Protecting Your Religious Entity Exemption Under The FEHA While Complying With Other Laws

by Weintraub Tobin
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We all understand the common meaning of the word “employer.” In California, “employers” need to keep track of the various rules and regulations, all of which have their own definitions of the word.  Most frequently, the number of employees dictates whether a given statute or ordinance applies to the employer.  In addition, California’s Fair Employment and Housing Act (“FEHA” or the “Act”), exempts certain “employers” from the application of the anti-discrimination laws found within the Act.

This blog post focuses on protecting the so-called “religious entity” exemption from the FEHA.

Employer versus Employer versus Employer – Various Definitions

The FEHA prohibits discrimination, harassment, and retaliation on a large list of protected class statuses, and is more expansive than the federal analog, Title VII.  FEHA’s anti-discrimination provisions apply to “employer” – defined as any person who employs five or more persons, subject to certain exceptions.  Relevant to this blog, Cal. Gov. Code § 12926(d) a “religious association or corporation not organized for private profit” is not an “employer” for the “unlawful practices” provisions of FEHA.

FEHA, Cal. Gov. Code § 12950, also requires “all” employers, impliedly using the section 12926 definition and impliedly subject to the religious entity exemption – to post notices regarding employees’ rights under FEHA.  But, most employers – including religious entities – are required to post a variety of other notices (minimum wage, payday notices, unemployment insurance, worker’s compensation, whistleblower rights, etc.) pursuant to various Labor Code, Unemployment Insurance Code, federal law, local ordinances, and the Department of Industrial Relations requirements.  There are several vendors who supply “all in one” posters, updated annually. Most HR professionals and in-house counsel order these “all in one” posters from reputable sources, relying on them to be accurate.

FEHA also has a mandatory training component (commonly referred to as “AB 1825” training).  For this purpose, an “employer” is defined in the FEHA regulations – Ca. Admin Code 11024 – as “any person engaged in any business or enterprise in California, who employs 50 or more employees to perform services for a wage or salary or contractors or any person acting as an agent of an employer, directly or indirectly.”  Notably, there is NOT an express “religious entity” exemption from FEHA regulations.  Such “employers” are required to conduct bi-annual anti-harassment training to educate supervisors on the prohibitions against harassment and discrimination in FEHA and Title VII – apparently, even if those “employers” are otherwise exempt from FEHA.

The Unresolved Question since 2002 – is a Nonprofit Religious Corporation Operating a School exempt from FEHA?

Certain religious entities have long been exempt under Cal. Govt. Code section 12926(d).  But effective January 1, 2002, section 12926.2(f) was added, expanding the definition of “employer” to include religious non-profit educational institutions that are (1) non-profit public benefit corporations; (2) formed by, or affiliated with a particular religion; and (3) operate an educational institution as its sole or primary activity. However, the amendment left intact the ability for such institutions to restrict employment in all categories of employment to adherents of the religion, regardless of whether the duties of the positions are connected to a religious function.

There has only been one case interpreting the 2002 amendment to preserve the exemption for a school organized as a Nonprofit Religious Corporation, Henry v. Red Hill Evangelical Lutheran Church (2011) 201 Cal. App. 4th 1041.  In that case, the Court seemed to find it relevant that the school was part of the church’s ministry, did not exist as a separate legal entity, was on church property and was adjacent to the church.  Until 2017, no case had expressly protected the religious entity exemption for a school that is separately incorporated, is not on church grounds, but is nevertheless a religiously affiliated school organized as a Nonprofit Religious Corporation.

The good news for religious entities, especially nonprofit religious schools.

In December 2017, the San Francisco Superior Court ruled on an issue of first impression, and decided that a private high school, organized as a California Nonprofit Religious Corporation primarily for religious and educational purposes, is exempt from FEHA.

The judge correctly interpreted the 2002 FEHA amendment (§12926.2(f)(2)) that narrowed the exemption for public benefit corporations operating schools as applying only to public benefit corporations, not to all schools including those organized and incorporated as nonprofit religious corporations.

