Volunteer nonprofit board members; recent Supreme Judicial Court decision examines scope of immunity from suit

The global pandemic has suddenly thrown many nonprofit organizations into a churning sea of economic uncertainty. As a result, volunteer board members are being asked to make exceedingly difficult decisions about whether and how to try to keep their missions alive and “doors” open.  Economic models have been quickly generated assuming projections of future revenue that may or may not be realized. 

What happens if those projections are wrong and nonprofits are not able to meet future obligations?  Could any of the volunteers who sit on the boards of these nonprofits face personal exposure for those obligations?

As confirmed by a recent decision of the Supreme Judicial Court in Lynch v. Crawford, 483 Mass. 631 (2019), the answer is probably no — at least so long as board members act in good faith and follow a reasonable process in conducting their financial analysis.  Federal and state law affords volunteers serving on nonprofit boards significant protection from not just liability but from suit.

But such protection is not unlimited.  Board members can have personal liability for wrongful intentional, reckless behavior and gross negligence.  And board members who also serve as officers of the nonprofit – generally, the president and the treasurer – can have additional personal liability for violations of wage laws when employees of the nonprofit are not timely paid what they are owed.

Protection against damages resulting from ordinary mistakes

There are two statutes that provide volunteer nonprofit board members with broad protection against personal liability: the federal Volunteer Protection Act (“VPA”) and the Massachusetts charitable immunity statute, M.G.L. ch. 231, § 85W (the “Massachusetts Charitable Immunity Statute”).

The VPA states that “no volunteer of a nonprofit organization … shall be liable for harm caused by an act or omission of the volunteer on behalf of the organization or entity.” While this immunity covers ordinary negligence – like getting those financial projections wrong – the VPA does not provide immunity when a volunteer engages in “willful or criminal misconduct, gross negligence, reckless misconduct, or a conscious, flagrant indifference to the rights or safety of the individual harmed by the volunteer.”

The Massachusetts Charitable Immunity Statute provides similar protection under state law for any volunteer officer, director, or trustee of a nonprofit for their “acts or omissions relating solely to the performance of [their] duties.” Like the VPA, the statute protects against ordinary negligence, but it does not provide immunity for “any acts or omissions intentionally designed to harm or to any grossly negligent acts or omissions which result in harm to the person.”

Immunity Extends to Suits for Ordinary Negligence

In the recent case Lynch v. Crawford, the Supreme Judicial Court, the highest appellate court in the Commonwealth of Massachusetts, considered whether the VPA and the Massachusetts Charitable Immunity statute provide volunteer board members not only with immunity from liability for damages for their negligent acts or omissions, but with immunity from even being sued in the first place. In a holding that was good news for volunteer board members, the Court held that the immunity provided under the statutes was intended to be broad, and extended not just to liability for damages, but to suit altogether – at least for acts of ordinary negligence.  But again, such immunity does not extend to intentional wrongful acts, gross negligence or recklessness.

Potential Volunteer Officer Liability for Wage Act Violations

A special and exceedingly strict set of wage laws apply when an employer fails to pay its employees what they are owed.  While non-officer members of a nonprofit will ordinarily not have personal liability for those obligations, volunteer board members who also serve as officers of the organization may.  “Employers” can be held to be personally liable for violations of the wage laws.  In Massachusetts, employers are defined to include the “president and treasurer of a corporation and any officers or agents having the management of such corporation.” So board members who also wear the organizational hat of president or treasurer could have personal liability for Wage Act violations, even if they hold those positions as volunteers and without compensation.

The good news is so long as any Wage Act violation is not intentional or grossly negligent, the volunteer board members should have no personal exposure for those violations.

Of course, whether or not any such violation was intentional or grossly negligent is a question of fact, which means that a volunteer officer may be forced to mount a defense to a lawsuit alleging that the wage act violation was intentional.  It is for this reason that it is important to have “Directors and Officers” liability insurance in place to cover the cost of any such defense.  That same insurance would be available to cover the cost of defending a claim that any board member had acted recklessly or with gross negligence or bad intent in failing to ensure adequate reserves for any obligation of the charity. 

If you would like to speak to someone about these or other aspects of nonprofit law, please contact our Managing Partner, Lucy Prashker.