St. Martin Evangelical Lutheran Church v. South Dakota

PETITIONER:St. Martin Evangelical Lutheran Church
RESPONDENT:South Dakota
LOCATION:Western District Court of Kentucky

DOCKET NO.: 80-120
DECIDED BY: Burger Court (1975-1981)
LOWER COURT: South Dakota Supreme Court

CITATION: 451 US 772 (1981)
ARGUED: Mar 03, 1981
DECIDED: May 26, 1981

ADVOCATES:
Allen R. Snyder – on behalf of Alabama and Nevada as amici curiae
Barry Sullivan – on behalf of the United States as amicus curiae
E. Thomas Schilling – for petitioners
Edward Thomas Schilling – on behalf of the Petitioners
Mark V. Meierhenry – on behalf of the Respondent

Facts of the case

Question

Audio Transcription for Oral Argument – March 03, 1981 in St. Martin Evangelical Lutheran Church v. South Dakota

Warren E. Burger:

We’ll hear arguments next in St. Martin’s Evangelical Church v. South Dakota.

Mr. Schilling, I think you may now proceed whenever you’re ready.

Edward Thomas Schilling:

Mr. Chief Justice, and may it please the Court:

We suggest that the primary question before the Court is whether churches that operate elementary and secondary schools are exempt from the Federal Unemployment Tax Act, which is known as FUTA, as that Act is applied by the States.

If the Court should find that these schools are not, these churches are not exempt, then we have a second question, and that is whether coverage under FUTA would violate either or both of the religion clauses of the First Amendment.

The petitioners are St. Martin Evangelical Lutheran Church, which is separately incorporated under South Dakota law, and it operates an elementary day school.

The other petitioner, Northwestern Lutheran Academy, is owned and operated by the Wisconsin Synod, and it is a four-year preparatory school for entrance into one of the Synod colleges in preparation for either the teaching or the preaching ministry.

It should be noted that all teachers are regarded as ministers of the Wisconsin Synod.

This was found by the appeals referee in the original administrative hearing.

They have equal status with their preaching minister counterparts and voting rights on doctrinal matters in the church.

Now, neither of these schools that we’re talking about are separately incorporated.

Prior to 1970 the Federal Unemployment Tax Act did not cover nonprofit or tax-exempt organizations.

In 1970, however, Congress required the states to cover nonprofit corporations and when it did this it created a Section 3309(b) which specifically exempted from coverage certain nonprofit employers or services.

Now, the first section, 3309(b)(1) has two parts, the subsection (a) which exempts those in the employ of a church, convention, or association of churches; and subsection (b) exempts those in the employ of an organization which is operated primarily for religious purposes and, which is not an issue here, which organization is operated, supervised, controlled, or principally supported by a church, convention, or association of churches.

Subsection (2) deals with their ministers and members of religious orders.

Subsection (3) exempted those in the employ of elementary and secondary schools.

The other exemptions are not pertinent to our case.

In 1976 Congress again amended FUTA effective in 1978, requiring primarily coverage of state and local employees, agricultural workers, and domestic workers.

And when Congress did this it eliminated that elementary and secondary school exclusion, and this is where the controversy begins.

Byron R. White:

sSuppose there had never been that third exception?

Suppose there had never been that third exception?

Edward Thomas Schilling:

I think that third exception was–

Byron R. White:

Do you think it is just superfluous or not?

Edward Thomas Schilling:

–I think it had no effect on parochial schools.

Byron R. White:

It did on nonparochial?

Edward Thomas Schilling:

It did on other nonprofit schools, and perhaps it had an effect on public schools.

Byron R. White:

But it was never needed to exempt the kinds of schools involved in this case?

Edward Thomas Schilling:

That’s our position, yes, Mr. Justice.

Byron R. White:

Although that was never the view of the Service, I guess?

Edward Thomas Schilling:

That was not the view of the Labor Department after repeal.

Byron R. White:

Or before.

Edward Thomas Schilling:

Well, I think, before, Mr. Justice, it never had occasion to arise, and I don’t think the Secretary of Labor–

Byron R. White:

Didn’t they issue exemptions?

Edward Thomas Schilling:

–No, you don’t get an exemption, the exemption is automatic, Mr. Justice.

I mean, if–

Byron R. White:

So you never have to–

Edward Thomas Schilling:

–You don’t apply or do anything to get it.

It’s there and you use it.

Byron R. White:

–So you never knew why the tax wasn’t collected from religious schools?

You didn’t know which ones of the exemptions was being applied?

Edward Thomas Schilling:

That’s correct.

Well, after this exemption, this elementary and secondary school exemption was removed; it seems that the State bases its argument on repeal of this subsection (3).

We maintain that the statute as it remains is clear, and that the statute controls, and that legislative history or intent is really not an issue.

William H. Rehnquist:

Are you talking about the South Dakota statute?

Edward Thomas Schilling:

I’m talking about the South Dakota statute, which is a mirror image of the federal statute.

William H. Rehnquist:

But if the South Dakota Supreme Court has construed the South Dakota statute, aren’t we bound by that?

Edward Thomas Schilling:

I don’t think so, Mr. Justice, because the South Dakota statute is so closely interwoven with the federal statute, and–

Potter Stewart:

That question bothered me, in reading the briefs in this case, and the only discussion of it I found was in Footnote 2 of the Government’s amicus brief which is rather short; it may be correct.

But you don’t… none of the parties… don’t discuss that question, whether or not this doesn’t involve purely a question of state law.

Edward Thomas Schilling:

–Well, I suggest, Mr. Justice, that it does not because the penalties to the states, if they don’t comply, are so severe–

Potter Stewart:

But the State Supreme Court seemed to be talking about the South Dakota law, didn’t it?

Edward Thomas Schilling:

–Mr. Justice, I think–

Potter Stewart:

It sets it out on page A-3 of its opinion, and that’s the one it discusses.

Warren E. Burger:

Are you suggesting that because of the interaction with the federal law and the question in the case, that that alters the usual rule that we won’t reexamine a state court’s interpretation of its own statutes?

Edward Thomas Schilling:

–That’s correct, Your Honor.

I think that the jurisdiction of course is there with the constitutional question we’ve raised, but I think the Court also, without the constitutional question, has jurisdiction to decide this question, because of the interrelationship between the state statute and the federal statute.

William H. Rehnquist:

You’re saying, then, it’s like the Zacchini v. Scripps case we decided two or three years ago where we felt that the state court might have decided this case differently had they not been under a misapprehension as to federal law?

Edward Thomas Schilling:

I think that’s correct, yes; Mr. Justice.

Potter Stewart:

Well, suppose we ruled that the federal law didn’t intend to subject religious schools to this tax?

Suppose we just ruled that?

Potter Stewart:

You would still be subject to them in South Dakota, until the Legislature acted.

Edward Thomas Schilling:

We think this Court has power, Mr. Justice, to overrule and reverse the South Dakota Supreme Court–

Potter Stewart:

Well, not as to the meaning of a South Dakota statute.

This Court lacks the power to do that.

Byron R. White:

Until the Supreme Court changed its mind, the South Dakota statute would continue to mean exactly what it meant.

William H. Rehnquist:

Well, unless, under cases like Zacchini or Benguet Consolidated Mines, we were to vacate and remand for reconsideration free of any misapprehension the state court might have had about the federal law question involved.

Edward Thomas Schilling:

–If you did not want to get to the constitutional question, yes, Mr. Justice.

And we don’t really think you have to get to the constitutional question.

William J. Brennan, Jr.:

Well, the point of it is that if your state supreme court construed the statute in reliance on an understanding of federal law that we say was erroneous, and we send it back, we couldn’t change it from your state supreme court; but we could send it back to them, that’s the suggestion, and let them reconsider their interpretation of the state statute in light of what we’ve said about the federal question.

Edward Thomas Schilling:

That might be correct, Mr. Justice Brennan.

And I think we’d have to come back if they would not follow or wish–

William J. Brennan, Jr.:

Well, we might have another case.

Edward Thomas Schilling:

–And we’d have another case.

Because we do have the constitutional issue.

I think that the South Dakota Supreme Court’s interpretation was so heavily reliant on what the Secretary of Labor suggests and so heavily reliant on what the federal statute said, because they kept using the 3309 provisions, that I still think that that would be our position, that this Court does have jurisdiction aside from the constitutional question.

