Employment Law for Ministries


The Pandemic Emergency Laws and Ministries

The past month has been a blur of federal activity to mitigate economic fallout from the COVID-19 pandemic. Small businesses, including nonprofits, and their employees have been chief beneficiaries of the new laws. These entities may obtain forgivable loans under the Payroll Protection Program (PPP) to meet payroll and some other business costs. Employees may receive paid leave for certain COVID-19-related situations, and their employers may take a tax credit offsetting that cost. Unemployment insurance benefits have been ramped up to address ongoing and widespread layoffs.

In the main, these federal laws and their largess apply to faith-based organizations to the same extent they do private-sector, for-profit enterprises. For its part, the Small Business Administration (SBA) has said that, regarding PPP loans, it will not enforce any existing loan rules that would "bar the participation of a class of potential recipients based solely on their religious status."

Nonetheless, faith-based employers should pay attention to wrinkles that may arise under the latest legislation based on the First Amendment's establishment and free exercise clauses.

Transferring Taxpayer Money to Faith-Based Organizations

By offering forgivable loans to churches, seminaries, and other ministry organizations, the federal government is facilitating the direct transfer of taxpayer money to religious entities. In these urgent days of the pandemic, even ardent defenders of the so-called wall of separation of church and state have been relatively quiet, although some groups have signed onto a letter challenging the inclusion of ministries. In the end, the law is the law—Congress may not "establish" religion—and if the new financial beneficence to religious groups is thought to violate the First Amendment, someone will file a lawsuit. As one columnist put it, things eventually will return to normal, and "then it will be time to sue each other."

Does the First Amendment tolerate the government's wealth transfer to religious entities? At least two programs raise this question: (1) refundable paid sick leave under the Families First Coronavirus Response Act; and (2) PPP grants (forgivable loans). We will only know the definitive answer to this question after it has been litigated.

There is a sound argument that neither initiative violates the Constitution. Congress' approach is completely neutral as to religion. By virtue of the PPP, for example, SBA loans are now available to 501(c)(3) non-profits, rather than just to for-profit enterprises, whether faith-based or not. Nor has Congress made any effort to distinguish among religions. A secular thrift store, a watch repair shop, a Jewish seniors' home, an Anglican church, and a Catholic school share equally in paid sick leave tax credits and PPP loan forgiveness. Congress has a singular, legitimate reason to aid all of them: to keep wage-earners employed.

Among other cases, a 2017 decision by the U.S. Supreme Court suggests that this neutral funding approach passes constitutional muster. The case involved grants by Missouri to schools for the purchase of rubber playground surfaces. Missouri refused to give a grant to Trinity Lutheran Church for its preschool playground, solely because it is a church. The Court ruled in favor of the church, observing that it had been improperly "put to the choice between being a church and receiving a government benefit." The Court reasoned that "denying a generally available benefit solely on account of religious identity imposes a penalty on the free exercise of religion that can be justified only by a state interest 'of the highest order,'" and Missouri had no such compelling interest. Trinity Lutheran School of Columbia v. Comer, 137 S. Ct. 2012 (2017).

Trinity Lutheran, however, may not save the day here. First, the case involved whether the church's free exercise rights were improperly infringed by the denial of a public benefit. The issue under the new laws is whether allowing faith-based organizations to participate might be viewed to violate the establishment clause. Second, a majority of the Justices either disagreed with the ruling or explicitly circumscribed it to disputes involving "express discrimination based on religious identity with respect to playground resurfacing." In a concurring opinion, Justice Breyer put it this way: "public benefits come in many shapes and sizes. I would leave the application of the Free Exercise Clause to other kinds of public benefits for another day." Allowing a religious preschool to obtain a small grant for a specific, religiously neutral property improvement is quite different than directing significant funding to ministries to keep them operating.

Does this mean that religious employers now taking paid leave tax credits and obtaining PPP grants might not, in the final analysis, be entitled to them? First, as to paid leave tax credits, there seems little practical chance that faith-based entities will encounter a problem. These entities will obtain the credit merely by keeping part of the payroll taxes that would otherwise be due. A court injunction stopping ministries from doing so seems unlikely. Equally unlikely is that the federal government would attempt to recoup amounts that, under current standards, were properly retained by the employer. Furthermore, the paid leave tax credit provisions are limited in duration and cost, making it all the more likely that this public benefit would withstand any constitutional challenge. The tax credits will soon be water under the bridge, so to speak.

