Mid Vermont Christian School v. Dept. of Employment & Training (2004-473)
2005 VT 100
[Filed 26-Aug-2005]
NOTICE: This opinion is subject to motions for reargument under
V.R.A.P. 40 as well as formal revision before publication in the Vermont
Reports. Readers are requested to notify the Reporter of Decisions,
Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
any errors in order that corrections may be made before this opinion goes
to press.
2005 VT 100
No. 2004-473
Mid Vermont Christian School Supreme Court
v. On Appeal from
Employment Security Board
Department of Employment and Training
June Term, 2005
Anne V. Ginevan, Chair
Anthony R. Duprey of Neuse Smith & Venman, PC, Middlebury, for
Plaintiff-Appellant.
William H. Sorrell, Attorney General, and Bridget C. Asay, Assistant
Attorney General, Montpelier, for Defendant-Appellee.
PRESENT: Reiber, C.J., Dooley, Johnson and Skoglund, JJ., and
Allen, C.J. (Ret.), Specially Assigned
¶ 1. DOOLEY, J. Appellant, Mid Vermont Christian School (MVCS),
appeals the Department of Employment and Training's determination that MVCS
is an employer subject to the unemployment compensation law and must
therefore pay an employer contribution tax to fund any unemployment
compensation claims by its employees. MVCS argues that, as a religious
school, it is entitled to exemption under the statute, and that denial of
that exemption violates its constitutional rights. We agree with the
appeals referee and the Employment Security Board (ESB) that MVCS is not an
exempt employer, and hold that applying the statute does not violate MVCS's
rights under either the United States or the Vermont Constitutions.
¶ 2. MVCS is an independent Christian school approved by the
Vermont State Board of Education with an enrollment of approximately 160
students in grades preschool through twelve. In addition to a traditional
curriculum that includes subjects such as math, science, history, and
computer science, MVCS integrates teachings from the Bible throughout its
curriculum. Students are also required to attend daily Bible classes and
weekly chapel.
¶ 3. The school's stated mission is "to provide a sound, effective
educational program that is well-integrated with Biblical principles
directed toward the end that children may occupy their places worthily in
community, church, state, . . . the world." MVCS has articulated its
religious values in a Statement of Faith found in Article II of its
constitution. All faculty, staff, board members, full association members,
and advisory board members must declare their unconditional agreement with
that Statement of Faith, be regular participants of a church, and be
scripturally sound in their belief, and lead "exemplary lives." Parents
must also assent to the Statement of Faith when enrolling their children at
MVCS.
¶ 4. MVCS is not a church nor is it owned by or affiliated with any
church. It does, however, receive financial and promotional support from
roughly twenty-five to thirty churches. Annually, these churches
contribute approximately $64,000 toward the school's $900,000 operating
budget.
¶ 5. The MVCS Board of Directors supervises the "governance,
maintenance and growth" of the school. Specifically, the Board sets school
policies, oversees school finances and supervises school employees. It is
elected by the MVCS Association, which is comprised of students' parents
and other individuals who make a financial contribution to the school. A
pastoral advisory board advises the Board of Directors on how to provide a
spiritually-sound Christian education.
¶ 6. On October 8, 2003, the Vermont Department of Employment and
Training (DET) presented MVCS with a notice of employer liability, stating
that MVCS was an employer subject to the provisions of the unemployment
compensation law. Based on this status, DET found that MVCS would be
responsible for payment into the State unemployment compensation fund at
its assigned contribution rate, and that eligible MVCS employees would be
entitled to unemployment compensation benefits. See 21 V.S.A. §§ 1348
(eligibility procedure), 1344 (disqualifications). Prior to receipt of
that notice, MVCS relied upon a 1992 letter from DET that stated that MVCS
was not an employer as defined by statute.
¶ 7. MVCS appealed the October 2003 determination to the appeals
referee, who concluded that the services performed by MVCS employees were
not excluded from unemployment compensation coverage because MVCS was not a
church or convention of churches, was not operated primarily for religious
purposes, and was not operated, supervised, controlled, or principally
supported by a church or convention or association of churches. MVCS then
requested review of the referee's decision by the ESB. On August 31, 2004,
the ESB sustained the decision of the appeals referee. On appeal, MVCS
argues that (1) it is covered by an exemption contained in federal law and
that the exemption is binding on the State, and (2) the ESB decision
violates its rights under the United States and Vermont constitutions.
DET maintains that MVCS does not qualify for an exemption under the Vermont
statute, nor is Vermont obligated to adopt the federal exemption. It also
argues that application of the Vermont statute to MVCS does not violate the
school's constitutional rights.
