Two recent court rulings – one in Baltimore, Maryland and one in Wilmington, North Carolina – have private schools across the U.S. on edge, and understandably so. Both cases revolve around independent schools’ obligations under Title IX and stand to adversely affect their 501(c)(3) status. Title IX is a federal law that prohibits sex-based discrimination in any school or education program that receives federal funding.
The lawsuits that triggered each and the underlying rulings differ, however. Notably, both are limited local decisions and have yet to be tested outside the confines of the localities, much less tested nationally. Below is a brief overview of the cases followed by our short-term recommendations.
Case #1: The most recent ruling surrounds five lawsuits by students against Concordia Preparatory School (f/k/a Baltimore Lutheran School) in Baltimore, Maryland. The lawsuits originated from sexual assault accusations, and the school’s subsequent argument for dismissal (and loss of that dismissal) based on the school’s position that as a tax-exempt organization, it does not receive federal financial assistance. The judge ruled Concordia’s tax-exempt status in fact constitutes federal financial assistance for the purpose of Title IX. As a result, the school is subject to the requirements of Title IX just as any other educational institution.
Case #2: In June, a federal court in North Carolina ruled that Cape Fear Academy, a private school in Wilmington, North Carolina was subject to Title IX on the basis of its application for and receipt of PPP loans during the pandemic. This case stemmed from a sexual discrimination claim. In the court’s ruling on this case, the school’s obligations under Title IX were limited to the period of time from the date the school received PPP loan proceeds from a private bank until the date the loan was forgiven by the SBA and the loan was repaid to the private bank. The alleged sexual discrimination occurred during that timeframe, so the case was allowed to move forward.
Our first and consistent message in these situations is don’t panic; do avoid taking drastic action right away. Professional advice in concert with board conversations always provides a more grounded decision-making process. While these cases are likely to ignite additional cases, the Maryland case will be appealed and it’s possible that the obligations under Title IX in that case will be put on hold until the appeal is reviewed.
In the meantime, it is prudent for boards to discuss whether they believe their interests are best served by taking a conservative approach or by preparing to adapt in the event of a sea-change in the status of independent schools across the U.S.
Fisher Phillips, a respected law firm with a specialized employment law practice, provides good insight on both approaches in the article linked here.
The Smith and Howard independent school team is staying on top of these rulings and their possible implications and is available for calls with leaders and/or boards of schools across the country. We regularly partner with other professional advisors such as law firms of our school clients to communicate with school leaders to provide thorough and well-rounded information. If you’d like to speak with us in more detail about this issue, please click Contact An Advisor below and we will follow up with you quickly.
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