For over 20 years, the MacLeod Law Firm has been advising non-profit executives and boards of directors. Here are the five most important issues that non-profit boards and their executives should consider regarding employee liability:
1. A director can be held personally liable if the non-profit doesn’t comply with an employment law
A director can be held liable for things like payroll taxes, vacation pay, and wages. Directors can also be charged and fined under various legislations, including the Ontario Occupational Health & Safety Act. Accordingly, we recommend that a non-profit organization purchase directors and officer insurance for its directors.
2. Who has the authority to hire and instruct a lawyer on behalf of the non-profit?
This depends on the non-profit’s by-laws. In most cases, someone from the board will hire a lawyer. We usually recommend that the board decide who will retain the lawyer on its behalf. In most cases, this is the board chair or chair of the human resource committee (if one exists). In some cases, it is the executive director. A special committee should be formed to specifically deal with the legal issue. The board determines the committee’s mandate, its scope and what decisions must be voted on by the full board.
3. Who will pay the legal and settlement costs related to a legal dispute?
If the non-profit has litigation insurance, the insurer will pay these costs. If the non-profit receives government funding, sometimes the government will pay a portion of these costs. If a settlement must be paid out of operating funds and the position can remain vacant, the non-profit may be able to use funds it receives for the position to cover the settlement.
4. How can the board keep legal advice confidential?
Communication between a lawyer and a board is generally privileged & confidential. Boards however, may have competing factions in dealing with a legal dispute (i.e. to offer payment or not in settling a claim). The distribution of written legal advice must be carefully managed as we have witnessed occasions where legal advice was “leaked” for strategic manoeuvring.
5. What involvement should the executive director (ED) of a non-profit have with a lawyer?
This depends on whether there is a conflict of interest between the ED’s interests and the board’s interests and whether the ED or the board made the decision that is being challenged. We recommend that a board decide what type of employment decisions can be made by the ED and what decisions must be approved by the board. We often recommend that a board or its sub-committee approve all employee terminations assuming these decisions can be made quickly by way of conference call or email.