Nonprofit Traps and Pitfalls, 0714 SCBJ, SC Lawyer, July 2014, #4

Author:Burnet R. Maybank III and Chris Hampton.
 
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Nonprofit Traps and Pitfalls

Vol. 26 Issue 1 Pg. 36

South Carolina Bar Journal

July, 2014

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0 Burnet R. Maybank III and Chris Hampton.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Many of us lawyers are involved with nonprofits. Some of us assist clients in incorporating and providing legal advice to nonprofits, and others of us serve on nonprofit boards.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Nonprofit law is surprisingly complex. Lawyers not only have to deal with the nonprofit corporation code but also with state and federal tax laws. As may be seen below, many other laws rear their head as well, including workers' compensation, FOIA—and criminal laws!

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0This article deals with some of the more common issues lawyers typically face as nonprofit board members—and while providing pro bono advice to the multitude of friends and acquaintances who badger us for nonprofit advice at lunch and social functions.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Consider the following. Our nonprofit has had a great year—so much so that we've put one of our volunteers on a part-time payroll, giving us four employees. Our annual fundraiser is coming up and our wealthy members have donated a bunch of pricey goods and services (week stay at a house in Key West!) for our annual raffle. To spice up the night, we are planning a faux casino night with play money. No pricey gifts will be cashed in so we're fine. We've already sold 80 tickets to the event at $ 100 a pop. We are not selling beer/wine/liquor by the drink so we're not worried about any pesky DOR permits. For the first time, the city made a contribution to our charity so we've invited the mayor. About the only thing that has gone wrong is that some harpy showed up at the office last week and demanded to see our books and records! We're positive she was a front for the real estate developer we have been embarrassing, so we showed her the door. Now she's filed a FOIA that we obviously discarded. Surely no legal issue will get in the way of our noble cause, right?

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0It's a trap! Running a nonprofit has its fair share of legal traps and pitfalls. Read on to learn how to avoid some of the biggest ones.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Nonprofits are required to have workers' compensation coverage?

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Our nonprofit is small, a couple of full time employees, two to three paid part time employees and a few unpaid volunteers. Surely, nonprofits are exempt from workers' comp coverage, aren't they? And if they are not, surely we don't have enough employees to trigger coverage, do we?

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Your nonprofit may very well be required to have workers' compensation coverage. You probably already know that workers' compensation is a system that requires most employers to either purchase insurance or be self-insured in order to provide benefits to employees injured at work.1 Benefits available to the injured employee include the prompt payment of medical bills, lost wages and awards for permanent disability and/or disfigurement.2 Employers receive benefits in return; for example, they are typically immune from lawsuits brought by injured workers and claims usually proceed swiftly.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Originally nonprofits, as "charitable organizations," were exempt from workers' compensation. In 1948, the case of Caughman v. Columbia Y.M.C.A.3 construed the legislative intent behind the Workers' Compensation Act to exempt charitable organizations from coverage. The court felt that because a charitable institution has long been immune from tort liability under the doctrine of charitable immunity, it follows that the institution is also exempt from the necessity for workmens' compensation coverage.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0However, in 1981 the Supreme Court abolished the doctrine of charitable immunity in its entirety in Fitzer v. Greater Greenville S. Carolina Young Men's Christian Association.4 It follows that charitable institutions are no longer exempt from the Workers' Compensation Act. The Workers' Compensation Commission agrees, taking the position that charitable institutions are now covered under the Act.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0According to the S.C. Code, "[e]very employer and employee, except as stated in [chapter 1 of title 42], shall be presumed to have accepted the provisions of this title ... and shall be bound thereby"5 The Act goes on to say that the "term 'employment' includes ... all private employments in which four or more employees are regularly employed in the same business or establishment."6 In summary, the "general rule of thumb is [that] employers who regularly have four or more part-time or full-time employees must be insured."7

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Despite these broad definitions, certain employers are expressly exempted. One such exempted employer is one "who has regularly employed in service less than four employees in the same business within the State or who had a total annual payroll during the previous calendar year of less than three thousand dollars regardless of the number of persons employed during that period."8

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Nonprofits are often under the mistaken assumption they are exempt from workers' comp. Many others simply never think about it. Bad things can happen to nonprofits that are required to have workers' comp coverage—and don't.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Many small nonprofits run afoul of the Act when they gradually expand. For example, the nonprofit with three employees offers a full or part time paid job to a hard working volunteer without realizing it has triggered the requirement to purchase workers' comp coverage. To avoid liability under the Workers' Compensation Act, nonprofits should pay careful attention to how many paid employees they have and how many hours they are working.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Nonprofits can be subject to FOIA?

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The City gave our nonprofit a few bucks last year, and our office is in a building owned by the university. We've been making some waves opposing a large proposed real estate development and now the developer has filed a FOIA. Do we have to respond?

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0If your nonprofit is a "public body," then yes! Nonprofits that qualify as a "public body" are subject to the Freedom of Information Act (FOIA). The South Carolina General Assembly enacted FOIA to ensure that "public business be performed in an open and public manner ... [making] it possible for citizens, or their representatives, to learn and report fully the activities of their public officials at a minimum cost or delay to the persons seeking access to public documents or meetings."9 The act guarantees every citizen the right to attend government meetings at all levels and obtain documents and records kept by state and local jurisdictions.10 As seen below, the Act can also apply to private nonprofits.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Nonprofits subject to the Act must comply with a variety of statutory requirements. These include:

1) making available for public inspection and copying certain documents, including minutes of meetings, during regular office hours without any written request;11

2) making available for inspection and copying upon written request any "public record;"12

3) holding meetings that are open to the public;13

4) providing written notice of all public meetings not later than 24 hours before the meeting;14 and

5) notifying persons or organizations, local news media or such other news media as may request notification of the times, places and agenda of all public meetings.15

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Definition of "public body"

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0If your nonprofit is a "public body" then you have to respond to those pesky FOIA requests. The definition of "public body" is quite broad. Naturally it includes any department of the state, any state board, commission or agency as well as any political subdivision of the state, including counties, municipalities and school districts.16 The act goes on, however, to explicitly include "any organization, corporation, or agency supported in whole or in part by public funds or expending public funds, including committees, subcommittees, advisory committees, and the like of any such body by whatever name known . . . ,"[17]

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Weston v. Carolina Research and Development Foundation18 held that Carolina Research and Development Foundation, a private organization organized under the South Carolina Nonprofit Act, was a public body for FOIA purposes. The Greenville News and the Associated Press filed FOIA requests for a variety of financial records, alleging the Foundation was a public body because it received or expended public funds.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The Foundation argued that it was a private corporation organized under the South Carolina Nonprofit Corporation Act and that the FOIA does not apply to private corporations, even if they receive or expend public funds. The court disposed of that argument stating "the unambiguous language of the FOIA mandates that the receipt of support in whole or in part from public funds brings a corporation within the definition of a public body. The common law concept of 'public' versus 'private' corporations is inconsistent with the FOIA's definition of 'public body' and this cannot be superimposed on the FOIA."19

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0What kind and how much "public support" is required?

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0While FOIA does not define the term "support," "the South Carolina Supreme Court has constructed 'support' to mean 'to maintain or aid and assist' in the maintenance ... or to 'uphold or...

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