Legal Realities

H E L P I N G L E A D E R S B E C O M E B E T T E R S T E W A R D S .

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Anthony & Middlebrook and the Church Law Group

Legal Realities

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Table of Contents

DOS AND DON’TS FOR PASTORS DURING AN ELECTION YEAR 4

Every election year, we receive lots of questions asking what’s permissible and impermissible for churches and church leaders when it comes to political campaigns and legislative activities — in particular, regarding discussing the elections with their congregation, the public, and even their employees and board members.

Participating in prohibited political campaign activity can result in your church jeopardizing its tax-exempt status, thus harming its reputation, and putting the tax deductibility of every donation at risk. So, as we kick off this election year, here are some different ways pastors and churches can (and can’t) be involved in political campaign and legislative activities.

By David O. Middlebrook

EXAMINING ORGANIZATIONAL STRUCTURE — INCLUDING (AND ESPECIALLY) CHURCH MEMBERS’ RIGHTS 6

There are more than 400,000 churches in the United States, each with its own governance structure and decision-making model.

With so many different models and terminology used to describe church governance structures — elders, deacons, trustees, directors, pastor and apostle — it can be quite confusing to determine what’s the best and most biblically-sound corporate structure for your own church.


A SUPREME COURT CASE TO WATCH: TRINITY LUTHERAN CHURCH v. PAULEY 8

Earlier this year, the U.S. Supreme Court agreed to consider Trinity Lutheran Church v. Pauley, a 2013 lawsuit filed by the church after the state of Missouri rejected its application for a grant to replace its preschool’s playground pebbles with repurposed rubber from old tires.

The State’s grounds for denial? The preschool was ineligible because it was run by a church, citing an 1875 Missouri constitutional amendment — known as the Blaine Amendment — prohibiting public funds from being used “in aid of any church.”

Here, Attorney David O. Middlebrook offers his take on this potentially pivotal case for churches.


EXAMINING ORGANIZATIONAL STRUCTURE — HOW THE HOURLY WAGE RULES WILL AFFECT CHURCHES 10

For church leaders, finances are often a stressful topic — usually not an issue pastors enjoy talking about.

Add to that stress numerous Department of Labor (“DOL”) and IRS regulations that drive up the cost and hassle of employment, and sometimes conducting formal ministry seems all but financially impossible.


EXAMINING CHURCH BYLAWS Coming in August 2016

INTELLECTUAL PROPERTY CONSIDERATIONS FOR CHURCH LEADERS Coming in October 2016

WHAT YOU SHOULD KNOW BEFORE RECRUITING A CHURCH INTERN Coming in December 2016


Dos and don’ts for pastors during an election yearBy David O. Middlebrook

Since 1954, churches — and other nonprofits in America — have been prohibited from engaging in certain kinds of political activity. While these limitations might be an affront to the moral conscience of many pastors across America, it has become a way of life for 501(c)(3) organizations.

Specifically, Congress prohibited nonprofits — including churches — from participating or intervening “in (including the publishing or distributing of statements) any political campaign on behalf of (or in opposition to) any candidate for public office.”1 These prohibited activities are known as “Political Campaign Activity” and occur when a church — or any 501(c)(3) organization — directly or indirectly participates or intervenes in “any political campaign on behalf of, or in opposition to, any candidate for elective public office.” 2

It’s very important for all churches to understand that this prohibition is for campaign activity regarding candidates; churches may, however, engage in some legislative activity — lobbying and advocacy for issues, for example.

Every election year, we receive lots of questions asking what’s permissible and impermissible for churches and church leaders when it comes to political campaigns and legislative activities — in particular, regarding discussing the elections with their congregation, the public, and even their employees and board members.

Participating in prohibited political campaign activity can result in your church jeopardizing its tax exempt status, thus harming its reputation, and putting the tax deductibility of every donation at risk. So, as we kick off this election year, here are some different ways pastors and churches can (and can’t) be involved in political campaign and legislative activities.