¶ 8. We start with the application of the Vermont statute to MVCS
and its circumstances. Although MVCS does not challenge the ESB's
construction of the statute, that construction is central to the resolution
of MVCS's constitutional arguments. There is no dispute that MVCS fits
within the general definition of an employer under the unemployment
compensation law and that it has employees. The statute contains, however,
an exemption from the definition of "employment" for services performed:
[I]n the employ of a church or convention or association of
churches, or an organization which is operated primarily for
religious purposes and which is operated, supervised, controlled,
or principally supported by a church or convention or association
of churches[.]
21 V.S.A. § 1301(6)(C)(vii)(I).
¶ 9. The exemption consists of two parts. Generally, the first
clause exempts churches, and the second clause exempts organizations
"operated primarily for religious purposes" and affiliated with a church.
Neither party contends that the first clause applies-that is, they agree
that MVCS itself is not a "church or convention or association of
churches." The ESB found that neither requirement of the second clause
applies-that is, it found that MVCS is neither "operated primarily for
religious purposes" nor "operated, supervised, controlled, or principally
supported by a church or a convention or association of churches."
¶ 10. On the first requirement of the second clause, the appeals
referee and the ESB found that MVCS "is operated primarily for educational,
not religious purposes." It concluded that although the school's Bible
instruction, inculcation of Christian values and glorification of God were
integral parts of the educational mission, the primary purpose is to
provide a thorough education, combining traditional and modern subjects to
prepare the majority of graduates for college. On the second requirement,
the referee and the ESB found that MVCS is not "operated, supervised,
controlled, or principally supported by a church or convention of churches
or association of churches" based on various statements in the school's
literature that "[t]he school is independent (not affiliated with any one
church)," is an "interdenominational Christian School not affiliated with
any one church," and is "autonomous" and not subject to any ecclesiastical
entity. They also relied upon the facts that MVCS is run by an
independently elected, autonomous board of directors and derives its
operating funds "almost exclusively from tuition payments."
¶ 11. Because MVCS has failed to appeal from the decision of the
ESB that its employees are covered by the unemployment compensation
statute, we do not review this ruling. We note, however, that the issues
have been litigated extensively in other jurisdictions with mixed results,
especially with respect to whether similar organizations are operated
primarily for religious purposes. See Samaritan Inst. v. Prince-Walker,
883 P.2d 3, 8 (Colo. 1994) (concluding pastoral counseling organization not
operated primarily for religious purposes because primary activities within
Colorado administrative); Nampa Christian Sch. Found., Inc. v. State, 719
P.2d 1178, 1183-84 (Idaho 1986) (explaining that independent Christian
school is operated primarily for religious purposes and, because it could
not exist without the moral support of local churches, is principally
supported by an association of churches); Cmty. Lutheran Sch. v. Iowa Dep't
of Job Serv., 326 N.W.2d 286, 291 (Iowa 1982) (ruling that, as a matter of
law, Lutheran parochial school is operated primarily for religious
purposes) (collecting cases); Baltimore Lutheran High Sch. Ass'n, Inc. v.
Employment Sec. Admin., 490 A.2d 701, 709 (Md. 1985) (affirming
administrative agency determination that Lutheran parochial school is
operated primarily for educational, and not religious, purpose); Employment
Sec. Admin. v. Baltimore Lutheran High Sch. Ass'n, Inc., 436 A.2d 481, 487
(Md. 1981) (setting out factors to determine whether independently
incorporated parochial school is operated primarily for religious
purposes); Miller v. Saints Peter & Paul Sch., 711 N.E.2d 311, 314-15 (Ohio
Ct. App. 1998) (Catholic school operated by church parish was operated
primarily for religious purposes and controlled by a church); Bach v.
Steinbacher, 609 N.E.2d 607, 608-09 (Ohio Ct. App. 1992) (Hebrew University
with primary purpose to educate Rabbis is operated primarily for religious
purposes). Because of the posture of this case, we do not decide whether
services performed by employees of MVCS are exempt from the definition of
employment pursuant to 21 V.S.A. § 1301(6)(C)(vii)(I).
¶ 12. MVCS's primary argument is that it is exempt from providing
unemployment compensation to its workers based on additional exemption
language contained in federal unemployment compensation law, but not in the
corresponding Vermont statute. Unemployment compensation is a "cooperative
federal-state program of benefits to unemployed workers." Wimberly v.
