Court Opinion

ID: 9738620
Source: CourtListenerOpinion
Date Created: 2023-08-26 19:58:46.332211+00
Date Added: 2024-06-11T07:24:07.361827
License: Public Domain

FOSHEIM, Justice.
The State of South Dakota appeals from a judgment of the circuit court exempting respondents Northwestern Lutheran Academy and St. Martin’s Evangelical Lutheran School from liability for payment of unemployment tax on their school personnel. We reverse.
Northwestern Lutheran Academy (NLA) is a four-year preparatory school for entrance to Northwestern College or Dr. Martin Luther College.- At these latter institutions, students are trained for the ministry of the Wisconsin Evangelical Lutheran Synod. St. Martin’s Evangelical Lutheran School (St. Martin’s) is an elementary school operated by St. Martin’s Evangelical Lutheran Church.1 Both respondent schools have four or more employees exclusive of those found to be ordained, commissioned or licensed ministers in the exercise of their ministry.
Prior to January 1, 1978, the Federal Unemployment Tax Act (FUTA) permitted states to exempt certain services from taxation.2 These exemptions from unemployment tax liability were codified in South *847Dakota in SDCL 61-1-10.4, which provided that employment covered did not include services performed:
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(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; or
(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; or
(3) In the employ of a school other than a state school which is not an institution of higher education[.]
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In 1976, Congress amended FUTA3 and, as required by that amendment, the South Dakota Legislature in effect repealed subsection (3) of SDCL 61-1-10.4.
In April of 1978, the Secretary of Labor, charged with administration of FUTA, was called upon to determine whether church-related schools were exempt from state unemployment tax under Section 3309(b)(1) (corresponding to SDCL 61-1-10.4(1)). The Secretary’s opinion, announced in a letter of April 18,1978, addressed to the Most Reverend Thomas C. Kelly, General Secretary of the United States Catholic Conference, declared:
The repeal by Congress of the exclusion, in Section 3309(b)(3) of the Federal Unemployment Tax Act, of employees of elementary and secondary schools was clearly intended to result in State coverage of church related schools, whose employees constitute over 80% of the employees of all non-profit schools. In light of the repeal of 3309(b)(3), we think the only services performed in the schools that may reasonably be considered within the scope of the exclusion permitted by 3309(b)(1) are those strictly church duties performed by church employees pursuant to their religious responsibilities within the school.
The Secretary’s opinion resulted in a directive issued to all state employment agencies participating in the federal program, requiring such agencies to be able to assess unemployment compensation taxes against church-related schools in their states. The extension of this coverage under state law is a mandatory condition precedent to certification by the Secretary of Labor that the state statute conforms to federal standards; the Secretary’s certification, in turn, provides access to the system of tax credits and federal reimbursement of certain benefit costs.
The State of South Dakota, in order to continue its participation in FUTA, issued a determination that both NLA and St. Martin’s School are employers subject to coverage by the South Dakota Unemployment Insurance Law. This decision was reviewed by the Appeals Referee for the South Dakota Department of Labor whose decision found the schools subject to coverage, but that pastors and male teachers were exempt from coverage as ministers of a church in the exercise of their ministry, under SDCL 61-1-10.4(2). On appeal to the circuit court, the Appeals Referee was reversed and NLA and St. Martin’s were both found to be exempt from coverage under the South Dakota Unemployment Insurance Law.
I
The threshold question on appeal involves a determination of congressional intent with respect to the repeal of Section 3309(b)(3) of FUTA (which resulted in the effective repeal of SDCL 61-1-10.4(3)). Respondents submit that the removal of the exclusion from unemployment compensation tax liability for school employment was *848meant only to extend coverage to private, nonparochial schools and did not affect the exclusion from coverage of parochial schools. An examination of the recent legislative background of FUTA, however, indicates otherwise. The Employment Security Amendments of 1970, by adding new language to various sections of FUTA,4 required state law coverage of individuals employed by nonprofit organizations (including institutions of higher education). The committee reports accompanying the amendments demonstrate that Congress intended to extend coverage to individuals employed in nonprofit organizations, including religious organizations. The House Ways and Means Committee explained that:
Under existing Federal law, services performed for nonprofit religious, charitable, educational and humane organizations for a State and its political subdivisions are exempt from the tax provisions of the Federal Unemployment Tax Act. While employment in these organizations and governments is not subject to fluctuations to the same degree as in commerce and industry, unemployment affects a substantial number of their employees, particularly people working in nonprofessional occupations.
