A Charity’s Guide: Managing Legal Conflicts Between Board & Staff

Introduction

Internal disputes between a charity’s board and senior staff can disrupt governance, undermine public trust, and threaten the organisation’s ability to fulfil its charitable purpose. These conflicts often arise from confusion over roles, differing perspectives, or issues such as managing conflicts of interest and related party transactions.

Effective management of these disputes is essential for maintaining good governance, meeting Australian Charities and Not-for-profits Commission (ACNC) requirements, and protecting the charity’s reputation. 

Understanding the Source of Board & Staff Conflict in a Charity

Defining the Board’s Governance Responsibilities

The board of a charity is responsible for governance, which involves providing the organisation with purpose, leadership, and overall strategy. This high-level oversight ensures the not-for-profit operates legally, ethically, and in a financially sound manner, distinct from the day-to-day management of the organisation.

Key governance responsibilities of the board include:

• Strategic Direction: Setting long-term goals and having the final authority in determining yearly objectives to ensure the charity’s mission is fulfilled.
• Financial Oversight: Finalising budgets, allocating funds, and approving any significant expenditure outside the approved budget. The board also takes ultimate responsibility for the organisation’s financial records and appoints auditors.
• Legal and Compliance: Ensuring the charity complies with all legal and regulatory requirements, a core component of NFP governance and ACNC compliance, such as holding an annual general meeting and submitting annual returns.
• Performance Evaluation: Evaluating the effectiveness of programs and services, assessing the performance of individual board members, and managing board committees.
• CEO Employment: Employing the Chief Executive Officer (CEO), setting their compensation, and evaluating their performance.

Defining Senior Staff’s Management Responsibilities

While the board focuses on governance, senior staff are responsible for management, which covers the charity’s daily and operational needs. Staff members possess a deep understanding of the organisation’s day-to-day workings and are tasked with implementing the strategic vision set by the board.

The primary management duties of senior staff involve:

• Implementing Board Decisions: Carrying out the policies and strategies approved by the board to achieve the organisation’s objectives.
• Operational Management: Monitoring and managing all day-to-day financial and administrative operations, including organising events and fundraising activities.
• Program Delivery: Operating the charity’s programs, reporting on their successes and challenges, and evaluating performance to determine community needs.
• Informing the Board: Providing the board with essential information, analysis, and recommendations for action to support its planning and decision-making functions.
• Staff and Volunteer Management: Overseeing all other staff and volunteers within the organisation, which includes proper volunteer management, screening, and training, ensuring the team works effectively towards common goals.

Proactive Steps to Reduce the Risk of Conflict

Disputes often arise from miscommunication or a lack of clarity between the board and staff. A charity can take several proactive steps to manage conflicts and establish clear expectations for how directors and employees interact.

To reduce the risk of conflict, organisations should consider the following measures:

• Articulate Separate Roles: Clearly define the distinct responsibilities of the board (governance) and staff (operations). This can be reinforced through documents like a board charter and during the induction process for new directors.
• Adopt a Code of Conduct: Implement a formal Code of Conduct that applies to directors and outlines behavioural expectations for communicating with staff and each other, consistent with the charity’s values.
• Use Appropriate Communication Channels: Establish a clear protocol for communication, which typically flows through the board chair and the CEO. Using professional channels like business emails helps maintain a courteous and formal tone.
• Introduce New Directors: Integrating new board members with staff upon their appointment helps build a positive rapport from the outset and can be included in the organisation’s formal induction process.
• Set a Positive Tone: When the board discusses the performance of the organisation or its staff, it should be mindful of the tone of its communications and how messages will be received by employees.

The Two Primary Legal Arenas in Board & CEO Disputes

A Board’s Governance Duties Under ACNC Standards

Under ACNC Governance Standard 5, a charity’s board members, known as Responsible People, must adhere to specific duties. These governance obligations are crucial as they can provide the legal basis for a board’s actions in a dispute with senior staff. The duties ensure that all decisions are made in the charity’s best interests.

The primary duties of Responsible People include:

• Acting with reasonable care and diligence: Board members must stay informed about the charity’s finances and activities and actively participate in its management.
• Acting honestly and in the best interests of the charity: Decisions must be made to further the charity’s purposes, not for personal benefit or other external influences.
• Not misusing their position or information: Responsible People cannot use their role or confidential information to gain an advantage for themselves or others, or to cause harm to the charity.
• Disclosing conflicts of interest: Any actual, potential, or perceived conflict of interest must be declared to the other board members, a process typically governed by a conflict of interest policy. A conflict arises when a personal interest could influence, or appear to influence, a board member’s decisions.
• Ensuring responsible financial management: The board must implement sound processes to manage the charity’s money and prevent insolvency.
• Not allowing the charity to operate while insolvent: If a board member suspects the charity cannot pay its debts, they must take steps to prevent it from incurring new ones.

A CEO’s Rights Under the Fair Work Act

While the board has governance duties, a CEO or senior staff member has employment rights protected by the Fair Work Act 2009 (Cth). A key protection is the right to make an unfair dismissal claim if their employment is terminated. An unfair dismissal occurs when the termination is harsh, unjust, or unreasonable.

The Fair Work Commission assesses several factors to determine if a dismissal was unfair, including whether there was a valid reason for the termination and if the employee was given a chance to respond to any allegations.

To be eligible to file an unfair dismissal claim, an employee generally must:

• Have completed a minimum employment period, which is typically six months, or 12 months for a small business.
• Be covered by the national workplace relations system.
• Earn less than the high-income threshold or be covered by a modern award or enterprise agreement.

An employee must lodge an application with the Fair Work Commission within 21 days of their dismissal.

