Employment Security Administration v. Baltimore Lutheran High School Ass'n

Davidson, J., delivered the opinion of the Court. A Jewish synagogue, Beth Tfiloh, operates a day school (Jewish day school) which is not separately incorporated. Another Jewish synagogue, Liberty Jewish Center (Jewish Sunday school), operates a Sunday school which is not separately incorporated. Various Roman Catholic churches within the Archdiocese of Washington (Archdiocese) operate 52 parochial schools (Catholic ⁷⁵² parochial schools) which are not separately incorporated.

Various Roman Catholic religious orders within the Archdiocese, each of which is separately incorporated, operate 12 private schools (Catholic private schools). There is no evidence to show whether any of these Catholic private schools are separately incorporated. The Baltimore Lutheran High School Association, Inc. (Lutheran Association) is composed of Lutheran churches, each of which is a member of the Lutheran Church — Missouri Synod. The Lutheran Association is separately incorporated and operates the Baltimore Lutheran High School (Lutheran High).

This case presents the question whether each of these schools is entitled to an exemption for its school employees from taxes imposed by the Federal Unemployment Tax Act (FUTA), 26 U.S.C. §§ 3301-3311 (1976 & Supp. Ill 1979), and by Maryland’s complementary statute, Md. Code (1957, 1979 Repl.Vol. & 1981 Cum.Supp.), Art. 95A, §§ 1-23, the Unemployment Insurance Law. The provisions primarily at issue are FUTA’s § 3309 (b) and Maryland’s Art. 95A, § 20 (g) (7) (v) (B). Title 26 U.S.C. § 3309 (b), effective 10 August 1970, provides in pertinent part: "This section shall not apply to services performed — "(1) in the employ of (A) a church or convention or association of churches, or (B) 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; "(2) by a duly ordained, commissioned, or licensed minister of a church in the exercise of his ministry or by a member of a religious order in the exercise of duties required by such order....” Maryland Code, Art. 95A, § 20 (g) (7) (v) (B), effective 1 July 1978, provides: ⁷⁵³ " 'Employment’ does not include: "B. Service by an individual in 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.” Each of the schools claims an exemption on both statutory and First Amendment grounds. 1 The Employment Security Administration’s Board of Appeals (Board) in Appeal No. 243524 held that the Jewish day and Sunday schools were operated primarily for religious purposes and, therefore, were entitled to an exemption. In Decision No. 55-EA-79, the Board held that the Catholic parochial schools and the Catholic private schools were also operated primarily for religious purposes and were entitled to an exemption.

In Decision No. 39-EA-79, the Board held that Lutheran High was not operated primarily for religious purposes and was not entitled to an exemption. In the Superior Court of Baltimore City, the decisions of the Board were affirmed. In addition, the trial court determined that, in light of its conclusion that the Jewish day and Sunday schools, the Catholic parochial schools, and the Catholic private schools were entitled to an exemption, it need not consider the constitutional issues raised with respect to those schools. However, it held that the imposition of a tax on Lutheran High did not violate the First Amendment.

Both the Employment Security Administration and the Lutheran Association filed appeals to the Court of Special Appeals from the trial court’s judgment. While that appeal was pending, the Employment Security Administration filed ⁷⁵⁴ a petition for a writ of certiorari. We issued a writ of certiorari to the Court of Special Appeals before consideration by that Court. We shall affirm that portion of the trial court’s judgment affirming the Board’s decision in Appeal No. 243524 and Decision No. 55-EA-79 that the Jewish day and Sunday schools and the Catholic parochial schools are entitled to an exemption.

We shall vacate that portion of the trial court’s judgment affirming the Board’s decision in Decision No. 39-EA-79 that Lutheran High is not entitled to an exemption. Finally, we shall vacate that portion, of the trial court’s judgment affirming the Board’s decision in Decision No. 55-EA-79 that the Catholic private schools are entitled to an exemption. We will remand the case to the Board without affirmance or reversal for further proceedings in accordance with this opinion. 2 On 26 May 1981, the United States Supreme Court decided St. Martin Evangelical Lutheran Church v. South Dakota, 451 U.S. 772 , 101 S.Ct. 2142 (1981). There, members of the Wisconsin Evangelical Lutheran Synod operated two schools, St. Martin Evangelical Lutheran Church School (St. Martin) and Northwestern Lutheran Academy (Academy).