Your committee does not want to change the present tax status of nonprofit organizations, but it is concerned about the need of their employees for protection against wage loss resulting from unemployment.
H.R.Rep.No. 612,. 91 Cong., 1st Sess. 11 (1969) (emphasis supplied). The Committee went on to delineate more clearly the limits of the Section 3309(b)(1) exemption (correlative to SDCL 61-1-10.4(1)) as applied to institutions of higher education:
This paragraph excludes services of persons where the employer is a church or convention or association of churches, but does not exclude certain services performed for an organization which may be religious in orientation unless it is operated primarily for religious purposes and is operated, supervised, controlled, or principally supported by a church or (convention or association of churches). Thus, services of the janitor of a church would be excluded but services of a janitor for a separately incorporated college, although it may be church related, would be covered. A college devoted primarily to preparing students for the ministry would be exempt, as would a novitiate or house of study training candidates to become members of religious orders. On the other hand, a church related (separately incorporated) charitable organization (such as, for example, an orphanage or a home for the aged) would not be considered under this paragraph to be operated primarily for religious purposes.
H.R.Rep.No. 612, 91 Cong., 1st Sess. 44 (1969). Identical language is found in S.Rep.No. 752, 91 Cong., 2nd Sess. (1970), at 48-59, -U.S.Code Cong. & Admin. News 1970, p. 3606.
We conclude from our reading of the 1970 congressional revisions and the accompanying legislative reports that Congress expected the “operated primarily for religious purposes” language in Section 3309(b)(1)(B) (corresponding to that in SDCL 61-1-10.-4(l)(b)) to be narrowly construed, at least as applied to educational institutions. The Department of Labor has adhered to this congressional mandate and consistently interpreted the 1970 amendments as requiring state unemployment coverage of all institutions of higher education except for the narrow category including seminaries and novitiates which are devoted exclusively to religious training and indoctrination.
In view of Congress’ apparent intention in 1970 to bring religiously affiliated institutions of higher education within coverage, and in light of the Labor Department’s subsequent adoption of this interpretation, Congress’ description of the objective behind the 1976 repeal of Section 3309(b)(3) (culminating in the repeal of SDCL 61-1— 10.4(3)) is informative. According to Congress, the repeal of this section “has the *849effect of requiring the State to pay unemployment compensation on the basis of services performed for all educational institutions. Under existing law, the State is only required to provide coverage of services performed for institutions of higher education.” H.R.Rep.No. 755, 94th Cong., 1st Sess. 6 (1975) (emphasis supplied). As stated in the Senate Report on the bill:
The bill would require the State to extend the coverage of their unemployment compensation programs to employees of nonprofit elementary and secondary schools (present law requires coverage for employees of institutions of higher education). The provisions for nonpayment of benefits during vacation periods to school employees of State and local governments would also apply to employees of nonprofit schools.
S.Rep.No. 1265, 94th Cong., 2d Sess. 2 (1976), U.S.Code Cong. & Admin.News, pp. 5997, 5998.
It is further significant that S.Rep.No. 1265, 94th Cong., 2d Sess. 8 (1976) estimated the number of new employees who would be covered as a result of the repeal of Section 3309(b)(3) at 242,000. This figure approximates the total number of teachers in all nonprofit elementary and secondary schools. Absent the inclusion of employees of church-related elementary and secondary schools, the figure would be considerably less than 242,000, because the teachers in such schools comprise more than half of the staff of all nonpublic elementary and secondary schools in the United States.5
Moreover, when faced with the problem of statutory construction, we must show great deference to the interpretation given such statutes by the agency charged with their administration. Udall v. Tallman, 380 U.S. 1, 85 S.Ct. 792, 13 L.Ed.2d 616 (1965). Shortly after the enactment of the 1970 amendments, the Department published its interpretation of those amendments which stated that the exemption for services performed for churches or religious organizations did not extend to services performed for religiously affiliated institutions of higher education. The Department’s view of the objective behind the 1976 amendments, expressed in the Secretary’s letter, supra, is a logical and necessary extension of the position which the Department has taken without objection since 1970. We find further significance in the fact that Congress did not attempt in 1976 to alter the Department’s interpretation of Section 3309(b)(1). The “failure of Congress to alter or amend ... [a] section, notwithstanding this consistent construction by the department charged with its enforcement, creates a presumption in' favor of the administrative interpretation, to which we should give great weight, even if we doubted the correctness of the ruling of the Department of Labor”. Costanzo v. Tillinghast, 287 U.S. 341, 345, 53 S.Ct. 152, 154, 77 L.Ed. 350, 353 (1932).
