Know your risks and liabilities( and how to avoid or reduce them)

Steve CullenCEO Warrington District CAB

• The prosecution of trustees who have acted in good faith is a rare event.

• Hundreds of thousands of people have acted as trustees over many decades without incidents.

• Where things have gone wrong the law generally seeks to protect individual trustees from personal risk where they have acted in good faith and complied with their trustees’ duties.

Types of potential personal liability

• Liabilities to third parties that occur in the course of running the charity. Most charities will have legal relationships with third parties e.g. funders, staff, suppliers, landlords. All legal relationships carry the risk of legal liability. The extent to which the trustees are personally liable will depend in these circumstances, on the legal form of a charity.

• All charity trustees are also vulnerable to action taken by the Charity Commission (or other trustees) in case of breach of trust. This action is not affected by the legal form of the charity.

• Liabilities associated with the charity trading while it is insolvent or close to insolvency.

• There are a limited number of circumstances where a trustee could be found criminally liable

• The potential liability of charity trustees to third parties depend to a large extent on the legal form of the charity. (always ask “what is the charity’s legal form)

• All charities incur legal liabilities: they are referred to as organisational liabilities.

• Some can be expected to arise in the course of everyday work ; debts to suppliers, staff wages, utility bills, rent etc.

• Some are unexpected; a claim from someone injured on premises, or a fine because health and safety rules have been breached or a claim from an employee, a breach of data protection.

• What trustees want to know is whether they can be made personally liable.

Incorporated legal forms

• A charitable company limited by guarantee

• A Charitable Incorporated Organisation

• A Royal Charter Body

• Industrial and Provident Society

• Incorporated bodies have a “legal personality” and can enter into legal relationships in their own name. In most situations, if the charity is incorporated, it is the charity itself, rather than the trustees, which is responsible for any debts or liabilities.

• This will generally be the case even if the charity has no funds to meet the liabilities: the charity will become insolvent but the trustees are usually protected from personal liability.

There are some exceptions.

• Firstly where an incorporated charity becomes insolvent, the courts can, in principle, impose liability on the trustees in some circumstances. (rare and would have to knowingly trade when insolvent)

• Second, in some circumstances trustees can be held responsible for some liabilities alongside the charity. They are rare and generally involve an element of fault on part of the trustee involved (e.g. A discrimination case at tribunal)

Unincorporated legal forms

• A trust or an unincorporated association does not have its own “legal personality”.

• It is the trustees personally who are entering into legal relationships with third parties.

• The trustees are able to meet liabilities from the charity’s funds, so it is not usually a problem.

• The difficulty arises when a charity runs out of funds or has insufficient funds to meet a liability.

• It is worth saying that if a community group is established relatively informally and has not applied to be incorporated, it will be unincorporated.

Insurance

• Many of a charity’s unexpected liabilities can be met by insurance. Taken out in the name of the charity.

• It is appropriate for any charity (or indeed any unincorporated body or community group) to consider what sort of policies it needs.

• E.g. Public liability insurance, employee liability insurance, building and contents insurance, Legal protection, professional indemnity, motor insurance, events insurance.

Trustee indemnity insurance

• This is a type of insurance that can protect trustees from some personal liability.

• Like all insurance policies the scope of the cover can be restrictive. Generally speaking this type of insurance covers breach of trust claims and wrongful trading and covers associated legal costs. Sums may be limited.

• It is important for unincorporated bodies to know that this policy will not cover them for debts to third parties described above.

• Policies cover trustees where they have acted wrongfully, but not recklessly or dishonestly.

Volunteers and the Law

Volunteers are not employees. Volunteer involving organisations should be pro-active in ensuring that the policies and practices which define their relationship with volunteers are consistent with the voluntary informal nature of volunteering.

Case Law

• Case law has provided examples and situations where organisational policies and practices have been deemed to form ‘an employment relationship’ and therefore subject to employment law.

• There are also cases where organisations had clear policies and practice differences for a ‘volunteer’ and an ‘employee’ which prevented the court from deciding that a contract of employment existed.

• Armitage –v- Relate 1994 :- Mrs Armitage was a volunteer counsellor who claimed racial discrimination. Tribunal found, on the particular facts, that she was an employee and allowed the case to be heard.

• Choudry –v- Migrant Service (MAS) 1997 Mrs Chaudry was a voluntary administration worker. She claimed racial and sexual discrimination. On the particular facts the tribunal ruled that she was ‘an employee’ and allowed the case to be heard.

• Gradwell –v- CVS Blackwell, Wyre and Fylde 1997:- The tribunal found that an employment contract had not been created, based on the policies of the organisation. Even though there was a written agreement it was not legally binding.

• Murray –v- Newham CAB 2000 (EAT):- A tribunal ruled that Mr Murray’s volunteer agreement did not amount to a contract of employment. However on appeal his case was upheld. The decision was based on a written agreement which in the view of the tribunal set out a range of obligations and commitments on both parties.

• South East Sheffield CAB –v- Grayson 2004:- Mrs Grayson brought a claim under the disability discrimination act. She claimed that volunteers engaged in the work of the CAB were also employees. The original tribunal found in favour of Mrs Grayson however this was overturned on appeal based on, the agreement was unsigned and only existed to clarify reasonable expectations of both parties. The minimum time commitment was not a legal obligation as there was no sanction against volunteers who did not do it. Payment of expenses incurred was ‘unsurprising’ and did not amount to an obligation for the Cab to provide, or the volunteer to carry out work.

• X –v- Mid Sussex CAB 2009:- case brought under the disability discrimination act. Claimant told her services no longer required. Claimed that being a volunteer with CAB was advantageous to gaining paid work. Claimed that as such volunteering was an occupation covered by European Directive and therefore protected by the DDA. Tribunal found against her and on appeal her argument was also rejected as she was not an employee.

In 2012 the case went to the Supreme Court. The Court ruled that European law clearly states that protection from discrimination in the workplace doe not extend to volunteers. It turned down her application to take the case to Europe.

Reduce Risk• Reduce the formality of your documents• Review the language you use, ( agreements

not contracts, volunteer roles not job descriptions, reimburse expenses incurred not ‘payment’ arrangements if there are problems not disciplinary proceedings, arrangements for complaints not grievances)

• Reimburse actual expenses only.• Abide by Data Protection Law• Get support/training from Warrington Voluntary

Action

QUESTIONS ?