The following is an excerpt from a chapter, authored by William I. Edlund and Brad D. Steele, of NCA’s publication, The Legal Reference Guide for Private Clubs. This handbook is designed to assist clubs with a wide array of legal challenges, ranging from operational matters and human resource issues to governance and membership policies. This comprehensive resource, written by attorneys specializing in private club issues, provides information on areas of liability and exposure that can arise and ways to be proactive in managing the risk.
Privacy and the Benefits of Private Status
The following elements reflect the standards that should be followed to establish a “truly private” club.
- Selectivity in admission and exclusiveness in membership criteria. Most court decisions consider the selectivity in the admission process and the exclusiveness of membership criteria as the most important factor.
- Size of club. While smaller size clubs are more likely to be viewed as “private,” size is not solely determinative.
- Degree of membership control over governance. Membership control over governance of the organization (particularly the procedures with respect to the selection of new members) is most important.
- Clearly stated non‑business purpose. Associations of individuals that have, implicitly or expressly, a goal that is commercial or business‑directed are uniformly held not to be private clubs. (See Daniel v. Paul[1] where the club advertised for members, advertised its facilities in the commercial media and charged a nominal “membership” fee, and was held not to be a private club.)
- Availability of club facilities and services to nonmembers. To the extent that a club encourages the use of its facility and services to nonmembers, even on a non‑systematic basis, it will augur against classifying the club as private.
- Operated as a nonprofit. “For profit” objectives are generally a challenge to private club status. While being nonprofit would not be the sole factor controlling whether an organization is a private club, the converse is probably true.
While this is not an exclusive list, courts in both the federal and state systems have made clear that these factors are often used to determine whether a club is truly private. Of course, courts usually will not decide whether a club has failed to meet its private status requirements simply because it failed to comply with one or two of the above-mentioned factors. Instead, most courts will look at the totality of the circumstances and, from that, determine whether a club is “truly private.” But, without doubt, failure to comply with these requirements will place a club in significant jeopardy of not being found to be “truly private.”
With this information, clubs can better establish and protect their private status, but what are the benefits to being a “truly private” club?
The Benefits of Being “Truly Private”
The most important benefit “truly private” clubs have are the exemptions from the law provided because the clubs are, by nature, different and deserve to be seen and treated differently than traditional public entities. These exemptions have the effect of shielding clubs from potentially debilitating liability claims and permitting clubs to maintain autonomy. What are the laws from which “truly private” clubs are exempted?
1. Civil Rights Act of 1964
Title II of the Federal Civil Rights Act of 1964 prohibits anyone who provides goods and services from illegally discriminating against those who wish to purchase those goods or services. Under Title VII, the law prohibits illegal discrimination of employees or prospective employees by “employers.” The Act provides an exemption for private clubs under each of these Titles.
2. Americans With Disabilities Act
Enacted in 1990, the Americans with Disabilities Act (ADA)[2] provides civil rights protection to “qualified individuals with a disability” and prohibits discrimination against such individuals in employment in government services, transportation, telecommunications, and public accommodations.” Two provisions in the ADA are applicable to private clubs: Title I, covers employment, and Title III, covers “public accommodations” owned or operated by private entities. Each of these Titles has a “private club” exemption.
The Title I exemption states “the term ‘employer’ does not include … a bona fide private membership club … that is exempt from taxation under section 501(c) of the Internal Revenue Code of 1986.”[3] The Title III exemption states “[t]he provisions of this title shall not apply to private clubs or establishments exempted from coverage under Title II of the Civil Rights Act of 1964 (42 U.S.C. 2000a(e).”[4]
In recent years, the Title III exemption has been called into question for private clubs. If a club is not a bona fide private membership club, the ADA imposes legal obligations on a club to the extent that it owns or operates a “public accommodation”—which should be infrequent because it would jeopardize a club’s private status.
While truly private clubs are exempt from the ADA, it must be noted that some states and municipalities have their own laws to protect those with disabilities that could impact private clubs. These state laws may not exempt private clubs from compliance. At times, states will require adherence to these “mini-ADA laws” to secure state licenses (like liquor licenses) or building and renovation permits. Therefore, clubs may be exempted from the federal ADA, but still may have to comply with their state ADA.
3. State and Local Public Accommodation and Anti-Discrimination Laws
Most state and local public accommodation statutes have expressly exempted truly private clubs from their application or they have very narrow or limited definitions of a “public accommodation” that removes truly private clubs. In addition, federal judicial interpretation has afforded an “out” for private clubs even when the statute is silent. The only way these laws could apply to private clubs is if they have some significant commercial or business relationships or if the clubs make their facilities available to the public or nonmembers.
To the extent any generalizations can be made from the state court and Supreme Court decisions on state public accommodation laws, it is this: “truly private” clubs are exempt from these laws whether there is express exemption language in the law or not. But, when a club receives significant member or nonmember revenue from or connected to commercial or business events, that club will not be seen as “truly private” and government intervention through the application of these laws is probable. Thus, to take advantage of the greatest benefit provided to private clubs—being exempt from a state’s public accommodation law—that club must be “truly private.”
Though some of a club’s activities may not seem to jeopardize its private status, the reality is that they can and they do. And, even though other clubs may allow the same activities, the question a club’s leaders must now ask is: How willing are we to continue to risk our private status? Most likely, that answer will be “not very.” So, be aware, be careful and work hard to be truly private.
The Legal Reference Guide for Private Clubs is available at www.nationalclub.org. The publication provides the private club industry with guidelines and policies to help clubs and their counsel manage legal risks and exposure and includes sample forms, policies and checklists