Officers, Directors, and Trustees – Part 1

A federal court in Arizona ruled that the Volunteers Protection Act prevented individual board members of a charity from being personally liable for unpaid wages.

Church Law and Tax2004-03-01

Officers, directors, and trustees – Part 1

Key point 6-08. State and federal laws provide limited immunity to uncompensated officers and directors of churches and other charities. This means that they cannot be personally liable for their ordinary negligence. However, such laws contain some exceptions. For example, officers and directors may be personally liable for their gross negligence or their willful or wanton misconduct.
Church Officers, Directors, and Trustees

* A federal court in Arizona ruled that the Volunteers Protection Act prevented individual board members of a charity from being personally liable for unpaid wages claimed by a former officer. A charity that provided services to area youth experienced a shortfall of public funding resulting in a significant indebtedness. The charity received a notice from the IRS concerning a year and a half of unpaid payroll taxes. The total debt to the IRS, including penalties and interest, amounted to $70,000. As a result of the debt the IRS placed a lien on the charity’s asset, making it even more difficult for the charity to obtain grants and further funding. Within a few months the charity ran out of money from its earlier grants.

The charity’s substantial debts were incurred under its president’s leadership. The president made a decision to leave the charity, but decided to get the charity out of debt before leaving. She realized that the charity would not be able to pay her a salary because it had no income, grant money, nor donations. The charity claims that the president made the decision to stay on board without a salary, in order to get control of the charity’s major debts. The president claimed that the charity’s board of directors promised to pay her unpaid wages.

The former president sued the charity seeking unpaid wages under the Fair Labor Standards Act. She named as defendants both the charity and the individual members of the board. Since the charity had no assets, it was undisputed that the individual board members would be responsible for any damages. The board members argued that the Volunteer Protection Act protected them from any personal liability. All the parties asked the court to rule on the question of whether the Act absolved the board members from liability.

The Volunteers Protection Act provides:

No volunteer of a nonprofit organization or governmental entity shall be liable for harm caused by an act or omission of the volunteer on behalf of the organization or entity if—-(1) the volunteer was acting within the scope of the volunteer’s responsibilities in the nonprofit organization or governmental entity at the time of the act or omission; (2) if appropriate or required, the volunteer was properly licensed, certified or authorized by the appropriate authorities for the activities or practice in the State in which the harm occurred, where the activities were or practice was undertaken within the scope of the volunteer’s responsibilities in the non-profit organization or governmental entity; (3) the harm was not caused by willful or criminal misconduct, gross negligence, reckless misconduct, or a conscious, flagrant indifference to the rights of safety of the individual harmed by the volunteer; and (4) the harm was not caused by the volunteer operating a motor vehicle, vessel, aircraft, or other vehicle for which the State requires the operator or the owner of the vehicle, craft, or vessel to possess an operator’s license or maintain insurance.

The Act applies to any claim for harm caused by an act or omission of a volunteer. The former president claimed that the Act only provides immunity from claims under state law, and not federal law. Since her claim for unpaid wages was based on the federal Fair Labor Standards Act, it was not barred by the Volunteer Protection Act. The court disagreed: “The legislative history tends to establish that the Volunteer Protection Act was intended to protect all volunteers from tort liability, whether state or federal. The court, however, has not found legislative history or case law establishing that volunteers are not protected from contract liability, but the broad, plain language of the Act indicates it covers all liability whether rooted in tort or contract.”

The court noted that the Act lists several federal laws as exceptions to its liability protection. And, since “the federal laws listed as exceptions do not include the FLSA … the court cannot imply that the FLSA is an exception to the Act’s limitations on liability.”

The court concluded that the individual board members were insulated from personal liability by the Act. It observed, “Volunteers are protected if: (1) acting within the scope of their duties as board members; (2) properly authorized to serve as board members; (3) the harm was not caused by willful or criminal misconduct, gross negligence, or reckless misconduct; (4) the harm was not caused by the volunteer operating a motor vehicle, vessel, or aircraft.” In addition, volunteers lose liability protection if convicted of specified laws including federal or state crimes of violence, terrorism, a state sexual offense, misconduct in violation of federal or state civil rights law, or any action committed under the influence of alcohol. Since none of these exceptions applied, the court dismissed the case against the board members.

Application. This case is one of the few to address the application of the Volunteers Protection Act. This federal law provides important protection from personal liability for uncompensated volunteers acting within the course of their duties for a nonprofit organization. The court reached the important conclusion that the Act’s protections apply to both personal injury and contract claims (such as unpaid wages), unless specifically exempted. Since the Fair Labor Standards Act was not listed by the Act as an exception to the immunity from liability provided to uncompensated directors, this meant that the board members in this case could not be personally liable for the former president’s unpaid wages claim under the Fair Labor Standards Act. Armendarez v. Glendale Youth Center, 265 F.Supp.2d 1136 (D. Ariz. 2003).

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