by Dev User | Apr 28, 2022 | Uncategorized
Apr 2022 Charity & NFP Law Update
New statistics released by Statistics Canada show growth in the non-profit sector, though this growth lags behind economy-wide growth. “Non-profit institutions and volunteering: Economic contribution, fourth quarter 2021” (the “Report”), published by Statistics Canada on March 29, 2022, shows that the real gross domestic product (“GDP”) (i.e. nominal GDP adjusted for inflation), of non-profit institutions increased by 2.1% overall in 2021, while economy-wide real GDP growth for the year was 4.6%. Growth for the sector was particularly slow in the fourth quarter of 2021, which coincided with Omicron-related restrictions. However, the Report attributes the lower growth rate in 2021, in part, to the strength of health care activities throughout 2020, which form a large component of non-profit institutions.
As stated in the October 2021 Charity & NFP Law Update, the definition of the “non-profit sector” in the Report adheres to international standards published in the United Nations’ Handbook of National Accounting: Satellite Account on Non-profit and Related Institutions and Volunteer Work.
Across sectors, the real GDP of non-profit institutions serving businesses (which suffered the greatest impacts from COVID-related restrictions) rose by 0.9% in the fourth quarter of 2021. The real GDP of non-profit institutions serving governments and those serving households both rose by 0.5% in the same period.
Employment in the sector increased 1.4% overall in the fourth quarter, led by a strong increase in jobs in healthcare and social services, and representing a 4.3% increase from the fourth quarter of 2020. In particular, healthcare has seen the largest increase in employment, with a 6.3% increase as compared with the first quarter of 2020. Compared to healthcare, the social services activities only saw a 2.0% rise in the number of employees, which remains 7.1% lower than in first quarter of 2020.
The nominal GDP for the sector grew by 2.0% in the fourth quarter of 2021, with non-profit institutions constituting 8.3% of the economy-wide nominal GDP during that period, and non-profit instructions excluding the government constituting 2.1% of the economy-wide nominal GDP. The Report overall presents good news for Canada’s non-profit sector, which has experienced growth and greater stability, particularly in the wake of a global pandemic.
Read the April 2022 Charity & NFP Law Update
by Dev User | Apr 28, 2022 | Uncategorized
Apr 2022 Charity & NFP Law Update
Nine new members have been appointed to the Advisory Committee on the Charitable Sector (ACCS), according to an announcement by Honourable Diane Lebouthillier, Minister of National Revenue, released on April 5, 2022. As explained most recently in Charity & NFP Law Bulletin No. 502, the ACCS was established in 2019 as a consultative forum for the Government of Canada to engage in meaningful dialogue with the charitable sector, to advance emerging issues relating to charities, and to ensure the regulatory environment supports the important work that charities do.
In its first two years, the ACCS released three reports on issues and challenges facing charities, subtitled “Towards a federal regulatory environment that enables and strengthens the charitable and nonprofit sector”. They were issued in January, April and July 2021 and are discussed in greater detail in Charity & NFP Law Bulletins No. 489, No. 495, and No. 500, respectively.
The ACCS consists of 15 members from the charitable sector, as well as the Assistant Commissioner of the Legislative Policy and Regulatory Affairs Branch of the CRA and one representative from each of the CRA Charities Directorate and Finance Canada. All members are appointed by the Minister of National Revenue or the Commissioner of the CRA.
