With the emotionally charged nature of the current election cycle where so much is at stake for both Democratic and Republican candidates, it’s a good time to review what Political Action Committees (“PAC”) are and what employers can and can’t ask of their employees in terms of participating in PACs.
So what are PACs? PACs contribute money to political candidates for their election campaigns. Some PACs contribute to candidates for state and local offices, others contribute to federal offices. These contributions can enhance a company’s voice in the public arena and give the company clout on important issues. It is also a vehicle for supporting candidates who support your business. As federal law and the laws of many states prohibit corporations from making monetary or in‑kind political contributions, PACs are the only legally sanctioned way to make political contributions directly identified with your company.
Who contributes to PACs? The company or the PAC itself may solicit contributions from certain categories of individuals known as “the restricted class.” The restricted class consists of: employees who have policymaking, managerial, professional, or supervisory responsibilities, and members of their families; stockholders and members of their families; employees who are members of the recognized professions, such as lawyers, accountants and engineers; and individuals who serve on the company’s board of directors so long as they receive compensation other than on an hourly basis.
How often and how much? Twice a year the PAC may solicit contributions from all company employees, but certain rules must be followed. The PAC may also accept unsolicited contributions from any individual who is eligible to make contributions in a federal election (i.e., U.S. citizens or green card holders), and from other PACs. Individuals may contribute up to $5,000 to the PAC per calendar year. The company may authorize contributions by check, automatic payroll deduction, or both. PAC contributions are not tax-deductible for federal income tax purposes.
So what’s the problem and how can employers avoid sanctions? Corporate giving and volunteerism are good things that can sometimes go bad. Employers can ask but they cannot force employees to give—a problem arises when managers become overzealous and pressure employees, implying that if an employee doesn’t contribute that there may not be a promotion in their future, for example. The FEC has clearly stated this is not allowed. The Federal Election Commission regulations state that a corporation cannot facilitate the making of federal contributions by means of “coercion, such as the threat of a detrimental job action, threat of any other financial reprisal, or the threat of force, to urge any individual to make a contribution or engage in fundraising activities on behalf of a candidate or political committee”, 11 CFR §114.2 (f)(2)(iv). A handful of states also have laws that prohibit an employer from pressuring employees to engage in political activity.
Whether a particular communication to employees crosses the line is a very fact‑specific inquiry, and companies should seek legal advice before conducting campaigns to encourage employees to financially support the company’s favored candidates. Companies should avoid at all costs any appearance of a compulsory nature to the contribution. After all, volunteerism is just that, voluntary and not mandatory.