NEWS

The SBA Addresses Religious Liberty Concerns Around Coronavirus-Related Government Aid

Article written by Ian Speir

On April 1 last week, we cautioned religious organizations about accepting coronavirus-related government aid, such as Paycheck Protection Program (PPP) loans under the CARES Act or Economic Injury Disaster Loans (EIDL), both administered by the Small Business Administration (SBA). We were concerned that such aid would impose or enhance federal nondiscrimination mandates on churches and ministries, especially since recent legal trends have favored a broad construction of these mandates and a narrow compass for their religious exemptions.

On Friday night, April 3, the SBA issued guidance that clarifies some of these religious liberty concerns. The guidance, in the form of “Frequently Asked Questions” or “FAQ,” offers some assurance that accepting PPP or EIDL loans doesn’t jeopardize an organization’s religious identity and values.

  • Religious freedom retained: The FAQ says that religious organizations do not give up their religious autonomy or First Amendment rights by accepting a PPP or EIDL loan. In its broadest, most liberty-friendly statement, the FAQ notes, “[A] faith-based organization that receives a loan will retain its independence, autonomy, right of expression, religious character, and authority over its governance, and no faith-based organization will be excluded from receiving funding because leadership with, membership in, or employment by that organization is limited to persons who share its religious faith and practice” (p.2).

  • Time-limited obligations: The FAQ confirms that accepting a PPP or EIDL loan “constitutes Federal financial assistance and carries with it the application of certain nondiscrimination obligations” (p.2). But according to the FAQ, those obligations “are not permanent, and once the loan is paid or forgiven, those nondiscrimination obligations will no longer apply.” So, if a religious organization becomes subject to new mandates as a result of taking federal aid, those mandates apply only to the time period of the loan. Recipients can limit their legal exposure by repaying or obtaining forgiveness of the loan as quickly as possible.

  • No additional restrictions on use of loan funds: Prior to the above clarification, we had some concern that using SBA loan proceeds for expenses related to long-term assets – like rent payments or mortgage interest for real estate – might impose long-term federal obligations tied to those assets. The FAQ eliminates that concern. It also makes clear that religious organizations can use loan proceeds “to pay the salaries of ministers and other staff engaged in the religious mission” (p.2). Of course, more general restrictions – such as no loan forgiveness for non-payroll expenses that exceed 25% of the total loan amount – continue to apply.

These are welcome clarifications from the SBA. But churches and ministries should still keep a few things in mind:

  • The FAQ is not a regulation. This means it carries less legal weight than a regulation. Courts tend to defer to agency interpretations in formally issued regulations. They tend not to defer when agency guidance is less formal, like this FAQ. (By way of contrast, also on Friday night, the SBA issued a regulation called an Interim Final Rule (IFR) that addresses how the SBA’s affiliation rules apply in ecclesiastical contexts, such as the relationship between a diocese and its parishes. This IFR will be accorded more judicial deference than the FAQ.)

  • Narrow interpretation of the religious exemption: As the FAQ highlights, the SBA’s nondiscrimination rules, similar to Title VII, contain an exemption permitting a religious organization to employ “individuals of a particular religion to perform work connected with [the organization’s] religious activities.” 13 C.F.R. § 113.3-1(h). This exemption ought to permit religious organizations to select employees who share their religious beliefs and practices. But some courts have interpreted the exemption more narrowly to prohibit employment policies that discriminate on the basis of sex. And the term “sex” not only means male-female differences and pregnancy; it also may include sexual orientation, gender identity, and reproductive health decisions like abortion, contraception, and infertility treatments. This is an area where the law remains in considerable flux.

  • State law mandates: The FAQ does not (and cannot) resolve how state laws may apply to recipients of government aid. But the FAQ supplies a good basis to argue that any state law mandates should likewise apply, if at all, only to the time period for which a PPP or EIDL loan remains outstanding.

We emphasize again that every organization must decide for itself whether it’s wise to accept the government’s assistance amidst the unprecedented crisis brought on by the COVID-19 pandemic. And every situation is different, so consult with legal counsel for advice in your particular circumstances.

 

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