Legal Issues In The Workplace For Nonprofits (Pinnacle)

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Employment law guidance for officers and directors of nonprofits

Employment law guidance for officers and directors of nonprofits

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  • The first part of the UBI test is to determine if your activity is a trade or business. If your organization is selling goods or services to generate income, even if it is conducting the activity within a larger group of activities related to its exempt purpose, the activity is a trade or business. So, while your 501(c)(3) is carrying on its daily exempt function, it could also be carrying on activities that are taxable. Example: A tax-exempt organization solicits, sells, and publishes advertisements for commercial vendors in its publication. Even though the publication contains content related to the organization’s exempt purpose, the publishing of advertising is still an unrelated trade or business.   Part 2: Is your activity regularly carried on? If you’ve determined that your activity is a trade or business, the next part of the UBI test is to decide if the activity is “regularly carried on.” In most cases, if the activity shows frequency and continuity and is conducted the same way that a non-exempt organization would run a similar business, it is regularly carried on. Example: A hospital auxiliary operates a health food stand for one week at a preventative health education conference. Because the activity is a one-time occurrence and is unlikely to compete with for-profit health food stores that operate year-round, the activity is not “regularly carried on.” However, if the hospital auxiliary operates a health-food stand daily at the hospital, that is likely the regular conduct of a trade or business.  


