Ten Legal Risks Facing Churches And Church Leaders
Sidebars to the article Ten Legal Risks Facing Churches And Church Leaders In The 21st Century
Churches today exist in an increasingly litigious and regulated environment that makes an awareness of legal risks more important than ever before. The annual church litigation survey conducted by my Church Law & Tax Report newsletter shows an increase in church litigation over the past 7 years, even though litigation in general has leveled off over the same period. The litigation survey also shows that larger churches face the greatest risk. In a recent year, 7 percent of churches having attendance of 1,000 or more at their principal weekly worship service were sued.
What is the relevance of this information for pastors and lay church leaders? Pastors and church leaders must take affirmative steps to become informed about legal risk, and implement appropriate risk-management strategies. Such steps will not only reduce the risk of litigation, but more important, will help safeguard the congregation, especially its most vulnerable members. The responsibilities of a pastor demand no less.
This article will review 10 significant legal risks facing churches and church leaders today and in the foreseeable future. Where appropriate, risk-management strategies also will be reviewed.
NEGLIGENT SELECTION OF CHURCH WORKERS
One of the most significant legal risks facing churches today is negligent selection of workers. The term negligence means carelessness or a failure to exercise reasonable care. Negligent selection, then, means carelessness or a failure to exercise reasonable care in the selection of a worker. Negligent selection can occur in several contexts, including the selection of drivers and bookkeepers. But the most significant risk occurs in the selection of employees and volunteers who will be working with minors. Many churches have been sued on the basis of negligent selection because an inadequately screened worker sexually molested a child. (See sidebar "Understanding the Profile of Sex Offenders.") Remarkably, despite all the media publicity that has been devoted to this issue over the past several years, only one-third of churches do any screening of volunteers who work with children. This means a staggering number of churches are exposing innocent lives to a lifetime of traumatization, and the church itself to potentially astronomical jury verdicts that may not be fully covered by the church’s liability insurance policy.
There is good news, however. Church leaders can take relatively simple, yet effective, steps to significantly reduce the likelihood of such an incident occurring. Here are some precautions to consider:
1. A written application. At a minimum, the church should ask for the applicant’s name and address, the names of other youth-serving organizations in which the applicant has worked as an employee or volunteer, a full explanation of any prior criminal convictions, and the names of two or more references. (See sidebar "A Summary of 2,500 Church Job Applicants.")
2. Contact references. Contact each person and organization listed as a reference in the application, and request a reference addressing the suitability of the applicant to work with minors. The best references are those who have observed the applicant working with minors.
3. Criminal records checks. No court has found a church liable for a youth worker’s sexual misconduct on the ground that it failed to conduct a criminal records check, and so relatively few churches use them. But such checks will further reduce a church’s risk of being found liable for the negligent selection of youth workers, and should be considered.
Resource. The Web site www.screenchurchstaff.com describes all the materials I have published to assist churches in screening workers. It also contains helpful information on why churches should screen workers and allows churches to conduct criminal records checks online.
4. Interviews. Persons being considered for a church position should be interviewed. This provides the church with an opportunity to inquire into each applicant’s background and determine each person’s suitability for the position under consideration.
5. The 6-month rule. Adopt a policy restricting eligibility for any volunteer position involving the custody or supervision of minors to those persons who have been members in good standing of the church for a minimum period of time, such as 6 months. Such a policy gives the church additional opportunity to evaluate applicants, and will help repel persons seeking immediate access to potential victims.
6. Limit second chances. Church leaders often err on the side of mercy when making employment decisions. This attitude can contribute to a negligent selection claim if a church gives an applicant a second chance despite knowledge of prior sexual misconduct, and the conduct is repeated. What the church views as mercy may be viewed as negligence or even gross negligence by a jury.
Key point. The recent sex scandals involving Catholic priests have dramatically affected public opinion regarding screening and supervision of clergy. The public (and juries) will no longer tolerate excuses for failing to screen workers who later molest children.
NEGLIGENT RETENTION OF CHURCH STAFF
A church may use reasonable care in selecting youth workers and other church staff but still be responsible for their misconduct if it retained them after receiving information indicating that they posed a risk of harm to others.