But our position under the statute, whether it be South Dakota or the federal statute, is that these churches are exempt either under subsection (a) because the services performed are in the employ of a church, convention, or association of churches.

We also think they might be exempt under subsection (b) because the services are for an organization which is operated primarily for religious purposes.

Our argument primarily is based on the statute.

I will first discuss (a).

I think under subsection (a) we have to define the simple language,

“service performed in the employ of a church. “

And I think we have to define what the word “church” means.

Now, the South Dakota appeals referee defined the word “church” very narrowly.

He said that the word “church” meant an individual house of worship, as has been interpreted to him to mean by the Secretary of Labor.

We think the appeals referee is wrong–

Byron R. White:

And the Department of Labor.

Edward Thomas Schilling:

–and the Department of Labor is wrong, because a building can’t employ somebody.

I think that the facts show that the school operated by St. Martin church is not separately incorporated, it’s not a legal entity, the members of the church congregation control its operation; and, number three, the school is completely financed by the church.

If the tax is going to be paid, it’s going to be paid by the church.

Likewise Northwestern Lutheran Academy is not separately incorporated.

Edward Thomas Schilling:

Its control is by the Synod, and its principal source of support is from the Synod.

If you look at the common dictionary meaning of the word “church” it refers to a body or organization of religious believers, and that’s, I think, the definition that we should use.

I think it’s interesting that when Congress recodified the Internal Revenue Code in 1954, it stated that the term should be all-inclusive, and should be interpreted to include other organizations which as integral parts of the church are engaged in carrying out the church’s functions, whether individually incorporated or not.

I think there are two excellent briefs by the Catholic Conference and by the Lutheran Church-Missouri Synod that trace some of the legislative history.

From time to time Congress has used these same words,

“church, convention, or association of churches. “

and of course it’s our position that when Congress did this it kept the same meaning.

We think Congress intended a broad and a general meaning.

Now, when Congress recodified the Code in 1954, the words “or religious order” were also in the statute they were talking about.

And those words “or religious order” were deleted, because I think Congress thought that that would limit and confuse this broad definition that they intended.

The United States as amicus curiae implies that church schools are not exempt under this section because they’re not a church.

Well, I don’t think that’s the issue.

I think the issue is whether these church schools, or the services performed in these church schools which are not separately incorporated, are performing services in the employ of the church.

Warren E. Burger:

Are you saying that they are essentially the same, substantially the same as the Sunday School classes or summer school classes held traditionally at Lutheran churches and others?

Edward Thomas Schilling:

Yes, Mr. Chief Justice, I think that the school is a basic part of the church’s mission.

Warren E. Burger:

In other words, it’s an implement of the faith of that church?

Edward Thomas Schilling:

That’s correct, Mr. Chief Justice.

Thurgood Marshall:

Is it governed by state rules?

Does it follow the state rules for education?

Edward Thomas Schilling:

The state rules of education?

Thurgood Marshall:

Do they supervise those schools?

Do they enforce the attendance laws?

Does the state enforce the attendance laws?

Edward Thomas Schilling:

Mr. Justice, the state heretofore has not really enforced their certification requirements, their attendance requirements.

They do submit attendance information.

Thurgood Marshall:

Well, do you do that for your church school?

Edward Thomas Schilling:

Yes, they do.

Thurgood Marshall:

The Sunday School?

Do that for your Sunday School?

Edward Thomas Schilling:

Not Sunday School.

Thurgood Marshall:

Of course you don’t, so they’re different, aren’t they?

Aren’t they different?

Edward Thomas Schilling:

Well, Sunday Schools are not a requirement of compulsory school attendance.

But a day school is–

Thurgood Marshall:

Well, I mean, you said in answer to the Chief Justice that it was just the same as the Sunday School.

You didn’t really mean that, did you?

Edward Thomas Schilling:

–I meant, insofar as the inculcation of religious doctrine goes, I did.

Insofar as state requirements of education, I did not.

I think this question of state requirements and certification is one that might very well get to this Court some day.

Warren E. Burger:

The state has police power to require attendance at primary school, does it not?

Edward Thomas Schilling:

Yes, it does.

Thurgood Marshall:

It could not, under the religion clauses, compel attendance at a Sunday School.

The State of South Dakota couldn’t compel people to go to Sunday School, could they?

Edward Thomas Schilling:

No, they could not.

I think that would violate the Establishment Clause.

This question of certification has been before three states, these requirements.

And I understand that Ohio, Vermont, and Kentucky courts have restrained the states from enforcing their certification requirements on parochial schools.

I understand–

Potter Stewart:

You referred to the Synod, and according to your brief the membership of the Synod is the churches themselves rather than church officials, is that correct?

Edward Thomas Schilling:

–That is correct.

Potter Stewart:

In the Lutheran organization?

Edward Thomas Schilling:

That is correct.

Potter Stewart:

The dictionary meaning includes both.

Edward Thomas Schilling:

That’s correct, Mr. Justice.

Potter Stewart:

So the Synod is an assembly or a group of Lutheran churches, not of people?

Edward Thomas Schilling:

That’s correct.

The membership are the churches.

John Paul Stevens:

Mr. Schilling, maybe I’m laboring the point, but the referee found, as I remember, that the primary purpose of the school was education rather than religious training.

Do you dispute that finding?

Edward Thomas Schilling:

Yes, I do dispute that finding The referee found that religion is inculcated in everything they teach, but then he said that the primary purpose was education.

Edward Thomas Schilling:

The word “primary” means fundamentally, in the first place, or of first importance.

And it’s our position that the reason that churches provide a school system that’s contiguous with that which the state provides is strictly to inculcate religious beliefs.

Insofar as the Wisconsin Synod goes, its constitution provides for conserving its doctrine and for extending its doctrine, and its constitution specifically provides for schools.

I Think the purpose of schools insofar as–

John Paul Stevens:

These schools do perform the same educational function that public schools do insofar as the general education that is needed by a child, doesn’t it?

Edward Thomas Schilling:

–They do; yes, Mr. Justice.

Potter Stewart:

But, certainly, logically, they wouldn’t even exist if they didn’t have some function beyond that.

Edward Thomas Schilling:

That is correct.

Their function beyond that is to inculcate the religious doctrine into everything they teach, and I think that was recognized by this Court in the establishment cases in the early ’70s.

Warren E. Burger:

Well, is it any different in this situation from the schools of the Roman Catholic churches and others that we have dealt with?

Edward Thomas Schilling:

I think the situation insofar as Roman Catholic schools or Baptist schools is all the same.

I think the statute that we’re talking about, if we’re talking about the federal statute, is so broad that no matter what the organizational structure of the church, it’s covered under this exemption.

I don’t think there’s anything peculiar about the Wisconsin Synod.

Thurgood Marshall:

Are these schools restricted to Lutheran children, or can other children attend?

Edward Thomas Schilling:

They’re not restricted.

Primarily attendance is for those who are Lutheran.

I think they would take–

Thurgood Marshall:

That’s not true in the Catholic parochial schools, is it?

Edward Thomas Schilling:

–I can’t speak for the Catholic parochial schools.

Thurgood Marshall:

Well, you just a minute ago, you did say they were similar, though.

Edward Thomas Schilling:

Well, I think they’re pretty similar, insofar as their… similar insofar as their inculcating of religious doctrine.

Potter Stewart:

And I gather from what you’ve just said, or said a few moments ago, that you don’t think that the question of whether the church is a separate corporation is a dispositive question?

Edward Thomas Schilling:

I don’t, Your Honor.

Potter Stewart:

In this case they are not.

Edward Thomas Schilling:

I don’t think the fact–

Potter Stewart:

I say, in this case they are not, and you rather emphasized that in your statement of the facts.

Edward Thomas Schilling:

–We emphasized the fact that they are not, because in our case, of course, we have that fact.

But I think, if you read Congress’s statement, which also appears in the conferee statement when they recodified the Code, they used the term, that whether they’re carrying out the function of the church, where there are separate corporations “or otherwise”.

So I think under this broad definition of church, convention, or association of churches, they were all-inclusive, no matter what the organizational structure of a particular religious body is.

Potter Stewart:

So even though something were incorporated separately as a school, albeit a parochial school, that would not be a dispositive question in your submission?

Edward Thomas Schilling:

I don’t think that would be a dispositive question.

