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Archive
2006 Issue 3
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Burlington Northern v. White: Expansion of the Anti-Retaliation Clause Rules for Charities Changing Again Burlington Northern v. White: Expansion of the Anti-Retaliation Clause The Supreme Court, in Burlington Northern & Santa Fe Railway Co. v. White, recently ruled that the anti-retaliation clause of the Civil Rights Act extends to all employer actions, employment related or not, that would be materially adverse to a reasonable employee. Sheila White was the only female employee in her department at the Burlington Northern & Santa Fe Railway Company. After complaining about sexual harassment, she was reassigned within her department to a job involving considerably more manual labor. White filed a complaint with the Equal Employment Opportunity Commission (EEOC), alleging sex discrimination and retaliation in the reassignment. After she filed the complaint, Burlington Northern suspended her indefinitely for insubordination. Despite an internal investigation resulting in White's reinstatement and award of backpay, a federal jury awarded her compensatory damages for the harm suffered from the indefinite suspension and the change in her job duties. The Court ruled the change was retaliatory, reasoning that the previous duties were more desirable than others. The Supreme Court concluded that Sheila White's indefinite suspension and reassignment of duties for complaining about sexual harassment constituted materially adverse employment actions under Title VII of the Civil Rights Act, in spite of Burlington's reinstatement of her job and wages. The ruling addresses two questions: first, whether the anti-retaliation clause of Title VII forbids only those employer actions and resulting harms that are employment or workplace related; and second, the degree of harm an act of retaliation must cause in order to fall within the scope of the provision. In answering the first question, the Court rejected restricting the anti-retaliation clause to employment or workplace related actions because such limitations would not discourage all forms of retaliation. Thus, the retaliation protection would not achieve its purpose of "[maintaining] unfettered access to statutory remedial mechanisms." Therefore, the anti-retaliation protection applies to retaliatory acts beyond the workplace and beyond employment status, as long as the retaliation produces an injury or harm. As to the second, the degree of harm must be material. The Court distinguished between trivial harms and significant harms to delineate a standard of what is material. Whether an injury is material is based on the circumstances and context of the case. The plaintiff must demonstrate that a "reasonable" employee would have been dissuaded from filing or supporting a discrimination charge by the retaliatory action. In short, Burlington establishes a standard governing federal retaliation claims that is more favorable to workers. The ruling broadens the scope of employer liability, as an adverse employment action need not include economic loss or ultimate employment decision. The action need only "interfere with an employee's efforts" to ensure that they are not discriminated against in the workplace. The expansion of the definition of retaliatory action bolsters employee access to remedies. On the other hand, the Court's emphasis on the importance of context signifies that the meaning of material adversity will be defined on a case-by-case basis. To be sure that they comply with this decision, employers should:
By Sara Tosdal  Rules for Charities Changing Again
The constraints of this format do not allow us to do more than touch on some highlights of this new law. We hope the discussion below will serve to flag potential areas of concern for readers, but it should be the starting point for planning, not its end point. Rules of General Applicability A set of provisions are of interest to most nonprofits, even if they are mostly not terribly surprising or burdensome:
The Treasury Department is directed to carry out a study and report within the next year on how DAFs and SOs generally operate and to provide recommendations on some policy questions. The resulting recommendations may suggest further constraints for these organizations' operations or disallowance of deductibility of gifts to them. The report is also to answer those same questions regarding gifts to other charities, so even those organizations that are not SOs and don't maintain DAFs will want to keep an eye out to see where the report and recommendations lead. Donor Advised Funds Definition The term Donor Advised Fund had previously been much bandied-about but with no specified meaning. The Act defines a DAF as a fund or account that:
Charities should recognize that they may maintain DAFs without having consciously recognized that is what they were establishing. While restricted accounts identified by the charitable purpose served will probably not be covered by this new definition, organizations should examine any identified funds they maintain to determine whether these provisions apply. Prohibited Distributions from DAFs The Act imposes penalties on DAFs and their managers on distributions:
Another open question is what it means to exercise expenditure responsibility when the grantor is not a private foundation. Under private foundation rules, the term "expenditure responsibility" requires that funds not be used for activities that foundations may not carry out directly, including lobbying. This restriction is not stated in the existing statute, but rather implemented by regulation. DAFs will want to know if they must prohibit grantees from lobbying or merely pass through to grantees any legal restriction on their own activities.
Code section 4958 is amended so that donor-advisors will be considered disqualified persons with respect to a DAF and a DAF's investment advisors are disqualified persons with respect to the sponsoring organization. The entire amount of any "grant, loan, compensation, or other similar payment" to a donor-advisor is a taxable excess benefit. It is apparent from the legislative history that a "similar payment" includes even reimbursement of expenses, but not a bona fide sale or lease of property. If a donor-advisor receives compensation for services to the sponsoring organization, the general excess benefit standard of reasonableness will apply, unless the transaction is really one with the DAF. The same standard of reasonableness applies to payments to an investment advisor.
Supporting Organizations Definition Supporting organizations are defined in the tax code and regulations in great detail. The Act gives a formal definition to "Type III" supporting organizations, a term long used to refer to those SOs "operated in connection with" a public charity. (Other types have a closer relationship to the public charity on whose status the SO's non-foundation status is based.) In addition, many of the Act's provisions apply to type III SOs that are not "functionally integrated." This new term provides some relief for those type III SOs that perform the functions of or carry out the purposes of the supported organization. The IRS is directed to promulgate regulations requiring a minimum annual payout by Type III SOs that are not functionally integrated. Qualification as an SO Type III SOs must provide their supported organization information to demonstrate the SO is responsive to the needs of the supported organization.
As with DAFs, Code section 4958 is amended to treat as an automatic excess benefit any grant, loan, compensation, or other similar payment (including expense reimbursement) to an SO's substantial contributor (or their family member or 35% controlled entity), or any loan made to any disqualified person of the SO.
Finally, the Act significantly discourages grants from private foundations to SOs. Amounts paid by private foundations (other than operating foundations) to
Although the discussion in this article is lengthy, it only scratches the surface of the complexity of the Act. Obscure details may be critical for any given transaction by a particular organization, and as always in the area of federal taxation it is important to get the advice of a knowledgeable professional. By Beth Kingsley This publication is designed to provide accurate and authoritative information about the subject matter covered. It is not distributed with the intent to render legal, accounting, or other professional advice. The services of a competent professional should be sought if legal advice or other expert assistance is required. Newsletter Home | HarmonCurran Home | |