Mid Vermont Christian School v. Department of Employment & Training

Mid Vermont Christian School v. Dept. of Employment & Training (2004-473);
178 Vt. 448; 885 A.2d 1210

2005 VT 100

[Filed 26-Aug-2005]


       NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as formal revision before publication in the Vermont
  Reports.  Readers are requested to notify the Reporter of Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any errors in order that corrections may be made before this opinion goes
  to press.


                                 2005 VT 100

                                No. 2004-473


  Mid Vermont Christian School	                 Supreme Court

           v.	                                 On Appeal from
       	                                         Employment Security Board

  Department of Employment and Training
                                                 June Term, 2005


  Anne V. Ginevan, Chair

  Anthony R. Duprey of Neuse Smith & Venman, PC, Middlebury, for
    Plaintiff-Appellant.

  William H. Sorrell, Attorney General, and Bridget C. Asay, Assistant
    Attorney General, Montpelier, for Defendant-Appellee.


  PRESENT:  Reiber, C.J., Dooley, Johnson and Skoglund, JJ., and 
            Allen, C.J. (Ret.),  Specially Assigned  

       ¶  1.  DOOLEY, J.  Appellant, Mid Vermont Christian School (MVCS),
  appeals the Department of Employment and Training's determination that MVCS
  is an employer subject to the unemployment compensation law and must
  therefore pay an employer contribution tax to fund any unemployment
  compensation claims by its employees.  MVCS argues that, as a religious
  school, it is entitled to exemption under the statute, and that denial of
  that exemption violates its constitutional rights.  We agree with the
  appeals referee and the Employment Security Board (ESB) that MVCS is not an
  exempt employer, and hold that applying the statute does not violate MVCS's
  rights under either the United States or the Vermont Constitutions.  
   
       ¶  2.  MVCS is an independent Christian school approved by the
  Vermont State Board of Education with an enrollment of approximately 160
  students in grades preschool through twelve.  In addition to a traditional
  curriculum that includes subjects such as math, science, history, and
  computer science, MVCS integrates teachings from the Bible throughout its
  curriculum.  Students are also required to attend daily Bible classes and
  weekly chapel.

       ¶  3.  The school's stated mission is "to provide a sound, effective
  educational program that is well-integrated with Biblical principles
  directed toward the end that children may occupy their places worthily in
  community, church, state, . . . the world."  MVCS has articulated its
  religious values in a Statement of Faith found in Article II of its
  constitution.  All faculty, staff, board members, full association members,
  and advisory board members must declare their unconditional agreement with
  that Statement of Faith, be regular participants of a church, and be
  scripturally sound in their belief, and lead "exemplary lives."  Parents
  must also assent to the Statement of Faith when enrolling their children at
  MVCS.

       ¶  4.  MVCS is not a church nor is it owned by or affiliated with any
  church.  It does, however, receive financial and promotional support from
  roughly twenty-five to thirty churches.  Annually, these churches
  contribute approximately $64,000 toward the school's $900,000 operating
  budget. 

       ¶  5.  The MVCS Board of Directors supervises the "governance,
  maintenance and growth" of the school.  Specifically, the Board sets school
  policies, oversees school finances and supervises school employees.  It is
  elected by the MVCS Association, which is comprised of students' parents
  and other individuals who make a financial contribution to the school.  A
  pastoral advisory board advises the Board of Directors on how to provide a
  spiritually-sound Christian education. 
   
       ¶  6.  On October 8, 2003, the Vermont Department of Employment and
  Training (DET) presented MVCS with a notice of employer liability, stating
  that MVCS was an employer subject to the provisions of the unemployment
  compensation law.  Based on this status, DET found that MVCS would be
  responsible for payment into the State unemployment compensation fund at
  its assigned contribution rate, and that eligible MVCS employees would be
  entitled to unemployment compensation benefits.  See 21 V.S.A. §§ 1348
  (eligibility procedure), 1344 (disqualifications).  Prior to receipt of
  that notice, MVCS relied upon a 1992 letter from DET that stated that MVCS
  was not an employer as defined by statute. 

       ¶  7.  MVCS appealed the October 2003 determination to the appeals
  referee, who concluded that the services performed by MVCS employees were
  not excluded from unemployment compensation coverage because MVCS was not a
  church or convention of churches, was not operated primarily for religious
  purposes, and was not operated, supervised, controlled, or principally
  supported by a church or convention or association of churches.  MVCS then
  requested review of the referee's decision by the ESB.  On August 31, 2004,
  the ESB sustained the decision of the appeals referee.  On appeal, MVCS
  argues that (1) it is covered by an exemption contained in federal law and
  that the exemption is binding on the State, and (2) the ESB decision
  violates its rights under the United States and Vermont constitutions.  
  DET maintains that MVCS does not qualify for an exemption under the Vermont
  statute, nor is Vermont obligated to adopt the federal exemption.  It also
  argues that application of the Vermont statute to MVCS does not violate the
  school's constitutional rights.   
   
