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Legal Issues in the Legal Issues in the WorkplaceWorkplace

forforNonprofit Nonprofit

OrganizationsOrganizations

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Tax Exempt StatusTax Exempt Status

Nonprofit is a tax status; not a business plan.Nonprofit is a tax status; not a business plan.– Operating any organization at a deficit or without Operating any organization at a deficit or without

a sufficient "rainy day" fund is not good business. a sufficient "rainy day" fund is not good business. In order to maintain the viability of any In order to maintain the viability of any organization, it is important to operate with some organization, it is important to operate with some "net revenue" at the end of a year. What "net revenue" at the end of a year. What distinguishes nonprofits is not whether they can distinguishes nonprofits is not whether they can make a profit, but what happens to profits. make a profit, but what happens to profits. Nonprofits are prohibited from distributing profits Nonprofits are prohibited from distributing profits in the same way for-profit corporations can. All in the same way for-profit corporations can. All revenue must be earmarked for the organization's revenue must be earmarked for the organization's mission. mission.

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RestrictionsRestrictions

The net earnings may not inure to The net earnings may not inure to the benefit of any private the benefit of any private shareholder or individual;shareholder or individual;

Carrying on propaganda, influencing Carrying on propaganda, influencing legislation and participating in legislation and participating in political campaigns are strictly political campaigns are strictly prohibited.prohibited.

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Tax Exempt Does Not Mean Tax Exempt Does Not Mean Tax FreeTax Free

Tax-exempt status means that an Tax-exempt status means that an organization does not pay corporate organization does not pay corporate federal income tax on income from federal income tax on income from activities that are substantially activities that are substantially related to the purposes for which the related to the purposes for which the organization was given exempt organization was given exempt status. The organization does pay status. The organization does pay that tax on other types of income that tax on other types of income called “unrelated business income.” called “unrelated business income.”

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Unrelated Business IncomeUnrelated Business Income

Only income from commercial Only income from commercial activities “substantially related” to activities “substantially related” to the organization’s purpose and which the organization’s purpose and which “contribute importantly” to the “contribute importantly” to the organization’s purpose is tax exempt. organization’s purpose is tax exempt.

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UBI – Three Part TestUBI – Three Part Test

The first part of the UBI test is to determine The first part of the UBI test is to determine if your activity is a trade or business. if your activity is a trade or business.

If you’ve determined that your activity is a If you’ve determined that your activity is a trade or business, the next part of the UBI trade or business, the next part of the UBI test is to decide if the activity is “regularly test is to decide if the activity is “regularly carried on.”carried on.”

The last part of the UBI test is to decide The last part of the UBI test is to decide whether the activity is substantially related whether the activity is substantially related to furthering your 501(c)(3)’s exempt to furthering your 501(c)(3)’s exempt purpose. purpose.

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UBI ExemptionsUBI Exemptions

Volunteer workforce Volunteer workforce Convenience of members Convenience of members Sale of donated merchandise Sale of donated merchandise Distribution of low-cost articles Distribution of low-cost articles Convention or trade show activity Convention or trade show activity Sponsorship Sponsorship Traditional bingo Traditional bingo

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UBI- ExclusionsUBI- Exclusions

Interests and dividends Interests and dividends Rents from real property Rents from real property Royalty income Royalty income Gains or losses from the sale of Gains or losses from the sale of

property property

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Fundraising ComplianceFundraising Compliance

The Division of Charitable The Division of Charitable Solicitations and Gaming administers Solicitations and Gaming administers the Tennessee the Tennessee Charitable Solicitations ActCharitable Solicitations Act and the and the Charitable Gaming Implementation LCharitable Gaming Implementation Lawaw, and regulates accounts established , and regulates accounts established pursuant to the Catastrophic Illness pursuant to the Catastrophic Illness Trust ActTrust Act..   

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Charitable Solicitations ActCharitable Solicitations Act

Requires that charitable organizations that Requires that charitable organizations that solicit contributions register with the division.solicit contributions register with the division.