II
Having arrived at this determination of congressional intent, we must decide whether the South Dakota Unemployment Compensation Law infringes respondents’ freedom of religion guaranteed by the First Amendment to the United States Constitution and Article VI, Section 3 of the South Dakota Constitution. In order to demonstrate that legislation conflicts with the Free Exercise Clause, “it is necessary . for one to show the coercive effect of the enactment as it operates against him in the practice of his religion.” School District of Abington v. Schempp, 374 U.S. 203, 223, 83 S.Ct. 1560, 1572, 10 L.Ed.2d 844, 858 (1963). Although the First Amendment protection of religious belief is absolute, religiously. based conduct “remains subject to regulation for the protection of society.” Cantwell v. Connecticut, 310 U.S. 296, 303-304, 60 S.Ct. 900, 903, 84 L.Ed. 1213, 1218 (1940). *850Thus, legislation that inhibits conduct mandated by religious convictions, if justified by “interests of the highest order and those not otherwise served can overbalance legitimate claims for the free exercise of religion.” Wisconsin v. Yoder, 406 U.S. 205, 215, 92 S.Ct. 1526, 1533, 32 L.Ed.2d 15, 25 (1972).
Respondents do not outline any specific religious beliefs or practices that conflict with inclusion of their school'personnel in the unemployment compensation program. Assuming, however, that their claim relates to the alleged financial burden that FUTA places upon them, they yet fail to meet their burden of demonstrating a violation of the Free Exercise Clause. The United States Supreme Court has refused to invalidate laws on free exercise grounds simply because they operate “so as to make the practice of . religious beliefs more expensive.” Braunfeld v. Brown, 366 U.S. 599, 605, 81 S.Ct. 1144, 1147, 6 L.Ed.2d 563, 567 (1961). Neither does the unemployment insurance coverage in this case work in any manner to change the entire way of life of any persons associated with respondents. Cf., Wisconsin v. Yoder, supra. It is further significant that employers may meet their obligation by making reimbursement payments in lieu of contributions into the state unemployment compensation fund. See: Section 3304(a)(6)(b); Section 3309(a)(2). An employer electing the reimbursement method is liable only for those amounts paid out to former employees in the form of benefits. Such benefits are not automatically paid to all individuals who become unemployed; rather, certain eligibility requirements must be met before benefits are received and liability is incurred by an employer. This method, by which it is conceivable that no liability may occur, can not be characterized as “coercive” since it will have little, if any, impact upon respondents’ religious practices.
Further, coverage of parochial school employees under the unemployment compensation tax law is permissible because it is justified by a compelling governmental interest. This interest is to provide a system of income maintenance for unemployed individuals so that they have the resources for food, shelter, and other necessities of life until they are able to secure other employment (or until the expiration of the statutorily prescribed period for the receipt of benefits). The United States Supreme Court has repeatedly upheld social and regulatory programs which feature important governmental interests, even though such programs may have an incidental effect upon free exercise of religion. Braunfeld v. Brown, supra; McGowan v. Maryland, 366 U.S. 420, 81 S.Ct. 1101, 6 L.Ed.2d 393 (1961); Prince v. Massachusetts, 321 U.S. 158, 64 S.Ct. 438, 88 L.Ed. 645 (1944); Reynolds v. United States, 98 U.S. 145, 25 L.Ed. 244 (1878). Of further relevance are cases which have held that the failure to grant tax exemptions to religious organizations did not violate the free exercise clause. See, e. g., Watchtower Bible and Tract Society v. Los Angeles County, 181 F.2d 739 (9th Cir. 1950), cert. denied, 340 U.S. 820, 71 S.Ct. 51, 95 L.Ed. 602 (1950) (upholding state personal property tax levy upon religious literature). As noted in Parker v. Commissioner, 365 F.2d 792, 795 (8th Cir. 1966), cert. denied, 385 U.S. 1026, 87 S.Ct. 752, 17 L.Ed.2d 674 (1967):
The receiving of an exemption is thus a matter of legislative grace and not a constitutional right. As long as exemptions are denied by the Commissioner upon a non-discriminatory basis using specific and reasonable guidelines and without inquiry into the merits of the particular religious doctrines, the withholding of religious exemptions is permissible under the Constitution.