Byron R. White:

Why are the institutions of higher learning that are religious covered?

Edward Thomas Schilling:

Why are they covered?

I think there’s a difference between elementary schools and secondary schools.

Byron R. White:

Well, how about for purposes of the statute?

Why wouldn’t an institution of higher learning that is controlled by a church, why wouldn’t it fall within subsection (a) or (b)?

Edward Thomas Schilling:

I think their freedom’s–

Byron R. White:

Because it’s being, it’s still part of the church?

Edward Thomas Schilling:

–But I don’t think their purpose in college is primarily religious, that is for most church colleges.

Some, that may be true, but I think for most church colleges–

Byron R. White:

Well, none of them… I mean, all of them are covered.

Edward Thomas Schilling:

–They’re included.

Byron R. White:

All of them are included.

Edward Thomas Schilling:

They’re not exempt.

Byron R. White:

That’s right.

None of them are exempt.

And nobody goes through this routine of seeing whether they are performing a church function or not.

Edward Thomas Schilling:

Insofar as colleges, that’s correct.

Byron R. White:

How long has that been true?

Edward Thomas Schilling:

I think, since 1970.

Byron R. White:

Were they not covered before?

Edward Thomas Schilling:

They were not covered before.

Byron R. White:

Because why?

Edward Thomas Schilling:

Because they were a nonprofit corporation.

Nonprofit corporations were not included within the provisions.

Byron R. White:

And that was repealed?

Edward Thomas Schilling:

Then that was repealed in 1970.

At which time they created this subsection (3).

Byron R. White:

How did you know that colleges were exempt under that section rather than under the church section?

Edward Thomas Schilling:

They were never exempt.

Edward Thomas Schilling:

Because Congress did not provide an exemption for them unless they could come in under (1); they could come in as primarily religious.

I think Congress, when it spoke… when Congress came out in the ’69-’70, when they brought these various nonprofit organizations in, specifically said in its reports that a separately incorporated organization like an orphanage or a home for the aged would not be covered.

And it specifically said that, in these reports, that institutions of higher education were meant to be covered unless they were seminaries or novitiates or something like that.

Byron R. White:

Would your argument be different if the exemption that was repealed had exempted the employees of church-related and other private schools?

Edward Thomas Schilling:

I think our exemption would still come back under 3309(b)(1), either (a) or (b).

Byron R. White:

Even though Congress had thought that it was repealing the exemption for those people?

Edward Thomas Schilling:

Yes, Mr. Justice.

Byron R. White:

Well, it seems to me that under the plain language of (1)(a) at least, to be exempt, the employment has to be of the church, or convention, or association churches, not of a separate corporation.

Edward Thomas Schilling:

Under subsection (a)?

Potter Stewart:

Right.

Now, (b) is something else again.

Edward Thomas Schilling:

Except for Congress’s definition?

Potter Stewart:

Well, I’m talking about the statutory definition:

“in the employ of (a) a church or convention or association of churches. “

This is not a school.

Edward Thomas Schilling:

But they’re in the employ of a church.

Potter Stewart:

Of a church, and your clients are, you tell us.

Edward Thomas Schilling:

That’s right.

Potter Stewart:

But it would be dispositive of whether or not there were a separate corporation, wouldn’t it?

And if the employment were by a school, then (1)(a) wouldn’t cover it.

Edward Thomas Schilling:

It might then come under (1)(b).

Potter Stewart:

It might or might not come under (1)(b).

Edward Thomas Schilling:

That’s right, Mr. Justice.

Potter Stewart:

So the corporate organization is dispositive, at least with respect to (1)(a).

Isn’t it?

Edward Thomas Schilling:

I don’t think so, because when Congress defined the words

“church, convention, or association of churches. “

it used that language, “separate corporation or otherwise” in its definition.

Potter Stewart:

Well, I’m looking at the statute, which is what Congress enacted.

And the exemption is for somebody in the employ or a church or a convention or association of churches.

Edward Thomas Schilling:

If you’d look strictly at the statute, then it would appear that separate incorporated schools would not come under the subsection (a).

They would have to find their way into subsection (b).

Warren E. Burger:

And that’s what you stand on?

Potter Stewart:

He stands on both–

Edward Thomas Schilling:

I stand on both.

Warren E. Burger:

–But you’re standing on (b)?

Edward Thomas Schilling:

We’re standing primarily on (a).

Warren E. Burger:

But you are–

Edward Thomas Schilling:

And (b).

Warren E. Burger:

–Standing on (b).

That’s my?

Edward Thomas Schilling:

Yes, sir.

William J. Brennan, Jr.:

If you can’t come under (a), then you’ll take (b)?

Edward Thomas Schilling:

Then we’ll take (b).

John Paul Stevens:

Mr. Schilling, insofar as you rely on (b), and of course I understand you disagree with the referee’s characterization as to “operated primarily for educational purposes”, but would it not be necessary in every case involving a church-affiliated school, for the taxing authorities to make it an ad hoc decision as to whether that particular school was primarily for religious purposes or primarily for educational purposes, rather than having a general rule that would cover all schools.

I meant, all nonpublic schools; yes.

Edward Thomas Schilling:

Aside from this constitutional question, that might be the answer, Mr. Justice.

John Paul Stevens:

There might be a large number of individual determinations that would have to be made in order to determine the scope of (1)(b).

Edward Thomas Schilling:

That’s quite possible, Mr. Justice.

Byron R. White:

Then you’d have to decide what “religion” was, too.

Edward Thomas Schilling:

That might be, but we might have the establishment problem.

William J. Brennan, Jr.:

Well, your problems were certainly non-existent before they repealed (3).

Edward Thomas Schilling:

That’s right; we had no problem.

William J. Brennan, Jr.:

It fell right under (3) and now you say, you also fall under (1)(a) and (1)(b) if you can’t get under (1)(a)?

Edward Thomas Schilling:

And (1)(b).

Or we have a constitutional problem.

John Paul Stevens:

Would you comment just on one thing that’s mentioned in the opinion below.

It’s the number of employees that Congress thought it was subjecting to the statute.

They used a figure that your opponents argue demonstrates they must have been intending to include the employees of parochial schools generally.

Edward Thomas Schilling:

Well, with respect to those numbers, all I can say is, in a footnote in that report, there was a bigger number of 261,000, instead of the 242,000.

Edward Thomas Schilling:

That referred to teachers, that 261,000.

And if we would then bring in our cafeteria workers and our bus drivers and our janitors and the other school people, that number would grow.

So I have trouble relating this 242,000 figure.

The only thing I have to go on is what happened in the Alabama v. Marshall conformity hearing where the Administrative Law Judge rejected reliance on it based on testimony that had taken place in that matter, that there was no record that Congress understood that figure and there was no supporting data with the figure, and then of course he refused to go along with it because the issues involved… what he said… were integral church functions.

Byron R. White:

Were there any hearings on this exemption?

When it was repealed, when it was revoked?

Edward Thomas Schilling:

Yes, but the primary hearings were, all involved the public or the state and local employees.

Byron R. White:

But there’s nothing in the hearings, no data in the hearings as to what kind of employees, how many employees were being affected?

Edward Thomas Schilling:

Mr. Justice, never in the Congressional Record or debates does the word “church” or “church employees” appear.

William J. Brennan, Jr.:

Where did those figures come from, those 242 and 261?

Byron R. White:

The figure was 242,000 employees of private schools.

That’s what the figure is.

Edward Thomas Schilling:

That’s correct, Mr. Justice.

Byron R. White:

Well, where did that come from?

Is there any evidence in the hearings as to where it came from?

Edward Thomas Schilling:

I don’t know.

I think there was examination of people in that Alabama… I’m not familiar with the Alabama case.

Byron R. White:

I know, but in the congressional hearings?

Edward Thomas Schilling:

No.

There was no discussion on that figure.

Byron R. White:

Nothing in the hearings, nothing in the testimony taken, none of the correspondence?

Edward Thomas Schilling:

None that I found, Mr. Justice.

I would like to reserve some time.

Warren E. Burger:

I’m afraid your time has expired.

Mr. Snyder.

Allen R. Snyder:

Mr. Chief Justice; may it please the Court:

Amici curiae, the States of Alabama and Nevada, submit that in order to resolve this case the Court need look no further than the plain language of 26 U.S.C. Section 3309(b)(1), Subsection (a).