Personal endorsementsThe most common question we hear from church clients regarding

elections and candidates is: As long as I say I’m supporting a candidate personally — and not in my position as the church’s pastor — am I OK?

Personal endorsements are permitted; however, unless they’re done correctly, the surrounding facts and circumstances might lead the IRS to determine that a pastor was acting in his or her official capacity.

The IRS looks at the conditions surrounding the endorsement. If an endorsement was made during a church’s official event — a Sunday morning service, for example — or in an official publication, such as a church newsletter (regardless of who pays for it), the endorsement won’t be considered “personal.” Asking a congregation to vote for a candidate during a church service will likely be viewed as a prohibited political campaign activity.

On the other hand, a local newspaper advertisement depicting a candidate with his or her supporters — including the name of a pastor and the church where he or she is employed — does not run afoul of IRS regulations. This is because the pastor didn’t endorse the candidate in his or her position during an official church activity. Rather, identifying the pastor and the church where the pastor is employed is only identifying one of the candidate’s supporters.

1 https://www.irs.gov/uac/Charities,-Churches-and-Politics 2 https://www.irs.gov/Charities-&-Non-Profits/Charitable-Organizations/Political-and-Lobbying-Activities

https://www.irs.gov/uac/Charities,-Churches-and-Politics

https://www.irs.gov/Charities-&-Non-Profits/Charitable-Organizations/Political-and-Lobbying-Activities


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Public appearancesIt’s not uncommon for churches to invite candidates or current public

officials to speak to their congregations during regularly scheduled worship services or at special events open to the public (“public forums”). However, each opportunity for a candidate or public official to speak must be handled in a way that doesn’t interfere with elections.

For instance, a church can hold a public forum — and invite all the candidates seeking election to an office — to address the attendees. However, the church may not ask questions that lead the attendees toward one candidate, or a group of candidates. Typically, when churches host public forums, it’s advisable to ask all the candidates the same slate of questions and give each candidate equal time to speak. Cutting some candidate off early might be seen by the IRS as an indirect intervention into a campaign.

If your church invites public officials to speak, the timing of the upcoming election is considered in determining whether or not your church is endorsing a candidate for office. If the mayor of your city is invited to preach, pray or otherwise address the congregation on the Sunday morning before an election the following Tuesday, and the mayor is running for reelection — and the mayor encourages those in attendance to vote — this can easily be seen as a tacit endorsement by your church. This is especially likely if other candidates aren’t given the same opportunity.

Like all members of the general public, elected officials are welcome to attend church events. A pastor can acknowledge his or her presence, or even honor the elected official for non-political activity, such as a distinguished military career.

Voter guides and drives For those who want to inform their congregants of the upcoming

issues to be voted on, a voter guide — one which factually shows where candidates stand on issues — can be helpful. Here again, these tools must be neutral toward the candidates, fact-based and neither supportive nor dismissive towards any candidate.

Helping your congregants register to vote (without ties to any candidate) is also a great way to involve your members. Recently, some states have adopted specific regulations about how voter registration events must be conducted. If you don’t know the rules in your state, consult an attorney to make sure you’re in compliance. 3

Issue advocacySometimes, issues themselves can identify a candidate — particularly

in smaller elections with only two or three candidates. If you promote an issue that leaves only one choice of candidate, you run the risk of prohibited political campaign activity. Issues are important, and they should be discussed by pastors. But, if the issue promotion activity leaves only one available choice, then those activities are likely intervening with the election.

Voter rules are a difficult dynamic. Often, pastors feel prohibited from speaking out on topics on which our society is voting. Being able to navigate the legal dos and don’ts helps churches engage society at the voter booth.

The materials in this article are provided for informational purposes only and do not constitute legal advice. This article is intended, but not promised or guaranteed to be current, complete or up-to-date and should in no way be taken as an indication of future results. Transmission of the information in this article is not intended to create — and the receipt does not constitute — an attorney-client relationship between sender and receiver.