PPP loans may be another story. Granting and obtaining the loans may not be constitutional problematic, and, as a practical matter, many PPP loans have already been secured. But litigation challenging the constitutional permissibility of forgiving PPP loans is not beyond imagination. Forgiven loans are a tangible benefit to faith-based employers. It is not clear what ministries can do now to completely ensure that PPP loans they have received will in fact be forgiven, as the CARES Act provides. One suggestion is for ministries to devote PPP loans to covering payroll costs (which the CARES Act broadly defines). Using loan funds to keep workers on the job is consistent with Congress' faith-neutral purpose to limit job losses. In contrast, allocating loan proceeds to cover rent or interest payments carries an appearance that federal funds are supporting the ordinary operations of faith-based entities. It should not matter, in the end, how a ministry uses loan funds, so long as the use is permissible under the CARES Act, but appearances may count.

Potential Impact on Autonomy

First Amendment concerns also arise if government largess is conditioned on a faith-based entity's surrender of religious principles or practices. Fortunately, the terms of the two initiatives do not pose this concern. As noted, the programs are available to all comers, religious or not (other than large employers). And, in recent guidance, the SBA offered this assurance: "Receipt of a loan through any SBA program does not (1) limit the authority of religious organizations to define the standards, responsibilities, and duties of membership; (2) limit the freedom of religious organizations to select individuals to perform work connected to that organization’s religious exercise; nor (3) constitute waiver of any rights under federal law.

To the extent that loans come with strings attached, they do not limit a faith-based group's autonomy. Loan forgiveness, for example, is conditioned at least in part on the extent to which the recipient refrains from cutting wages or laying off workers. While that condition might arguably interfere with a ministry's right to choose who will minister for it, conditioning a grant on maintaining the workforce status quo is not likely to be considered a form of interference with the free exercise of religion.

The SBA also recently addressed whether the non-discrimination rules attached to federal financial assistance might interfere with religious principles (such as barring women from church office or refusing to recognize same-sex relationships). Here, the SBA draws a line between "public" and "ministry" activities. Non-discrimination regulations will "apply with respect to goods, services, or accommodations offered generally to the public by recipients of these loans, but not to a faith-based organization’s ministry activities within its own faith community." The SBA provides by way of example that its regulations "will require a faith-based organization that operates a restaurant or thrift store open to the public to serve the public without regard to ... protected traits ... But SBA’s regulations do not apply to limit a faith-based organization’s ability to distribute food or clothing exclusively to its own members or co-religionists.

In any event, the SBA's guidance provides assurance that the SBA will not apply its nondiscrimination regulations "in a way that imposes substantial burdens on the religious exercise of faith-based loan recipients, such as by applying those regulations to the performance of church ordinances, sacraments, or religious practices, unless such application is the least restrictive means of furthering a compelling governmental interest."

Keep in mind that SBA pronouncements are worth only the weight a court is willing to give them down the road. If a court should find that the SBA went beyond its authority in issuing its clarifications, or that the clarifications themselves run afoul of the First Amendment, the SBA will not be able to enforce its guidance.

SBA Guidance on Religious Affiliation

Another issue regarding PPP loans is whether a faith-based employer's affiliation with other entities would push the employer over the 500-employee limit for loan applicants. According to the SBA, religious organizations will be exempt from affiliation rules as follows:

  • a faith-based organization that affiliates with another organization because of its religious beliefs about church authority or internal constitution, or because the legal, financial, or other structural relationships between the organizations reflect an expression of such beliefs, qualifies for an exemption from the affiliation rules;
  • a faith-based organization that is affiliated with other organizations solely for non-religious reasons, such as administrative convenience, is subject to the affiliation rules.

The SBA gives faith-based organizations leeway in deciding whether affiliation is for religious or non-religious purposes. The SBA "will not assess, and will not permit participating lenders to assess, the reasonableness of the faith-based organization’s good-faith determination that this exception applies."

As the summary above indicates, recent legislation, regulations, and agency guidance raise a host of issues for ministries. If you have any questions about the above information or about how your organization might be affected, please contact us.

This summary is provided as an informational tool. It is not intended to be and should not be considered legal advice, and receipt of this information does not establish an attorney-client relationship.