Can the Church do Business with a Board or Staff Member?

Life Church is facing a dilemma as it prepares to build its first facility. Dan, a church board member and prominent local architect, has offered to provide architectural drawings at a 25% discounted rate. But can Life Church legally engage in business with him, or does this create a potential conflict of interest?

Can a Church Contract with a Board or Staff Member?

Yes, Life Church can contract with Dan, but only if specific steps are taken to prevent any conflicts of interest and ensure fairness.

Church board members, officers, and employees all owe fiduciary duties to the organization. This includes a duty of loyalty, which requires that the church’s interests are prioritized over personal gain. For example, if a pastor who owns a lawn care business pressures the church to hire him without considering the quality or fair pricing, it would violate his fiduciary duties. Similarly, if a church board approves a contract with a personal interest without due diligence, it breaches their duty of care to the church.

In order for Life Church to contract with Dan without creating a conflict of interest, they must adhere to the following three key requirements:

1. Disclosure to Decision Makers

All decision-makers, such as the church board of directors, must be fully informed of Dan's personal interest in the agreement. Transparency ensures that everyone is aware of the potential conflict before making a decision.

2. Recusal from the Decision Process

Once Dan’s involvement is disclosed, he must recuse himself from any discussions or votes related to the contract. This prevents bias and ensures that the decision-making process remains impartial and objective.

3. Fairness to the Church

The agreement must be fair and reasonable to Life Church. Although Dan is offering a 25% discount, fairness also means considering other factors like the quality of his services, reputation, and how his prices compare to other options. Ensuring that the deal benefits the church and is not influenced solely by the discount is critical.

Conflict of Interest Clause and Policy

To avoid these situations in the future, Reynolds Law Group, PLLC recommends that churches include a conflict of interest clause in their bylaws and adopt a clear policy for handling conflicts. This ensures that all board members and staff are held to high ethical standards when making business decisions.