       ¶  8.  We start with the application of the Vermont statute to MVCS
  and its circumstances.  Although MVCS does not challenge the ESB's
  construction of the statute, that construction is central to the resolution
  of MVCS's constitutional arguments.  There is no dispute that MVCS fits
  within the general definition of an employer under the unemployment
  compensation law and that it has employees.  The statute contains, however,
  an exemption from the definition of "employment" for services performed: 

    [I]n the employ of a church or convention or association of
    churches, or 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[.] 

  21 V.S.A. § 1301(6)(C)(vii)(I).  

       ¶  9.  The exemption consists of two parts.  Generally, the first
  clause exempts churches, and the second clause exempts organizations
  "operated primarily for religious purposes" and affiliated with a church. 
  Neither party contends that the first clause applies-that is, they agree
  that MVCS itself is not a "church or convention or association of
  churches."  The ESB found that neither requirement of the second clause
  applies-that is, it found that MVCS is neither "operated primarily for
  religious purposes" nor "operated, supervised, controlled, or principally
  supported by a church or a convention or association of churches."  
   
       ¶  10.  On the first requirement of the second clause, the appeals
  referee and the ESB found that MVCS "is operated primarily for educational,
  not religious purposes."  It concluded that although the school's Bible
  instruction, inculcation of Christian values and glorification of God were
  integral parts of the educational mission, the primary purpose is to
  provide a thorough education, combining traditional and modern subjects to
  prepare the majority of graduates for college.  On the second requirement,
  the referee and the ESB found that MVCS is not "operated, supervised,
  controlled, or principally supported by a church or convention of churches
  or association of churches" based on various statements in the school's
  literature that "[t]he school is independent (not affiliated with any one
  church)," is an "interdenominational Christian School not affiliated with
  any one church," and is "autonomous" and not subject to any ecclesiastical
  entity.  They also relied upon the facts that MVCS is run by an
  independently elected, autonomous board of directors and derives its
  operating funds "almost exclusively from tuition payments." 
   
       ¶  11.  Because MVCS has failed to appeal from the decision of the
  ESB that its employees are covered by the unemployment compensation
  statute, we do not review this ruling.  We note, however, that the issues
  have been litigated extensively in other jurisdictions with mixed results,
  especially with respect to whether similar organizations are operated
  primarily for religious purposes.  See Samaritan Inst. v. Prince-Walker,
  883 P.2d 3, 8 (Colo. 1994) (concluding pastoral counseling organization not
  operated primarily for religious purposes because primary activities within
  Colorado administrative); Nampa Christian Sch. Found., Inc. v. State, 719 P.2d 1178, 1183-84 (Idaho 1986) (explaining that independent Christian
  school is operated primarily for religious purposes and, because it could
  not exist without the moral support of local churches, is principally
  supported by an association of churches); Cmty. Lutheran Sch. v. Iowa Dep't
  of Job Serv., 326 N.W.2d 286, 291 (Iowa 1982) (ruling that, as a matter of
  law, Lutheran parochial school is operated primarily for religious
  purposes) (collecting cases); Baltimore Lutheran High Sch. Ass'n, Inc. v.
  Employment Sec. Admin., 490 A.2d 701, 709 (Md. 1985) (affirming
  administrative agency determination that Lutheran parochial school is
  operated primarily for educational, and not religious, purpose); Employment
  Sec. Admin. v. Baltimore Lutheran High Sch. Ass'n, Inc., 436 A.2d 481, 487
  (Md. 1981) (setting out factors to determine whether independently
  incorporated parochial school is operated primarily for religious
  purposes); Miller v. Saints Peter & Paul Sch., 711 N.E.2d 311, 314-15 (Ohio
  Ct. App. 1998) (Catholic school operated by church parish was operated
  primarily for religious purposes and controlled by a church); Bach v.
  Steinbacher, 609 N.E.2d 607, 608-09 (Ohio Ct. App. 1992) (Hebrew University
  with primary purpose to educate Rabbis is operated primarily for religious
  purposes).  Because of the posture of this case, we do not decide whether
  services performed by employees of MVCS are exempt from the definition of
  employment pursuant to 21 V.S.A. § 1301(6)(C)(vii)(I).