As ACCS sector members serve different terms, nine sector members’ terms came to an end in 2021 and will be replaced by nine new sector members, who will begin two-year terms on May 1, 2022, joining the six current sector members, who have ongoing terms. The new members are:
- Christian Bolduc – President & CEO, BNP Performance, LL.B, ASC, C.Dir., CFRE
- Owen Charters – President & CEO, BGC Canada (formerly Boys & Girls Clubs)
- Dr. Anver Emon – Canada Research Chair in Islamic Law and History, and Director of the Institute of Islamic Studies, University of Toronto
- Sheherazade Hirji – Former Resident Representative, Aga Khan Development Network, Afghanistan
- Jean-Marc Mangin – President & CEO, Philanthropic Foundations Canada
- Sarah Midanik – President & CEO, The Gord Downie & Chanie Wenjack Fund (DWF)
- Martha Rans – Founder & Legal Director, Pacific Legal Education and Outreach Society (PLEOS)
- Tanya Rumble – Director of Development, Ryerson University
- Bob Wyatt – Executive Director, Muttart Foundation
The ongoing sector members are:
- Bruce MacDonald – President & CEO, Imagine Canada (sector co-chair)
- Hilary Pearson – former President, Philanthropic Foundations Canada (sector co-chair)
- Peter Dinsdale – President & CEO, YMCA Canada
- Arlene MacDonald – former Executive Director, Community Sector Council of Nova Scotia
- Kevin McCort – President & CEO, Vancouver Foundation
- Andrea McManus – Chief Advancement Officer, Banff Centre for Arts & Creativity and Co-Founder and Senior Counsel of ViTreo Group
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by Dev User | Apr 28, 2022 | Uncategorized
Apr 2022 Charity & NFP Law Update
Helpful Guidelines on Security for Personal Information from B.C. Privacy Commissioner
Any security assessment for disclosing personal information outside of Canada must include an assessment of the legal framework for the jurisdiction where that personal information would be disclosed, according to British Columbia’s Office of the Information & Privacy Commissioner (“BC IPC”). A guidance published by the BC IPC in March 2022, entitled “Reasonable security measures for personal information disclosures outside of Canada” (the “Guidance”), offers useful direction to organizations, including charities and not-for-profit organizations anywhere in Canada, with regard to the factors they should take into account when considering the disclosure of personal information outside of the country.
Although it is directed to public bodies in British Columbia that are governed by BC’s Freedom of Information and Protection of Privacy Act (BC FIPPA) and is intended to help them interpret the requirement to implement “reasonable security measures” to protect personal information against risks such as unauthorized collection, use, disclosure or disposal when disclosing personal information outside of Canada, the Guidance provides good advice that can be extrapolated to other sectors and other types of organizations.
Because Canadian laws do not apply once personal information leaves the country, and because, according to the BC IPC, contractual or technical protections may not be enough to protect the information, the BC IPC advises public bodies to conduct comprehensive privacy impact assessments before making the decision to proceed with disclosure. This recommendation is included as a requirement under Regulation 294/2021, enacted pursuant to BC FIPPA.
Noting that the disclosure of personal information outside of Canada requires a very high level of rigour, the Guidance advises that public bodies should have administrative, technical or contractual controls in place and should be prepared to demonstrate reasonable security controls in line with industry standards such as ISO 27002, ISO 27017 or the NIST Cybersecurity Framework. This recommendation is aligned with the privacy best practices set out in Schedule 1 to the federal Personal Information Protection and Electronic Documents Act (PIPEDA).
Another factor that must be taken into account is the legal framework of the jurisdiction to which the personal information will be disclosed. The Guidance notes that the requirement for “reasonable security measures” is unlikely to be met when personal information is being disclosed to an authoritarian regime that “does not respect the rule of law, has no privacy laws, or those laws are inadequate.” Any jurisdiction lacking constitutional individual freedoms, due process and responsible government, would not likely allow for “reasonable security measures” to be put in place, especially if it would have “the power to compel information without a warrant”.
Other factors to assess, depending on circumstances, include:
- the sensitivity of the personal information in question (e.g., personal health information is much more sensitive than contact information);
- the volume of the personal information in question;
- the foreseeability of an unauthorized collection, use, disclosure, or storage of personal information;
- the impact to individuals of an unauthorized collection, use, disclosure, or storage of their personal information;
- whether a reasonable alternative is available within Canada.
Even if all the factors indicate that disclosure to the foreign jurisdiction would be reasonable, the public body must still implement reasonable administrative and technical measures to protect the information.
The Guidance notes that disclosure of personal information will “always involve risks that no administrative, technical or contractual controls can eliminate.” The Guidance advises that disclosure of personal information outside of Canada should only be undertaken after a careful assessment, where the risks involved are objectively assessed and reasonable and with reasonable measures in place to “adequately mitigate those risks.”