Because the Secretary’s interpretation of the amended statute, supra, avoids inquiry into the merits of any particular religious doctrine and will result in nondiscriminatory enforcement of FUTA as applied to all nonprofit elementary and secondary schools, the interpretation does not violate the Free Exercise Clause.
In Mitchell v. Pilgrim Holiness Church Corp., 210 F.2d 879 (7th Cir. 1954), cert. denied, 347 U.S. 1013, 74 S.Ct. 867, 98 L.Ed. *8511136, (1954) the court held that refusal to comply with the federal minimum wage law cannot be justified on religious grounds. The court there stated that the Fair Labor Standards Act “does not . . . prohibit the free exercise of religion by the defendant nor does it lay a flat tax on the privilege” (emphasis in original). 210 F.2d at 883. The court went on to state that the remedial character of the Fair Labor Standards Act — “to insure to the workers of the United States engaged in the production, of goods for commerce a minimum wage sufficient to maintain a minimum standard of living” — justified any incidental impact upon their employer’s free exercise of religion. Id., at 884. Similarly, in the present case, unemployment insurance coverage will have no more than a minimal impact on any religious practice. Further, the purposes of the unemployment compensation program — to insure that eligible persons will be able to maintain a minimum standard of living and that the detrimental effects of such unemployment will not have an adverse effect on the economy — are sufficiently compelling to override any incidental burden upon respondents’ activities.
Ill
Respondents contend that removal of the exemption would foster excessive entanglement between church and state in violation of the First Amendment. It is true that the inclusion of certain employees under the state’s unemployment insurance law will necessarily call for increased involvement between the state and the schools. Such involvement, however, does not constitute excessive entanglement violative of the First Amendment. As the United States Supreme Court has noted, it has never been thought either possible or desirable to enforce a regime of total separation between church and state; thus, the high wall of separation in modern interpretation has become “a blurred, indistinct, and variable barrier depending on all the circumstances of a particular relationship.” Lemon v. Kurtzman, 403 U.S. 602, 614, 91 S.Ct. 2105, 2112, 29 L.Ed.2d 745, 756 (1971).
It is clear from decisions of the Supreme Court that programs which require constant state surveillance or supervision to police the provisions of state programs or that single out church-related schools for preferential treatment will not be tolerated. Wolman v. Walter, 433 U.S. 229, 97 S.Ct. 2593, 53 L.Ed.2d 714 (1977); Tilton v. Richardson, 403 U.S. 672, 91 S.Ct. 2091, 29 L.Ed.2d 790 (1971); Walz v. Tax Commission, 397 U.S. 664, 90 S.Ct. 1409, 25 L.Ed.2d 697 (1970); Everson v. Board of Education, 330 U.S. 1, 67 S.Ct. 504, 91 L.Ed. 711 (1947). Any entanglement between church and state in the present case does not reach the level of that which was struck down in Lemon v. Kurtzman, supra. In that case, state statutes provided state reimbursement to non-public elementary and secondary schools for the cost of teachers’ salaries, textbooks and instructional materials. Under one statute, participating schools were required to identify the cost of secular educational service by prescribed accounting procedures that were subject to state audit. The other statute provided annual salary supplements to teachers of secular subjects in non-public elementary schools. The teachers were required to sign a written statement agreeing not to teach religious courses while receiving salary supplements, and were required to teach only subjects taught in public schools, using the same materials. Such statutes were found to create excessive entanglement because comprehensive and continuing state surveillance would be required to insure that the programs’ provisions were obeyed. In the present case, respondents contend that because different benefits accrue to those employees that are laid off and those that are fired, the state will necessarily become involved in questions of doctrinal interpretation. Such is not the case. The teachers in respondents’ schools are not under contract; rather, they receive a “call” from the church and there are only two ways that a teacher may be released from that call. One is by teaching false doctrine and the other is by misconduct as outlined by respondents’ own standards. In both cases, the rules relating to dismissal are regulated *852by internal doctrinal matters controlled by the church. The state, therefore, need only determine whether the employee was fired or laid off. The employee, as before, will be left to the mercy of respondents’ personnel practices.
