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socrateaser, Lawyer
Category: California Employment Law
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Experience:  Retired (mostly)
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An employee was hired by a non-profit firm. Upon interviewing,

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An employee was hired by a non-profit firm. Upon interviewing, the employee was told that the company status was non-profit, but not a church. The company fired the employee, and now is trying to look a church so they don't have to pay unemployment. What are the duties of an employer to properly disclose what they are about? Are there laws that prohibit them changing their status to avoid their responsibilities as an employer?

Unemployment Ins. Code 634.5 provides, among other things, that the following organizations and persons are exempt from the unemployment insurance laws:

(a) In the employ of either of the following: (1) A church or convention or association of churches. (2) 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.
(b) By a duly ordained, commissioned, or licensed minister of a church in the exercise of his or her ministry or by a member of a religious order in the exercise of duties required by the order.

The case of Young Life Campaign v. Patino (1981) 122 Cal. App. 3d 559 is the precedent decision in California which defines what is and what is not a religious organization under Unemp. Ins. Code 634.5. The case should be read in its entirety, because it carefully explains the "rules" concerning this issue, and basically comes done to accepting a very liberal view. Most organizations with religious underpinnings can avoid unemployment insurance contributions based upon the Patino case law.

That said, you raise a secondary issue: was the employee's lack of unemployment insurance benefits misrepresented to the employee, in a manner that would give the employee an actionable claim against the former employer. There is no direct case law on this issue in California, making the issue one of "first impression" for an appellate court.

Were I the judge, I would first look to whether or not the employee's payroll statements showed a deduction for unemployment insurance. And, I would want to know for how long the employee was employed with the employer. The reason is simply that it would be very difficult for an employee to claim that he/she was deceived by the employer concerning the payment of unemployment insurance benefits, when the payroll statements showed no contributions being made. And, the longer the employee's employment, the less credible, in my opinion, would be the employee's claim of being deceived by the employer.

Assuming that it could be shown that the employee was completely in the dark as to the truth of the unemployment issue, then there is certainly a contract law action for misrepresentation available -- which would give the employee damages equal to the unemployment insurance benefits to which he/she would otherwise be unentitled.

In sum, we have a question of (1) whether or not the organization is really a religious organization or church; and (2) whether or not the organization misrepresented its status in a manner that would give the employee a claim of fraud or negligent misrepresentation. Either theory could provide a win for the employee. However, in each circumstance, this is a case for a court, or at least for an unemployment hearings officer. If I were the employee, I would file the unemployment claim and try to convince the hearings officer that the organization is not really a church or religious organization.

Hope this helps.
Customer: replied 4 years ago.

Thank you. Yes, it is front California's EDD right now. The first judge ruled for the employee. It got appealed, and the new judge is wading through all of the information. I believe the original judge did site the case you mention above. I will look that up and read it thoroughly. You brought up another good issue - which is misrepresentation under contract law. Believe it or not, the employee is a CPA/auditor. When she recognized that the company was NOT paying unemployment insurance, and she also recognized that they were not performing church functions, nor had church status, she did bring it up to the board. The president decided to reject her concern. She was fired shortly thereafter.

It's certainly a big problem for the employer, if it goes before the Cal. Unemp. Ins. Appeals Board (CUIAB), because a precedent decision could end the employer's exempt status, retroactive for up to three years for all employees. Consequently, this is the sort of case that the employer may not be able to surrender. Most employers may start an argument against an employee, to try to avoid an increase in UI contributions -- but, the employer quickly abandons the case, because it's more expensive to fight than to pay.

Here, however, it's all or nothing. This is bad for the employee, because the employer may spend a lot of money litigating this matter so as to avoid an adverse ruling -- which of course, means that the employee may also have to expend legal fees if the matter ends up in Superior Court.

Hope this helps.
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