       ¶  12.  MVCS's primary argument is that it is exempt from providing
  unemployment compensation to its workers based on additional exemption
  language contained in federal unemployment compensation law, but not in the
  corresponding Vermont statute.  Unemployment compensation is a "cooperative
  federal-state program of benefits to unemployed workers."  Wimberly v.
  Labor & Indus. Relations Comm'n of Mo., 479 U.S. 511, 514 (1987).  Under
  the Federal Unemployment Tax Act (FUTA), the Secretary of Labor must
  annually certify that a state's unemployment compensation program meets
  certain minimum standards in order for that state to be eligible for
  federal grant money and for the state's employers to qualify for tax
  credits under the program.  See 42 U.S.C. § 501 (grants to states for
  unemployment compensation administration); 29 U.S.C. § 49(d)
  (appropriations to states by Federal Employment Service); 26 U.S.C. § 3302
  (ninety-percent tax credit for employers).  The minimum standards of
  coverage required to meet federal certification are defined in 26 U.S.C.  
  § 3304(a).  Wimberly, 479 U.S.  at 515.  A separate statute, § 3309(b), lists
  permissible exemptions from participation in the compensation program for
  certain non-profit and government employment.  Vermont's unemployment
  statute, 21 V.S.A. § 1301(6)(C)(vii)(I), contains the exemptions in 26
  U.S.C. § 3309(b)(1)(A) and § 3309(b)(1)(B), but in 1997 Congress added a
  third exemption for "an elementary or secondary school which is operated
  primarily for religious purposes, which is described in section 501(c)(3),
  and which is exempt from tax under section 501(a)."  26 U.S.C.  
  § 3309(b)(1)(C).  The Vermont Legislature has not adopted this exemption.  
   
       ¶  13.  Both sides of this case agree after the additional federal
  exemption, state unemployment compensation programs are no longer required
  to cover those elementary or secondary religious schools encompassed by the
  exemption.  MVCS further argues that the exemption in fact compels every
  state to exempt these religious schools from participation in the state
  programs.  MVCS further argues that if a state refuses to enact the 1997
  amendment, a qualifying religious school is nevertheless entitled to the
  federal exemption because the federal exemption preempts the non-conforming
  state law.  The ESB rejected MVCS's arguments, relying upon the fact that
  the Secretary of Labor has continued to certify that the Vermont
  unemployment compensation program complies with federal law despite the
  failure of the Legislature to adopt the 1997 federal exemption.  We agree
  with the ESB.  
   
       ¶  14.  States are vested with the power to impose general taxes on
  employers for unemployment compensation programs.  Standard Dredging Corp.
  v. Murphy, 319 U.S. 306, 308 (1943).  FUTA augments the states' power to
  provide unemployment compensation protection by providing benefits to
  states that meet congressionally-defined minimum standards of unemployment
  compensation coverage.  The states remain free to expand their unemployment
  compensation coverage beyond the federal minimum standards.  St. Martin
  Evangelical Lutheran Church v. South Dakota, 451 U.S. 772, 775 n.3 (1981);
  Salem College & Acad. Inc. v. Employment Div., 695 P.2d 25, 29 (Or. 1985);
  Prof. Samplers, Inc. v. S.C. Employment Sec. Comm'n, 513 S.E.2d 374, 378
  (S.C. Ct. App. 1999).  In effect, under the minimum federal requirements,
  coverage is mandatory, but exemptions are not, and the federal law creates
  a floor on state eligibility, but not a ceiling. See Standard Dredging
  Corp., 319 U.S.  at 310 (exempting employers from the federal act does not
  operate to exempt them from state unemployment insurance taxes); Koolau
  Baptist Church v. Dep't of Labor & Ind. Rel., 718 P.2d 267, 270-71 (Haw.
  1986);  Special Care of N.J., Inc. v. Bd of Review, 742 A.2d 1023, 1029
  (N.J. Super. Ct. App. Div. 2000) ("[E]xistence of an exemption under FUTA
  does not mandate the same exemption under state law."); In re Florence
  Orchards, Inc., 448 N.Y.S.2d 803, 804 (N.Y. App. Div. 1982) (that federal
  law "excludes certain items from its definition of 'employment' does not
  preclude a state from including those items in its definition").  This
  overall principle is in accordance with the purpose of unemployment
  compensation, to aid those whose unemployment is involuntary.   Littlefield
  v. Dep't of Employment & Training, 145 Vt. 247, 254, 487 A.2d 507, 510
  (1984).  Vermont has opted to include independent, non-church affiliated
  religious schools within the scope of the unemployment compensation
  program.  By doing so, it provides more expansive coverage than the federal
  scheme, as permitted under the federal law.

       ¶  15.  MVCS cites two United States Supreme Court cases, but neither
  supports its argument.  The first case, St. Martin Lutheran Church v. South
  Dakota, we have cited above as authority supporting the state's more
  expansive unemployment compensation program, but we distinguish the
  particular issue decided in that case because the holding "concerns only
  schools that have no legal identity separate from a church."  451 U.S.  at
  783 n.12.  That case was decided entirely under the first exemption for "a
  church or convention or association of churches" and explicitly declined to
  interpret the provision we deal with in this case, "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."  21 V.S.A. § 1301(6)(C)(vii)(I).