These two institutions were described by the Court as follows: "St. Martin operates a state-certified elementary Christian day school at Watertown that offers kindergarten through eighth-grade education. The school, which is not a separate legal entity from the church, is controlled by a Board of Education elected from the local congregation. The ⁷⁵⁵ congregation entirely finances the school’s operation. The Academy is a state-certified 4-year secondary school at Mobridge and is owned, supported, and controlled by the Synod.

It, also, is not separately incorporated. Approximately half of its students go on to become ministers within the Church. According to the record, all courses given at St. Martin and at the Academy are taught from a religious point of view based on the Synod’s scriptural convictions.” St. Martin, 451 U.S. at 778-79 , 101 S.Ct. at 2146 . The question presented was whether schools operated by a church or an association of churches that were not separately incorporated and, therefore, had no separate legal existence from the church or association of churches were entitled to an exemption for their school employees from taxes imposed by FUTA’s § 3309 (b) and South Dakota’s complementary statute. 3 There, as here, the exemption was claimed on both statutory and First Amendment grounds.

In reaching its decision, the Supreme Court reviewed the legislative history and language of § 3309 (b) (1). It concluded that "at the time of its enactment in 1970, § 3309 (b) (1) (A) was meant to apply to schools, like petitioners’, that have no separate legal existence from a church, or, as in the Academy’s case, from a 'convention or association of churches.’ ” St. Martin, 451 U.S. at 784 , 101 S.Ct. at 2149 (emphasis added). It held that § 3309 (b) (1) (A) "exempts petitioners’ church-run schools, and others similarly operated, from mandatory state coverage.” St. Martin, 451 U.S. at 780-81 , 101 S.Ct. at 2147 . The Supreme Court made it clear, however, that it was not deciding whether a separately incorporated church- ⁷⁵⁶ affiliated school would be exempt under § 3309 (b) (1) (B).

It said: "Our holding today concerns only schools that have no legal identity separate from a church. To establish exemption from FUTA, a separately incorporated church school (or other organization) must satisfy the requirements of § 3309 (b) (1) (B): (1) that the organization 'is operated primarily for religious purposes’, and (2) that it is 'operated, supervised, controlled, or principally supported by a church or convention or association of churches.’ ” St. Martin, 451 U.S. at 782 -83 n.12, 101 S.Ct at 2148 n.12. I The Jewish Day and Sunday Schools and the Catholic Parochial Schools The Supreme Court’s decision that schools having no legal identity separate from a church are exempt is dispositive of the claims respecting the Jewish day and Sunday schools and the Catholic parochial schools, none of which are separately incorporated. These institutions satisfy the requirements of § 3309 (b) (1) (A) and are entitled to an exemption for their school employees.

Accordingly we shall affirm that portion of the trial court’s judgment affirming the Board’s decision in Appeal No. 243524 and Decision No. 55-EA-79 that the Jewish day and Sunday schools and the Catholic parochial schools are entitled to an exemption. II Lutheran High The Supreme Court’s decision in St. Martin is not dispositive of the claim of the Lutheran Association which is separately incorporated and operates Lutheran High. To establish an exemption, the Lutheran Association must ⁷⁵⁷ show that Lutheran High satisfies the requirements of § 3309 (b) (1) (B). The initial question to be considered is whether Lutheran High "is operated primarily for religious purposes.” In St. Martin, the Supreme Court did not apply the standard established in § 3309 (b) (1) (B) and, therefore, did not articulate the factors to be taken into account in determining whether a church-affiliated school is operated primarily for religious purposes.

The Supreme Court, in applying similar standards in other contexts, has identified appropriate factors. See, e.g., Meek v. Pittinger, 421 U.S. 349, 363 , 95 S.Ct. 1753, 1762 (1975) ("primary effect of advancing religion because of the predominantly religious character of the schools”); Hunt v. McNair, 413 U.S. 734, 743 , 93 S.Ct. 2868, 2874 (1973) ("primary effect of advancing religion”); Tilton v. Richardson, 403 U.S. 672, 680 , 91 S.Ct. 2091, 2097 (1971) ("religion so permeates the secular education ... that their religious and secular educational functions are in fact inseparable”); Lemon v. Kurtzman, 403 U.S. 602, 616 , 91 S.Ct. 2105, 2113 (1971) ("substantial religious activity and purpose”); Board of Educ. of Cent. School Dist. No. 1 v. Allen, 392 U.S. 236, 243 , 88 S.Ct. 1923, 1926 (1968) ("primary effect that neither advances nor inhibits religion”).