The uncontradicted facts before this Court demonstrate that employees of church schools such as petitioners are

“in the employ of a church, or convention, or association of churches. “

and thus fit squarely within the statutory exemption provided by Congress.

Allen R. Snyder:

The question that was raised earlier concerning the basis for federal jurisdiction, or this Court’s jurisdiction over the statutory interpretation here, I think is answered by two factors.

Number one, a review of the South Dakota Supreme Court decision makes it clear they are relying solely on their understanding of congressional intent and the meaning of the federal statute.

They state at page A-5 of the petitioner’s appendix, in the opinion there,

“the threshold issue is congressional intent. “

And I think the language of that opinion is clear, that they are relying on their understanding of the Secretary of Labor’s interpretation and of the interpretation of the federal statute.

Under those circumstances, there are a number of cases from this Court that stand for the proposition that an erroneous understanding of federal law which is introduced into a state court decision is properly the subject of federal review even though the state court could choose voluntarily to read its own statute differently; where it states that it is relying on its understanding of federal law, this Court can correct such a misapprehension.

I think one of the best cases for that proposition is Standard Oil Company v. Johnson, which is cited at 316 US 481.

At page 483 the Court makes it quite clear that it will review an interpretation of the California highway tax, because the California Court interpreted that tax by reference to its understanding of federal law concerning the definition of an agency or a part of the United States Government.

We think, equally here, the State Supreme Court has interpreted the federal law, and it has interpreted it incorrectly.

In considering whether church school employees are employed by a church as required for the (b)(1)(a) exemption, it is important to bear in mind that the statute and the implementing regulations expressly define the words “employer” and “employee”, and they define them so as to incorporate into the unemployment compensation law the common law rules for determining whether an employer-employee relationship exists.

They set forth such factors as the right to control and direct the individual’s work, the furnishing of the place or tools of the work, and the right to discharge the individual.

In this case, as counsel for petitioners has already indicated, the church schools involved are run directly by the church or the Synod.

They have no separate corporate or legal existence, and therefore these schools are typical of the great variety of schools that are described in the stipulated record which is before this Court in Marshall v. Alabama and Nevada, No. 8922.

While those stipulations by the Secretary of Labor are not binding on the parties here, we believe they are helpful in understanding the position of the Department of Labor, which position was then adopted by the South Dakota Supreme Court in the decision that’s under review.

The Secretary has stipulated as a matter of fact that in our states all of the Catholic, Lutheran, and fundamental Baptist church schools have no legal existence separate from their respective churches.

In those schools church officials such as the pastor or the priest hire and fire all the employees of the school.

Church officials discipline and control the work of the employees.

The church owns the building in which the school operates.

The employees’ salaries are paid directly from the church bank account.

Therefore we believe it is uncontradicted that every key element of the common law definition of employment as incorporated into this statutory scheme is present here.

Nevertheless, the Secretary of Labor and the South Dakota Supreme Court suggest that the word “church” should be confined to mean the physical house of worship rather than the legal entity that owns the building and hires the employees.

As is set forth at some length in the briefs in this case, Congress has consistently provided for a broader definition of “church” in the Internal Revenue Code.

Byron R. White:

Well, you normally, though… you wouldn’t suggest that normally, when you use the word “church” you think about a church school at the same time?

Allen R. Snyder:

No, sir, I think you’d normally–

Byron R. White:

In ordinary language you’d talk about those things as different entities.

Allen R. Snyder:

–Mr. Justice White, I think normally–

Byron R. White:

And, legally, you’re quite right.

But most people would say, where are you going today?

You’d usually say, I’m going to school, not to church.

Allen R. Snyder:

–Mr. Justice White, I think it does depend–

Byron R. White:

Ask anybody where he works, he says, I work at the Baptist school.

He doesn’t say I work for a church.

Allen R. Snyder:

–I think it is correct, Mr. Justice White, that it depends somewhat on the context in which you’re speaking.

If someone says on Sunday, I’m going to church, they may perhaps be talking about the building or they may be talking about the worship service.

But Congress used the word

And we submit that a church building cannot employ anyone, that in the context of who is the employer, when Congress is setting out a statute about the payment of wages, about the withholding of taxes, that the phrase,

“in the employ of the church. “

in that context, we submit, had to refer to the definition as petitioners’ counsel has stated.

That is also a common definition of “church”, which is the body of believers, the legal entity.

Potter Stewart:

Of course, in this case, the employees in question were in the employ of a church, in one case, or an association of churches in the other, were they not?

Allen R. Snyder:

Yes, Mr. Justice Stewart, that’s correct.

Potter Stewart:

However defined.

Allen R. Snyder:

Well, the Secretary defines the word to mean the building.

And I don’t know how you can define the statute with that definition.

Potter Stewart:

Well, you could be employed by a church and work in some other building, I suppose.

Allen R. Snyder:

Well, perhaps that’s their point.

Potter Stewart:

Or you could work in a church building and be employed by somebody else.

Allen R. Snyder:

We submit that in this context the word “church” must include the legal entity that controls the building and that hires and fires the employees.

Warren E. Burger:

If the building is relevant at all to the legal issues in this case, is it not a fact that in many cases churches and parochial schools are all one structure, a city block, one part of it assigned for worship services, and one part assigned for teaching?

But all in the same building.

Allen R. Snyder:

That is exactly–

Warren E. Burger:

The building isn’t really very important to the legal issue, is it?

Allen R. Snyder:

–I don’t believe it is.

I think even under the Secretary’s interpretation many of these schools since they are in the same building perhaps would be exempt.

But we submit that reliance upon what building the school is in is not what Congress had in mind, and we think that were Congress to find “employer” in this statute as a person who pays wages, then in the same statute, when they use the phrase,

“in the employ of a church. “

we submit they must have meant “church” to mean the legal entity that pays wages, the association, the corporation.

Petitioners in this case are the employing entities within the meaning of that legislative language.

We urge this Court to reject the strained and contorted reading of the statutory language–

Thurgood Marshall:

Would this also apply to a church hospital?

Allen R. Snyder:

–Mr. Justice Marshall, I believe that all church hospitals are separately incorporated.

And under our reading of the statute–

Thurgood Marshall:

Well, if there possibly would be one that wasn’t incorporated?

Allen R. Snyder:

–If, Mr. Justice Marshall, if the hospital were part of the church itself, were not separately incorporated–

Thurgood Marshall:

I’m not talking about the church, I’m talking about St. Isaac’s Hospital that’s three blocks away from the church but it’s owned by the church.

Allen R. Snyder:

–If it is part of the church, not a separate corporation, then the literal language–

Thurgood Marshall:

I didn’t say… you charged on; I told you the facts.

Is it a part or not a part?

Allen R. Snyder:

–What I mean to suggest, Mr. Justice, is that if the employees of that hospital are employed by the church entity, as in this case, their salaries paid–

Thurgood Marshall:

They are paid by the–

Allen R. Snyder:

–from the church account.

Thurgood Marshall:

–They are paid by the hospital but the money comes from the church?

Allen R. Snyder:

If the hospital has a separate legal identity, in other words, a separate bank account, a separate association, corporation, or structure, then we think that it would not fit within the language of (b)(1)(a).

Potter Stewart:

And if the school does, likewise?

Allen R. Snyder:

Yes, Mr. Justice Stewart.

We think that a separately incorporated school would in most instances be exempt under (b)(1)(b), but would not fit (b)(1)(a) language, as petitioners do here.

John Paul Stevens:

May I ask just one question?

With regard to the legislative history, in the House report that the Government quotes on page 10 in their brief, it’s stated that Section 115(b) also has the effect of requiring the state to pay unemployment compensation on the basis of services performed, for all educational institutions.

Do you think they really didn’t mean that?

86 percent, as I understand it, of the schools involved are church-affiliated.

Allen R. Snyder:

That’s only true, Mr. Justice Stevens, if you focus on private schools.

And in fact, that language which you just quoted was directly in the context of a lengthy discussion of state and public schools, which was the primary purpose of this statute.

There was no reference in that whole discussion from which the quotation is taken about private schools at all, much less church schools.

In fact, the words 242,000 figure that was referred to earlier is simply a figure in a table, in a report, opposite the phrase, “nonprofit organizations”.

