NO. 91-324
IN THE SUPREME COURT OF THE STATE OF MONTANA
1992
ST. JOHN'S LUTHERAN CHURCH,
Appellant,
-vs-
STATE COMPENSATION INSURANCE FUND,
Respondent
APPEAL FROM: The Workers' Compensation Court,
The Honorable Timothy Reardon, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Alden Pedersen argued; Pedersen & Hardy, Billings,
Montana
For Respondent :
Laurence A. Hubbard argued; Legal Counsel, State
Compensation Mutual Ins. Fund, Helena, Montana
cd
7
Submitted: January 8 , 1992
FEB - 6 1992
Decided: February 6, 1992
Clerk
Justice William E. Hunt, Sr., delivered the opinion of the Court.
This matter is before the Court on appeal from the Workers'
Compensation Court which held that appellant's pastor was an
employee of St. John's Lutheran Church for purposes of workers'
compensation coverage. Appellant argues that the pastor is an
independent contractor and not an employee. Appellant also argued
unsuccessfully before the Workers' Compensation Court that the
designation of the pastor as an employee violated the free exercise
clause of both the United States and Montana Constitutions. We
affirm.
We phrase the issues before this Court as follows:
1. Did the Workers' Compensation Court err in determining
that the pastor is an employee of St. John's Lutheran Church for
purposes of the Workers' Compensation Act, and not an independent
contractor?
2. Did classifying the appellant's pastor as an employee,
which is contrary to the appellant's sincerely held religious
beliefs, violate the appellant's right of free exercise of religion
guaranteed under the First Amendment to the United States
Constitution and Article 11, 5 5 , of the Montana Constitution?
On appeal, both the appellant and the respondent stipulated to
the following statement of facts as found by the hearing examiner:
1. St. Johns Lutheran Church is located in Laurel,
Montana. The Church has a Pastor to carry out the full-
time ministry functions essential to the congregation.
The Pastor is selected by the congregation from a list of
Pastors in good standing provided by the District
2
President of the Lutheran Church. No written contract
exists concerning the relationship between St. Johns
Lutheran Church and the Pastor. St. Johns Lutheran
Church and the Pastors refer to the relationship as a
I1call to serve.
2. The Pastor is paid on a monthly basis for his
. .
services. In addition, the pastor receives . housing
accommodations and health insurance. The congregation
determines the pay amount and benefits. The Pastor is
paid by check from the Treasurer appointed by the
congregation.
3. The Church provides the Pastor with an office,
place of worship, clerical vestments, hymnals and a
support staff consisting of a full-time secretary,
part-time bookkeeper, custodian and groundskeeper. The
support staff are paid through the congregation Treasurer
in the same manner as the Pastor.
4. The Pastor can leave his ministry duties at the
Church for any reasons he believes are valid and
sufficient. St. Johns Lutheran Church can terminate the
Pastor upon the approval of the synodical body for
various reasons such as adherence to false doctrine,
scandalous life, and willful neglect or inability to
perform his pastoral duties.
5. The Church must use an appeal process through
an adjudication body in order to terminate the Pastor
from his ministerial duties. If the Pastor chooses to
leave his position at St. Johns Lutheran Church, he is
not bound to the appeals process. Regardless of who is
the moving party in the severing of the relationship,
neither party can sue the other for liability reasons.
6. St. Johns Lutheran Church and the Pastors do
not consider a "call to serve" as a contractual
relationship but rather a theological matter. Under
their contention, the call does not set up a relationship
of employer to employee, but rather a relationship of
Pastor to a congregation, as a shepherd. Therefore, the
ministry is under the servanthood to God, not to the
congregation.
3
In addition to the facts found by the hearing examiner, both
parties accept the following background facts as determined by the
Workers' Compensation Judge in his June 4, 1991, order on appeal:
The pastor may receive remuneration for work from
third parties, even if time is taken away from his parish
work. For the purposes of Social Security and when
filing tax returns, the pastor is considered
self-employed.
The church comes within the statutory definition of
an employer and pays premiums for workers' compensation
coverage for its support staff. Its insurer is the State
Compensation Mutual Insurance Fund (State Fund).
In 1981, the church made application to the State
Fund for workers' compensation coverage and indicated
there were four employees--a minister, a bookkeeper, a
janitor and a handyman to be included on the policy. The
employer's application and policy was approved for
coverage on May 28, 1981. In October 1984, a revised
Insurance Policy was sent to all State Fund insureds and
on October 19, 1985, a Policy Amendment was issued to the
church. There is no evidence to show that the church did
not pay premiums for workers' compensation coverage for
its pastor during this period of time.