  • 1. Legal Issues in the Workplace for Nonprofit Organizations
  • 2. Tax Exempt Status
    • Nonprofit is a tax status; not a business plan.
      • Operating any organization at a deficit or without a sufficient "rainy day" fund is not good business. In order to maintain the viability of any organization, it is important to operate with some "net revenue" at the end of a year. What distinguishes nonprofits is not whether they can make a profit, but what happens to profits. Nonprofits are prohibited from distributing profits in the same way for-profit corporations can. All revenue must be earmarked for the organization's mission.
  • 3. Restrictions
    • The net earnings may not inure to the benefit of any private shareholder or individual;
    • Carrying on propaganda, influencing legislation and participating in political campaigns are strictly prohibited.
  • 4. Tax Exempt Does Not Mean Tax Free
    • Tax-exempt status means that an organization does not pay corporate federal income tax on income from activities that are substantially related to the purposes for which the organization was given exempt status. The organization does pay that tax on other types of income called “unrelated business income.”
  • 5. Unrelated Business Income
    • Only income from commercial activities “substantially related” to the organization’s purpose and which “contribute importantly” to the organization’s purpose is tax exempt.
  • 6. UBI – Three Part Test
    • The first part of the UBI test is to determine if your activity is a trade or business.
    • If you’ve determined that your activity is a trade or business, the next part of the UBI test is to decide if the activity is “regularly carried on.”
    • The last part of the UBI test is to decide whether the activity is substantially related to furthering your 501(c)(3)’s exempt purpose.
  • 7. UBI Exemptions
    • Volunteer workforce
    • Convenience of members
    • Sale of donated merchandise
    • Distribution of low-cost articles
    • Convention or trade show activity
    • Sponsorship
    • Traditional bingo
  • 8. UBI- Exclusions
    • Interests and dividends
    • Rents from real property
    • Royalty income
    • Gains or losses from the sale of property
  • 9. Fundraising Compliance
    • The Division of Charitable Solicitations and Gaming administers the Tennessee Charitable Solicitations Act and the Charitable Gaming Implementation Law , and regulates accounts established pursuant to the Catastrophic Illness Trust Act .  
  • 10. Charitable Solicitations Act
    • Requires that charitable organizations that solicit contributions register with the division.
    • Exemptions:
      • bona fide religious institutions;
      • educational institutions and supporting organizations (PTAs)
      • volunteer fire departments, rescue squads and local civil defense organizations;
      • political parties, candidates, and PACs; hospitals; and
      • organizations receiving less than $30,000 per annum (must file an “Exemption Request”)
  • 11. Charitable Solicitations Act
    • Prohibits false and misleading solicitation practices, and empowers the division to investigate violations of the Act, and impose a civil penalty of up to $5,000 for each and any violation of the Act.
    • Prohibits false and misleading solicitation practices, and empowers the division to investigate violations of the Act, and impose a civil penalty of up to $5,000 for each and any violation of the Act.
  • 12. The Charitable Gaming Implementation Law
    • Raffles
    • Lotteries
    • Sweepstakes
    • Duck Races
    • Cakewalks
  • 13. The Charitable Gaming Implementation Law
    • Authorizes qualified 501(c)(3)’s to hold an annual gaming event for the benefit of the organization;
    • The division reviews applications and sends the list of qualifying applicants to the general assembly for approval;
    • Organizations must submit financial reports following the event for review;
    • the division may investigate violations of the Act and assess a civil penalty of up to $50,000 for each and any violation. 
  • 14. Other Fundraising Methods
    • Prize
    • Chance
    • Consideration
  • 16. The Interview – General Considerations
    • Consistency
      • Content
      • Number for position
      • Persons involved
    • Preparation for interviews
    • Parameters of interviews
    • Documentation of interviews
  • 17. Americans With Disabilities Act ("ADA")
    • whether an applicant will need a reasonable accommodation for a job
    • how many days sick in past year
    Prohibited Areas of Inquiry (Generally, pre-offer disability-related questions & medical examinations prohibited)
  • 18.
    • Prohibited Areas of Inquiry
    • job-related injuries or workers' compensation history
    • whether an applicant can perform major life activities (standing, lifting, walking)
    • lawful drug use
    • prior drug addiction
    • questions relating to alcoholism
  • 19.
    • ability to perform specific job functions
    • non-medical qualifications and skills (work history and required certifications and licenses)
    • describe or demonstrate how an applicant would perform a job or task
    • whether an applicant can meet attendance requirements
    • applicant's prior attendance record
    • current use of illegal drugs
    Permissible Areas of Inquiry
  • 20. Employment Related Documentation
    • Performance Evaluations
      • Promptly placed in the personnel file upon a review of the evaluation with the employee
      • Honesty in evaluations
        • identify performance problems
        • offer solutions for improvement
        • set goals for improvement
  • 21. Disciplinary Warnings
    • use a formal process / avoid informal notes
    • accurate and complete
    • explain conduct being addressed
    • describe remedial measures taken to correct the problem
  • 22.
    • use caution in describing consequences for future misconduct
    • employee should be given an opportunity to sign the documentation
    • apply progressive discipline
    • no skipping steps without second-level supervisor’s approval
  • 23. Medical Information / Records
    • Broadly defined under ADA
    • Keep separate from the personnel file
    • Separate and locked files cabinets
    • Designation of individuals with access
    • Limit access to safety / emergency situations
    • Nonprofits must comply with all federal, state and local employment laws when hiring and employing personnel, including withholding and payment of payroll taxes. 
    • Nonprofits should employ skilled individuals who are suitable for the positions they occupy and are committed to the goals, values and objectives of the organization.
    • Nonprofits may not engage in illegal discrimination and should strive toward employing individuals who reflect the diversity of their constituency.
    • Nonprofits should continually work to provide a safe and healthy work environment for all employees and volunteers.
    • Nonprofit organizations should adopt a set of specific policies and procedures for managing employees and volunteers.
    • Nonprofits should establish a clear conflict of interest policy for employees that includes disclosure of relationships, nepotism and interested party transactions.
    • Nonprofits should adopt specific grievance procedures for personnel with protections for reports of violations of organizational policy or applicable laws.
    • Nonprofits should have mechanisms, including succession plans, to handle transitions in leadership and other key positions.
    • Nonprofits should conduct background checks on employees and volunteers, particularly if their positions involve working with children or vulnerable adults, performing financial duties or serving in other sensitive areas.
  • 26. Harassment/Discrimination
    • More than just sexual harassment
    • Potential liability for treatment because of any protected status:
      • age
      • sex
      • race
      • religion
      • national origin
      • disability
  • 27. Sexual Harassment
    • Unwelcome sexual advances, requests for sexual favors, and other verbal or physical conduct of a sexual nature when submission to or rejection of this conduct explicitly or implicitly affects an individual's employment, unreasonably interferes with an individual's work performance or creates an intimidating, hostile or offensive work environment.
  • 28. Contact Information
    • Mary Neil Price – Miller & Martin PLLC
      • [email_address]
      • (615) 744-8480
  • 29.