David O. Middlebrook is a founding shareholder of Anthony & Middlebrook and the Church Law Group [ www.churchlawgroup.com ] in Grapevine, TX. His clients include high-profile charitable and religious organizations, both domestic and international.

3 Texas recently adopted new voter photo ID rules.

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Examining organizational structure — including (and especially) church members’ rights


There are more than 400,000 churches in the United States, each with its own governance structure and decision-making model.

churchexecutive.comCHURCH EXECUTIVE • L E G A L R E A L I T I E S6


With so many different models and terminology used to describe church governance structures — elders, deacons, trustees, directors, pastor and apostle — it can be quite confusing to determine what’s the best and most biblically-sound corporate structure for your own church.

As an attorney with more than 25 years of experience representing churches, I’m often asked which structure is the best. The truth is that there are many large and healthy churches that have incredibly diverse governance structures. However, the key to any governance structure is that it’s clearly defined as to who’s in charge.

One major pitfall for church leaders is a lack of understanding around the legal rights of your church’s members. Without understanding exactly what your church members are entitled to do, or to know, church leaders run the risk of creating a problem by not going through the decision-making matrix outlined in the governing documents of the church.

But, not all church members have rights, and not all churches have legal corporate members. In fact, most states give religious nonprofits the ability to choose, at the time of incorporation, whether they will have legal members. If the incorporators choose not to have legal members, then the board of directors, or trustees, will be 100-percent responsible for the organization.

SO, WHAT ARE THE OPTIONS FOR CHURCH GOVERNANCE? There are three basic models you’ll find in a majority of churches

across the United States:

#1: Congregational. In a Congregational Model, the members of the church have the right to vote and make almost every decision regarding the church’s management and operation. There are monthly, (or at least regular) business meetings in which all current members are allowed to attend and vote on various matters. This model is more prevalent in smaller, older churches that don’t have significant business activities or that believe such a model is required by their understanding of scripture.

It’s important to understand that most states generally say that the board of directors has authority over the corporation unless the corporate documents clearly state that the power is specifically designated to the members. Accordingly, if your church wants to follow the congregational model in which members retain the right to vote on all issues, the corporate documents must clearly articulate that fact; otherwise, the typical default rule is that a board will control.

#2: Contemporary. This model allows the senior pastor to lead the daily church affairs with a board of directors having oversight and co-management authority. There are no corporate “members” (there can still be “members” as far as having affiliation to the church, they just might not have corporate voting authority).

This model is based upon the modern view that a church is best served by a vocational staff who are at the church daily and have a better understanding of its needs. This model also imagines that the church’s business activities are too numerous or complex to wait for congregational meetings and/or that the average congregant does not want to be bothered with the church’s business decisions, but only wants to attend as a worshipper.

#3: Hybrid. Finally, many churches seek to find some balance between the other two structural models and opt for a “hybrid” structure. Under this model, the church is run by the vocational staff who — with oversight from a board of directors — are accountable to members who retain limited voting rights on big issues. This model often reserves big decisions for the members while the board of directors and the staff leadership make the remaining decisions.

For example, under the hybrid model, members may retain the right to vote on issues such as dissolution, the acquisition of debt over a certain amount, or the selection and removal of the senior pastor. This hybrid structure creates a middle ground that allows everyone to be involved and fosters accountability.

Over the past several years, this structure has increased in popularity — particularly for churches that previously followed a congregational structure but determined that the members lacked meaningful participation on all issues. With a desire for accountability, some congregational churches have opted for the hybrid model, forming a board of directors, yet allowing members to maintain limited voting rights on issues of great importance.

IDENTIFY WHO’S IN CHARGENo matter which management model your church chooses, it’s

important that the corporate documents clearly identify who’s in charge. Since clearly drafted documents affect basic church operations, it’s important for both the staff and congregation to know who to look to for leadership. If the corporate documents are unclear, the church is exposing itself to many problems.

