Too often, we see nonprofits signing contracts that are presented to them by vendors without appropriate legal review. Many vendors use form contracts that are extremely one sided in the vendor’s favor on the theory that many clients will sign whatever is given to them without scrutinizing the terms.
It seems like a new story breaks every week about a charity being exploited by an insider. Charities lose an estimate of 7%-13% percent of their annual profits to theft, embezzlement, or fraud, to the tune of approximately 40 billion dollars a year.
Many nonprofits use some form of waiver or release in their programs. Typically, volunteers and participants are asked to assume the risk of participation and hold the organization harmless if they are injured. However, waivers and releases are not foolproof as many courts do not favor them. Still, they are often successful, and nonprofit organizations have nothing to lose in requiring them.
The distinction between employee and independent contractor lies in the ability of the employer to determine how work will be performed. For identification purposes, an employee is generally considered to be anyone who performs a service for the employer if the employer can control what will be done and how it will be done. In contrast, an independent contractor is someone who follows an independent trade and offers their services to the public. The person for whom the services are performed has the right to control or determine the result of the work, not how that result is achieved.
Officers and directors of nonprofit corporations who ignore the articles of incorporation and bylaws are setting themselves up to to be on the losing side of a lawsuit.
From protecting your brand to purchasing the goods needed to deliver your mission, contracts are an essential part any nonprofit business. Without solid contracts–the kind you can understand and actually use to protect your organization from broken promises and even litigation–meeting your mission can be an uphill battle. If you’re tired of having the same arguments with vendors and service providers or if you’re unsure of how to protect your brand, here are a few reasons why you should add “getting good contracts in place” to the top of your to-do list:
In the last decade or so, directors and officers have faced an increased exposure to personal liability. While the bulk of legal actions have been against directors and officers of for profit corporations, judgments against and settlements by directors and officers of nonprofit corporations are increasing.