For the majority of employment law issues, the employer’s status as a for-profit or a non-profit makes no difference.  But there are some points of distinction, such as:

  • Senior executive compensation for non-profit employers must meet certain “excess benefit” rules under Section 4958 of the IRS Code.
  • In Minnesota (and other states), non-profit employers can opt out of unemployment insurance tax payments and can opt into a reimbursement program instead.
  • Classification issues are often a bit more “liberally” interpreted for non-profits with independent contractor/control questions sometimes more easily cutting in favor of the looser structure of a non-profit, especially smaller non-profits.
  • But non-compete enforcement can be more difficult for non-profits than for-profits since they are mission-oriented rather than business-oriented.  For-profits have a clear and legally recognized right to protect legitimate business interests, but such an argument can be more strained for non-profits that are not necessarily conceived of as in marketplace competition.  Clear and precise confidential information policies may be better protection for a non-profit.

Takeaway:  While the regular run of employment law issues in hiring, leaves, compensation, discrimination, collective bargaining, termination, taxation and benefits are usually the same for non-profits as for-profits, there are points of differences, such as the above.  Consult counsel to see if the difference makes a difference.