It should be noted that neither the Guidance nor BC FIPPA include a definition of “disclosure”. It is not clear whether the term would include a “transfer” for processing of personal information under PIPEDA, which is not considered to be a disclosure. However, all the factors set out in the Guidance would apply equally to actual disclosures as well as to transfers for processing and should be adhered to by charities and not-for-profits considering taking either step.
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by Dev User | Apr 28, 2022 | Uncategorized
Apr 2022 Charity & NFP Law Update
New Working for Workers Act Enacts $1.5M Maximum Fine for D&Os under OHSA
Ontario’s newest legislative changes for workplace health and safety include a much higher level of risk for non-compliance by corporate directors and officers, including those serving in those roles for charities and not-for-profits. Bill 88, the Working for Workers Act, 2022 received Royal Assent on April 11, 2022 (“Bill 88”). It amends both the Employment Standards Act, 2000 (ESA) and the Occupational Health and Safety Act (OHSA). In particular, amendments to the OHSA raise the maximum fines significantly for convictions: from $100,000 to $1,500,000 for directors and officers of corporations — including charities and not-for-profits; or $500,000 for other individuals. Bill 88 also adds a list of aggravating factors to the OHSA to be considered in determining a penalty, and extends the limitation period for instituting a prosecution from one year to two years. These changes to penalties and prosecution under the OHSA will take effect on July 1, 2022. Further obligations under the OHSA for certain employers to provide naloxone kits and train staff on their use will take effect on a forthcoming date by proclamation of the Lieutenant Governor of Ontario.
Part IX of the OHSA for Offences and Penalties currently states under section 66 (1), “Every person who contravenes or fails to comply with” its provisions or regulations is liable to a fine of up to $100,000 or twelve months’ imprisonment, or both. The maximum fine for a corporation is $1,500,000 under subsection 66 (2). Bill 88 amends this section by increasing the individual fine in subsection (1) to $500,000, and adds a new subsection (2.1):
(2.1) A director or officer of a corporation who contravenes or fails to comply with section 32 is guilty of an offence and on conviction is liable to a fine of not more than $1,500,000 or to imprisonment for a term of not more than twelve months, or to both.
Section 32 of the OHSA, Duties of directors and officers of a corporation, states:
32 Every director and every officer of a corporation shall take all reasonable care to ensure that the corporation complies with,
(a) this Act and the regulations;
(b) orders and requirements of inspectors and Directors; and
(c) orders of the Minister.
The individual liability for directors and officers of a corporation, set at the same maximum amount as the corporation itself, is a new addition to the OHSA by Bill 88, and underscores the need for directors and officers of charities and not-for-profits to take seriously all of the health and safety obligations of their organizations as required of employers. Directors and officers should establish a proactive system of rigorous compliance, undertake a comprehensive regular review of all relevant workplace health and safety issues, and document all steps taken in detail to ensure due diligence with regard to OHSA requirements, as well as carefully document any incidents that may occur with actions taken in response. Such documentation is necessary and could be significant evidence in defence if the corporation is ever party to a claim against it under the OHSA in litigation.
Aggravating factors for “the purposes of determining a penalty” under section 66 of the OHSA are added by Bill 88 in a new subsection (2.2):
(2.2) Each of the following circumstances shall be considered an aggravating factor for the purposes of determining a penalty under this section:
1. The offence resulted in the death, serious injury or illness of one or more workers.
2. The defendant committed the offence recklessly.
3. The defendant disregarded an order of an inspector.
4. The defendant was previously convicted of an offence under this or another Act.
5. The defendant has a record of prior non-compliance with this Act or the regulations.
6. The defendant lacks remorse.
7. There is an element of moral blameworthiness to the defendant’s conduct.
8. In committing the offence, the defendant was motivated by a desire to increase revenue or decrease costs.
9. After the commission of the offence, the defendant,
i. attempted to conceal the commission of the offence from the Ministry or other public authorities, or
ii. failed to co-operate with the Ministry or other public authorities.
