A Church Needs Protection in Its Role as Employer

By David O. Middlebroook

As an employer, a church is subject to a variety of legal exposures. To protect itself during employment and at the end of the employment cycle there are a number of procedures that should be followed.

Protections during employment

1. Probationary period:
All newly hired employees should be classified as "introductory" employees. This means that their performance is being scrutinized for some introductory period--usually 90 days--to determine whether or not continued employment is warranted.

Note: this does not mean you can violate state and federal laws because the employee is on probation.

In addition to receiving their agreed on compensation, the "introductory" employee receives all legally mandated benefits such as workers compensation, social security and Medicare benefits. However, the introductory employee does not receive other church benefits until they satisfactorily complete their period of probation.

2. Performance reviews and employee files
A. Performance reviews:
At a minimum, a performance appraisal should occur at least once a year. Although performance reviews and appraisals appear to be time-consuming, they are an excellent way to control the salary structure of a church by defining minimum performance goals. Also, they are useful tools in a well-established progressive discipline program and when properly documented can be used to convince an employee that protesting a dismissal would be futile.

B. Employee files:
The church must keep accurate and complete employee files. These files should be kept in a secure area and should include the employee's original application, copies of the employee's annual performance reviews, all memorandums relating to disciplinary actions taken toward the employee, complete insurance application forms and copies of the employee's I-9 forms. Federal law does not require employees be given access to their employee files, however, some states do require such access. If your church is in one of those states, then we recommend each employee be given two employee files, an "A" file containing general employment documentation and a "B" file which contains management information, including sensitive employee information.

3. Progressive discipline:
The starting point when considering a progressive discipline plan is securing proper documentation. Written performance appraisals, memos to the employees and records of absence or tardiness are all critical in providing proper supporting documentation of unsatisfactory employee job performance.

When disciplining employees, focus on behavior and not personality or attitudes. Prior to termination it is recommended that each employee receive the following:

A. Oral warning: Include the specifics of their inadequate performance as well as a deadline to improve their performance. The oral warning should be documented by way of memorandum to the employee's file;

B. Written warning: If the oral warning fails to remedy the employee's performance problems, then a written warning should be prepared which references the date of the oral warning as well as the information communicated to the employee at the time of the oral warning. The written warning should contain an outline of inadequate performance as well as a deadline for the employee to remedy their performance as well as the consequences that will result from their failure to remedy performance. The written warning should be signed by the employee and should be delivered with a witness present. If the employee refuses to sign the written warning, the witness can be used to provide a statement documenting same;

C. Probation/suspension without pay: After giving an oral warning and a written warning, the church may elect to put a particular employee on probation or suspension without pay in lieu of terminating the employee. Again, the decision to place an employee on probation or suspension without pay should be communicated by written memorandum signed by the employee. The probation notice should be delivered in the presence of a witness and in the same way. If the employee refuses to sign the memorandum, the witness should document same memorandum to the employee's file.

D. Discharge: After completing the three-step disciplinary process described above, it may become necessary to discharge an employee. On the other hand, some conduct by an employee may be so egregious as to warrant immediate termination without notice. Regardless of which situation exists, once the decision is made to terminate an employee the church must proceed carefully to reduce the risk of litigation.

Protections at time of termination

1. Pre-termination investigation:
Investigate and substantiate the facts.

2. Exit interview:
An exit interview should be conducted and the conversation with the employee should be fully documented.

Sometimes churches are forced to undergo reductions in force (RIF). Although less emotional for an employee, it still results in the employee losing their position. It is important for employers who are under Title VII to consult an attorney to promote fairness in the decision making process and to minimize the likelihood of claims of discrimination in the selection process of the employees to be included in the RIF.

3. Termination reports:
Document reason and give details including final incident, dates, times and witnesses. Indicate dates of warnings and by whom.

4. Severance agreements:
Often an employee will request to resign rather than be terminated. Depending on the circumstances, it may be in the church's best interest to permit the employee to resign. If so the church should secure a written document from the employee stating that they have elected to resign. It is recommended that this instrument be prepared by legal counsel.

Additionally, although not legally obligated to do so by federal or state law, a church may elect to pay severance pay to an employee at the time of separation. Generally the purpose of this is to secure a release from the employee of any and all claims that they may have related to their tenure at the church. This instrument should only be prepared after consultation with qualified legal counsel to avoid violation of federal laws such as the Older Worker's Benefit Protection Act (OWBPA).

Compensation

In recent years the IRS has been expressing concern about the manner in which non-profit organizations govern themselves and how if affects the revenue of the federal government. The following concerns have been identified by the IRS.

Excessive compensation issues. The IRS is clearly concerned about the payment of excessive compensation by exempt organizations. Salary is only one component that the IRS will consider when determining if compensation is excessive. It will consider all payments of any kind and for any reason that direct the resources of the organization toward an individual. That means that every benefit received is thrown in the pot for compensation purposes.

Fringe benefits. The IRS has expressed concern over teh failure by many exempt organizations to recognize that some fringe benefits constitute taxable income to their officers. These included private use of a vehicle that is owned or leased by the organization, payment of an individual's automobile insurance premiums, and an organization's payment of an officer's personal expenses including some household expenses, country club dues, maid services and vacations.

David O. Middlebrook is a partner in the Irving, TX law firm of Brewer, Brewer, Anthony & Middlebrook. He is an attorney for the American Center for Law and Justice of Texas, Inc.