There is no discussion of that figure as to what is included within that number, what type of nonprofit organizations, and the record in the Alabama-Nevada case–

John Paul Stevens:

Is it not true that normally when one, just as you say, when you work for a school or a church, the same sort of question, when you talk about private schools, private secondary schools, for the most part you are encompassing within that concept a very large number of parochial schools, aren’t you?

Do you think that when one just talks about private schools, he intends to refer to nonreligious private schools?

Just in terms of ordinary meaning, as used in everyday parlance?

Allen R. Snyder:

–I agree, the great majority of nonprofit private schools are parochial schools but the phrase, nonprofit schools, was not in the language that you quoted, Mr. Justice Stevens.

It simply said, “all educational institutions”.

Allen R. Snyder:

The public schools, of course, are the vast preponderance of those, and were being discussed in that section of the legislative history.

Thank you very much.

Warren E. Burger:

Very well.

Mr. Meierhenry.

Mark V. Meierhenry:

Mr. Chief Justice, and may it please the Court:

This morning in Watertown, South Dakota, where St. Martin’s Lutheran Academy is located… I think it’s important to note, because the State believes the second part of petitioners’ claims are most appropriate, whether or not it violates the First Amendment… this morning when the children went to school they all went on public school transportation.

Some of those children went to a public school, some of them got off at St. Martin’s Academy.

And throughout the day these children who went on different tracks were constantly involved in numerous entanglements, if you would.

They both ate food prepared by private citizens, but the food probably came under Government programs.

Both children in both schools could have had speech and hearing diagnostic services provided for them, which is approved, they most probably used library books furnished by either state or federal funds at St. Martin’s Academy–

Warren E. Burger:

Well, I take it your point is that if they share some of these things, this dilutes the church or religious aspect.

Is that it?

Mark V. Meierhenry:

–No, not so much that as to the point made by my colleague that there will be entanglement, should this one small portion of the operation of these parochial schools be subject to some taxation.

In other words, some extraction, of coming under the unemployment compensation laws, whether that will so entangle the state with the operation of these parochial schools as to violate the First Amendment.

My example mainly goes to point out, if it will, to the Court, that this is really not an issue, because this entanglement, by the acceptance of these benefits by church schools, has eliminated that.

And here in this instance… and I argue on behalf of the State for what you will call the people employed by the schools, in other words, the cooks and the janitors.

We recognized by our referee below and in our Supreme Court, that those teachers who are on call, who are part of a religious order or part of their particular religious following, that they are exempted under Section (b) of the exemptions.

So, if they are ministers, they are not covered by unemployment insurance, and we don’t make the claim that they are.

What we’re worried about, and Congress was worried about it from the beginning of the unemployment law, what about the janitor who is laid off?

What about–

William H. Rehnquist:

What about the teachers?

Are they covered?

Mark V. Meierhenry:

–Well, I think that some would be and some would not be, depending on a factual determination.

As brought before this Court, those members of the Wisconsin Evangelical Lutheran Church who were called… in other words, their contractual relationship with the school is such that they are considered ministers of the Church, teaching–

Potter Stewart:

In any event, all of them are in the employ, either of St. Martin Evangelical Lutheran Church, on the one hand, in the one case, or by the Synod in the other case.

Isn’t that correct?

Mark V. Meierhenry:

–That’s correct, Your Honor.

Potter Stewart:

Whether they’re cafeteria employees or janitors or lay teachers or whatever?

Mark V. Meierhenry:

That’s correct.

I think, though, that if you look at the exemptions and how they occurred, from ’70 to 1976 to the present, there would have been absolutely no need for the exemption of ministers and those people who belong to a religious order, for the first exemption.

Mark V. Meierhenry:

You would have no need for that for pastors and members of the order.

And the third exemption prior to the change, which we’re arguing about, had to do with schools.

And everywhere in their briefs it is always, “church schools”.

Potter Stewart:

It’s always what?

Mark V. Meierhenry:

It’s always “church school”.

There’s always an adjective.

We’re talking about private schools, church schools, and public schools.

But we’re always talking about schools, and that’s what the referee, operating on behalf of the State of South Dakota, found, is it was a school and not a church, and not subject to the first exemption.

Because if that’s carried to a logical end, a religious order or a religious society could declare most anything to be in the furtherance of their religion.

Thurgood Marshall:

General, that’s the point I want.

In declaring these teachers as ministers, does the State consider that they’re ministers for income tax purposes?

Mark V. Meierhenry:

Well, we don’t have an income tax in our state, but I would say this, that–

Thurgood Marshall:

Are they considered that for federal income taxes?

Mark V. Meierhenry:

–No.

The second part of the exemption we recognize.

It says, “ministers”.

And we have in this case given to them this exemption as to ministers.

But you don’t have to be a minister–

Thurgood Marshall:

If that applied, of course that’d apply to this too.

Mark V. Meierhenry:

–That’s right.

But you don’t have to be a minister to be a cook, or a minister to be a janitor.

And that’s what the unemployment law is talking about.

Because if they closed down the school, those people who are in the teaching ministry are called to another place.

They’re not unemployed.

Potter Stewart:

But you would concede, I gather, that a cook in a church, which everybody agreed was a church, a church building, would be exempt under (1)(a), wouldn’t it?

Mark V. Meierhenry:

No, I did not agree under (1)(a).

What I said was, I think that the State can make the determination regardless of what the legal or the paper trail of the legal entity is.

Potter Stewart:

Well, then, you do not concede that when the statute exempts people in the employ of a church, that it exempts janitors in the employ of the church?

Mark V. Meierhenry:

I did, sir, but the State can make the determination of what is a church purpose, and in this case–

Potter Stewart:

In my hypothetical case, he sweeps up the church building.

Mark V. Meierhenry:

–Well, I guess it’s a matter of interpretation of the statute.

Potter Stewart:

And he’s employed by the church, and only by the church.

And he knows it and there’s no argument otherwise.

Warren E. Burger:

Let’s take a concrete example.

The Cardinal of the Archidiocese of Washington has a residence and a cook and a housekeeper.

Under (a) is that person exempt, in your view?

Mark V. Meierhenry:

Yes.

I would think that we would not argue that those individuals–

Warren E. Burger:

We’ll resume there at 1 o’clock.

0 [Recess.]

You may continue, Mr. Attorney General.

Mark V. Meierhenry:

–Thank you, Mr. Chief Justice.

In response to a question of the Chief Justice, when we broke for lunch, we would point out, and would like the Court to be aware, that these petitioners, and in fact all of the Lutheran schools in the State of South Dakota have submitted themselves to the State and are accredited schools.

But I want to point that we’re perhaps a unique state.

We require education in South Dakota.

We do not require attendance at schools.

Therefore, you could educate your children in your own home and you have to be tested to show that you’re making academic progress.

But you are not required by compulsory school attendance to attend a school in South Dakota.

However, these petitioners, in both instances, have submitted, and I’ve lodged with the Court the documents, a copious filing, making them an accredited school in the State of South Dakota.

And that is the only time in our legal jargon that you can be called a school is if you are accredited.

You are either a school and accredited under the State auspices, or you’re not.

But you don’t have to be a school and you comply with our law of educating your children either by doing it in your home or with a group of others.

Warren E. Burger:

How do you suggest that differs from the states which require attendance, so far as the issues here are concerned?

Mark V. Meierhenry:

Well, I think it goes to the definition and the exemptions, and I think that we recognize, as the Court does, that this does have to be applied across the land.

And when one is in the employ, as an exception, of a church or convention or association of churches, I think our Supreme Court narrowly interprets that in answer to the Chief Justice’s question.

That would probably refer to the cook for the bishop in those things that are obviously only religious.

There is not an educational purpose in being a cook for the bishop.

What there goes on which is probably closer in (b) of 3309, it says:

“Or 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. “

That’s close, but we have to remember, when all these exemptions were entered, number (3) was, in the employ of a school; which has now been eliminated.

Mark V. Meierhenry:

And so, in answer to the Chief Justice’s question, these people in our opinion, as the documents we lodged show, which were lodged for accreditation purposes, they were filed by the principal of the school, and they were done in the name of the school.

William H. Rehnquist:

Might they not have been both a school and also an organization which is operated primarily for religious purposes before (3) was repealed?

Mark V. Meierhenry:

They might have been.

