Non-profit corporations range from neighbourhood community associations operating on a shoestring to agricultural societies with million-dollar budgets. Before amendments to the law the exposure to personal liability was limited only by a complainant’s imagination. A director could find herself the reluctant defendant in a lawsuit by a vengeful former employee or for the sexual improprieties of a volunteer staff member. In the past non-profit organizations dealt with potential liability by agreeing to indemnify their directors and officers should they be sued for matters arising from their duties. Even so, smaller organizations simply lacked the financial resources to shoulder the burden of what might turn out to be a huge damage award or to pay the insurance premiums required to maintain such indemnity agreements. As litigation continued to push the boundaries of potential liability people began to re-examine their involvement in non-profit organizations, often declining to accept a board position or to take a volunteer position that involved directing the organization. Not surprisingly, non-profit organizations have been lobbying the government for many years seeking more protection for their board members and officers. The amendments are a culmination of that effort and put some certainty back into volunteerism.
After June 27, 2003 no “director, officer, employee or agent” of a non-profit corporation can be held liable through a civil action for any pecuniary or non-pecuniary loss suffered by any person. The immunity from liability is not as complete, however, as that statement would suggest.
Firstly, The Non-profit Corporations Act applies only to non-profit corporations registered in accordance with the Act. If you are an officer of a community organization that is not a registered non-profit corporation you will not be entitled to the protection of this amendment.
Secondly, the protection afforded by the amendment only applies if no other law of the Province or Canada specifically imposes liability in specific circumstances on an officer or director, unpaid wages to employees or tax withholding are two examples that come to mind.
Thirdly, the loss must arise from an act or omission of a director, officer, employee or agent while engaged in the exercise or supposed exercise of his or her powers or duties in the corporation.
Fourthly, the director or officer must be acting in good faith at the time of the act or omission that causes the loss. For instance, a director would not be acting in good faith if she exercised her powers to cause injury to a person with whom she had a neighbour’s dispute unconnected to the affairs of the corporation.
Fifthly, a director or officer will not be protected if the loss is caused by the fraudulent or criminal misconduct of the director or officer or if the act or omission that caused the loss constitutes an offence under any law of the Province or of Canada.
Sixthly, while a director or officer may be immune from a claim for losses suffered by any person, provided the conditions of the amendment are met, the corporation itself is not. Nor may the corporation claim recovery from a director or officer who is protected by the amendment.
Lastly, the protection only applies with respect to claims for losses that are commenced after June 27, 2003.
While the protection from liability is not absolute it is considerably better than that which existed before the amendment. Go forth and volunteer!