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Employment Issues in Charities: No Good Deed Will Go Unpunished

February 10, 2021
Employment Issues in Charities: No Good Deed Will Go Unpunished

Certainly, the “Directors and Officers” insurance policy that almost every charity buys gets a workout.  Charity board members and officials seem to get blamed for everything by donors, beneficiaries, members, volunteers and so on and so forth.  This may surprise you, but it’s a little “rider” to most D & O policies that is most frequently used – the one providing so-called “employment practices” coverage.

A disproportionate number of claims filed by exempt organizations result from legal actions instituted by unhappy employees.  But how can that be?  Based on an admittedly unscientific survey of published sources, we have discerned patterns that reveal what (some) charities are doing wrong in the human resources arena.  We also have some theories about why they are doing it and a few suggestions about corrective actions that might help.

The Charitable Employment Environment

Charities are founded and operated for benevolent purposes, so it is not surprising that many employees of these organizations expect, and try to foster, an unusually warm and pleasant workplace environment.  In addition, many people working for a particular charity may have a shared commitment to the cause based on some personal or family experience.  A generous and humane application and interpretation of employment rules is a logical outgrowth of that environment.

Typical Employment Issue Claims

We have identified three types of employment issues that put charities at risk.  The issues arise, in part, from the dynamics of a charitable workplace.  Employees passionate about the cause may disregard their own rights.  Managers may be so concerned about employee morale that they forget to manage.   Even though everyone may have had the best intentions, these conditions may eventually explode and create unnecessary liabilities.  Below are three of the more common situations.

Overtime Claims

Overtime.  Not paid.  These claims usually stem from the misclassification of employees as “exempt” or “nonexempt” and subsequent errors in the calculation of overtime pay.  Charities rarely do this out of malice, but it doesn’t matter.  The law imposes strict liability, regardless of intention.

It is important that nonprofit managers get some basic and important distinctions straight, as wage claims are expensive and tend to be contagious.  If an organization misclassifies one employee, it’s a good bet that it’s not the only one.   There are five fundamental rules of exempt/nonexempt classification.

  1. Nonexempt employees are eligible for overtime.
  2. Exempt employees aren’t.
  3. Classification of employees is not a management choice; it’s a legal analysis.
  4. Expressing an employee’s compensation as an annual “salary” is irrelevant for the exempt/nonexempt issue.
  5. Titles have little or no bearing on the exempt/nonexempt issue.

Charity employees wrongfully denied overtime may suffer in silence for a long time.  That patience is symptomatic of commitment to the cause and possibly ignorance of the law.  But if the light dawns, and it usually does, the organization could be on the hook for major payments, “me too” claims from other employees, bad publicity and employee defections.

Employee-as-Volunteer Claims

Employees at charities want to help.  They believe in the cause.  That’s why, when they’re asked to volunteer at the organization’s weekend “5K” race, they invariably agree to do so.  This becomes an issue if the employee is, or should be, non-exempt.  Non-exempt employees must be paid for every hour of work, whether they want the money or not.  Such an employee cannot volunteer to work for free.  If that happens, the charity is guilty of a wage and hour violation.  Period.

Employee Evaluation-Related Claims

Some exempt organizations do put micromanaging tyrants into leadership roles.  However, that seems to be the exception rather than the rule.  More frequently, charity managers evidence a softer, more humane approach to supervision than their counterparts in the “business” world.  This benevolence very often gives rise to inflated, less-than-frank employee evaluations.  For example, the accurate “Smith hasn’t been on time for work in five years” may be soft-pedaled as  “We would like to assist Smith to become even better at time management skills.”

Fast-forward.  When the situation becomes so intolerable that an underperforming employee must be terminated, the final letter usually contains the truth that had been avoided in years of written evaluations.  If the employee challenges the firing, usually through a wrongful discharge lawsuit or a discrimination claim, the employer has quite a conundrum:  how to explain the reasoning of the final letter in the face of a stack of favorable evaluations?  Frequently, such legal claims lead to generous settlements for the employee.  It can be impossible to overcome a personnel file that is chock-full of accolades.

What’s A Charity To Do for Employment Issues?

The problem of too-benevolent-for-its-own-good is sticky, but fixable.  Here are some concrete suggestions:

  1. As a prophylactic measure, make sure that your organization’s D & O policy includes robust employment practices coverage.
  2. If there is any uncertainty about the degree of wage-and-hour compliance in your organization, it is essential to have a qualified professional (an employee or a retained consultant/lawyer) evaluate the situation.
  3. Shop around. Not all insurance policies are equal.  Some carriers offer policies that include access to lawyers and consultants on a free or reduced-fee basis.  Others include usage of valuable online resources that can assist with many of the issues raised here.
  4. Be like Ed Koch, iconic former mayor of NYC. Koch would incessantly seek feedback from his constituents with the simple question “How am I doin’?”  Taking the work temperature of employees, especially those below the senior management level, can often provide an opportunity to identify and defuse situations before they reach critical mass.
  5. Don’t resort to the popular default position on overtime work – providing employees with time off in lieu of additional compensation. This is known as the “comp time” solution and it’s deadly because it’s a violation of the Fair Labor Standards Act.