Filed: October 24, 2002

IN THE SUPREME COURT OF THE STATE OF OREGON

NEWPORT CHURCH OF THE NAZARENE,
an Oregon nonprofit corporation,

Petitioner on Review/Respondent on Review,

v.

GORDON R. HENSLEY,

Respondent on Review,

and

EMPLOYMENT DEPARTMENT,

Respondent on Review/Petitioner on Review.

(EAB No. 97-AB-2014; CA A99663; SC S46621, S46769)

On review from the Court of Appeals.*

Argued and submitted May 15, 2000.

Kelly E. Ford, Beaverton, argued the cause and filed the petition for review, briefs, and additional authorities for petitioner on review/respondent on review Newport Church of the Nazarene in S46621, waived filing and argument in S46769. With him on the briefs was Gregory S. Baylor, pro hac vice, Virginia.

Paul R. Meyer, Portland, argued the cause for respondent on review Gordon R. Hensley. With him on the responses and briefs was Charles F. Hinkle, ACLU Foundation of Oregon, Inc., Portland. Also on the brief in S46621 was Scott Garland, ACLU Foundation of Oregon, Inc., Portland.

Robert M. Atkinson, Assistant Attorney General, Salem, argued the cause and filed the briefs and additional authorities for respondent on review/petitioner on review Employment Department. Christine A. Chute, Assistant Attorney General filed the petition for review. Also on the petition, briefs, and additional authorities were Hardy Myers, Attorney General and Michael D. Reynolds, Solicitor General.

Kelly W.G. Clark, O'Donnell & Clark, LLP, Portland, and Richard G. Wilkins and Brent E. Rychener, Holme Roberts & Owen LLP, Colorado, filed the brief of amici curiae for The Christian & Missionary Alliance, Council on Religious Freedom, General Conference of Seventh-Day Adventist Church, General Council on Finance and Administration of the United Methodist Church, International Church of the Foursquare Gospel, National Association of Evangelicals, Oregon District Assemblies of God, Presbyterian Church (U.S.A.), and the Presbytery of Cascades.

Before Carson, Chief Justice, and Gillette, Durham, Leeson, and Riggs, Justices.**

CARSON, C.J.

The decision of the Court of Appeals is affirmed in part and reversed in part. The order of the Employment Appeals Board is affirmed.

*Appeal from Employment Appeals Board, 161 Or App 12, 983 P2d 1072 (1999).

**Van Hoomissen, J., retired December 31, 2000, and did not participate in the decision of this case. Kulongoski, J., resigned June 14, 2001, and did not participate in the consideration or decision of this case. De Muniz and Balmer, JJ., did not participate in the consideration or decision of this case.

CARSON, C.J.

This case presents two issues for review. The first is whether claimant, formerly a youth minister for the Newport Church of the Nazarene (church), is entitled to unemployment compensation benefits. The second, which arises only if claimant prevails on the first issue, is whether he is entitled to interest on the benefits award. The Employment Appeals Board (board) of the Oregon Employment Department (department) awarded claimant benefits, but not attorney fees or interest.

The church sought judicial review of the board's order, arguing, among other things, that the inclusion of ministers in the unemployment compensation program violates the church's right to autonomy under the First Amendment to the United States Constitution. Claimant also sought judicial review, challenging the board's denial of his request for attorney fees and interest. In addition, claimant contended that any exemption of ministers from the unemployment compensation program violates Article I, sections 2, 3, and 20, of the Oregon Constitution. The Court of Appeals affirmed the board's award of unemployment compensation benefits and denial of attorney fees, but reversed the board's denial of interest on the award. Newport Church of the Nazarene v. Hensley, 161 Or App 12, 983 P2d 1072 (1999).

The church and the department both petitioned for review in this court. The church challenged the Court of Appeals decision respecting claimant's entitlement to benefits, and the department challenged the Court of Appeals decision respecting claimant's entitlement to interest on those benefits. We allowed both petitions for review. For the reasons that follow, we reverse that part of the Court of Appeals decision that allowed interest and otherwise affirm the Court of Appeals decision and the board's order. (1)

The relevant historical facts are undisputed. Claimant began working for the church in October 1993 as a youth minister. Approximately eight months later, the church discharged claimant for misconduct that was not connected with claimant's work. In September 1994, claimant filed a claim for unemployment compensation benefits and commenced what became a lengthy process of administrative and judicial review, certain aspects of which we discuss in greater detail below.

To better frame the procedural history and the parties' arguments, we begin with a brief discussion of the backdrop of state and federal law against which this case arose. In 1935, in response to rampant unemployment associated with the Great Depression, Congress established an unemployment compensation program by imposing a federal payroll tax upon employers. To induce states to maintain their own unemployment compensation programs, however, Congress also provided that employers could offset as much as 90 percent of the federal tax by paying into a qualified state unemployment compensation program. To qualify, a state unemployment compensation program must not exempt more workers from coverage than are exempt under the federal program. Newport Church, 161 Or App at 15-16 n 3; see also 26 USC