Labor & Indus. Relations Comm'n of Mo., 479 U.S. 511, 514 (1987). Under
the Federal Unemployment Tax Act (FUTA), the Secretary of Labor must
annually certify that a state's unemployment compensation program meets
certain minimum standards in order for that state to be eligible for
federal grant money and for the state's employers to qualify for tax
credits under the program. See 42 U.S.C. § 501 (grants to states for
unemployment compensation administration); 29 U.S.C. § 49(d)
(appropriations to states by Federal Employment Service); 26 U.S.C. § 3302
(ninety-percent tax credit for employers). The minimum standards of
coverage required to meet federal certification are defined in 26 U.S.C.
§ 3304(a). Wimberly, 479 U.S. at 515. A separate statute, § 3309(b), lists
permissible exemptions from participation in the compensation program for
certain non-profit and government employment. Vermont's unemployment
statute, 21 V.S.A. § 1301(6)(C)(vii)(I), contains the exemptions in 26
U.S.C. § 3309(b)(1)(A) and § 3309(b)(1)(B), but in 1997 Congress added a
third exemption for "an elementary or secondary school which is operated
primarily for religious purposes, which is described in section 501(c)(3),
and which is exempt from tax under section 501(a)." 26 U.S.C.
§ 3309(b)(1)(C). The Vermont Legislature has not adopted this exemption.
¶ 13. Both sides of this case agree after the additional federal
exemption, state unemployment compensation programs are no longer required
to cover those elementary or secondary religious schools encompassed by the
exemption. MVCS further argues that the exemption in fact compels every
state to exempt these religious schools from participation in the state
programs. MVCS further argues that if a state refuses to enact the 1997
amendment, a qualifying religious school is nevertheless entitled to the
federal exemption because the federal exemption preempts the non-conforming
state law. The ESB rejected MVCS's arguments, relying upon the fact that
the Secretary of Labor has continued to certify that the Vermont
unemployment compensation program complies with federal law despite the
failure of the Legislature to adopt the 1997 federal exemption. We agree
with the ESB.
¶ 14. States are vested with the power to impose general taxes on
employers for unemployment compensation programs. Standard Dredging Corp.
v. Murphy, 319 U.S. 306, 308 (1943). FUTA augments the states' power to
provide unemployment compensation protection by providing benefits to
states that meet congressionally-defined minimum standards of unemployment
compensation coverage. The states remain free to expand their unemployment
compensation coverage beyond the federal minimum standards. St. Martin
Evangelical Lutheran Church v. South Dakota, 451 U.S. 772, 775 n.3 (1981);
Salem College & Acad. Inc. v. Employment Div., 695 P.2d 25, 29 (Or. 1985);
Prof. Samplers, Inc. v. S.C. Employment Sec. Comm'n, 513 S.E.2d 374, 378
(S.C. Ct. App. 1999). In effect, under the minimum federal requirements,
coverage is mandatory, but exemptions are not, and the federal law creates
a floor on state eligibility, but not a ceiling. See Standard Dredging
Corp., 319 U.S. at 310 (exempting employers from the federal act does not
operate to exempt them from state unemployment insurance taxes); Koolau
Baptist Church v. Dep't of Labor & Ind. Rel., 718 P.2d 267, 270-71 (Haw.
1986); Special Care of N.J., Inc. v. Bd of Review, 742 A.2d 1023, 1029
(N.J. Super. Ct. App. Div. 2000) ("[E]xistence of an exemption under FUTA
does not mandate the same exemption under state law."); In re Florence
Orchards, Inc., 448 N.Y.S.2d 803, 804 (N.Y. App. Div. 1982) (that federal
law "excludes certain items from its definition of 'employment' does not
preclude a state from including those items in its definition"). This
overall principle is in accordance with the purpose of unemployment
compensation, to aid those whose unemployment is involuntary. Littlefield
v. Dep't of Employment & Training, 145 Vt. 247, 254, 487 A.2d 507, 510
(1984). Vermont has opted to include independent, non-church affiliated
religious schools within the scope of the unemployment compensation
program. By doing so, it provides more expansive coverage than the federal
scheme, as permitted under the federal law.
¶ 15. MVCS cites two United States Supreme Court cases, but neither
supports its argument. The first case, St. Martin Lutheran Church v. South
Dakota, we have cited above as authority supporting the state's more
expansive unemployment compensation program, but we distinguish the
particular issue decided in that case because the holding "concerns only
schools that have no legal identity separate from a church." 451 U.S. at
783 n.12. That case was decided entirely under the first exemption for "a
church or convention or association of churches" and explicitly declined to
interpret the provision we deal with in this case, "an organization which
is operated primarily for religious purposes and which is operated,
supervised, controlled, or principally supported by a church or convention
or association of churches." 21 V.S.A. § 1301(6)(C)(vii)(I).
