There is an array of not-for-profit organizations across Canada. Not-for-profits rely on volunteer Board of Directors to work towards the mission and vision of the organization. However, many are not aware of the responsibilities and related liabilities that come with holding such a trusted position. Understanding your responsibility and possible liability as a charity or not-for-profit Board Director can help you to better manage this risk.
Know Your Legal Obligations
The first thing to do is to understand when, and for what, you as a director can be exposed to personal liability. Liability for employment-related obligations is imposed on directors under several different Acts. Directors can be directly accountable under the following types of employment legislation:
- Accessibility.
- Employment standards.
- Health and safety.
- Human rights.
- Pay equity.
Upon taking on the role of director, you should become familiar with the general understanding of the types of laws the organization must comply with. This can help you identify any issues that would require legal advice. Directors should also ensure senior management of the organization is aware of these responsibilities and has adequate resources to help them understand the obligations. Changes to these requirements also need to be supervised.
Examine the Organization’s Financial Operations
Directors can have personal liability if the organization is unable to pay wages, vacation pay, CPP, EI, and income tax withholdings. Personal liability is often both joint and several. This means that each director is liable for the entire balance owing. However, the payment can be retrieved from any one or more of the directors. To ensure this does not occur, directors should ensure the organization has the funds available to make these payments. The organization should maintain a reserve to cover these expenses for at least three months.
Acquire Directors’ and Officers’ Insurance
The organization should consider purchasing Directors’ and Officers’ insurance (D&O insurance). While this will not shield against offenses, it will protect your personal liability. Having D&O insurance will provide the organization with stability and peace of mind. This can help as it can attract and retain professionals on the Board. These professionals, such as lawyers, accountants and Human Resource professionals, can provide the organization with expert advice and guidance.
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