       ¶  16.  MVCS also argues that California v. Grace Brethren Church, 457 U.S. 393 (1982), requires states to amend their statutes to conform to
  federal law.  The decision in Grace Brethren is based on the Tax Injunction
  Act, and as a result, is no direct help.  MVCS finds a suggestion in the
  Court's language that it would rule for MVCS in this case.  We cannot,
  however, agree that the case contains such a suggestion.
   
       ¶  17.  Grace Brethren arose before the 1997 amendment that added the
  additional federal exemption and involved a constitutional challenge to the
  narrow scope of the first two federal exemptions-that is, the two that
  exist in Vermont law as 21 V.S.A. § 1301(6)(C)(vii)(I).  These two
  exemptions were left after Congress repealed an earlier, broader amendment. 
  MVCS argues that the Supreme Court stated that each state law must have
  these two exemptions.  Grace Brethren, 457 U.S.  at 398.  In fact, all the
  Court stated was that states could no longer use the repealed exemption. 
  Id.  To have gone further would have been inconsistent with Standard
  Dredging.  319 U.S.  at 310.

       ¶  18.  Finally, we note that the ESB's rationale-that the Secretary
  of Labor has endorsed DET's view of federal law by continuing to certify
  Vermont's unemployment compensation program.  See Charles C. Steward Mach.
  Co. v. Davis, 301 U.S. 548, 594-95 (1937).  If certification were denied,
  Vermont would become ineligible for federal grant money and Vermont
  employers would lose their credit for the amounts they pay into the State
  unemployment fund.  The Vermont unemployment compensation program has been
  certified without this exemption every year since the federal amendment was
  passed in 1997.   We agree that the Secretary's certification action is an
  endorsement of DET's interpretation of federal law-the interpretation we
  have reached in this decision-by the official responsible for administering
  the federal program and therefore entitled to deference.  Hogan v. Dep't of
  Soc. & Rehab. Servs., 168 Vt. 615, 617, 727 A.2d 1242, 1243-44
  (1998)(mem.).

       ¶  19.  MVCS claims that the DET's application of the statute to the
  school violates the First Amendment and the Equal Protection Clause of the
  Federal Constitution, and the Common Benefits Clause of the Vermont
  Constitution. (FN1)  All of MVCS's constitutional arguments are based on
  its claim that the Vermont statute, as applied, distinguishes between
  religious schools owned or operated by churches and those run
  independently, and that this distinction is unconstitutional.  In making
  these arguments, MVCS ignores that the ESB decision found two separate
  grounds for denying MVCS an exemption from making unemployment compensation
  contributions.  MVCS ignores the fact that the ESB also denied MVCS an
  exemption because it was not "operated primarily for religious purposes." 
  Under the ESB's rationale, even if MVCS were "operated, supervised,
  controlled, or principally supported by a church or convention or
  association of churches," it still would not be exempt.

       ¶  20.  MVCS is raising serious questions of state and federal
  constitutional law, essentially the argument made to the United States
  Supreme Court in Grace Brethren but not reached because of the
  jurisdictional holding.  Ordinarily, we would analyze such issues
  thoroughly and in depth.  In this case, however, MVCS's arguments are
  extremely sparse, to the point of inadequate briefing, and they do not
  acknowledge the full holding of the ESB.  As a result, we dispose of them
  summarily.
   
       ¶  21.  MVCS relies primarily on one case, Christian School Ass'n v.
  Commonwealth, 423 A.2d 1340, 1347 (Pa. Commw. Ct. 1980), which holds that
  denying an exemption based on the organizational structure of an entity
  operated primarily for religious purposes violates the free exercise clause
  of the First Amendment.  The argument is more thoroughly developed in Salem
  College, 695 P.2d  at 36-39, which held that such discrimination would
  violate Article I, Sections 2 and 3 of the Oregon Constitution.  The Oregon
  Supreme Court construed the statute to deny the exemption to all religious
  schools, however they are organized, and avoided the constitutional
  deficiency in that way.  Id. at 40.  In effect, the ESB accomplished the
  same result in this case by holding that MVCS is not operated primarily for
  religious purposes.  In the absence of discrimination based on how a
  religious school is operated, MVCS has no claim under the First Amendment
  or under the Common Benefits Clause in Chapter I, Article 7 of the Vermont
  Constitution.  We conclude that the statute neither unconstitutionally
  burdens the free exercise of religion, nor establishes religion.  We
  further hold that the statute does not unconstitutionally discriminate
  between independent schools such as MVCS, and those supported by a church,
  convention or association. 

       Affirmed.


                                       FOR THE COURT:


         
                                       _______________________________________
                                       Associate Justice


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                                  Footnotes


FN1.  MVCS raises no claims under Chapter I, Article 3 of the Vermont
  Constitution.