The Community of Christ Church (Church) is a Missouri nonprofit with around 250,000 members in over 60 countries. The Church is separated geographically into Mission Centers. One of the Church’s subordinate affiliates, Happy Valley Conference Center, Inc. (Happy Valley) is located in the Church’s Sierra Pacific Mission Center. Happy Valley hosts seminars, retreats, and camps on a 30-acre property. The bylaws of Happy Valley state that it is “an integral subordinate unit and part of the [Church]” and is accountable to Church and Sierra Pacific Mission Center leadership. Happy Valley is run by a volunteer board of directors comprised of members elected by the Sierra Pacific Mission Center Conference and ex officio members, i.e., the President and Financial Officer of the Sierra Pacific Mission Center.
At all times relevant to the case, Happy Valley had three full-time employees, Executive Director Melinda Gunnerud, Food Services Manager Amanda McKnight, and Maintenance Supervisor Jeremiah Matthews, and part-time and seasonal employees. After a younger, male employee confided in Matthews that Gunnerud had been sending him sexually inappropriate text messages, Matthews reported the allegation to McKnight. McKnight asked for help from Happy Valley Board member Karen Ardito, who then asked individuals in the Church for guidance. Ardito was advised to contact the Church’s General Counsel Karen Minton. Matthews and McKnight then reported the alleged sexual harassment to Minton. Minton contacted Sierra Pacific Mission Center President and Happy Valley board member Ronald Smith and asked him to investigate. Smith conducted an investigation. Gunnerud admitted sending the text messages. Smith concluded the text messages were jokes in poor taste and not sexual harassment. Gunnerud was reprimanded but was allowed to continue supervising Matthews and the younger male employee. Matthews was terminated one month after reporting the harassment.
Matthews sued Happy Valley and the Church for retaliatory termination under multiple causes of action, including Title VII and the FEHA. Title VII prohibits employers with 15 or more employees from retaliating against an employee because he or she opposed any practice that Title VII makes an unlawful employment practice. Similarly, the FEHA prohibits an employer from retaliating against an employee for opposing any practice forbidden by the FEHA. However, the FEHA excludes from the definition of the employer a religious association or corporation not organized for private profit, referred to as the religious entity exemption.
Before the jury trial, the court found that Happy Valley and the Church had waived and were estopped from asserting the religious entity exemption. Subsequently, the jury found in favor of Matthews on all his causes of action. Notably, the jury determined that the Church and Happy Valley were a single employer for purposes of Title VII liability.
The Church and Happy Valley appealed, arguing, among other things, that the trial court erred in holding that they had waived and were estopped from asserting the religious entity exemption from the FEHA. The Church and Happy Valley further argued that they could not be liable under Title VII because Happy Valley did not meet the 15-employee threshold and the Church was not liable under Title VII despite meeting the threshold because it was not the entity that terminated Matthews.
In analyzing the Church and Happy Valley’s appeal, the court first considered whether sufficient evidence supported the finding that the Church and Happy Valley were a single employer for purposes of Title VII liability. The Integrated Enterprise Test is used to determine whether two corporations should be considered a single employer for Title VII purposes. It has four factors: (1) interrelation of operations, (2) common management, (3) centralized control of labor relations, and (4) common ownership or financial control. The court found that the factors weighed in favor of finding that Happy Valley and the Church were a single employer for purposes of Title VII liability.
First, the facts demonstrated that there was an interrelation of operations between Happy Valley and the Church. Happy Valley is an integral subordinate unit and part of the Church that is accountable to General Church Officers and the Sierra Pacific Mission Center. The General Counsel for the Church also testified that there is no legal distinction between the Church, Mission Centers, or other facilities such as Happy Valley. Second, the facts demonstrated that there was common management between Happy Valley and the Church. The Happy Valley’s Board consisted of members elected by the Sierra Pacific Mission Center Conference or who served by virtue of their positions with the Sierra Pacific Mission Center.
Third, the facts demonstrated that there was centralized control of labor relations between Happy Valley and the Church. Testimony from Happy Valley employees and board members revealed that sexual harassment reports originating at Happy Valley travel up the chain of command to the Church and the President of the Sierra Pacific Mission Center had extensive involvement in Matthew’s termination despite not being the person who ultimately fired him. Fourth, the facts demonstrated that Happy Valley and the Church shared common ownership and financial control due to their parent-subsidiary relationship and the Church’s financial control and oversight over Happy Valley.
Next, the court analyzed whether the Church and Happy Valley waived or were estopped from asserting the FEHA religious entity exemption by including discrimination, harassment, and retaliation language in the Happy Valley Employee Handbook, which was created using Cal Chamber software with sample policies not written specifically for religious entities. The Happy Valley Employee Handbook contains policies that prohibit discrimination and harassment based on a list of protected classifications; identify harassment as unlawful; prohibit retaliation; state a commitment to comply with all applicable equal employment opportunity laws; and notify employees that the Equal Employment Opportunity Commission (EEOC) and the Department of Fair Employment and Housing (DFEH) investigate and prosecute complaints of prohibited harassment in employment.
The Court noted that a waiver of the religious entity exemption must be knowing and voluntary and nothing in the Employee Handbook amounted to a knowing and voluntary waiver of the religious entity exemption. The Employee Handbook only referred to being bound by “applicable” laws and never explicitly referenced the FEHA or made a promise that Happy Valley or the Church would be bound by FEHA. Further, the creation of the Employee Handbook using sample policies not written specifically for religious entities further opposed a finding of a knowing and voluntary waiver.
Matthews also argued that Happy Valley and the Church were estopped from asserting the religious entity exemption from the FEHA because they failed to assert it as a defense during the original EEOC administrative proceedings on his Title VII claims. However, the Court concluded that the EEOC was only investigating a potential Title VII violation, not a FEHA violation, and so it was reasonable for Happy Valley and the Church not to assert the FEHA religious entity exemption at that time. Regardless, there was no indication that Matthews relied to his detriment on Happy Valley and the Church’s silence about pursuing a religious entity exemption from the FEHA. Accordingly, the court concluded that the Church and Happy Valley were exempt from the FEHA.
Mathews v. Happy Valley Conference Center, Inc. (Cal. Ct. App., Dec. 12, 2019, No. H043723) 2019 WL 6769659.
NOTE:
This case demonstrates that one entity can be held liable under Title VII for the actions of its subordinate entities where there is a sufficient interrelation between the entities in their operations, management, and control. This case also highlights the importance of thoughtful personnel policies that are customized for the specific entity. While the Church and Happy Valley prevailed on this matter here, had the court found that the language in the Employee Handbook was a knowing and voluntary waiver of the FEHA religious entity exemption, they would have yielded a valuable defense to the FEHA claims against them.