10. Any other circumstance that is prescribed as an aggravating factor.
Bill 88 also adds subsection 66 (5), which provides express allowance for a prescribed court order “in addition to any fine or imprisonment that is imposed” by the OHSA. The extended limitation period, from one to two years, is in section 69 of the OHSA. Taken together, these changes add significant risk to directors and officers of charities and not-for-profit organizations for potential liability for workplace health and safety.
Read the April 2022 Charity & NFP Law Update
by Dev User | Apr 28, 2022 | Uncategorized
Apr 2022 Charity & NFP Law Update
A donor brought a class action proceeding against a Canadian charity alleging that the charity acted fraudulently and misappropriated charitable donations. In the matter of Zentner v GFA World, a decision handed down from the Ontario Superior Court of Justice on March 17, 2022, Mr. Zentner alleged that GFA World (referred to as “GFA Canada” throughout the decision) “defrauded thousands of individuals and churches from across Canada […] by diverting those funds to improper purposes.” GFA Canada’s affiliate, Gospel for Asia, Inc. (“GFA USA”) and four individuals who were directors and officers of GFA Canada and GFA USA (the “four directors”) were also named in the proposed class action. Notably, GFA USA and the four directors had previously settled a class action brought by American donors (the “American class action”), though with no admission of liability. While the Ontario court ultimately dismissed Mr. Zentner’s claim and refused to certify the class, the analysis of the court will be of interest to charities and donors. This is because the court sets out the factors that it will consider in class action claims brought by donors alleging misuse of charitable funds. The ultimate impact of this decision will depend upon how persuasive other lower court judges may treat it and if it is adopted (in whole or in part) at the appellate court level. It is also not known at the time of writing whether the decision will be appealed.
Mr. Zentner, a resident of Nova Scotia and a former regular donor to GFA Canada, sought a declaration from the court that he be appointed as the representative of the class and that the requirements for certification under Nova Scotia’s Class Proceedings Act, 2007 had been satisfied. If the class action was allowed to proceed, Mr. Zentner’s claim was for $100 million in damages for fraud, breach of fiduciary duty, negligent misrepresentation, and conspiracy; as well as $50 million in punitive damages and the return of $20 million in donations made to GFA Canada that was allegedly used by GFA USA in the construction of a 350-acre corporate headquarters and personal residence in Texas. Essentially, Mr. Zentner asserted that GFA Canada made two promises to donors that it failed to keep: 1) that donors had the ability “to direct the specific charitable purpose that their donation would be used to support”; and 2) “that 100% of all donations designated by donors for a purpose in the mission field or the field[i.e. South Asia] would actually be spent in the field”. Four months after Mr. Zentner first commenced his class action claim, GFA Canada filed for protection under the Companies’ Creditors Arrangement Act (an act that facilitates compromises and arrangements between companies and their creditors).
The court’s analysis considered whether Mr. Zentner’s claim satisfied the requirements for certification as a class action in Nova Scotia under the Class Proceedings Act, 2007. There were three requirements that were at issue in this matter: 1) whether the claim disclosed a cause of action; 2) whether the claim raised a common issue amongst class members; and 3) whether a class proceeding would be the preferable procedure for a fair and efficient resolution of the dispute.
GFA Canada argued that the claim did not disclose a cause of action because all of Mr. Zentner’s pleadings were based on “a fundamental misconception of a right to recovery of an unencumbered gift”. GFA Canada took the position that once funds are donated to a charity, the funds are the property of the charity rather than the donor. Sometimes a donor may attach certain requirements to a gift which engages the duties and obligations of trust law. But in this case, GFA Canada submitted, the donors did not attach any express trust conditions to their gifts. Therefore, there was no harm or injury to the donors, because even if the funds had been misappropriated, the funds were no longer the donors’ property, but rather belonged to the charity.
