LEGAL RESPONSIBILITES OF ORAGANIZATION / BOARD

When volunteers are elected to the Board of Directors, they assume more powers in directing the organization, and along with those powers they assume greater responsibilities. This section looks at the  expanded legal duties of Volunteer Board Members.

 

Once elected, a Board of Directors assumes responsibility for the affairs of the organization.

Together as a Board as well as individually, directors owe a duty of care to participants and volunteers, to each other as Board members, to the organization’s staff, to members of the organization, and to anyone who may be affected by the acts of the organization. The general duties of care and of trust are often divided into six basic duties for clarity.

I. SIX BASIC DUTIES

A. Duty of Honesty

Directors must act honestly at all times when dealing with or on behalf of the organization.

B. Duty of Loyalty

Directors must give their undivided loyalty to the organization and must not let matters of personal interest or profit come into conflict with the interests of the organization.

C. Duty of Care

We have looked in detail at the duty of care for volunteers within the organization. Directors must look after the affairs of the organization with as much care and good sense and good judgment as a reasonable person would in the same circumstance.

D. Duty of Skill

As we saw with ordinary volunteers, directors are not required to be experts. They are required to use as much skill in making decisions for the organization as any similarly skilled reasonable person. This means that someone with no training in accounting, for example, would be expected to use as much care in looking after the organizations finances as any reasonable person with no special training would. However, if the director also happened to be an accountant, then she would probably be held to a higher standard and expected to take as much care as a reasonable trained accountant would.

E. Duty of Diligence

Directors must be diligent about their work as directors. For example, they need to attend meetings regularly, read all the minutes and reports from committees, look at all the available facts including expert recommendations on issues, but then make up their own minds on decisions.

F. Duty of Prudence

This is very much like the duty of care. It means that Directors are expected to exercise caution and common sense on behalf of the organization.

So what do these duties mean in practice? They are all legal duties that can only be interpreted exactly in individual cases by the courts. However, we can make some reasonable generalizations:

II. DUTIES TO THE ORGANIZATION

The duties of care, diligence, and prudence suggest that a director should take care to know the constitution and bylaws of the organization thoroughly in order to make certain, for example, that the Board only authorizes actions that fit within the organization’s purposes or objects. A director must act strictly within the scope of her authority and must not instruct the organization to carry out activities that are not permitted by the organization’s objects.

These duties also suggest that directors have a clear Operating Policy outlining things such as proper notice of meetings, quorum for meetings, rules of order, and that the directors follow these policies carefully. While a director may delegate tasks to committees, it is wise to maintain a supervisory function.

Why are these operating policies important? Suppose the Board of Directors of XYZ Society has gotten into the habit of making decisions at meetings even if there isn’t a quorum. Three or four directors regularly come to the meetings and then tell the other directors what decisions they made. These directors may think they’re just getting the organization’s business done, but in fact, none of the decisions has been made legally. Then, suppose the Society wants to buy a building for a teen drop-in centre. If these three or four Directors go to see a building and make an offer to buy, they are acting as the agents of the Society, but they do not have the proper authorization. If something goes wrong with the purchase, all the Directors (the ones who acted and the ones who omitted to act) might find themselves individually liable for the price of the building, because the decision was not made properly.

The duties of honesty and loyalty require that directors put the interests of the organization ahead of their personal interest. For example, suppose XYZ Society is considering painting the drop-in centre and volunteer director Jones happens to own a paint store in town. In such a case, it is easy to see that volunteer Director Jones has a financial interest in the matter of painting. Even if Director Jones wants to be helpful and offers to give the organization an extra good deal on the paint, she still has a conflict of interest. Thus, she has an absolute obligation to refrain from voting because of her conflict of interest between her own monetary interest and that of the organization. But suppose Director Jones’s brother or husband worked at a paint store that someone else owned. In such a case, the conflict of interest is not as clear-cut. However, in practice, a volunteer director should avoid even the appearance of a conflict of interest by not voting in such situations. In case of doubt, the director with the possible conflict should explain it to fellow directors, and then abstain from involvement in discussion or voting on that issue.

The duty of skill has to do with the standard of care that the volunteer director owes to the organization.

The standard, as we’ve seen, is that of a reasonable person in comparable circumstances. The court will give some weight to the particular director’s experience and expertise. Thus, a lawyer who sits on a volunteer board would probably be held to a higher standard of care on legal matters than a fellow board member with little experience with the law. 

III. DUTIES TO OTHERS

A. Civil Liability

Where the organization has caused damage to a third party, the general rule is that, provided the volunteer director was acting within the scope of her authority, she will not be found personally liable for damages, provided there is no evidence of gross negligence or fraud. If the director was acting outside her authority (for example, the Board of Director had not passed a motion authorizing the action) and the organization caused the damage as a result of her actions, then director may be liable to the organization for the amount it was required to pay to the third party.

