Newport Church of Nazarene v. Hensley

• Decision Date: 24 October 2002
• Docket Number: EAB No. 97-AB-2014; CA A99663; SC S46621, S46769
• Citation: 335 Or. 1,56 P.3d 386
• Parties: NEWPORT CHURCH OF The NAZARENE, an Oregon nonprofit corporation, Petitioner on Review/Respondent on Review, v. Gordon R. HENSLEY, Respondent on Review, and Employment Department, Respondent on Review/Petitioner on Review.
• Court: Oregon Supreme Court

56 P.3d 386

335 Or. 1

NEWPORT CHURCH OF The NAZARENE, an Oregon nonprofit corporation, Petitioner on Review/Respondent on Review, v. Gordon R. HENSLEY, Respondent on Review, and Employment Department, Respondent on Review/Petitioner on Review.

EAB No. 97-AB-2014; CA A99663; SC S46621, S46769

Supreme Court of Oregon.

Argued and Submitted May 15, 2000.

Decided October 24, 2002.

Kelly E. Ford, Beaverton, argued the cause and filed the petition for review, briefs, and additional authorities for petitioner on review/respondent on review Newport Church of the Nazarene in S46621, waived filing and argument in S46769. With him on the briefs was Gregory S. Baylor, pro hac vice, Virginia.

Paul R. Meyer, Portland, argued the cause for respondent on review Gordon R. Hensley. With him on the responses and briefs was Charles F. Hinkle, ACLU Foundation of Oregon, Inc., Portland. Also on the brief in S46621 was Scott Garland, ACLU Foundation of Oregon, Inc., Portland.

Robert M. Atkinson, Assistant Attorney General, Salem, argued the cause and filed the briefs and additional authorities for respondent on review/petitioner on review Employment Department. Christine A. Chute, Assistant Attorney General filed the petition for review. Also on the petition, briefs, and additional authorities were Hardy Myers, Attorney General and Michael D. Reynolds, Solicitor General.

Kelly W.G. Clark, O'Donnell & Clark, LLP, Portland, and Richard G. Wilkins and Brent E. Rychener, Holme Roberts & Owen LLP, Colorado, filed the brief of amici curiae for The Christian & Missionary Alliance, Council on Religious Freedom, General Conference of Seventh-Day Adventist Church, General Council on Finance and Administration of the United Methodist Church, International Church of the Foursquare Gospel, National Association of Evangelicals, Oregon District Assemblies of God, Presbyterian Church (U.S.A.), and the Presbytery of Cascades.

Before CARSON, Chief Justice, and GILLETTE, DURHAM, LEESON, and RIGGS, Justices.²

CARSON, C.J.

This case presents two issues for review. The first is whether claimant, formerly a youth minister for the Newport Church of the Nazarene (church), is entitled to unemployment compensation benefits. The second, which arises only if claimant prevails on the first issue, is whether he is entitled to interest on the benefits award. The Employment Appeals Board (board) of the Oregon Employment Department (department) awarded claimant benefits, but not attorney fees or interest.

The church sought judicial review of the board's order, arguing, among other things, that the inclusion of ministers in the unemployment compensation program violates the church's right to autonomy under the First Amendment to the United States Constitution. Claimant also sought judicial review, challenging the board's denial of his request for attorney fees and interest. In addition, claimant contended that any exemption of ministers from the unemployment compensation program violates Article I, sections 2, 3, and 20, of the Oregon Constitution. The Court of Appeals affirmed the board's award of unemployment compensation benefits and denial of attorney fees, but reversed the board's denial of interest on the award. Newport Church of the Nazarene v. Hensley, 161 Or.App. 12, 983 P.2d 1072 (1999).

The church and the department both petitioned for review in this court. The church challenged the Court of Appeals decision respecting claimant's entitlement to benefits, and the department challenged the Court of Appeals decision respecting claimant's entitlement to interest on those benefits. We allowed both petitions for review. For the reasons that follow, we reverse that part of the Court of Appeals decision that allowed interest and otherwise affirm the Court of Appeals decision and the board's order.³

The relevant historical facts are undisputed. Claimant began working for the church in October 1993 as a youth minister. Approximately eight months later, the church discharged claimant for misconduct that was not connected with claimant's work. In September 1994, claimant filed a claim for unemployment compensation benefits and commenced what became a lengthy process of administrative and judicial review, certain aspects of which we discuss in greater detail below.