But in South Dakota they could not have been a school without meeting accreditation purposes; in other words, making certain statements and complying with certain academic standards, and employing certain types of teachers, and open a certain number of days, which would reduce that being operated primarily for religious purposes.

They were operated primarily as an educational institution.

William H. Rehnquist:

All you’re saying is that by qualifying as a school they would have come under (3) if it were still in existence.

But that doesn’t really go to the (1)(b) question, does it?

Mark V. Meierhenry:

Well, I believe it does, because what our appeals referee decided and our Supreme Court decided is that this school, St. Martin’s Academy, which is still going on, was not primarily for religious purposes but was primarily for educational purposes, and to be taught with religious overtones, you might say, or in the way that they wish to do it.

But it was primarily for education.

Warren E. Burger:

But narrowly, narrowly, the church’s embarking in this enterprise is for strictly religious purposes, is it not?

Mark V. Meierhenry:

It could be, but there is a desire wherein I believe–

Warren E. Burger:

They don’t want the public school system, or some of the people don’t?

They don’t want the public school system, they want their system with its heavy emphasis on training in faith and morals?

Mark V. Meierhenry:

–That’s correct, Mr. Chief Justice.

But then we are told–

William J. Brennan, Jr.:

Mr. Attorney General, may I ask, I gather that (a), obviously, is limited; (b) can’t include a church, because (a) is the exemption for a church.

What is an organization operated primarily for religious purposes, et cetera, if it’s neither church nor parochial school?

Mark V. Meierhenry:

–I think it would be those instances where it was an institution to train ministers and only–

William J. Brennan, Jr.:

Seminaries, you mean?

Mark V. Meierhenry:

–Seminaries?

It could be.

William J. Brennan, Jr.:

Why couldn’t they say, seminaries?

Everyone knows what a seminary is.

Mark V. Meierhenry:

Well, it’s not for me to… but I think that it also goes to this extent, Mr. Justice, that certain publishing duties, perhaps certain insurance duties, that would only have something to do with perhaps the churches themselves, not a true free marketplace-type company.

And I think here what they’re saying is it’s limiting it because they’re not going to allow, or Congress is not going to allow for the purposes of covering employees of a church-related organization; if they go into tuna fishing, or lumbering, a lumber company or mining.

So it’s going to be a test–

William J. Brennan, Jr.:

If they have a diocesan paper, for example, and they have their own print shop, would the printers, do you think, fall under (b) as exempt under (b)?

Mark V. Meierhenry:

–I would think not because of the Pilgrim Holiness case which applied the minimum wage requirements of the Fair Labor Act, because in that case, which this Court denied cert; it was a lower court case, but–

Warren E. Burger:

What if all they printed in that print shop were Bibles?

Mark V. Meierhenry:

–I think it would be much closer and it would stand the test, this Court having read–

William J. Brennan, Jr.:

Well, a diocesan paper is a purely religious paper, isn’t it?

Newspaper?

Warren E. Burger:

At least it is in the Roman Catholic church.

Mark V. Meierhenry:

–I’m sorry.

I misunderstood the terms.

That could well be, then, if it were only to print a paper for dissemination to the church.

Warren E. Burger:

My hypothetical was to remove from all doubts the factual question about whether it was or was not a religious document.

Mark V. Meierhenry:

I think in that case that representing a state I would say, yes; if it was organized primarily for religious purposes.

Byron R. White:

Well, would an elementary school operated by the church ever be operated primarily for religious purposes in your view?

Mark V. Meierhenry:

I think not, especially in this case where–

Byron R. White:

That’s something, if the exemption is available, the authorities would have to decide.

They would have to decide between schools that were operated primarily for religious purposes and the ones that were not.

Mark V. Meierhenry:

–I think that that would be a duty of whatever government to decide that.

Thurgood Marshall:

General, how come is it impossible for a school to be an “organization”?

Why can’t it be an organization?

Mark V. Meierhenry:

Well, I think because at the time it was passed in 1970, the paragraph (3) directly approached schools.

It says,

“in the employ of a school which is not an institution of higher education. “

And I think Congress at that time definitely looked at schools, as some of the underlying congressional language reveals, that they were talking about schools–

Thurgood Marshall:

But is there any other “organization” of a church that would have to comply?

Mark V. Meierhenry:

–Yes, I think there probably would be a great number of them.

Thurgood Marshall:

Like what?

Mark V. Meierhenry:

Well, I can’t speak and I don’t know but I would say that if a church were to have a fleet of school buses that were organized as a corporation, only to bring children to Bible classes or Sunday School classes, that that organization could be organized for the purposes of religion, and if the buses were not used in general commerce.

Thurgood Marshall:

Well, then the school is the only one that wouldn’t be, is the only organization that wouldn’t be included.

Mark V. Meierhenry:

I think there could be a great–

Thurgood Marshall:

I’m in trouble with school not being an organization.

I think it could be an organization.

Mark V. Meierhenry:

–But I think, as you watch the legislative history of 1970, they specifically approach schools, and then in 1978 they specifically said that schools, whether they’re public, private, or parochial schools, would not have an exemption.

Because we have to remember that this Act was passed for the benefit of employees, of people who are hired by others, whether they’re hired by schools, or whatever, and that these were exemptions.

And I think it was in the intent of Congress, as they have consistently broadened unemployment coverage, was to narrow the scope of exemptions.

Mark V. Meierhenry:

And when they looked at the schools, they said, if we just exempt private schools, and we just exempt public schools, then are we not approaching the establishment of religion if we just overlook those religious schools and just those employees will be without protection.

And I think that’s a logical argument as to why that each employee, whether he’s working in a private school that may be started by environmentalists to promote an environmentalist cause, and still teach, but the primary purpose is education.

And so, when these schools, in our states–

Thurgood Marshall:

The primary purpose of a school is education.

Mark V. Meierhenry:

–And that’s why we believe that–

Thurgood Marshall:

But they say there’s another one; it’s religion.

If they wanted just education, they’d send them to public schools.

Mark V. Meierhenry:

–Then there would have to be a decision made, as there was in this case, by the appeals referee, that these two institutions were not primarily for educational purposes.

Because these schools, these parochial schools in our state–

Thurgood Marshall:

We can’t escape that.

We’re going to have to decide that.

Mark V. Meierhenry:

–That’s right, and I think great weight has to be given to the appeals referee who did determine these issues.

Potter Stewart:

Well, am I right in reading the statute in this way, that exemption No. (1), both (a) and (b), depends upon the identity of the employer, by contrast with exemption No. (2), which depends entirely upon the identity of the employee?

Mark V. Meierhenry:

Yes.

Potter Stewart:

And am I further correct in my understanding that in this case the employer is in the one case a church and in the other an association of churches?

Mark V. Meierhenry:

I guess that is in my mind one of the issues.

I say the employer is the school, it is the school, for the following reason.

Potter Stewart:

Well, the school itself is not an entity, is it?

It’s not a corporation?

Isn’t the employer who pays the wages the church, in the one case, and an association of churches, i.e., the synod, in the other?

Mark V. Meierhenry:

But the fact remains–

Potter Stewart:

Am I correct in that, factually?

Mark V. Meierhenry:

–I think factually that’s correct.

The legal effect of that is what I would like to bring to your attention, is the fact that also their description of a church, their description of a church is again not an entity, it’s an organization of believers or followers, and what we’re talking about here is simply the trail of the dollar that ultimately pays for this.

It does pass through the church.

William H. Rehnquist:

But that isn’t just their description of the church.

It’s a tracking of (1)(b), isn’t it, where it says, an organization which is operated primarily for religious purposes?

Mark V. Meierhenry:

Yes, I believe that if they fall under any exception, it’s not (a), it’s (b), which is an organization–

Potter Stewart:

Don’t they literally fall within (1)(a)?

Mark V. Meierhenry:

–I would say not.

Potter Stewart:

Literally?

Mark V. Meierhenry:

No, I would say, not.

Because the individual, as the records show here, the individual is paid by the church, but they’re employed by the school with their separate board to oversee… which is within the church, but it’s a separate board which hires a principal and eventually runs the school, the entity.

Potter Stewart:

Maybe we differ as to our understanding of the word “employment” but it seems to me that your employer is the person who pays your salary or wages.

Mark V. Meierhenry:

Well, but I think there has to be a determination–

John Paul Stevens:

Doesn’t “wages” refer to the employer?