In 1986, Guy Robbins, employer representative for
the then, Division of Workers' Compensation, conducted a
routine audit of the account for the church as a result
of an incorrect amount of money being reported by the
church secretary on a quarterly report. As a result of
the audit the Division was advised that it was the
position of the church that it was not necessary to have
workers' compensation coverage as its pastor was covered
by the "Concordia Plan". The congregation pays for this
plan which is a comprehensive insurance plan, but it does
not include coverage for workers' compensation.
Counsel for the appellant did not disagree with the
statement that some Missouri Synod churches in Montana do
provide workers' compensation coverage for their
ministers.
At the time of the hearing, that classification code
assigned to pastors was at the rate of . 3 3 cents per
$100.00 of payroll.
4
Procedurally this case has a long and somewhat complex
history, going back to the fall of 1986. In summary, this matter
is before this Court on appeal from an order on appeal of the
Workers' Compensation Court of June 4, 1991, which upheld the
findings of fact, conclusions of law, and order of the Department
of Labor and Industry made on December 13, 1990.
Appellant argued before the Workers' Compensation Court that
it was the sincerely held religious belief of the church that the
pastor was not an employee of the church, but that the relationship
was that of shepherd to flock. The Workers' Compensation Court
initially found that the pastor was an employee of St. John's
Lutheran Church, and not an independent contractor. The Workers'
Compensation Court then held that such a designation did not
violate the appellant's free exercise rights. The court found an
overriding governmental interest and no infringement of the
religious liberty being exercised.
Because the facts pertinent to this appeal have been
stipulated to by the parties and are not in controversy, we limit
our review to the determination of whether the Workers'
Compensation Court's interpretation of the law is correct. Allen
v. Treasure State Plumbing (1990), 246 Mont. 105, 803 P.2d 644.
Did the Workers' Compensation Court err in determining that
the pastor is an employee of St. John's Lutheran Church for
5
purposes of the Workers' Compensation Act, and not an independent
contractor?
Appellant argues that the pastor is an independent contractor
and not an employee. Section 39-71-120, MCA, defines an
independent contractor as follows:
(1) An "independent contractor" is one who renders
service in the course of an occupation and:
(a) has been and will continue to be free from
control or direction over the performance of the
services, both under his contract and in fact: and
(b) is engaged in an independently established
trade, occupation, profession, or business.
(2) An individual performing services for
remuneration is considered to be an employee under this
chapter unless the requirements of subsection (1) are
met.
It is agreed that the pastor may receive remuneration for work
from third parties, even if time is taken away from his parish
work. Therefore, the pastor satisfies the second part of the
statute which requires that an independent contractor must be
engaged in an independently established trade, occupation,
profession, or business. A s is the case in most instances, the key
element is that of control. Independent contractor status will be
recognized only when the individual is free from control by the
employer. The established standard for determination of
independent contractor status in Montana is the "control test" as
adopted by this Court in Sharp v. Hoerner Waldorf Corporation
(1978), 178 Mont. 419, 584 P.2d 1298. This test is set out in
6
A. Larson's workmen's Compensation Law, V o l . lC, 5 44.00, pp. 8-32
(1952). The "control test," used to determine the right of control
in a given situation, requires the examination of four factors.
These factors are:
1. Direct evidence of right or exercise of control:
2. Method of payment;
3. Furnishing of equipment: and
4. Right to terminate.
Sharp, 584 P.2d at 1301-02. In applying the four factors of the
"control test" to the facts of a particular situation, this Court
has noted that:
[Tlhe consideration to be given these factors is not a
balancing process, rather !I. . . independent contractor-
ship . .. is established usually only by a convincing
accumulation of these and other tests, while employment
. .
. can if necessary often be solidly proved on the
strength of one of the four items [above]."
Sharp, 584 P.2d at 1302. After considering the facts in this case
in relation to the four factor "control test" the Workers'
Compensation Court concluded that:
The vast majority of the tools of the Pastor's trade
are supplied by the church, and this single factor is
sufficient to establish an employer/employee
relationship. The Court will not address the remaining
three factors, except to note that the substantial
credible evidence supports the findings and conclusions
of the hearing examiner.