To illustrate, a church employs a youth pastor without doing a background check. A few years later, church leaders learn that the pastor was dismissed by another congregation because of inappropriate sexual contact with a church member. The church takes no action regarding this allegation. A few months later, a church member informs church leaders that she has had a sexual relationship with the youth pastor for several months. She later sues the church, claiming that it is responsible for her injuries on the basis of negligent retention. That is, the church retained the pastor after receiving information suggesting that he represented a risk to others.
How can churches reduce the risk of liability based on negligent retention of a minister or lay worker who engages in inappropriate conduct with an adult or child? While churches cannot eliminate this risk, they can take steps to reduce it. Consider the following:
1. Investigate. Whenever a church leader receives credible information suggesting that a church employee or volunteer may represent a risk of harm to others, an immediate and thorough investigation should be initiated. Remember this: once such information is received, the church is "put on notice" of the risk. It may be legally responsible on the basis of negligent retention for future acts of misconduct by the same person if it does nothing to investigate or respond to the information.
2. Restrictions. If the church’s investigation results in credible evidence to support the victim’s allegations, then the church can reduce its risk of negligent retention by imposing appropriate restrictions on the alleged wrongdoer. The nature and extent of such restrictions will vary depending on a number of circumstances, including the nature and severity of the alleged wrongs and the strength of the evidence. If a church ignores credible evidence of wrongdoing and imposes no restrictions on the alleged wrongdoer, it is exposed to liability based on negligent retention from the time it learned of the allegations.
Key point. Churches that ignore allegations of wrongdoing by a pastor or lay worker face a number of risks in addition to negligent retention. These include (1) liability based on "ratification" of the minister’s actions; (2) punitive damages, that are not covered by insurance; and (3) possible personal liability for members of the church board.
NEGLIGENT SUPERVISION OF CHURCH STAFF AND ACTIVITIES
Churches can use reasonable care in selecting workers, but still be liable for injuries sustained during church activities on the basis of negligent supervision. Negligent supervision refers to a failure to exercise reasonable care in the supervision of church workers and church activities. Churches have been sued on the basis of negligent supervision in several contexts, including child molestation, injuries to children participating in church-sponsored events, and injuries to infants in a church nursery. Churches are not "guarantors" of the safety and well-being of those persons who participate in their programs and activities. Generally, they are responsible only for those injuries that result from their negligence.
There are a number of precautions that churches can take to reduce the risk of liability based on negligent supervision. To illustrate, here are some precautions that churches have used to reduce the risk of a negligent supervision claim involving an injury to a child:
1. Adopt a "two-adult" policy specifying that no minor is ever allowed to be alone with an adult during any church activity. This rule reduces the risk of child molestation, and also reduces the risk of false accusations of molestation.
2. Only release minors from church activities to the parent or legal guardian who brought them, or to a third person that the parent or guardian has authorized in writing to receive custody of the child.
3. If an incident of child molestation occurs on church premises, or in the course of a church activity off of church premises, the church’s duty of supervision increases. The church will be held to a higher standard of supervision because of such knowledge.
4. Installing video cameras in strategic locations can serve as a powerful deterrent to child molesters, and can reduce a church’s risk of negligent supervision.
5. Any activity involving minors should be staffed with an adequate number of qualified adults.
6. Be especially careful in planning off-site activities such as field trips and camping. These outings can be difficult to control. It is essential that an adequate number of adults are present. While on the trip, precautionary measures must be implemented to assure adequate supervision of the group. For example, some churches group children in pairs, always keep the entire group together, and have frequent roll calls.
7. Encourage parents of younger children to accompany their child to youth programs and activities.
8. Acts of child molestation on church premises often occur in remote, unsupervised rooms or areas. A church can reduce its risk of liability based on incidents of molestation occurring in such locations by restricting access to them. If possible, lock vacant rooms that are not being used, or exercise supervision over them.
9. Install windows in all doors to classrooms and other areas that are frequented by minors. This will reduce isolation and make it easier to supervise activities.
10. It is absolutely essential to familiarize youth workers with the church’s policies and to be sure these policies are followed.
Key point. It is often difficult for church leaders to know how many adults should be present during a church activity or outing involving children. Here is an idea that may help: contact other charities in your community, such as the Boy Scouts, Girl Scouts, Red Cross, Salvation Army, or a public school. Ask them how many adults they would require for a similar event. Basing your decision on such input will help refute a charge of negligent supervision.
