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U.S. DEPARTMENT OF LABOR
Employment and Training Administration
Washington, D. C. 20213

CLASSIFICATION

UI

CORRESPONDENCE SYMBOL

TURL

ISSUE DATE

October 30, 1981

RESCISSIONS

 

EXPIRATION DATE

September 30, 1982

DIRECTIVE

:

UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 02-82

 

TO

:

ALL STATE EMPLOYMENT SECURITY AGENCIES

 

FROM

:

T. JAMES WALKER
Administrator
Administration and Management

 

SUBJECT

:

Effect of U.S. Supreme Court's Decision in St. Martin Evangelical Lutheran Church et al v. South Dakota and U. S. District Court's Decision in Grace Brethren Church et al v. State of California et al on Coverage of Church-Related Elementary and Secondary Schools

 

  1. Purpose. To inform SESAs of the Courts' decisions on coverage of church-related schools and their impact on coverage, under State laws, of such schools.

  2. References. P.L. 94-566.

  3. Background. The Department of Labor had previously interpreted the 1976 amendments of the Federal Unemployment Tax Act (FUTA) enacted by P.L. 94-566 as having intended, among other things, that, for the purpose of conformity, State laws must provide coverage of services performed for all elementary and secondary schools, including church affiliated schools. Several churches and some States opposed coverage on statutory and constitutional grounds.

    In its May 26, 1981 decision in St. Martin Evangelical Lutheran Church v. South Dakota, the United States Supreme Court rejected the Department's interpretation of Section 3309(b)(1) of FUTA and concluded that schools "that have no separate legal existence from a church or . . . from a convention or association of churches" are not required by FUTA to be covered because the exemption in Section 3309(b)(1)(A) applies to such schools.

    In a related decision, a United States District Court in Grace Brethren Church v. California ruled that Section 3309 (b)(1)(B) also permitted the exemption of religious schools which, although separately incorporated from a church, are "operated, supervised, controlled or principally supported by a church or convention or association of churches." The court further found that religious school not affiliated with a particular church were not exempt from coverage under Section 3309 (b)(1), but that coverage of such schools would violate the First Amendment of the Constitution. The Department has appealed this latter holding to the United States Supreme Court, but has decided to accept the court's position with respect to separately incorporated schools which are affiliated with a church or convention or association of churches.

  4. Effect on State Law Coverage. As a result of the secretary's position described above, sections 3304(a)(6)(A) and 3309, FUTA, are interpreted as not requiring State law coverage of services performed by individuals in the employ of schools affiliated with a church or convention or association of churches whether or not such schools have a legal identity separate from a church or convention or association of churches. It is also the Secretary's position that services performed by individuals in the employ of schools with a religious orientation but which are not affiliated with a particular church are not exempt from coverage under Section 3309(b)(1).

    The Secretary of Labor remains under an injunction by the District Court against attempting to enforce coverage of schools without a church affiliation and is, therefore, taking no action to require States to cover under their laws services performed by individuals in the employ of such schools. If the views of the United States prevail in the appeal to the United States Supreme Court, States would be prepared to apply the required coverage if they do not take action to exempt such schools pending a final decision on the question.

  5. Effect on SESA Action. ETA recommends that States take no action to exempt retroactively services performed in the employ of schools that do have an affiliation with a church or convention or association of churches or holding benefits paid previously on the basis of such services to be overpaid. ETA recommends that employer contributions or payments in lieu of contributions not be refunded, unless, under State law, coverage of such services is held to be erroneous from the beginning. If interpretation of the State law is merely changed, and coverage in the past is not held to have been erroneous, any refund of contributions or reimbursements paid by employers on the basis of services in the employ of church-related schools would be a prohibited withdrawal of money from the State unemployment fund. The denial of benefits retroactively, merely on the basis of a retroactive change of the State law, might be a denial of benefits to individuals entitled thereto under the State law at the time benefits were granted.

  6. Recommended SESA Action. The Department of Labor recommends that SESAs be very cautious to assure that there is a legal basis for actions taken on coverage or exemption of church-related schools, especially any actions affecting benefit rights and employer liability under their State laws.

  7. Inquiries. Questions should be directed to the appropriate Regional Office.