To better frame the procedural history and the parties' arguments, we begin with a brief discussion of the backdrop of state and federal law against which this case arose. In 1935, in response to rampant unemployment associated with the Great Depression, Congress established an unemployment compensation program by imposing a federal payroll tax upon employers. To induce states to maintain their own unemployment compensation programs, however, Congress also provided that employers could offset as much as 90 percent of the federal tax by paying into a qualified state unemployment compensation program. To qualify, a state unemployment compensation program must not exempt more workers from coverage than are exempt under the federal program. Newport Church, 161 Or.App. at 15-16 n. 3,983 P.2d 1072; see also 26 U.S.C. §§ 3301 to 3311 (2000) (setting out, among other things, statutory requirements that state's unemployment tax program must meet to qualify for federal tax credits). Shortly after the enactment of the federal payroll tax, every state adopted qualifying programs. See generally Salem College & Academy, Inc. v. Emp. Div., 298 Or. 471, 476-77, 695 P.2d 25 (1985)

; Steward Machine Co. v. Davis, 301 U.S. 548, 574-78, 57 S.Ct. 883, 81 L.Ed. 1279 (1937) (both describing federal program).

In Oregon, the department is the agency responsible for "[a]dminister[ing] the unemployment insurance laws of this state to support Oregonians during periods of unemployment." ORS 657.601(1). In simple terms, those laws provide for the payment of unemployment compensation benefits from the state Unemployment Compensation Trust Fund (fund) to eligible individuals. Under ORS 657.505, unless exempt, every employer must pay into the fund. An employer is

"any employing unit which employs one or more individuals in an employment subject to this chapter in each of 18 separate weeks during any calendar year, or in which its total payroll during any calendar quarter amounts to $225 or more."

ORS 657.025(1). An employee is

"any person * * * employed for remuneration or under any contract of hire, written or oral, express or implied, by an employer subject to this chapter * * *."

ORS 657.015. Employment is defined as "service for an employer * * * performed for remuneration or under any contract of hire, written or oral, express or implied." ORS 657.030(1).

When a claimant applies for unemployment compensation benefits, the department examines the claim and decides whether to allow or deny it. ORS 657.266-657.267. In making that determination, the department decides, among other things, whether the claimant has worked for an employer subject to ORS chapter 657 and investigates whether the reason for the claimant's unemployment does or does not disqualify the claimant from unemployment benefits. ORS 657.176.

ORS 657.072 excludes certain activities from the definition of employment, thereby excluding certain types of employers from the requirements of ORS chapter 657. ORS 657.072 provides, in part:

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

"(a) In the employ of:

"(A) A church or convention or association of churches; or

"(B) 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;

"(b) By a duly ordained, commissioned or licensed minister of a church in the exercise of ministry or a member of a religious order in the exercise of duties required by such order * * *."

Those statutory provisions correspond to provisions in the federal statute, which now is known as the Federal Unemployment Tax Act (FUTA), 26 U.S.C. § 3309(b)(1) (2000).⁴

This court has decided two cases under the Oregon Constitution involving the validity of ORS 657.072(1)(a), commonly known as the "church exemption." See Employment Div. v. Rogue Valley Youth for Christ, 307 Or. 490, 493-97, 770 P.2d 588 (1989)

(involving religious organizations); Salem College, 298 Or. at 495,

695 P.2d 25 (involving religious schools). In each case, this court held that neither association in question qualified for the exemption under ORS 657.072(1)(a), but that, in limiting the exemption from the unemployment compensation program to "churches," as opposed to all religious organizations, the statute 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; see also Rogue Valley, 307 Or. at 496-97,

770 P.2d 588 (quoting Salem College). We discuss those decisions at greater length later in this opinion.

After this court decided Salem College and Rogue Valley, the department became concerned that ORS 657.072(1)(b), commonly known as the "ministerial exemption," also violated the Oregon Constitution. Consequently, the department promulgated OAR 471-31-090(1) (1989), which broadened the "ministerial exemption" under ORS 657.072(1)(b) from including only ministers licensed by "churches" to also including ministers licensed by "religious organization[s]."

Thereafter, and, indeed, during the pendency and as a result of claimant's case, the United States Department of Labor informed the department that Oregon's unemployment statutes failed to comply with FUTA. According to the Department of Labor, the "ministerial exemption," as OAR 471-31-090(1)(a) (1989) redefined that category, was too broad, because it exempted ministers licensed or ordained by "religious organization[s]," while FUTA limited that exemption to ministers licensed or ordained by only "churches." U.S.C. § 3309(b)(1) (1988) (emphasis added)....