Key point. Here is an excellent question to ask when evaluating a church’s risk of negligence (in hiring, retention, or supervision): How would a jury view our actions? Would it conclude that our actions were reasonable? If such a conclusion is not certain, then the risk of negligence exists.
Most churches offer some form of counseling services. The most common example would be counseling of church members by a minister. Many churches also offer lay-counseling services. Some limit these services to members of the congregation, while others target the general public and promote their counseling ministry in the local media and telephone directory. Some churches use counselors or psychologists who are licensed by the state, while others use unlicensed laypersons with little if any professional training.
Counseling ministries can provide an excellent and needed service, and represent a "point of contact" with the community. However, there are a number of important legal concerns that should be considered by any church that offers such services, or that is considering doing so in the future. Such concerns include negligent counseling, child abuse reporting responsibilities under state law, sexual misconduct, maintaining confidences, negligent selection, negligent supervision, and the unauthorized practice of psychology or counseling by unlicensed persons who are not serving as pastoral counselors.
Churches that offer counseling services can reduce these legal risks in various ways, including the following:
1. Adopt a policy prohibiting any male minister or counselor on staff from counseling privately with an unaccompanied female (i.e., opposite sex counseling) unless a third person is present. The third person may be the minister’s or counselor’s spouse, another minister on staff, or a mature and trusted church employee (preferably female). Some churches have limited such a policy to counseling that occurs off of church premises, or on church premises when no other church staff are present and visible.
2. Since the vast majority of cases of inappropriate sexual behavior involve male counselors and female counselees, churches can significantly reduce their risk by using women to counsel women.
3. Install a window in the pastor’s office making all counseling sessions clearly visible to office staff. Of course, such a precaution is effective only if other staff are present and visible throughout the counseling session. This means that the church should implement a policy limiting counseling sessions to office hours when other staff are present and visible.
4. Limit counseling sessions to 30–45 minutes.
5. Permit no more than five counseling sessions with the same person during a calendar year.
6. Churches that use unlicensed lay counselors should prepare a suitable brochure or statement clearly communicating the following to each counselee: the church considers counseling to be an essential aspect of its ministry, and that counselors are engaged solely in spiritual counseling based on their understanding of the Bible; they are not engaged in the practice of psychology, professional counseling, or psychotherapy.
7. Counselors should avoid any controversial counseling techniques that have been associated in recent years with staggering levels of liability (such as age regression therapy, "recovering" memories of child abuse, or multiple personality disorders).
8. Lay, unlicensed counselors should have a clear understanding of those cases that need to be referred to a professional counselor.
CHILD ABUSE REPORTING
Child abuse is of epidemic proportion in our country. Ministers often learn of incidents of abuse in the course of counseling or from reports they receive from nursery or youth workers. It is essential for ministers to understand clearly their responsibilities under state law to report known or reasonably suspected incidents of abuse. In many states, ministers are "mandatory reporters," meaning they can be criminally liable for failing to report. Several states now permit a minister who is a mandatory child abuse reporter under state law to be sued for money damages by a victim of child abuse who discovers that the minister was aware of the abuse but did not report it.
A number of courts have rejected the defense made by some ministers that they failed to report abuse because they wanted to deal with the problem within the church as a matter of discipline. Some states excuse ministers from the reporting obligation if they learn of child abuse in the course of a privileged communication. Check your state law at least a few times each year, since this is an area of law that changes often.
Resource. Every year I publish a summary of the child abuse reporting laws of all 50 states in the May–June issue of my Church Law & Tax Report newsletter. This annual article addresses the following key issues in every state: (1) the definition of reportable child abuse; (2) who are mandatory reporters; (3) where to report; and (4) does the clergy-penitent privilege exempt ministers from a duty to report? Because state child abuse laws are frequently amended, I publish this article every year.
SECURITIES LAW VIOLATIONS
Laws regulating the sale of securities have been enacted by the federal government and by all 50 states. The term security is defined very broadly by such laws. The Uniform Securities Act, which has been adopted by a majority of the 50 states, defines a security to include a wide range of instruments, including bonds, promissory notes, and many other instruments used in church fundraising campaigns.