The appellant argues on appeal that the Workers' Compensation
Court erred in not considering in more detail the other factors of
the control test of Sharp. However, as has been noted, the
employer/employee relationship "can if necessary often be solidly
proved on the strength of one of the four items." Sharu, 584 P.2d
at 1302. The Workers' Compensation Court determined that the
furnishing of equipment by the church was sufficient to establish
that the pastor is an employee and not an independent contractor.
We agree.
St. John's Lutheran Church provides the pastor with an office,
place of worship, hymnals, a staff consisting of a full-time
secretary, part-time bookkeeper, custodian, and groundskeeper. The
church also provides other items necessary for the pastor to
perform his services. The Workers' Compensation Court found that
this item alone would be sufficient to establish an employer/
employee relationship. Appellant argues that despite the
furnishing of equipment, the pastor is truly an independent
contractor. Appellant cites to this Court's opinion in Johnson v.
Montana Department of Labor and Industry (1989), 240 Mont. 288,
291, 783 P.2d 1355, 1357-58, wherein we stated:
We feel that whether a person performing services is
an employee or an independent contractor is the question
before us, and statutes used as guides in making such
determinations must not be distorted to allow persons who
are truly independent in their operation to be held
employees merely for tax purposes and resulting benefits
derived from an employer-employee relationship.
Appellant is correct in stating that persons who are truly
independent in their operations according to the standards
established for determining that issue should not be held to be
employees. However, the furnishing of equipment is strong evidence
8
of control and of a lack of independence and by itself is
sufficient to establish the pastor's status as an employee. As
this Court has stated:
[Wlhen an employer furnishes valuable equipment, an
employment relationship almost invariably exists, butthe
test does not cut in both directions with equal force.
Proof showing the worker furnishes his own equipment is
not necessarily fatal to a finding of employee status.
Solheim v. Tom Davis Ranch (1984), 2 0 8 Mont. 265, 273- 74, 6 7 7 P.2d
1034, 1038. The furnishing of valuable equipment supports the
Workers' Compensation Court's finding that the pastor is an
employee. We note that aspects of the method of payment and the
church's right to terminate the pastor also indicate the pastor is
an employee. However, we need not discuss these factors, as we
hold that the Workers' Compensation Court was correct in finding
that the furnishing of valuable equipment was sufficient to
establish that the pastor is an employee.
I1
Did classifying the appellant's pastor as an employee, which
is contrary to the appellant's sincerely held religious beliefs,
violate the appellant's right of free exercise of religion
guaranteed under the First Amendment to the United States
Constitution and Article 11, 5 5, of the Montana Constitution?
The First and Fourteenth Amendments of the United States
Constitution prohibit both Congress and the states from enacting
any law which prohibits the free exercise of religion. Article 11,
§ 5, of the Montana Constitution also proscribes the promulgation
9
of laws prohibiting the free exercise of religion. The right to
freely exercise one's religious beliefs without the interference of
the state is one of the most cherished and protected liberties in
our society. The wall separating church and state is not absolute,
however, and some governmental impacts on religious freedoms have
long been recognized as being constitutionally permitted. Cantwell
v. State of Connecticut (1940), 310 U.S. 296, 60 S.Ct. 900, 84
L.Ed. 1213. The determination of whether the impact or
interference by the government violates the right of free exercise
of religion is a difficult one. As former Chief Justice Burger
noted while writing for the majority of the United States Supreme
Court in one of that Court's landmark decisions on church/state
relations, "[clandor compels acknowledgment . . . that we can only
dimly perceive the lines of demarcation in this extraordinarily
sensitive area of constitutional law." Lemon v. Kurtzman (1971),
403 U.S. 602, 612, 91 S.Ct. 2105, 2111, 29 L.Ed.2d 745, 755.
The free exercise of religion clause was recently discussed by
this Court in Miller v. Catholic Diocese of Great Falls (1986), 224
Mont. 113, 728 P.2d 794. In Miller, this Court adopted the
following standard to be used as a guide on the application of the
free exercise clause:
The essence of all that has been said and written on the
subject is that only those interests of the highest order
and those not otherwise served can overbalance legitimate
claims to the free exercise of religion.
