SANTA ANA, Calif.—A Christian school that fired a teacher for living out of wedlock with her boyfriend and raising their child is not liable for wrongful termination, a California appellate court has ruled.

According to Friday's decision in Santa Ana, Calif., in Sara Henry vs. Red Hill Evangelical Lutheran Church of Tustin, Ms. Henry was married when she began teaching preschool at the school in August 2002. She subsequently divorced and gave birth in June 2007 to a child fathered by her boyfriend.

She told church representatives when she was pregnant that she intended to get married but was not “was not ready to do so just yet,” according to the ruling by the California Court of Appeal.

At the end of 2008, the school's principal overheard a group of parents talking about Ms. Henry, with one parent expressing “disappointment” about her living arrangement, according to the ruling.

The school terminated Ms. Henry's employment in May 2009 for living with her boyfriend without being married and raising their son, stating her living arrangements were “contrary to the religious beliefs of the church and school.”

Ms. Henry sued, alleging her termination violated California's Fair Employment and Housing Act and violated public policy as expressed in the FEHA, the state constitution and Title VII of the Civil Rights Act of 1964.

While the FEHA “prohibits an ‘employer' from engaging in acts of improper discrimination,” it “expressly excludes religious associations or corporations from the definition of employer,” a three-judge panel of the state appellate court ruled unanimously in upholding a lower court ruling dismissing the case. “Evidence presented at the trial demonstrated that the church is a religious corporation not organized for private profit…In other words, termination of Henry's employment did not violate the FEHA.”

The appellate court also held that her termination did not violate an established public policy. “Henry did not cite in her opening brief any constitutional provision or statue—other than the FEHA (which expressly excludes the church from being considered an employer)—as the source of a public policy violated by her firing,” the court ruled.

Had she and her boyfriend married, the church would have been satisfied, the court said. “But the church would also have been satisfied and Henry would have kept her job even if she decided against marrying him. She could have moved out of their shared residence.” What the church “could not allow,” it said, was to have Ms. Henry “continue living in what it considered a sinful manner.”

Jeffrey A. Berman, a partner with Seyfarth Shaw L.L.P. in Los Angeles who was not involved in the case, says the ruling is consistent with other decisions. The school’s exemptions from various laws are “rather clear.” The court applied them in a manner that allowed the school not only to make a religious-based decision but to “also require that employees comport themselves in manner which is consistent with the teachings of the church,” he said.

Ms. Henry taught religion to the children at the California school. In March, the U.S. Supreme Court said it will decide whether a religious school can claim a ministerial exception to a discrimination charge under the Americans with Disabilities Act for a teacher who taught primarily secular subjects in Equal Employment Opportunity Commission and Cheryl Perich vs. Hosanna-Tabor Evangelical Lutheran Church and School.