Newport Church of the Nazarene v. Hensley

• Decision Date: 02 June 1999
• Docket Number: EAB No. 97-AB-2014; CA A99663
• Citation: 983 P.2d 1072,161 Or. App. 12
• Court: Oregon Court of Appeals
• Parties: NEWPORT CHURCH OF THE NAZARENE, an Oregon nonprofit corporation, Petitioner, v. Gordon R. HENSLEY, Respondent—Cross-Petitioner, and Employment Department, Respondent—Cross-Respondent.

983 P.2d 1072

161 Or. App. 12

NEWPORT CHURCH OF THE NAZARENE, an Oregon nonprofit corporation, Petitioner, v. Gordon R. HENSLEY, Respondent—Cross-Petitioner, and Employment Department, Respondent—Cross-Respondent.

(EAB No. 97-AB-2014; CA A99663)

Court of Appeals of Oregon.

Argued and Submitted January 5, 1999.

Decided June 2, 1999.

Kelly E. Ford , Beaverton, argued the cause and filed the briefs for petitioner. With her on the briefs were Kelly E. Ford, P.C., and Gregory S. Baylor, Annandale, Virginia.

Paul R. Meyer argued the cause for respondent—cross-petitioner. With him on the brief was Charles F. Hinkle and ACLU Foundation of Oregon, Inc.

Christine Chute, Assistant Attorney General, argued the cause for respondent—cross-respondent. With her on the brief were Hardy Myers, Attorney General, and Michael D. Reynolds, Solicitor General.

Before De MUNIZ, Presiding Judge, and HASELTON and ARMSTRONG, Judges.

De MUNIZ, P.J.

In this unemployment compensation claim case, petitioner, the Newport Church of the Nazarene (Church), challenges an award of benefits to claimant. ORS 657.282. Claimant cross-petitions for review of the denial of attorney fees, the failure to admit certain evidence related to the attorney fee issue and the failure to award interest on his benefits. On review for errors of law, we affirm on the petition and affirm in part and reverse in part on the cross-petition and remand. ORS 183.482(8)(a).

We state the facts as contained in the administrative record. In October 1993, claimant began work for Church as a youth minister. Approximately eight months later, Church discharged claimant because, according to his supervisor, claimant "disrupted the cohesiveness of [Church's] staff and support of the congregation was decreasing significantly." In September 1994, claimant filed a claim for unemployment compensation benefits. The filing of that claim commenced a lengthy process in which Church argued that constitutional guarantees of religious freedom prohibited the state from including claimant, a minister, in the unemployment compensation system. After several intervening administrative decisions and orders, the Employment Appeals Board (Board) ultimately affirmed a reconsidered administrative decision awarding claimant benefits. This petition for review followed from that decision.

In light of Church's constitutional challenge, which does not concern any benefit eligibility determinations made on nonconstitutional grounds, some background on Oregon's unemployment compensation law, ORS chapter 657, is necessary to a proper understanding of this case. When a claimant applies for unemployment compensation benefits, the Employment Department (Department) "shall" examine each claim and make a decision to allow or deny the claim. ORS 657.266; ORS 657.267. In making that determination, the Department first decides whether the claimant has worked for an employer subject to ORS chapter 657 and, if so, whether the claimant has earned enough wages during the base year to qualify for benefits. ORS 657.150; see also ORS 657.105 to ORS 657.140 (defining "subject employment" and wages). If the Department determines that a claimant has not worked for a subject employer or has not earned enough wages, then the claimant's claim is denied and the inquiry ends. If, however, a claimant meets those work and wage requirements, the Department "shall" determine if the claimant is otherwise disqualified for one of several statutory reasons. ORS 657.176. Some of the disqualifying factors include work separation for misconduct, voluntary separation without good cause and absence or tardiness from work as a result of alcohol or drug use. ORS 657.176; see also OAR 471-030-0038(3)(a) (discussing factors that constitute misconduct). After an administrative decision is made with respect to either work and wage requirements or disqualifying factors, either party may request a hearing, a Board decision, and ultimately review by this court. Here, the dispute centers on whether ministerial work is a "subject employment."¹

ORS 657.072(1)(a) and (b) exclude from "subject employment" services performed for a church and services performed by a minister of a church.² The provisions intentionally mirror the corresponding federal statute, the Federal Unemployment Tax Act (FUTA), 26 USC section 3309(b)(1) (1988), to ensure that Oregon employers receive a significant tax benefit.³ Employment Division v. Rogue Valley Youth for Christ, 307 Or. 490, 493-97, 770 P.2d 588 (1989); Salem College & Academy, Inc. v. Emp. Div., 298 Or. 471, 495, 695 P.2d 25 (1985).