Securities laws were enacted to protect the public against fraudulent and deceptive practices in the sale of securities and to provide full and fair disclosure to prospective investors. To achieve these purposes, most securities laws impose the following conditions on the sale of securities: (1) registration of proposed securities with the federal or state government in advance of sale; (2) filing of sales and advertising literature with the federal or state government; (3) registration of agents and broker-dealers who will be selling the securities; and (4) prohibition of fraudulent practices.
Although the federal government and most states exempt securities offered by any organization "organized and operated not for private profit but exclusively for a religious . . . purpose" from registration, it is important to note that some states do not exempt the securities of religious organizations from registration; others impose conditions on the exemption; many require that an application for exemption (or "notice" of exemption) be submitted and approved before a claim of exemption will be recognized; a few states require churches and religious denominations that "issue" their own securities to be registered as issuers or issuer-dealers; and all securities laws subject churches and other religious organizations to the antifraud requirements. Church leaders therefore must not assume that any securities issued by their church are automatically exempt from registration or regulation. Church securities always will be subject to some degree of regulation. The question in each case is how much. Churches that violate state securities laws face a variety of potential consequences under state and federal securities laws. These include investigations, hearings, subpoenas, injunctions, criminal actions, cancellation of sales, suits for monetary damages by aggrieved investors, monetary fines, and revocation of an exemption, or registration, of securities.
Church leaders should not consider securities as a means of raising funds without the counsel of a securities attorney.
Key point. A recent church litigation survey conducted by my Church Law & Tax Report newsletter discloses that securities law violations represent the second highest source of damages in civil litigation involving churches.
Churches are exposed to liability for various employment practices. The risk increases with the number of employees. This risk must be taken seriously by church leaders, because it generally is not covered by a church’s liability insurance policy. This means that a church that is sued on the basis of an employment decision or practice will be responsible for retaining and compensating its own attorney and paying any judgment or settlement. These costs can be substantial.
One church employment practice that can result in liability is the "wrongful termination" of an employee. A church dismisses an employee who later sues the church, claiming that his or her termination was wrongful. In most states, employees who are hired for an indefinite period are considered "at will" employees. This means that the employment relationship may be terminated at will by either the employer or employee, with or without cause, and with or without notice. The courts and state legislatures have created several exceptions to the at will employment rule. These exceptions limit the right of an employer to terminate an at will employee. Employees who are hired for a specific term are not at will employees, and they may be terminated only if the employer has "good cause."
Churches also may face liability for violating state and federal discrimination laws that prohibit certain employers from discriminating against employees on the basis of several grounds, including race, national origin, sex, religion, age, disability, sexual orientation, and the off-duty use of lawful products such as tobacco and alcohol.
Church leaders should seek the assistance of an attorney when considering the termination or discipline of an employee, or any employment action that may violate a state or federal discrimination law. Remember, employment practices are not covered under most church insurance policies.
Key point. The courts have ruled that religious organizations may discriminate on the basis of religion in their employment decisions, but they must be consistent. A church that dismisses only female employees on the basis of adultery could not justify this practice as permissible religious discrimination.
Key point. A church should avoid dismissing an employee who is a member of a protected class under a federal or state civil rights law unless there is a legitimate, nondiscriminatory basis for the dismissal. For example, a church that is subject to a state or federal age discrimination law should avoid dismissing a 70-year-old employee unless there is clear and convincing evidence of incompetency, incapacity, insubordination, or some other nondiscriminatory basis for dismissal.
Key point. Dismissed employees often point to "performance reviews" as proof that their termination was discriminatory. To illustrate, assume that a church conducts annual performance reviews for all employees, and that a disabled employee consistently received excellent or above average scores. Within a few months of such a review, the employee is dismissed because of the "poor quality" of his work. The employee sues the church, claiming that it discriminated against him on the basis of his disability. The church insists that the disability had nothing to do with its decision, but the employee points to the annual performance reviews as proof that the church’s alleged basis for termination was a "pretext."
Over the next several years, more wealth will be transferred intergenerationally in this country than at any time in human history. There has never been a greater opportunity for churches to benefit from this wealth by emphasizing stewardship. Church leaders should recognize, however, that a sizable gift to a church may be challenged by the donor’s relatives if they believe the church exerted undue influence on the donor. There are several factors the courts will consider in deciding whether or not undue influence occurred, including the age and mental health of the donor, the donor’s prior giving practices, and the presence of independent legal advice.