10
Miller, 728 P.2d at 796 (quoting from Wisconsin v. Yoder (1972),
406 U.S. 205, 215, 92 S.Ct. 1526, 1533, 32 L.Ed.2d 15, 25). Miller
involved a suit by a former parochial school teacher. The issue in
Miller was whether the free exercise clause barred consideration of
the plaintiff's wrongful discharge complaint in which she alleged
a breach of the covenant of good faith and fair dealing in her
discharge for failing to maintain discipline in the classroom. We
held that a judicial determination of the presence or absence of
good faith on the part of the school administrators:
[Wlould impinge upon elements of the teaching of
religion, or the free exercise of religion. We conclude
that discipline in the classroom is so intertwined with
teaching which in turn is intertwined with religious
principles that a court cannot properly make the
determination requested here without interfering with a
legitimate claim to the free exercise of religion.
Miller, 728 P.2d at 797
It is well established, however, that the state may regulate
affairs impacting religious activity when there is an overriding
governmental interest in so doing. United States v. Lee (1982),
455 U.S. 252, 102 S.Ct. 1051, 71 L.Ed.2d 127. The State Fund
argued, and the Workers' Compensation Court agreed, that the
provision for workers' compensation is such an overriding
governmental interest. When alleging a violation of free exercise
it must be shown that the religious belief is sincerely held and
that there is or will be some government prohibition of the free
exercise of that belief. Thomas v. Review Board of Indiana
Employment Security Division (1981), 450 U.S. 707, 101 S.Ct. 1425,
11
67 L.Ed.2d 624. In this instance, the respondent concedes that the
appellant's religious belief in the shepherd/flock doctrine is
sincerely held. However, respondent argues that the impact of
classifying the pastor as an employee is indirect and diminimus,
and in no way prohibits the appellant's free exercise of that
belief.
The appellant argues that by classifying the pastor as an
employee of St. John's Lutheran church, the State Fund and the
Workers' Compensation Court have involved themselves in the
relationship between the church and the pastor. This involvement
led to the classification of the pastor as an employee of the
church, which is contrary to the sincerely held beliefs of the
appellant, and is violative of the First Amendment prohibition
against laws prohibiting the free exercise of religion.
Appellant presented evidence at the hearing by Dr. George
Wollenberg, an expert in church/pastoral relationships, of the
Missouri Synod Lutheran Churches. He stated that it is of great
importance to the church that their pastors not be considered
employees because the "pastor must have the freedom to teach and to
preach and to guide people in accordance with the word of God,
according to the confessions of our Church ... .I1 If the pastor
is subject to being fired by the congregation, it places an almost
insurmountable obstacle in the way of carrying out his duties and
responsibilities to God to proclaim the word of God.
12
Appellant relies on the case of McClure v. Salvation Army
(5th Cir. 1972), 460 F.2d 553, for the proposition that the
relationship between a church and its pastor is a matter of
singular ecclesiastical concern. Appellant quotes the following
from McClure :
The relationship between an organized church and its
ministers is its lifeblood. The minister is the chief
instrument by which the church seeks to fulfill its
purpose. Matters touching this relationship must
necessarily be recognized as of prime ecclesiastical
concern. Just as the initial function of selecting a
minister is a matter of church administration and
government, so are the functions which accompany such a
selection. It is unavoidably true that these include the
determination of a minister's salary, his place of
assignment, and the duty he is to perform in the
furtherance of the religious mission of the church.
McClure, 460 F.2d at 558-59.
McClure is distinguishable from the present case in that the
designation of the pastor as an employee for purposes of workers'
compensation only affects the relationship between the church and
the workers' compensation system. There is no internal impact or
infringement on the relationship between the church and its pastor,
or on their sincerely held religious beliefs. In fact, the church
did pay premiums to the State Fund for several years for workers'
compensation coverage for the pastor. There was no evidence
presented showing this in any way affected the relationship between
the church and its pastor. The present case is also
distinguishable from our decision in Miller in that the designation
of the pastor as an employee does not involve the state in an
13
internal matter of the church which would result in a prohibited
interference.
We affirm the Workers' Compensation Court's holding that the
pastor is an employee and not an independent contractor. We also
affirm the Workers' Compensation Court's holding that designating
the pastor as an employee does not violate appellant's right to
free exercise of religion.
We concur:
f' ff- ---r
14
February 6 , 1992
CERTIFICATE OF SERVICE
I hereby certify that the following order was sent by United States mail, prepaid, to the following
named:
Alden Pedersen
PEDERSEN & HARDY
1645 Ave. D
Billings, MT 59102
Laurence A. Hubbard
State Compensation Insurance Fund
5 S . Last Chance Gulch
Helena, MT 59601
ED SMITH
CLERK OF THE SUPREME COURT
STATE OF MONTANA
BY:
Deputy
Bw