Before claimant initially filed his claim, the Supreme Court had decided two cases involving the constitutionality of ORS 657.072(1)(a) in the light of the Oregon Constitution's guarantees of religious freedom and the interplay of those constitutional provisions with the tax benefits that resulted from compliance with FUTA. See Salem College, 298 Or. 471,

695 P.2d 25 (involving religious schools); Rogue Valley, 307 Or. 490,

770 P.2d 588 (involving religious organizations). In each case, the court held that, in limiting the exemption from the unemployment system to "churches," as opposed to all religious organizations, section (1)(a) of ORS 657.072 violated the principle of "equality among pluralistic faiths * * * embodied in the Oregon Constitution's guarantees of religious freedom[,]" Salem College, 298 Or. at 495,

695 P.2d 25,⁴ which requires the state to treat all religious organizations similarly. Id. at 484-92, 695 P.2d 25; Rogue Valley, 307 Or. at 496-97,

770 P.2d 588. Given that constitutional holding, the court in each case then determined whether, in treating all religious organizations similarly, the legislature would have intended to subject all religious organizations to, or exclude all from, the unemployment tax. Ultimately, the court held that all such organizations were subject to unemployment taxation, a decision driven by the relationship between Oregon's unemployment compensation system and FUTA and the attendant desire to retain Oregon's unemployment tax credit. See Salem College, 298 Or. at 492-95,

695 P.2d 25 (applying ORS 657.072 in a manner that complied with FUTA and the Oregon Constitution); see also Rogue Valley, 307 Or. at 496-97,

770 P.2d 588 (same). In contrast to those cases, the dispute here focuses on ORS 657.072(1)(b), the so-called ministerial exemption.

More background is required. Before claimant filed his claim, and in an effort to comply with the equality requirements announced in Salem College and Rogue Valley, the Department promulgated OAR 471-31-090(1) (1989),⁵ which interpreted and broadened the ministerial exemption in ORS 657.072(1)(b) to include ministers licensed by "religious organization[s]." As claimant's claim moved through the administrative process, however, the United States Department of Labor informed the Department that Oregon's ministerial exemption, as defined by OAR 471-31-090(1)(a) (1989), was too broad because it exempted ministers who have been licensed or ordained by churches and religious organizations, while FUTA limited that exemption to ministers licensed only by churches. See USC § 3309(1)(b) (1988). Consequently, that rule put Oregon out of compliance with FUTA. Because noncompliance meant the potential loss of the desired tax credit for employers in Oregon, the Department responded by promulgating a new rule that tacitly declared ORS 657.072(1)(b) unconstitutional as it trumped the exemptions contained therein and included all ministers within mandatory unemployment coverage. OAR 471-031-0090 (1996).⁶ In an administrative decision on reconsideration, the Department awarded benefits to claimant on the basis of that rule.⁷

Both Church and claimant requested a hearing on that decision, Church seeking reversal of the decision awarding claimant benefits in the first place and claimant seeking a reversal of the denial of attorney fees. The Department and the Board affirmed the decision on reconsideration in all respects.

In its first assignment of error, Church contends that the ministerial exemption contained in ORS 657.072(1)(b) is constitutional and, therefore, that the Department acted beyond its authority in promulgating the related administrative rule subjecting all ministers to the unemployment compensation law. Given our ultimate holding that the rule survives Church's First Amendment challenge, we further note that there is no dispute over the Department's authority to promulgate a rule in the face of an unconstitutional statute. See ORS 657.610(4) (the Department may "[d]etermine all questions of general policy and promulgate rules and regulations"). The exemption in ORS 657.072(1)(b) provides:

"(1) `Employment' does not include service performed:

"* * * * *

"(b) By a duly ordained, commissioned or licensed minister of a church[.]" (Emphasis added.)

Because the exemption is limited to ministers who receive their authority from a "church," Church's argument, like the essential issue in both Salem College and Rogue Valley, turns on the use of the word "church" as a word of art.⁸

As the court in Rogue Valley explained:

"The core problem involves the definition of the word `church.' Defining `church' too narrowly—including, for example, only hierarchical churches such as the Roman Catholic Church—might comply with FUTA, but it would violate the Oregon Constitution because the protections of the Oregon Constitution extend to worship even outside organized churches. Salem College[,] 298 Or. at 495, 695 P.2d 25. On the other hand, if `church' is defined too broadly, organizations would be exempted from the unemployment tax when FUTA requires that they be included." 307 Or. at 496, 770 P.2d 588.

In basing the exemption from coverage on a minister's licensing body—i.e., on whether a minister's authority comes from a "church"—section (1)(b), like section (1)(a), draws its taxation line on the side of...