Potter Stewart:

“In the employ of”.

So it’s the identity of the employer, isn’t it?

John Paul Stevens:

“Services performed in the employ of. “

Potter Stewart:

“In the employ of”.

And the test in (1) is the identify of the employer, by contrast with the test in (2), which is the identity of the employee.

Mark V. Meierhenry:

–Well, again, this is an instance, which is the only case before it, but our determination by our Supreme Court was that this instance fell under (b) and that it was not primarily for religious purposes.

Potter Stewart:

So it doesn’t fall under (b), because it’s not operated primarily for religious purposes.

Mark V. Meierhenry:

That’s right; there is no exemption.

But they approached from that standpoint, that it was not primarily for religious purposes, but also–

John Paul Stevens:

It seems to me that you can’t read it the way you’re doing it now.

And a church is certainly an organization which is operated primarily for religious purposes, is it not?

Mark V. Meierhenry:

–Yes.

John Paul Stevens:

And if you say they’re in the employ of a church, they also are in the employ of an organization which is operated primarily for religious purposes.

Mark V. Meierhenry:

I don’t think that necessarily follows.

I don’t think that we could deny a church the opportunity… as a wild example… to buy a professional baseball team.

I think they could do that, and I think they could set up their accounting practices in such a way that the money flowed from the church, but that’s certainly not an organization, although it’s operated by a church and it’s supervised by a church and owned, but it’s not primarily for religious purposes.

Potter Stewart:

But that would be the employer, in your hypothetical case.

And isn’t that the statutory test?

The identity of the employer, whatever the nature of the employee’s duties, under (1)?

Mark V. Meierhenry:

Well, I’m not here arguing the intent of the Congress.

John Paul Stevens:

Except that (1) does not refer to the employer, it refers to the nature of the services.

Mark V. Meierhenry:

Pardon me, sir?

John Paul Stevens:

(1) doesn’t refer to the employer.

It refers to the nature of the services.

John Paul Stevens:

Well, any services that include services performed in the employ of.

Mark V. Meierhenry:

In interpreting the language of Congress when they set out the three exemptions, I think it was clear that they separated.

It’s for this Court obviously to decide what Congress intended and what Congress wanted.

But I’m not going to concede that they are employed by the church.

They’re employed by the school, for the simple reason… and this Court on many occasions has pierced corporate veils.

Warren E. Burger:

But you seem to place great emphasis, Mr. Attorney General, on the fact that there is a committee, a board, designated; but the minister of the church can’t be expected to run everything.

Can’t he appropriately delegate the detailed management of the school to the subcommittee of the church?

Isn’t that what he does here?

They’re certainly bound to be church members, aren’t they?

Mark V. Meierhenry:

I would think so; yes.

Warren E. Burger:

Just as you’d have a committee of the church on visitation of parishioners and a whole lot of other things.

So there’s no corporate veil to pierce here, is there, really?

Mark V. Meierhenry:

Well, I think there is, because this is an organization which Congress recognized, that there were going to be organizations, spin-offs from churches, of other duties.

And so I think that’s why it comes under (b); and then the test, is it primarily, primarily for educational purposes?

And we would submit that it isn’t.

The one final issue, should the Court–

Potter Stewart:

If, as I understood you to agree with me, the test under (1) is the identity of the employer, then the employer is the church, which is operated primarily for religious purposes, isn’t it, and as in any church–

Mark V. Meierhenry:

–No, I did… the employer is the school, which is a subsidiary, if you will, of the church, perhaps, but it is a separate entity, and it is intended, as these schools, and they’re being organized, two, three a day, with the resultant work force, and they’re operated for different reasons, never once questioning the petitioners in this case.

But private schools with religious overtones are being created two a day all over the country.

And I suggest that that’s going to require a huge labor force.

Our citizens do not go to their parochial school and bring coal to start the fire.

They do not take turns sweeping out the hallways.

They hire a janitor.

Warren E. Burger:

–No, but there’s no one compels them to work for one of these institutions?

Mark V. Meierhenry:

No, but the intent of Congress is for one reason, under the unemployment law, those people who are thrown out of work… and we’re talking about a very few people here, as I think we recognize… those people who are thrown out of work by the discontinuance of this operation should be covered by unemployment.

I want to cover one thing and and submit the rest of my time–

John Paul Stevens:

Let me just ask one more question, if I may.

You refer to the janitor.

I think very frequently in these establishments the same janitor will sweep out the church and the school.

Is he covered?

Mark V. Meierhenry:

–I think that the Secretary of Labor has directed us… and I might say, I’m like two bookends here, because the State’s in between having our funds cut off by the Federal Government, and be attacked on this side… I would say that then it’s a test, like so many other employment tests, where are his duties lodged?

And in that regard, I want to talk about the monetary effect… because it’s very vast, and it’s very important to our state, which is, according to the Census Bureau, the poorest state in the Union… is the fact that money will flow back and forth, no matter what this Court decides.

And secondly… and it’s important to note… these schools need not, in our state, under our system, pay any tax dollars, none whatsoever.

They can go under the reimbursable method, which is allowed for these schools, and they are not required to pay into the fund any dollars unless they lay someone off, and then they must agree to reimburse the person that’s laid off.

So one of the things that should be recognized by this Court, although we have talked a lot of words and been in a lot of courts, it may not ever result in anyone drawing unemployment insurance in South Dakota.

Because if they are a minister, and they’re on call, they’ll move; they won’t submit to unemployment insurance.

And if those other individuals truly work for the church, they’ll still be working for the church when the schools close.

And so–

William H. Rehnquist:

How about a teacher in a parochial school who’s fired for teaching doctrinally wrong religion?

Mark V. Meierhenry:

–I think first of all that that is an issue that probably will not come up except in very limited circumstances.

But I would say this that that test is one like every other employment test, and I think that a hearing referee can very easily recognize that there is a different standard of conduct for that teacher compared to a public school teacher or a private school teacher.

I thank the Court for its time and indulgence.

Warren E. Burger:

Very well, Mr. Attorney General.

Mark V. Meierhenry:

I submit my time, if I have any left, to my colleague.

Warren E. Burger:

Very well.

Mr. Sullivan.

Barry Sullivan:

Mr. Chief Justice, and may it please the Court:

Until the Attorney General of the State of South Dakota arose and addressed the question of the coverage of the statute that’s involved here, I had not heard a word today about the purposes for which the statute that is being construed, the Federal Unemployment Tax Act, was enacted by Congress.

I would like to point out that this is a remedial statute.

And that’s perhaps the beginning of any statutory construction.

But it’s not simply a remedial statute–

William H. Rehnquist:

Well, aren’t most statutes remedial?

Aren’t they intended to remedy something?

Barry Sullivan:

–I think that’s right, Mr. Justice Rehnquist, and that’s always bothered me, about how you distinguish among remedial statutes.

William H. Rehnquist:

Beneficent ones?

Barry Sullivan:

Pardon?

William H. Rehnquist:

And beneficent ones?

Barry Sullivan:

Well, it seems to me that here, as this Court has said in California Department of Human Resources v. Java, we have a very special kind of remedial statute.

We have a statute that goes to the very subsistence of individual citizens.

This statute was informed by the experience of the Great Depression and has played a vital role in our society since that time.

Barry Sullivan:

It was understood by Congress that people in the time of the Great Depression suffered unemployment, and the result of this unemployment, after a protracted time, was that they were forced to accept charity.

This statute represents a judgment of our society that people should not have to accept charity, that they should be able to participate in an insurance scheme whereby they can work and earn benefits for the day when they may become unemployed.

Warren E. Burger:

Well, if we accept that broad a thing, then there wouldn’t be any exceptions at all.

Barry Sullivan:

That’s true, Mr. Chief Justice.

Warren E. Burger:

Even the ministers of churches will sometimes become unemployed.

Barry Sullivan:

And, in fact, 98 percent of the work force is now covered by this statute as a result of the amendments–

Potter Stewart:

Well, what percentage is covered by it is the issue in this case, isn’t it?

Barry Sullivan:

–Well, I think that the number of workers that are involved in–

Potter Stewart:

Whether it’s 98 or 97.

Barry Sullivan:

–That’s right.

I’m not sure that it’s between 97 or 98 or 98-99, which is why–

Potter Stewart:

But the decision in this case will bear on what percentage is covered by it.