Let’s look at XYZ’s teen drop-in centre scenario again. Suppose the organization was still doing repairs on the building - there was still some plumbing and electrical work to be done - and they hadn’t opened the building for use. Three directors are finishing painting another room one evening and as they are locking up the building, a couple of street kids approach and ask if they can spend the night in the building. It’s January; the temperature is liable to drop to –30°C overnight, and the other shelters are full. The directors fear that the kids might freeze if they have no shelter so they allow them to come into the building for the night. Unfortunately, a fire starts in the building overnight and the street kids are badly burned. They sue the organization and the individual directors for negligence for allowing them to stay in a building that was not open for business. Because the directors were not authorized to allowpeople to stay in the building, they might well be found individually liable.

B. Criminal Liability

Where the organization is charged with an offence under the Criminal Code, a director may also be charged as a party to the offence if the director actively participated in, assisted in, or encouraged the crime. If the director is in a position to stop the commission of the offence and omits to do so, he may be found guilty under the Criminal Code. This is undoubtedly a very rare situation, but suppose, for example, that an organization is given a grant to develop a literacy program for adults.

The organization is pleased to get a grant, but upset because the grant is only for half of what they asked for. The directors decide that they can buy a neighbouring house, get the program’s members to help them fix it up quickly, and sell it. They believe they can make almost enough from the sale of the house to fund the entire program. However, someone complains to the granting agency that the money has been used to buy the house instead of to give the literacy classes. The directors might well find themselves charged with criminal offences such as fraud or theft.

C. Liability of Directors of Charitable Organizations

Charitable organizations occupy a place in the law distinct from other non-profit organizations. This is due both to the requirements that must be met under the Charitable Fund-raising Act[1], and the common law, which has increasingly imposed a duty of loyalty and trust to the public upon Directors. 

Directors of charitable organizations are expected to comply or take reasonable steps to comply with the Charitable Fund-raising Act. It requires, for example, that organizations keep certain records of their activities such as financial and solicitation records[2]. It also states the conditions under which businesses may be used to raise funds. Directors who allow an organization to violate the terms of the Act can be held liable, even if they only passively agreed to the offence and took no active role[3].

Recent court decisions have also begun to hold the Directors of charitable organizations to higher standards than other non-profit organizations. Ontario (Public Guardian & Trustee) v. Aids Society for Children (Ontario)[4], for example, held an organization’s Directors liable for unreasonably high expenses incurred through fundraising that prevented donations from being used for their intended purpose. This further implies a strong duty of loyalty to an organization and its charitable donors[5].

IV. DUTIES TO EMPLOYEES

Boards of Directors have a duty to ensure that the organization meets its responsibility as an employer.

Employer responsibilities are detailed in many federal and provincial statues. For example, some employer duties include:

  • duty to pay full wages, including overtime and vacation pay;
  • duty to provide paid days off for statutory holidays;
  • duty to make employee deductions (CPP, EI, and Income Tax) and to send these deductions to Canada

Customs and Revenue Agency (CCRA);

  • duty to provide a safe workplace, and
  • duty to protect employees from discrimination.

Directors should ensure that appropriate measures are made to comply with employer responsibilities — this duty cannot simply be delegated to administrators. In some cases, directors may be held personally liable for the organization’s failure to meet it obligations to employees. For example, if the board of XYZ Society is having funding difficulties and decides to avoid paying wages owed for overtime, the employees may sue the Society and its Board of Directors. Similarly, an employee who has been mistreated or wrongfully dismissed may sue the Society and, in some situations, directors may be personally liable (for example, if they haven’t put proper hiring and firing procedures in place). If an organization becomes insolvent, directors may become personally liable for the unpaid wages of employees or unpaid employee deductions to CCRA.

V. DUTIES TO THE VOLUNTEERS

While volunteers have the duty of care toward the people they affect, the organization — through its Board of Directors and staff — also has a duty of care to ensure that the volunteers working for them are safe. For example, suppose a volunteer is injured while moving furniture at a kids’ drop-in center, and thus suffers pain, suffering and a loss of income. In such a case, the organization’s conduct will be examined to determine if it took reasonable care to ensure the volunteer was safe. If its conduct falls below the required standard — for example, the ramp on the truck from which the furniture is moved is faulty, and the organization knew about this — then the volunteer may be able to successfully claim damages from the organization.

The volunteer has the same rights for a claim in negligence that anyone else does. The organization has a duty of care to the volunteer as well as to the client or to an employee. A safe working (volunteering) environment must exist. Potential risks must be disclosed and consented to if necessary. In particular, the volunteer is entitled to:

  • sufficient direction,
  • appropriate education or training,
  • appropriate supervision,
  • defined responsibilities, and
  • available resources for information.

[1] R.S.A. 2000, c. C-9.

[2] Ibid, s. 7.

[3] Ibid, s. 55(3).

[4] (2001), 39 E.T.R. (2d) 96, [2001] O.J. No. 2170 (Ont. S.C.).

[5] See the previous discussion on duty of loyalty.