In Roemer v. Board of Public Works of Maryland, 426 U.S. 736, 739 , 96 S.Ct. 2337, 2341 (1976), the Supreme Court considered the constitutionality, under the First Amendment, of a Maryland statute that provided for annual, noncategorical grants to private colleges, including religiously affiliated institutions, subject only to the restrictions that the funds not be used for "sectarian purposes.” In reaching its conclusion that the statute was constitutional on its face and as applied, the Supreme Court considered, among other things, whether four colleges, all Roman Catholic affiliates, were "pervasively sectarian.” In reviewing the United States District Court for the District of Maryland’s findings, the Supreme Court stated: "(a) Despite their formal affiliation with the Roman Catholic Church, the colleges are 'char ⁷⁵⁸ acterized by a high degree of institutional autonomy.’ None of the four receives funds from, or makes reports to, the Catholic Church. The Church is represented on their governing boards, but, as with Mount Saint Mary’s, 'no instance of entry of Church considerations into college decisions was shown.’ "(b) The colleges employ Roman Catholic chaplains and hold Roman Catholic religious exercises on campus. Attendance at such is not required; the encouragement of spiritual development is only 'one secondary objective’ of each college; and 'at none of these institutions does this encouragement go beyond providing the opportunities or occasions for religious experience.’ It was the District Court’s general finding that 'religious indoctrination is not a substantial purpose or activity of any of these defendants.’ "(c) Mandatory religion or theology courses are taught at each of the colleges, primarily by Roman Catholic clerics, but these only supplement a curriculum covering 'the spectrum of a liberal arts program.’ Nontheology courses are taught in an 'atmosphere of intellectual freedom’ and without 'religious pressures.’ Each college subscribes to, and abides by, the 1940 Statement of Principles on Academic Freedom of the American Association of University Professors. "(d) Some classes are begun with prayer.

The percentage of classes in which this is done varies with the college, from a 'minuscule’ percentage at Loyola and Mount Saint Mary’s, to a majority at Saint Joseph. There is no 'actual college policy’ of encouraging the practice. 'It is treated as a facet of the instructor’s academic freedom.’ Classroom prayers were therefore regarded by the District Court as 'peripheral to the subject of religious permeation,’ as were the facts that some instructors ⁷⁵⁹ wear clerical garb and some classrooms have religious symbols. The court concluded: 'None of these facts impairs the clear and convincing evidence that courses at each defendant are taught "according to the academic requirements intrinsic to the subject matter and the individual teacher’s concept of professional standards.” [citing Tilton v. Richardson, 403 U.S., at 681 ].’ "(e) The District Court found that, apart from the theology departments, faculty hiring decisions are not made on a religious basis. At two of the colleges, Notre Dame and Mount Saint Mary’s, no inquiry at all is made into an applicant’s religion.

Religious preference is to be noted on Loyola’s application form, but the purpose is to allow full appreciation of the applicant’s background. Loyola also attempts to employ each year two members of a particular religious order which once staffed a college recently merged into Loyola. Budgetary considerations lead the colleges generally to favor members of religious orders, who often receive less than full salary. Still, the District Court found that 'academic quality’ was the principal hiring criterion, and that any 'hiring bias,’ or 'effort by any defendant to stack its faculty with members of a particular religious group,’ would have been noticed by other faculty members, who had never been heard to complain.

"(f) The great majority of students at each of the colleges are Roman Catholic, but the District Court concluded from a 'thorough analysis of the student admission and recruiting criteria’ that the student bodies 'are chosen without regard to religion.’” Roemer, 426 U.S. at 755-58 , 96 S.Ct. at 2349-50 (citations omitted) (footnote omitted). The Supreme Court affirmed the District Court’s finding that the four colleges were not "pervasively sectarian.” ⁷⁶⁰ In The Horace Mann League of the United States of America, Inc. v. Board of Public Works of Maryland, 242 Md. 645, 672 , 220 A.2d 51, 65-66 , cert. denied, 385 U.S. 97 , 87 S.Ct. 317 (1966), which preceded Roemer , 4 this Court considered similar factors in determining whether an educational institution is secular or sectarian. There, the question concerned the constitutionality, under the First Amendment and the Maryland Declaration of Rights, of a Maryland statute that provided state grants for the construction of buildings to church-affiliated private colleges. In reaching its conclusions, this Court said: "The experts on both sides are in general accord that the following factors are significant in determining whether an educational institution is religious or sectarian: (1) the stated purposes of the college; (2) the college personnel, which includes the governing board, the administrative officers, the faculty, and the student body (with considerable stress being laid on the substantiality of religious control over the governing board as a criterion of whether a