Barry Sullivan:

–That’s right.

And the people who are exempted are exempted for specific reasons.

Ministers are exempted because of the problems that may arise in the case of ministers, also for the reason that ministers generally aren’t laid off but belong to a church who continue to employ them and may not suffer the same–

Potter Stewart:

Well, that’s true about section (2), that is, what is your… what are you?

Are you a minister of a church?

But the inquiry in number (1) is, who are you employed by?

Isn’t it?

Barry Sullivan:

–That’s right, Mr. Justice.

And I’m reaching and I will reach that.

Potter Stewart:

Number (1) doesn’t ask at all, what are your duties?

But who are you employed by?

And Number (2), on the other hand, asks exclusively, what do you do?

Barry Sullivan:

Well, I think I might subscribe to Mr. Justice Stevens’ slight differentiation in the way he has put that, because I have the sense that it would be helpful to me, but I’m not quite sure I understand the distinction.

However, I think in construing this particular statute, something has been overlooked here.

John Paul Stevens:

If you’d read the laundry case of a few days ago you’d find that it’s a very dangerous thing on which to rely.

Barry Sullivan:

I think what needs to be pointed out here is that this construction of “church”, first of all, is not as irrational as it sounds on its face when put in the argument that a building can employ anybody.

The construction the Secretary has given to it is as a house of worship, meaning the core religious, establishment, and in that sense–

Potter Stewart:

According to the Secretary, does a person, in order to be exempt from the Unemployment Tax Act, have to be not only employed by that house of worship but carry out his duties in that house of worship, his employment duties?

Barry Sullivan:

–Well, I would think that in most cases–

Potter Stewart:

No, in most cases that question perhaps needn’t be asked, but I’m asking it.

Not for most cases, but what’s the Secretary’s point of view?

Barry Sullivan:

–Well, I think that it would be, that the person–

Potter Stewart:

Well, he both has to be employed by… that is his salary has to be paid by the house of worship, and his employment duties have to be within the house of worship, is that it?

Barry Sullivan:

–No, that’s not it.

Because that would exclude, obviously–

Potter Stewart:

It seems to me it would exclude people who are literally covered by the statute.

Barry Sullivan:

–That’s correct, and I would say that the source, the analogy on which the Secretary is relying here, is the similar problem that’s been worked out in the Fair Labor Standards Act cases, where we have, the statutory language says, employed by an establishment.

Potter Stewart:

Right.

Barry Sullivan:

The establishment, in that case, refers to a physical or geographical location from which a person may go out to work in some other place, but where he is based.

And in that case, the establishment may be the local office of General Motors and his employer may be General Motors, but he is employed by the establishment for the purposes of the Act, and employed by the church, we submit, has a similar meaning in this statute.

Thurgood Marshall:

Don’t get too carried away with this building, please.

Because I know of a church in Washington that up to a few years ago met in Hogate’s restaurant.

So don’t get too hooked up on that building.

Barry Sullivan:

Well, I would assume in that case, Mr. Justice Marshall, that Hogate’s Restaurant paid the janitor, and that consequently we wouldn’t have a problem for purposes of this statute.

Thurgood Marshall:

Except in our church we called him a sexton, and you’d better not call him a janitor.

Barry Sullivan:

The other point that I would make about the Secretary’s construction of the first exemption is that this exemption is not something, that this construction is not something that the Secretary has dreamed up out of whole cloth as a result of these amendments.

This is an exemption, this exemption as construed, was construed by the Secretary in 1970 at the time that nonprofit organizations became subject to the Act and it’s not a recent development.

Congress amended the Act in 1976 knowing that this is the way the Secretary of Labor had construed the Act.

William H. Rehnquist:

Does the Secretary take the position that an employee of a seminary, religious seminary, is not within (b), (1)(b)?

Barry Sullivan:

The Secretary’s position is that any employee of a religious seminary would not be subject to coverage of the Act.

Potter Stewart:

Because of (1)(b)?

Barry Sullivan:

That’s correct.

And that is, I think, based in the legislative history of the 1970 amendments.

I would also point out that in 1974 Congress provided in another statute for the coverage of the same people who are being covered here, and consequently petitioners’ argument asked the Court to believe not only that Congress was unaware of what the Secretary’s construction of the exemptions had been, but also that Congress, without saying a word, intended to withdraw coverage that it had already provided.

And it seems to me that’s quite an assumption, given the remedial purposes of the statute.

And third, petitioners’ argument asks that the Court believe that Congress was simply in error as to the number of people who would be covered by this statute.

I think it’s important to note that before lunch the statement was made that in this chart that the Senate Finance Committee, I believe, staff prepared, that it simply said, 242,000 employees> [“] against the category, “nonprofit organizations”.

The fact of the matter is that that makes perfect sense because of all nonprofit organizations, and the various ways that they could have their coverage changed.

Barry Sullivan:

It was only schools that were in issue at that time, and so that all of those employees had to be school employees.

And if that figure did not cover parochial school employees, it would naturally be much, much lower.

William H. Rehnquist:

Did this staff committee presentation, occur at a hearing considering the bill?

Barry Sullivan:

I don’t believe that there is any testimony.

It’s part of the… it’s cited in our brief, and it’s a report of the Senate committee.

William H. Rehnquist:

Is there any indication whether the report was ever made known to the Congress before the law was enacted?

Barry Sullivan:

I’m not sure that I know the answer to that, although I have no reason to assume that it wasn’t made available to Congress.

It’s not something that was published after the fact.

I would finally like to point out that both Congress and the Secretary have seen the need here for a bright line test.

I think the need has been pointed out adequately, that a very subjective inquiry would be necessitated by reading the (b) exemption of the statute as applicable to parochial schools.

Potter Stewart:

The (1)(a) and (b) simply inquires, who are you employed by?

I thought you had agreed with that.

Barry Sullivan:

I think that–

Potter Stewart:

And I think it’s self-explanatory.

Barry Sullivan:

–I think the problem is this.

There’s been a lot of–

Potter Stewart:

And that’s a very bright line.

Barry Sullivan:

–I think there’s been a lot of talk about parochial schools as if they were marbles, and that they were all alike.

And the question was asked this morning, are all church schools organized in the same way?

And the answer was, yes.

Well, I defy anybody to produce evidence for me that all denominations organize their church schools in the same way.

To make an organization’s exemption depend on whether the particular doctrines which the organization espouses allow it to incorporate is ludicrous.

And that’s one of the problems that Congress was concerned with, it’s one of the reasons that the Secretary has adopted the construction that he has, to say that schools are schools, and they’re going to be subject to coverage of the Act.

William H. Rehnquist:

But seminaries are schools, and yet they were not subject to the coverage of the Act.

Barry Sullivan:

And Sunday Schools are schools, and they’re not subject to the Act.

And we would say that that is the proper analogy.

Warren E. Burger:

You don’t have any paid teachers in Sunday Schools, do you?

Barry Sullivan:

Again, I cannot speak authoritatively to that.

I wouldn’t know the answer to that.

Warren E. Burger:

If you can’t answer that I think I can take judicial notice of the fact that generally speaking in this country, in all faiths, Sunday School teachers are volunteers.

Barry Sullivan:

I would just close with one example that follows up on something that the Chief Justice said this morning.

And that is, suppose that we have an archdiocesan, a school owned by the Archbishop of Washington in the City of Washington, and he decides that he will close all archdiocesan schools where the enrollment falls below 200 student for three years running.

The parents in this parish decide that they want to maintain a parochial school for their children and they go to the Archbishop and they say, if you give us the building we will run the school.

They incorporate, they run the school, they continue to have the same teachers–

Warren E. Burger:

Then you’re taking yourself out of this statute, though, I suggest.

And your time has expired now, Mr. Sullivan.

Byron R. White:

Well, Mr. Sullivan… except for one thing.

Suppose you lose this case, that the exemption is not available, or that it is available.

What do you… do you think there is any constitutional question?

Barry Sullivan:

–No, I don’t think there’s any constitutional question.

I think that the type of legislation that we have here is of the same order of requiring schools to have fire alarm systems.

I think that under the guidelines, the dicta in Pierce v. Society of Sisters, this is the kind of concern that the state can rightly have about religious schools.

Thank you.

Warren E. Burger:

Do you have anything further?

No, I think your time has expired also.

Thank you, gentlemen.

The case is submitted.