Mr. Zentner’s response was that “there is no fraud exception for charities”, and that when a donor’s donated funds were “dishonestly misappropriated from the charity and not used for the charitable objects of the charity”, then the donor is not precluded from commencing an action to recover the misappropriated donated funds. Further, he submitted that it was not necessary for him to plead the existence of a trust in order to have a legitimate cause of action arising out of property rights and trust law. In the alternative, Mr. Zentner submitted that even where donors may not have a claim for the return of donated money based on the property rights and obligations manifested in trust law, donors would “still have a legal right to sue for misappropriation of donated funds in tort.”
The court agreed with Mr. Zentner that it was not necessary for him to plead the legal conclusion that a trust was created. However, he did need to plead facts that, if true, plausibly supported the legal conclusion that a charitable purpose trust was created when he donated funds to GFA Canada. Based on the facts, the court concluded that Mr. Zentner’s donations were unencumbered gifts and there was, therefore, no trust and no ability to ground a civil claim on the basis of any property rights.
With regard to the ability to claim in tort rather than make a proprietary claim, the court did not think there was a meaningful distinction between the two. Whether a claim is framed as a proprietary claim for breach of trust (which Mr. Zentner did not make) or as a claim in tort, the claimant “must have a compensable loss.” Therefore, the court concluded that “[a]bsent a claim for a compensable loss, Zentner’s statement of claim does not disclose a cause of action against the defendants.” In situations where donated funds may have been misused or misappropriated, the court set out that the proper remedies would be through “regulatory or enforcement measures”, such as those found in the Charities Accounting Act (Ontario) or possibly through criminal proceedings.
The court did not need to go into further analysis after finding that Mr. Zentner’s claim failed to meet the requirement of disclosing a cause of action. Nevertheless, it addressed the other two requirements that were at issue, namely whether the claim raised a common issue amongst class members, and whether a class proceeding would be the preferable procedure for a fair and efficient resolution of the dispute. The court ultimately concluded that Mr. Zentner’s evidence failed to show that there was a common issue amongst class members, stating that “suspicion, based on speculation, is not enough.”
With regard to the “preferable procedure”, GFA Canada submitted that an investigation under the Charities Accounting Act (Ontario) or by the Canada Revenue Agency followed by a judicially supervised claims process under the Companies’ Creditors Arrangement Act would be best. The court did not directly comment on involvement by the Canada Revenue Agency and noted that investigation under the Charities Accounting Act (Ontario) might not necessarily be effective because, for example, it would have no bearing on a civil claim in tort. Therefore, if Mr. Zentner’s claim had met all of the other requirements to be certified as a class action, the court would have accepted that a class action would be “the preferable procedure” as compared with proceedings under the Companies’ Creditors Arrangement Act. A class action would promote access to justice and judicial economy which would be preferable to individualized claims in proceedings under the Companies’ Creditors Arrangement Act.
While the court dismissed Mr. Zentner’s class action claim against GFA Canada, this case nevertheless provides important insights to charities and donors about remedies available under the law when there are allegations of mismanagement of charitable funds. The court affirmed that once unrestricted gifts are made, donors cease to have proprietary rights over the donated funds. However, the court did not rule out the possibility that donors might be able to bring a class action claim if the gifts in question were restricted charitable purpose trusts. However, presumably any such claim of this kind would need to be based on an allegation of breach of trust and/or brought by an application under section 10 of the Charities Accounting Act (Ontario), which permits a claim to be brought by two or more individuals alleging breach of a trust created for a charitable purpose. In addition, the court indicated that there may be instances where it could consider a class action claim to be a more efficient use of judicial resources than other types of claims against charities.
This case is a good wake up call for charities in understanding that, depending upon the nature of their fundraising campaigns, what is communicated during their campaigns to potential donors, and how they have used the funds raised, the possibility of a class action proceeding being commenced and possibly certified is not outside of the realm of possibility. The court has made clear in this decision that charities are not exempt from class action proceedings. As such, it will be important to monitor future caselaw to see if class actions regarding charitable donations may become a developing trend or not and what potential impact such developments might have on charities.
Read the April 2022 Charity & NFP Law Update