Respondents also rely on National Labor Relations Board v. Catholic Bishop of Chicago, 440 U.S. 490, 99 S.Ct. 1313, 59 L.Ed.2d 533 (1979). The issue in that case was whether an NLRB attempt to exercise jurisdiction over diocesan schools to determine whether a particular personnel practice constituted an unfair labor practice fostered excessive entanglement between church and state. The Seventh Circuit United States Court of Appeals held in the affirmative. The Supreme Court stated that the resolution of such a question “in many instances, [would] necessarily involve inquiry into the good faith of the position asserted by the clergy-administrators and its relationship to the school’s religious mission” and thus create excessive entanglement. 99 S.Ct. at 1320. While noting the risks of entanglement inherent in such a relationship, however, the Court declined to decide the First Amendment question in the absence of a clear expression of an affirmative intention of Congress to bring teachers and employees in church-related schools within NLRB jurisdiction. The majority’s extended discussion of the entanglement question nonetheless suggests that had such congressional intent been found to exist, serious issues of constitutional magnitude would arise. The minimal entanglement that might result in the present case, however, does not approach the potential effect, noted in Catholic Bishop, of mandatory collective bargaining on the ability of clerical authorities to administer their schools. In no case would the state be required to actually adjudicate employer/employee disputes in a sectarian school setting. Unemployment insurance coverage does not necessitate state involvement in the development of curriculum, faculty standards, working conditions or any other aspect of school operations. The unemployment insurance system would generally come into play only after an employee had been terminated and was no longer connected in any way with the particular school. Further, the financial impact of the unemployment insurance compensation law cannot be compared with the financial ramifications of NLRB jurisdiction over diocesan schools. In the case of the NLRB, there exists power to order reinstatement with back pay and to utilize judicial authority to enforce its ruling. The state has no such power in the present case. We also note that the simple determination of the amount of time spent by employees working in respondents’ schools, as opposed to its churches, does not foster entanglement of constitutional dimensions.
IV
Finally, respondents contend that female teachers are exempt from coverage as members of a religious order under SDCL 61-1-10.4(2). Respondents argue that such teachers cannot be denied exempt status, because the Synod dogmatically considers its female teachers to be part of its Christian ministry. The fact, however, is that female teachers in respondents’ schools are not permitted to perform any sacerdotal duties or to vote on Synod matters; rather, they are allowed to perform only those functions normally associated with basic education. Thus, their coverage under the unemployment compensation law is appropriate.
The judgment of the circuit court is reversed and the case is remanded with directions to reinstate the decision of the Appeals Referee.
WOLLMAN, C. J., and DUNN and MORGAN, JJ., concur.
HENDERSON, J., dissents.

. NLA, owned and operated by the Wisconsin Synod, and St. Martin’s Church, separately incorporated as a church under South Dakota law, are both members of the Wisconsin Synod ■ and exempt from income tax liability under Section 501 of the Internal Revenue Code (26 U.S.C.A. § 501) (1967)).

. 26 U.S.C.A. § 3301 et seq. FUTA is a comprehensive plan for unemployment compensation allowing for state and federal participation in its administration. Section 3301 of the Act imposes a federal unemployment tax, but Section 3302 of the Act permits tax credits against the federal tax for employers who have paid money into federally approved state unemployment tax funds. In order for a state to participate in the federal plan, it must meet certain requirements set out under Sections 3303 and 3304. While the respondents are exempted from the federal unemployment tax by Section 3306(c)(8), Sections 3304(a)(6) and 3309 require participating states to tax certain charitable organizations exempted from the federal tax.

. The Unemployment Compensation Amendments Act of 1976, Pub.L.No. 94-566, 90 Stat. 2667.

. §§ 3304(a)(6), 3306(c)(8) and 3309(a)(1)(A).

. According to the Census Bureau’s Statistical Abstract of the United States (1977), there were 261,000 mil-time teachers in nonprofit elementary and secondary schools in 1975 of which 150,000 were in Roman Catholic Schools. Thus, it is clear that Congress contemplated that the repeal of § 3309(b)(3) would bring all elementary and secondary schools within the ambit of FUTA.