Many wills leaving substantial portions of estates to churches and other charities have been challenged by "disinherited heirs" on the basis of undue influence. Persons bringing such lawsuits often recognize they have a weak case, but they sue anyway, hoping that the church will quickly settle with them to avoid the potential adverse publicity associated with such lawsuits. After all, what church wants to be accused publicly of coercing elderly members into making gifts to the church?
Churches that receive a gift under a will that is challenged on the basis of undue influence should keep in mind a couple of considerations. First, undue influence usually is very difficult to prove, particularly when the donor was in reasonably good mental and physical health at the time the will was executed.
Second, in many states, undue influence must be proven by "clear and convincing evidence"—a more difficult burden of proof than the ordinary "preponderance of the evidence" standard. A church that becomes aware that an elderly or infirm person is considering leaving a portion of his or her estate to the church can reduce the possibility of undue influence even further by ensuring that the person obtains the independent counsel of an attorney in drafting the will or trust. Ideally, the attorney should not be a member of the same church.
Third, church leaders should recognize that they have a moral obligation to assist in implementing the estate plans of deceased members so long as they are satisfied that no improper influence was exercised. If a former member in fact intended that a portion of his or her estate be distributed to the church, and church leaders too quickly succumb to threats of attorneys hired by disgruntled family members, then they have violated a sacred trust.
PERSONAL LIABILITY OF CHURCH BOARD MEMBERS
Traditionally, the officers and directors of nonprofit corporations performed their duties with little if any risk of personal legal liability. In recent years, a number of lawsuits have attempted to impose personal liability on such officers and directors. In some cases, directors are sued because of statutes that provide limited legal immunity to churches. Church officers and directors have been sued personally on the basis of several grounds, including the following: (1) tort liability for such actions as negligent operation of a church vehicle, negligent supervision of church workers and activities, copyright infringement, and wrongful termination of employees; (2) contract liability for executing a contract without authorization; (3) violating one of the "fiduciary duties" that every officer or director owes to a corporation, including the duties of due care and loyalty to the corporation; (4) selling securities without registering as an agent, or engaging in fraudulent activities in the offer or sale of church securities; (5) willfully failing to withhold or pay over federal payroll taxes to the government; and (6) approving a loan to an officer or director.
A number of states have adopted statutes limiting the liability of uncompensated directors of nonprofit corporations for their ordinary negligence. These laws do not protect officers and directors who are compensated for their duties, or who engage in gross negligence or intentional misconduct.
Key point. Directors and officers insurance provides coverage for various acts committed by board members in the course of their official duties. Such insurance may provide coverage for claims that are excluded under a church’s general liability policy. It also may cover acts not protected by the federal and state charitable immunity laws.
Courts can award "punitive damages" for conduct that amounts to "gross negligence." Punitive damages are damages awarded by a jury "in addition to compensation for a loss sustained, in order to punish, and make an example of, the wrongdoer." They are awarded when a person’s conduct is particularly reprehensible and outrageous. This does not necessarily mean intentional misconduct. Punitive damages often are associated with reckless conduct or conduct creating a high risk of harm. To illustrate, in one case a punitive damage award was based on the fact church officials repeatedly and knowingly placed a pastor in situations where he could sexually abuse children and then failed to supervise him and disclose his sexual problem. Clearly, church officials did not intend for the pastor to molest anyone. But under the circumstances, the jury concluded that the church’s actions were sufficiently reckless to justify an award of punitive damages.
Church leaders must understand that reckless inattention to risks can lead to punitive damages, and that such damages are not covered by the church’s liability insurance policy. This means that a jury award of punitive damages represents an uninsured risk. Accordingly, it is critical for church leaders to understand the basis for punitive damages, and to avoid behavior that might be viewed as grossly negligent.
Richard R. Hammar, J.D., LL.M., CPA, is an attorney and CPA. Heserves as legal counsel to the Assemblies of God, and is editor ofthe Church Law & Tax Report newsletter. He has written over 50 books on church legal and tax issues, including the newly released third edition to Pastor, Church & Law.