This may seem axiomatic based on the plain language of the statute, but it was a hard-fought issue at trial because of three facts: (1) the school was, for a time, incorporated as a public benefit corporation (and reincorporated after to the 2002 amendment), (2) unlike the school in Red Hill, this high school is a distinct corporate entity from any church and is not on church grounds, and (3) the school teaches secular (as well as religious) subjects.

The catch – waiver and estoppel may bar assertion of a statutory right.

Religious entities must take care to avoid inadvertently wiping out their religious entity status.  In the same 2017 trial, the judge and jury ruled that the school, by its conduct, waived and should be equitably estopped from asserting its religious entity exemption from FEHA.  “Waiver” means the intentional relinquishment of a known right (here, the FEHA exemption), or acting in a way that is so inconsistent with the intent to assert a right that the party should not be able to assert the right.  Estoppel is a similar doctrine, and requires that the other party relied on the party’s words or conduct and suffered harm as a result. Often treated as interchangeable by courts, these equitable principals developed to protect an innocent who has justifiably relied on the other party’s conduct.

What “knowing and intentional” conduct might support waiver and estoppel of a nonprofit religious school’s FEHA exemption?

In the 2017 trial, three facts supported waiver/estoppel: (1) having a handbook with a policy committing to enforce federal anti-discrimination laws, (2) providing supervisor anti-harassment training, and (3) posting the standard breakroom “all in one” posters on the wall.

We usually think of waiver and estoppel as equitable doctrines that prevent someone from having their cake and eating it too.  But here, the school didn’t benefit in any way from failing to explicitly shout to its employees that they are not protected by FEHA, and the plaintiff didn’t suffer any added harm because of the school’s failure to tell her that it is exempt from FEHA.  The school here tried in earnest to follow the laws, and can only be faulted for being extremely conservative in its approach to handbooks, training, and posters.  It was trapped in a web of differing and unclear definitions in California’s various rules, ordinances and laws.  The prudent employers we represent can sympathize: the school followed the laws that clearly do apply– having anti-discrimination policies consistent with federal law – and to be safe, to follow the laws that may be interpreted to apply to the school – posting the breakroom notices that FEHA says “all employers” must post (“employer” being defined differently for that subsection of  FEHA) – and by adopting what any rational employer would view as a best practice – sending its supervisors to anti-harassment training.

What’s the risk?

The result of a finding of waiver/estoppel in a case like this could be that a school may be required to pay a jury award that is not subject to the Title VII damages cap (the federal anti-discrimination statute).  A plaintiff who deliberately elected to pursue state law FEHA claims only, in order to avoid the Title VII damages cap, could blindside a nonprofit religious corporation which believed itself exempt from the FEHA.  A plaintiff, who could otherwise only recover damages but not fees under her common law wrongful termination claim, now may also be able to recover attorney’s fees and expert witness fees under FEHA.

What should a religiously affiliated school or other nonprofit religious corporation with more than five employees do to avoid this trap?

  1. Have your employee handbook, offer letter template, teacher contract template, parent/student handbook, and any standalone policies and related acknowledgment forms reviewed by competent employment counsel. These documents should contain a clear explanation of the religious entity exemption, and a declaration of intent to preserve, and not waive, the religious entity’s rights and protections, while still preserving the commitment to an environment free of harassment, discrimination and retaliation.
  2. If you offer “AB 1825” anti-harassment training, be sure your trainer knows that the entity is a non-profit religious corporation and that the materials contain appropriate disclaimers and disclosures. If your company’s usual trainer doesn’t understand why that is important, look for one who does.
  3. Consider modifying, or supplementing, the FEHA portions of the standard “all in one” breakroom employment notices to make employees aware of your religious entity exemption.
  4. Have competent legal counsel review your Articles of Incorporation, Bylaws, and corporate practices, to ensure that the entity’s organizational documents and practices comply with the Nonprofit Religious Corporation Code.
  5. If your entity is a religiously affiliated school incorporated as a Nonprofit Public Benefit Corporation, seek advice regarding whether it qualifies as a Nonprofit Religious Corporation. Religiously-affiliated schools organized as nonprofit public Benefit Corporations enjoy only a narrow exemption from FEHA, except regarding the hiring of persons holding religious positions.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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