¶ 16. MVCS also argues that California v. Grace Brethren Church, 457
U.S. 393 (1982), requires states to amend their statutes to conform to
federal law. The decision in Grace Brethren is based on the Tax Injunction
Act, and as a result, is no direct help. MVCS finds a suggestion in the
Court's language that it would rule for MVCS in this case. We cannot,
however, agree that the case contains such a suggestion.
¶ 17. Grace Brethren arose before the 1997 amendment that added the
additional federal exemption and involved a constitutional challenge to the
narrow scope of the first two federal exemptions-that is, the two that
exist in Vermont law as 21 V.S.A. § 1301(6)(C)(vii)(I). These two
exemptions were left after Congress repealed an earlier, broader amendment.
MVCS argues that the Supreme Court stated that each state law must have
these two exemptions. Grace Brethren, 457 U.S. at 398. In fact, all the
Court stated was that states could no longer use the repealed exemption.
Id. To have gone further would have been inconsistent with Standard
Dredging. 319 U.S. at 310.
¶ 18. Finally, we note that the ESB's rationale-that the Secretary
of Labor has endorsed DET's view of federal law by continuing to certify
Vermont's unemployment compensation program. See Charles C. Steward Mach.
Co. v. Davis, 301 U.S. 548, 594-95 (1937). If certification were denied,
Vermont would become ineligible for federal grant money and Vermont
employers would lose their credit for the amounts they pay into the State
unemployment fund. The Vermont unemployment compensation program has been
certified without this exemption every year since the federal amendment was
passed in 1997. We agree that the Secretary's certification action is an
endorsement of DET's interpretation of federal law-the interpretation we
have reached in this decision-by the official responsible for administering
the federal program and therefore entitled to deference. Hogan v. Dep't of
Soc. & Rehab. Servs., 168 Vt. 615, 617, 727 A.2d 1242, 1243-44
(1998)(mem.).
¶ 19. MVCS claims that the DET's application of the statute to the
school violates the First Amendment and the Equal Protection Clause of the
Federal Constitution, and the Common Benefits Clause of the Vermont
Constitution. (FN1) All of MVCS's constitutional arguments are based on
its claim that the Vermont statute, as applied, distinguishes between
religious schools owned or operated by churches and those run
independently, and that this distinction is unconstitutional. In making
these arguments, MVCS ignores that the ESB decision found two separate
grounds for denying MVCS an exemption from making unemployment compensation
contributions. MVCS ignores the fact that the ESB also denied MVCS an
exemption because it was not "operated primarily for religious purposes."
Under the ESB's rationale, even if MVCS were "operated, supervised,
controlled, or principally supported by a church or convention or
association of churches," it still would not be exempt.
¶ 20. MVCS is raising serious questions of state and federal
constitutional law, essentially the argument made to the United States
Supreme Court in Grace Brethren but not reached because of the
jurisdictional holding. Ordinarily, we would analyze such issues
thoroughly and in depth. In this case, however, MVCS's arguments are
extremely sparse, to the point of inadequate briefing, and they do not
acknowledge the full holding of the ESB. As a result, we dispose of them
summarily.
¶ 21. MVCS relies primarily on one case, Christian School Ass'n v.
Commonwealth, 423 A.2d 1340, 1347 (Pa. Commw. Ct. 1980), which holds that
denying an exemption based on the organizational structure of an entity
operated primarily for religious purposes violates the free exercise clause
of the First Amendment. The argument is more thoroughly developed in Salem
College, 695 P.2d at 36-39, which held that such discrimination would
violate Article I, Sections 2 and 3 of the Oregon Constitution. The Oregon
Supreme Court construed the statute to deny the exemption to all religious
schools, however they are organized, and avoided the constitutional
deficiency in that way. Id. at 40. In effect, the ESB accomplished the
same result in this case by holding that MVCS is not operated primarily for
religious purposes. In the absence of discrimination based on how a
religious school is operated, MVCS has no claim under the First Amendment
or under the Common Benefits Clause in Chapter I, Article 7 of the Vermont
Constitution. We conclude that the statute neither unconstitutionally
burdens the free exercise of religion, nor establishes religion. We
further hold that the statute does not unconstitutionally discriminate
between independent schools such as MVCS, and those supported by a church,
convention or association.
Affirmed.
FOR THE COURT:
_______________________________________
Associate Justice
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Footnotes
FN1. MVCS raises no claims under Chapter I, Article 3 of the Vermont
Constitution.