Exemptions:Exemptions:– bona fide religious institutions; bona fide religious institutions; – educational institutions and supporting educational institutions and supporting

organizations (PTAs)organizations (PTAs)– volunteer fire departments, rescue squads and volunteer fire departments, rescue squads and

local civil defense organizations; local civil defense organizations; – political parties, candidates, and PACs; hospitals; political parties, candidates, and PACs; hospitals;

and and – organizations receiving less than $30,000 per organizations receiving less than $30,000 per

annum (must file an “Exemption Request”) annum (must file an “Exemption Request”)

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Charitable Solicitations ActCharitable Solicitations Act

Prohibits false and misleading solicitation Prohibits false and misleading solicitation practices, and empowers the division to practices, and empowers the division to investigate violations of the Act, and investigate violations of the Act, and impose a civil penalty of up to $5,000 for impose a civil penalty of up to $5,000 for each and any violation of the Act. each and any violation of the Act.

Prohibits false and misleading solicitation Prohibits false and misleading solicitation practices, and empowers the division to practices, and empowers the division to investigate violations of the Act, and investigate violations of the Act, and impose a civil penalty of up to $5,000 for impose a civil penalty of up to $5,000 for each and any violation of the Act. each and any violation of the Act.

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The Charitable Gaming The Charitable Gaming Implementation LawImplementation Law

RafflesRaffles LotteriesLotteries SweepstakesSweepstakes Duck RacesDuck Races CakewalksCakewalks

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The Charitable Gaming The Charitable Gaming Implementation LawImplementation Law

Authorizes qualified 501(c)(3)’s to hold an Authorizes qualified 501(c)(3)’s to hold an annual gaming event for the benefit of the annual gaming event for the benefit of the organization;organization;

The division reviews applications and The division reviews applications and sends the list of qualifying applicants to sends the list of qualifying applicants to the general assembly for approval; the general assembly for approval;

Organizations must submit financial Organizations must submit financial reports following the event for review;reports following the event for review;

the division may investigate violations of the division may investigate violations of the Act and assess a civil penalty of up to the Act and assess a civil penalty of up to $50,000 for each and any violation. $50,000 for each and any violation. 

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Other Fundraising MethodsOther Fundraising Methods

PrizePrize ChanceChance ConsiderationConsideration

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EMPLOYMENT EMPLOYMENT ISSUESISSUES

THE EMPLOYEE SELECTION PROCESS

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The Interview – General The Interview – General ConsiderationsConsiderations

ConsistencyConsistency– ContentContent– Number for positionNumber for position– Persons involvedPersons involved

Preparation for interviewsPreparation for interviews Parameters of interviewsParameters of interviews Documentation of interviewsDocumentation of interviews

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Americans With Disabilities Act Americans With Disabilities Act ("ADA")("ADA")

whether an applicant will need a whether an applicant will need a reasonable accommodation for a job reasonable accommodation for a job

how many days sick in past yearhow many days sick in past year

Prohibited Areas of InquiryProhibited Areas of Inquiry (Generally, (Generally, pre-offerpre-offer disability-related questions & disability-related questions & medical examinations prohibited)medical examinations prohibited)

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Prohibited Areas of InquiryProhibited Areas of Inquiry job-related injuries or workers' job-related injuries or workers'

compensation history compensation history whether an applicant can perform whether an applicant can perform

major life activities (standing, lifting, major life activities (standing, lifting, walking) walking)

lawful drug uselawful drug use priorprior drug drug addictionaddiction questions relating to alcoholism questions relating to alcoholism

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ability to perform specific job functionsability to perform specific job functions non-medical qualifications and skills (work non-medical qualifications and skills (work

history and required certifications and history and required certifications and licenses) licenses)

describe or demonstrate how an applicant describe or demonstrate how an applicant would perform a job or taskwould perform a job or task

whether an applicant can meet attendance whether an applicant can meet attendance requirements requirements

applicant's prior attendance record applicant's prior attendance record current use of illegal drugs current use of illegal drugs

Permissible Areas of InquiryPermissible Areas of Inquiry

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Employment Related Employment Related DocumentationDocumentation

Performance EvaluationsPerformance Evaluations – Promptly placed in the personnel file Promptly placed in the personnel file

upon a review of the evaluation with the upon a review of the evaluation with the employeeemployee

– Honesty in evaluations Honesty in evaluations identify performance problems identify performance problems offer solutions for improvement offer solutions for improvement set goals for improvementset goals for improvement