For example, if the church is seeking a loan, the lending institution can delay or reject financing if it’s unclear who’s in charge of the corporation and who has authority to make decisions. Furthermore, a lack of clarity can lead to trouble if there’s ever a church dispute or split. If the congregation believes it has the right to vote and the leadership thinks the opposite, then who’s in control of the church?

Also, should a church decide to submit a 1023 application for tax-exempt recognition, the IRS will want to know who has the power to make decisions and vote on issues within the church.

Now that you know the different models typical of church governance, go ahead: break out your governing documents and read them, cover to

cover. You might be surprised to discover that your church’s operating structure doesn’t align with the governance structure set out in

your articles of incorporation or bylaws. Churches can run into serious issues when they aren’t

following their corporate documents, or if their bylaws are in conflict with the church’s articles of incorporation.

You might even be surprised to hear that in most cases, if the articles of incorporation contradict the bylaws, state law

provides that the articles supersede the bylaws, thus rendering the bylaws ineffective.

Today is a perfect day to review your church’s corporate documents. Remember: Moses didn’t go to the mountain to retrieve these documents; they should be reviewed and updated periodically to make sure the church is operating in a manner consistent with its corporate documents.

The materials in this article are provided for informational purposes only and do not constitute legal advice. This article is intended, but not promised or guaranteed to be current, complete or

up-to-date and should in no way be taken as an indication of future results. Transmission of the information in this article is not intended

to create — and the receipt does not constitute — an attorney-client relationship between sender and receiver.

David O. Middlebrook is a founding shareholder of Anthony & Middlebrook and the Church Law Group [ www.amlawteam.com ] in Grapevine, TX. His clients include high-profile charitable and religious organizations, both domestic and international.

www.amlawteam.com


A Supreme Court case to watch:

Trinity Lutheran Church v. Pauley

Earlier this year, the U.S. Supreme Court agreed to consider Trinity Lutheran Church v. Pauley, a 2013 lawsuit filed by the church after the state of Missouri rejected its application for a grant to replace its preschool’s playground pebbles with repurposed rubber from old tires.

The State’s grounds for denial? The preschool was ineligible because it was run by a church, citing an 1875 Missouri constitutional amendment – known as the Blaine Amendment – prohibiting public funds from beingused “in aid of any church.”

Here, David O. Middlebrook – a founding shareholder of Anthony & Middlebrook and the Church Law Group in Grapevine, TX, and Church Executive “Legal Realities” Series author – offers his take on this potentially pivotal case for churches.

http://www.washingtontimes.com/news/2016/jan/20/trinity-lutheran-church-v-pauley-looms-as-key-chur/?page=all

http://www.amlawteam.com/


Church Executive: David, why do you think this case could turn out to be important?David O. Middlebrook: This case has the potential to enhance or limit the flow of government funding to religious organizations through grants and subsidies. There has been a lot of confusion in this area, particularly with faith-based grants through the White House’s Office of Faith-Based and Neighborhood Partnerships. Many individuals are under the mistaken belief that no government agency can fund a religious organization’s projects. While government funding is limited to secular projects, we can see – as represented in this case – some states go further by implementing complete prohibitions on government funding to religious organizations.

The importance of the underlying case really comes down to what the parties are asking for. The State of Missouri – represented by Sara Parker Pauley, Director of the Missouri Department of Natural Resources – is asking the Supreme Court to uphold the Missouri Constitution, which prohibits the distribution of state funds to be used to fund any religious organization, for any reason.

The Petitioner (Trinity Lutheran Church of Columbia, Inc.) is asking for churches to be considered for grants along with secular organizations, as long as they meet secular criteria. If the State of Missouri wins, it could embolden other states to enact similar constitutional provisions; if the Petitioner wins, a lot more churches will be seeking state funding for their projects in their community.

