when a pastor or other spiritual leader engages in misconduct or otherwise demonstrates unfitness for such religious leadership?  May the religious organization’s governing leaders share these shortcomings with others? 

Can nonprofit volunteer leaders ever be held personally liable in relation to their work for an organization?  Unfortunately, the answer is emphatically yes.  Most state nonprofit laws protect directors and officers from personal liability for acts performed in such volunteer capacities, but significant limitations exist.  Leaders need to be attentive to applicable legal requirements, to govern their organizations well, and to pursue available protections such as directors’ and officers’ insurance and other risk management measures. 

Today (January 16, 2015) the United States Supreme Court granted certiorari to four cases appealed from the federal Sixth Circuit Court of Appeals on the issue of same-sex marriage.  The Court’s decision to hear the cases addresses the recent split between the federal circuits on the issue.  At issue are the following: (1) whether the Fourteenth Amendment requires states to license marriage between two people of the same sex, and (2) whether states must recognize marriages between same-sex couples performed in other states. 

Is your religious organization liable for unemployment insurance tax?  Certain religious nonprofits are indeed exempt from state unemployment insurance tax.  It is important, however, that such nonprofits understand their specific state requirements for exemption, which may be very different from IRS exemption..  Depending on your state’s requirements, even being determined to be a “church” by the IRS may not be enough for state unemployment exemption.

Intro: Exemption for religious groups?

Against the recent trend in federal circuit courts, the Sixth Circuit has refused to hold state laws supporting the traditional definition of marriage unconstitutional, largely on states’ rights, non-religious grounds.  Last month, in a 2-1 decision, the Sixth Circuit reversed decisions of four district courts that struck down such state laws.  See DeBoer v. Snyder, No. 14-1341, 2014 WL 5748990 (6th Cir. Nov.

As explained in our law firm’s prior blog article, nonprofit employers enjoy special privileges under unemployment laws.  For example, nonprofit employers are “covered” by such laws only if they have at least four employees during at least 20 weeks of a calendar year.  (Note that churches and other religious institutions are categorically exempt.)  But what happens if a nonprofit has at least four employees scattered among multiple states?   

For example, consider a nonprofit organization with two employees working at its office in Illinois, one employee working remotely from Seattle, and two employees working remotely from Mississippi.  Is the nonprofit “covered” for unemployment tax purposes?  Must it pay unemployment taxes into each state system?  Or is the nonprofit completely exempt, since it does not have at least four employees in any one state?  This is an increasingly common employment scenario, so a good understanding is important for effective legal compliance.

A.             Four Tests to Determine Jurisdiction

In situations where employers have employees performing in multiple states, such employers must pay unemployment tax to the state to which tax is owed.  States have generally agreed upon a four-step analysis to determine the state to which unemployment tax is owed.  With the exception of the third test, the tests refer to factors pertaining to the employee.  The below tests are to be performed consecutively, in the order specified, for each of the multi-state organization’s employees.   

Nonprofit organizations enjoy special privileges under unemployment laws. What are the privileges, and how can they benefit your organization?  For most nonprofits, the following rules apply: (a) only state law unemployment taxes are owed, not federal; (b) smaller may be better; and (c) self-insurance may provide cost savings (but not always!).  Additional tax considerations apply for covered nonprofits operating in multiple states.  Notably, churches and other religious institutions are entirely exempt from unemployment coverage.