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Disciplinary Warnings Disciplinary Warnings

use a formal process / avoid informal use a formal process / avoid informal notesnotes

accurate and complete accurate and complete explain conduct being addressed explain conduct being addressed describe remedial measures taken to describe remedial measures taken to

correct the problemcorrect the problem

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use caution in describing use caution in describing consequences for future misconduct consequences for future misconduct

employee should be given an employee should be given an opportunity to sign the opportunity to sign the documentation documentation

apply progressive disciplineapply progressive discipline no skipping steps without second-no skipping steps without second-

level supervisor’s approval level supervisor’s approval

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Medical Information / RecordsMedical Information / Records

Broadly defined under ADABroadly defined under ADA Keep separate from the personnel file Keep separate from the personnel file Separate and locked files cabinets Separate and locked files cabinets Designation of individuals with access Designation of individuals with access Limit access to safety / emergency Limit access to safety / emergency

situationssituations

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EMPLOYMENT POLICIESEMPLOYMENT POLICIES

Nonprofits must comply with all federal, state and local Nonprofits must comply with all federal, state and local employment laws when hiring and employing personnel, employment laws when hiring and employing personnel, including withholding and payment of payroll taxes. including withholding and payment of payroll taxes. 

Nonprofits should employ skilled individuals who are Nonprofits should employ skilled individuals who are suitable for the positions they occupy and are committed to suitable for the positions they occupy and are committed to the goals, values and objectives of the organization.the goals, values and objectives of the organization.

Nonprofits may not engage in illegal discrimination and Nonprofits may not engage in illegal discrimination and should strive toward employing individuals who reflect the should strive toward employing individuals who reflect the diversity of their constituency. diversity of their constituency.

Nonprofits should continually work to provide a safe and Nonprofits should continually work to provide a safe and healthy work environment for all employees and healthy work environment for all employees and volunteers. volunteers.

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EMPLOYMENT POLICIES EMPLOYMENT POLICIES Nonprofit organizations should adopt a set of specific policies and Nonprofit organizations should adopt a set of specific policies and

procedures for managing employees and volunteers. procedures for managing employees and volunteers.

Nonprofits should establish a clear conflict of interest policy for Nonprofits should establish a clear conflict of interest policy for employees that includes disclosure of relationships, nepotism and employees that includes disclosure of relationships, nepotism and interested party transactions.interested party transactions.

Nonprofits should adopt specific grievance procedures for Nonprofits should adopt specific grievance procedures for personnel with protections for reports of violations of personnel with protections for reports of violations of organizational policy or applicable laws.organizational policy or applicable laws.

Nonprofits should have mechanisms, including succession plans, Nonprofits should have mechanisms, including succession plans, to handle transitions in leadership and other key positions. to handle transitions in leadership and other key positions.

Nonprofits should conduct background checks on employees and Nonprofits should conduct background checks on employees and volunteers, particularly if their positions involve working with volunteers, particularly if their positions involve working with children or vulnerable adults, performing financial duties or children or vulnerable adults, performing financial duties or serving in other sensitive areas.serving in other sensitive areas.

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Harassment/DiscriminationHarassment/Discrimination

More than just sexual harassmentMore than just sexual harassment Potential liability for treatment Potential liability for treatment

because of any protected status:because of any protected status:– ageage– sexsex– racerace– religionreligion– national originnational origin– disability disability

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Sexual HarassmentSexual Harassment

Unwelcome sexual advances, requests Unwelcome sexual advances, requests for sexual favors, and other verbal or for sexual favors, and other verbal or physical conduct of a sexual nature physical conduct of a sexual nature when submission to or rejection of this when submission to or rejection of this conduct explicitly or implicitly affects an conduct explicitly or implicitly affects an individual's employment, unreasonably individual's employment, unreasonably interferes with an individual's work interferes with an individual's work performance or creates an intimidating, performance or creates an intimidating, hostile or offensive work environment. hostile or offensive work environment.

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Contact InformationContact Information

Mary Neil Price – Miller & Martin PLLCMary Neil Price – Miller & Martin PLLCmprice@millermartin.commprice@millermartin.com

(615) 744-8480(615) 744-8480

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