A look at liability

Why Do Nonprofits Get Sued?

Nonprofits get sued for many of the same reasons that for-profit organizations find themselves in court. However, as the Nolo Legal Network notes, there are some unique characteristics of nonprofits that make them especially vulnerable to liability in three specific areas.

1. Contract disputes — To avoid legal fees, nonprofits often cut corners with contracts and agreements. The reality is that any legal agreement you enter into — whether it’s for website design or office space — can come back to bite you. A good rule of thumb is to think through everything that could possibly go wrong with a contract and make sure it is addressed in writing.

Vague “form” agreements printed off the Internet can be particularly troublesome. Don’t think that you have to accept a generic agreement as is. You’re free to cross out sections or add details by writing directly on the document (have both sides initial to acknowledge the changes) or creating an addendum to the agreement. Of course, run everything by a competent attorney. Scrimping here could cost you in the long run.

2. Employment-related claims — A high percentage of lawsuits against nonprofits involve employment-related issues like wrongful termination, discrimination and wage-and-hour disputes. Nonprofits typically can’t afford an HR professional to keep them on track, and shoe-string budgets can lead them to impose on staff in ways that can come back to haunt them.

For example, an employee dedicated to the mission of the nonprofit may consider it to be “taking one for the team” when asked to forego overtime pay or vacation time during a budget crunch. However, employment practices like this can lead to a lawsuit if the employee becomes disgruntled or is fired or laid off.

Becoming familiar with state and federal employment law is a good first step to heading off trouble. Also consider bringing in outsourced HR expertise if your organization has a large staff.

3. Personal injury lawsuits —Tort lawsuits against nonprofits are the classic low-probability, high-impact liability. They don’t happen often, but when they do, they can bring an ill-prepared nonprofit to its knees.

Nonprofits engage in plenty of activities that can expose them to claims — from volunteers delivering goods in a donated van to regular activities with children. Here, “personal injury” can range from a physical injury and property damage to emotional distress or damage to a person’s reputation. The key is to evaluate your most likely areas of risk and then plan specific ways to minimize those risks and limit your exposure.

Because the risk management issues and insurance requirements of nonprofits are so different from commercial businesses, it’s critical to find an insurance agent who has experience working with nonprofits. Then meet with your agent at least once a year to review your coverage — ideally, several months before your policy expires.

For more information on this topic or to learn how Baker Tilly specialists can help, contact our team.