CE: So, what’s the Pauley case all about, in plain English?Middlebrook: In a nutshell, and skipping the tangential issues and

background, this case is about whether state governments can prohibit funds from going to religious organizations. It is not about whether religious organizations can receive government funding; this already happens. As I said before, the White House’s Office of Faith-Based and Neighborhood Partnerships has a history of funding projects through religious organizations. In this case, Trinity Lutheran Church applied under a Missouri subsidized program to have its playground resurfaced with ground-up tires, and the record is clear that its application would have been granted but for its identity as a church. The federal courts reviewing the denial of the application concluded that the prior decisions of the Supreme Court required them to agree with Missouri and, in particular, that Missouri law could validly prohibit state funds from being used to benefit a church, even if the church would have qualified but for its identity as a church. Trinity Lutheran asked the Supreme Court to review the case, and the Court agreed to do so – it did not have to, so perhaps the Court is willing to consider expanding religious organizations rights under state law.

CE: What would be the practical effect of a Supreme Court reversal of the Pauley case?

Middlebrook: If the Court sides with the State, you will likely see a measurable increase in prohibition of funds distributed to religious

organizations. If the Court sides with Trinity Lutheran, this may result in increased funds available to churches for community projects.

Remember, regardless of the outcome of this case, the funding must be used for a neutral purpose, not religious in nature. Practically, this means that financial grants or funding from a government to a church may not directly and conspicuously benefit a “religious” activity of the church. Thus, it is possible that the government funding can be used by the church to build a playground that will be used by church members and the broader community, whereas the grant could not be used for a

religious purpose such as buying new hymnals or bible study curriculum.

CE: What would this mean for the readers of Church Executive?

Middlebrook: In this day and age when churches are asked to carry a heavier burden in their communities because of the cutbacks in local, state and federal services, a less-hostile attitude toward churches when they apply for government grants and subsidies would be of direct benefit to your readers and their operating budgets. Perhaps not immediately,

but if the playing field can be leveled, over time this could turn out to be a major sea change for churches.

CE: For our readers who would like to learn more about the Pauley case, what resources are available to them?

Middlebrook: Go to the SCOTUS blog on the Pauley case and you can find links to PDF copies of the 8th Circuit opinions and the various filings with the Supreme Court leading up to the Court’s decision to review the case.

CE: What’s the timetable, here?Middlebrook: The case will be set for oral argument, but that won’t be

scheduled until the Court’s 2016-2017 Term starting in October, meaning that the decision won’t be handed down until late this year or 2017. But there are several wild cards here, starting with the recent death of Justice Scalia and that 2016 as an election year, which will likely tangle up any appointment of a replacement Justice, possibly delaying that appointment until the next President takes office.

Right now, there is a distinct possibility that the Pauley decision could end up being a 4-4 tie, having the effect of affirming the 8th Circuit decision below “by an equally divided court” (meaning that the Supreme Court’s decision is not treated as a binding precedent) and punting the issue to a future case.


David O. Middlebrook is a founding shareholder of Anthony & Middlebrook and the Church Law Group in Grapevine, TX. His clients include high-profile charitable and religious organizations, both domestic and international

http://www.scotusblog.com/case-files/cases/trinity-lutheran-church-of-columbia-inc-v-pauley/

http://www.amlawteam.com/


How the hourly wage rules will affect churches


For church leaders, finances are often a stressful topic — usually not an issue pastors enjoy talking about.

Add to that stress numerous Department of Labor (“DOL”) and IRS regulations that drive up the cost and hassle of employment, and sometimes conducting formal ministry seems all but financially impossible.

Because of the tedious nature of ever-evolving employment laws, ministries and churches often adopt a far too simplistic approach: pay everyone a stagnate salary the organization can afford,

regardless of time worked. Thoughts about clocking in and out — and paying overtime — are overlooked or disregarded because they are burdensome and not seen in the spirit of “doing what it takes.”

