Article written by Ian Speir
Amidst the present health and economic crises brought on by the novel coronavirus / COVID-19, Congress has passed, and the President has signed historic legislation to help struggling individuals, businesses, and nonprofits and provide a needed economic stimulus.
Two aspects of the recent legislation are of particular interest to churches, ministries, and other religious organizations impacted by the crisis:
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) creates the Paycheck Protection Program (PPP), which allows a § 501(c)(3) organization, including a church, with 500 or fewer employees to obtain a forgivable loan for up to 2.5 times average monthly payroll, to be used toward eligible expenses, including payroll, health plan expenses, rent/lease payments, and utilities. The loan is forgivable if and to the extent the organization does not reduce its workforce or employees’ wages during the two-month period following origination of the loan. These loans are administered by the Small Business Administration (SBA). The sample application form is here.
The Coronavirus Preparedness and Response Supplemental Appropriations Act, signed into law on March 6, 2020, expands the SBA’s Economic Injury Disaster Loan (EIDL) program. The SBA issues EIDL loans directly at low interest for up to $2 million and a maturity of up to 30 years. Although § 501(c)(3) organizations are generally eligible, the SBA’s existing rules – which remain unaltered by the recent legislation – prohibit EIDL loans to organizations “[p]rincipally engaged in teaching, instructing, counseling, or indoctrinating religion or religious beliefs.”
With the economy in a free-fall and charitable donations tanking, churches and ministries have been hit hard by the crisis. And this makes government aid tempting. The PPP loans are especially enticing because, to the extent they’re forgiven, they operate like a federal grant. Free money is hard to turn down.
But there are hidden strings attached to this aid. Before accepting it, religious organizations need to be cautious and carefully weigh the financial benefits against the potential cost to their religious identity and values. We’ve identified several legal risks for religious organizations to consider.
Religious organizations may become recipients of “Federal financial assistance.”
Acceptance of PPP and EIDL loans will probably make the organization a recipient of “Federal financial assistance,” or “FFA.” FFA is the hook used in many federal statutes to subject private entities to nondiscrimination mandates. For example:
Title IX prohibits discrimination on the basis of sex in an “education program or activity receiving Federal financial assistance.” 20 U.S.C. § 1681(a). Title IX governs most K-12 schools, colleges, and universities in the United States.
Section 1557 of the Affordable Care Act prohibits discrimination on the basis of sex in any “health program or activity . . . which is receiving Federal financial assistance.” 42 U.S.C. § 18116(a). The term “health program or activity” includes a group health plan.
Under the Obama administration, federal agencies interpreted “sex” to mean, not simply the biological differences between male and female, but also sexual orientation, gender identity, and termination of pregnancy. So, under Section 1557 for example, some group health plans were required to cover transgender surgeries and surgical abortion. Although this interpretation has been struck down by a federal district court and the Trump administration is revising the rule, future administrations could revive it. (A closely related issue – whether “sex” under Title VII covers sexual orientation and gender identity – remains pending at the Supreme Court.)
A religious organization that accepts a PPP or EIDL loan may become a recipient of “Federal financial assistance” when it wasn’t before. And using loan proceeds to pay employee salaries and health plan expenses could make certain “programs” and “activities” of the organization subject to ever-expanding federal nondiscrimination mandates.
Religious organizations will be subject to the SBA’s nondiscrimination rules.
Recipients of SBA aid are prohibited from discriminating in employment on the basis of religion and sex. 13 C.F.R. § 113.3(a). This conflicts with the employment policies of many churches and ministries, who require their employees to affirm and model certain religious values.
The SBA’s rules, which are modeled on Title VII, do permit religious organizations to prefer employees of a certain faith. But an employer’s right to enforce a faith-based code of conduct is more limited. A Catholic school, for example, recently got in trouble after it terminated a female teacher who underwent in vitro fertilization treatment. The teacher had contractually agreed to “conduct herself . . . at all times . . . in accordance with” Catholic teaching, which regards in vitro as gravely immoral. But the court found that, while the school could hire and fire based on religious preferences, here it had discriminated on the basis of sex (namely, the teacher’s pregnancy) and could be held liable. Herx v. Diocese of Ft. Wayne-South Bend, 48 F. Supp. 3d 1168 (N.D. Ind. 2014).
Note, however, that most religious organizations that choose to accept PPP or EIDL loans are probably already subject to Title VII, so practically speaking, the SBA’s similar nondiscrimination rules will not impose any new requirements.
By accepting federal aid, religious organizations may subject themselves to state law mandates.
Under some state laws, acceptance of government aid – even federal aid – triggers new legal obligations and restrictions. For example, the Colorado Anti-Discrimination Act (CADA) generally prohibits employers from discriminating on the basis of religion, sex, sexual orientation, and gender identity. CADA expressly exempts “any religious organization” from these requirements. But the exemption is lost if the organization “is supported in whole or in part by money raised by taxation or public borrowing.” C.R.S. § 24-34-402(7).
Even without this exemption, CADA still permits religious organizations to select employees based upon religious preference. But as with Title VII, this may not permit an employer to discriminate based on other protected classes, such as sexual orientation and gender identity.
Most Colorado churches and ministries aren’t subject to CADA because they’re not supported by government aid. But accepting PPP or EIDL loans could change that and cause an organization to lose at least some of its religious exemption.
Many religious organizations find themselves in dire straits as a result of this crisis. And each will have to balance the economic threat to their operations with the legal risks that come with accepting the government’s help. Every church and ministry will have to decide for itself how to strike that balance. But each should go into it with eyes wide open, mindful of the potential costs to their mission and values. As always, you should consult with an attorney regarding your specific situation.