The Department of Labor’s Wage and Hour regulations affect almost every employer, regardless of finances. The Fair Labor Standards Act (the “Act”) is the main legislation that effects wage and hour rules and gives authority to the DOL to enact and enforce regulations regarding wage and hour rules (such as the payment of minimum wage) and requires overtime pay for nonexempt employees working more than 40 hours in a set week. All employers — even churches — must be aware that the DOL takes the default position that all employees are nonexempt. This means they are eligible for minimum wage and overtime pay unless the employer can demonstrate that an exemption outlined by the DOL and the Act applies.

So, when does the Act apply? The Act applies only in cases of employment and does not apply to

independent contractors. To understand whether the person you are paying is an employee, the DOL looks at the following factors:

1) “The extent to which the work performed is an integral part of the employer’s business.” The more important the worker’s value, skill and work are to the employer, the more likely the position will be considered an employed position rather than a contracted one.

2) “Whether the worker’s managerial skills affect his or her opportunity for

profit and loss.” The managerial duties and skills of a worker indicate an employment relationship. Rarely, if ever, would there be a scenario where an independent contractor would exercise managerial control of the organization, employees or capital.


3) “The relative investments in facilities and equipment by the worker and the employer.” Under this factor, the DOL looks at whether the worker owns their equipment and facilities in which the work is performed. While an independent contractor may use the facilities of the employer, often the contractor will bring their own equipment, and maintain it themselves.

4) “The worker’s skill and initiative.” While employees might have specialized skills, independent contractors possess skills that allow them to operate separate businesses and command market value for their services from other customers.

5) “The permanency of the worker’s relationship with the employer.” Typically, employees have either a long employment term or no term.

6) “The nature and degree of control by the employer.” This factor focuses on the control of the employee’s schedule and their method of work.

None of these factors alone can tip the scale in favor of an employee or independent contractor. However, the DOL analyzes each factor individually, and in each given case determines whether employee benefits or overtime should be extended to those the employer improperly classified as independent contractors. Remember: the DOL’s default position is all workers are employees, and the burden is on the employer to demonstrate the individual worker is actually an independent contractor.

If you determine that an employment relationship exists, you can now ask whether your employee qualifies for a FLSA exemption, meaning they are not entitled to minimum wage, nor are they eligible for overtime, regardless the number of hours they work. Once the worker is determined to be an employee, they must meet the following three-point test to be exempt:

• Paid at least $455 per week — subject to change to $951 with possible upcoming regulations

• Paid on a salary basis; and …• The job duties must fall into one of the following exemptions:

Administrative: “Performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and the employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.”

Executive: “The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise; the employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and the employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.”

Professional: “The employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment; the advanced knowledge must be in a field of science or learning; and the advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.”

Computer Employee: “The employee must be employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field performing the duties described below; the employee’s primary duty must consist of: 1) The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications; 2) The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications; 3) The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or 4) A combination of the aforementioned duties, the performance of which requires the same level of skills.”

Highly Compensated: “Highly compensated employees performing office or non-manual work and paid total annual compensation of $100,000.”

Many ministerial positions are exempt from the Act; but, if you have questions about the Act and ministerial positions, contact legal counsel as several appellate courts have laid out specific requirements for the ministerial exception to apply to the Act.

Regardless of an organization’s size, the Act affects almost every employer. Failing to comply with the Act can result in stiff monetary penalties.

Organizations should take heed of the rules affecting their employees, conduct an internal review to determine if the organization has any trouble spots — such as the misclassification of workers and failing to properly keep time records for non-exempt employees; and consult experienced legal counsel to resolve questions or issues regarding these employment issues.


David O. Middlebrook is a founding shareholder of Anthony & Middlebrook and the Church Law Group [ www.amlawteam.com ] in Grapevine, TX. His clients include high-profile charitable and religious organizations, both domestic and international.

http://www.amlawteam.com

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