A Board’s Guide to Investigating & Terminating a Senior Executive

Following a Fair & Lawful Process

When a conflict arises with a senior executive, it is critical for the board to follow a fair and lawful process before making any decisions about termination. This involves affording the individual natural justice, which means giving them a genuine opportunity to respond to any allegations.

The process ensures that all perspectives are considered before a final decision is made.

To ensure procedural fairness, your charity’s board should take the following steps:

• Identify a valid reason: Clearly establish the reason for considering dismissal, whether it relates to conduct, capacity, or performance.
• Provide clear notice: Inform the executive in writing of the specific concerns, detailing the issues and supplying supporting evidence.
• Offer a chance to respond: Arrange a meeting with the executive, allow them to bring a support person, and give them a genuine opportunity to explain—an explanation the board must sincerely consider.
• Follow internal policies: Consistently apply your charity’s own performance-management and misconduct procedures to demonstrate commitment to a fair process.
• Consider alternatives to dismissal: Explore other potential resolutions, such as additional training, issuing a formal warning, or redeployment to another role.

Key Documentation for Your Charity’s Protection

Maintaining thorough and organised records is essential for demonstrating that your charity acted reasonably and followed a fair process. Should a dispute arise, this documentation will be critical in defending the board’s decisions.

Good records provide a clear and contemporaneous account of the events leading up to the termination.

To protect your charity, ensure you have the following key documents prepared and accessible:

• Employment contracts: The senior executive’s signed contract and an up-to-date position description outlining duties and responsibilities.
• Relevant workplace policies: Copies of policies such as the code of conduct and procedures for performance management, misconduct, bullying, and grievances.
• Performance and conduct records: A complete file of performance reviews, written warnings, improvement plans with clear targets, and any show-cause letters.
• Investigation records: Detailed notes from meetings, witness statements, and formal investigation reports related to the issues.
• Termination correspondence: All written communication regarding the dismissal, including the formal notice of termination and records of final payments made.

Understanding Whistleblower Protections for Your Charity’s Staff

Who Qualifies as a Whistleblower Under the Corporations Act

Under the Corporations Act 2001 (Cth), an individual must meet several criteria to be considered an ‘eligible whistleblower’ and receive legal protection. These criteria relate to their connection to the organisation, the type of entity involved, who they report to, and the nature of their disclosure.

To qualify for protection, a person must satisfy the following conditions:

• Your Role: You must have a specific connection to the organisation, such as being a current or former employee, officer, or a person who supplies goods or services. The protections also extend to the relatives, dependants, and spouses of these individuals.
• The Organisation: The disclosure must concern a company, bank, insurer, superannuation entity, or an incorporated body that is a trading or financial corporation. This includes many not-for-profit organisations that engage in trading activities or provide financial services.
• Who You Disclose To: The report must be made to an appropriate person or body. This includes a director, senior manager, auditor, or actuary of the organisation, as well as regulatory bodies like the Australian Securities and Investments Commission (ASIC) or the Australian Prudential Regulation Authority (APRA). Disclosures can also be made to a lawyer to obtain legal advice.
• The Subject of Your Disclosure: You must have reasonable grounds to suspect that the information concerns misconduct or an improper state of affairs. This can include breaches of the Corporations Act2001 (Cth), other financial sector laws, or any Commonwealth offence punishable by 12 months or more imprisonment.

Key Legal Protections Afforded to Whistleblowers

Once an individual qualifies as a whistleblower, the Corporations Act 2001 (Cth) provides significant legal protections. These safeguards are designed to encourage the reporting of misconduct by protecting individuals from negative consequences.

The key protections available to whistleblowers include:

• Confidentiality of Identity: It is illegal for anyone to disclose a whistleblower’s identity or information likely to reveal their identity without their consent. There are limited exceptions, such as reporting the information to ASIC, APRA, or the Australian Federal Police.
• Immunity from Legal Action: A whistleblower is protected from legal action related to their disclosure. This includes immunity from criminal prosecution, civil lawsuits for breach of contract or confidentiality, and administrative actions such as disciplinary proceedings. However, this protection does not cover any misconduct the whistleblower may have been involved in themselves.
• Protection from Detrimental Conduct: It is unlawful for anyone to cause or threaten harm to a person because they believe or suspect they have made a whistleblower disclosure. Detrimental conduct can include dismissal, discrimination, harassment, intimidation, or damage to a person’s property, reputation, or financial position. Whistleblowers who suffer loss or injury can seek compensation and other remedies through the courts.

Resolving the Dispute Avenues for Your Charity

The Fair Work Commission Conciliation Process

When an unfair dismissal claim is filed, most matters begin with a phone conciliation conducted by the Fair Work Commission. During this process, a conciliator facilitates a discussion between the charity and the former employee to explore a potential resolution.

The conciliation is specifically designed to help both parties reach an agreement without the need for a formal hearing. As a result, many disputes are successfully settled at this early stage, providing a timely and efficient outcome for both the charity and the individual involved.

Negotiating a Confidential Deed of Release

If the parties reach an agreement during conciliation, the terms are commonly documented in a formal settlement agreement known as a Deed of Release. This legal document is crucial for bringing finality to the dispute and reducing the risk of any future claims related to the employment.

A Deed of Release typically includes clauses covering key aspects of the settlement, such as:

• Confidentiality terms
• Non-disparagement provisions
• Mutual releases

These clauses ensure a clean break for both the charity and the former senior executive, without any admission of fault.

The Importance of Seeking Specialist Legal Advice

Disputes between a charity’s board and senior staff are rarely straightforward, as they exist at the intersection of charity law, governance, and employment law.

When a conflict arises, organisations must consider:

• their legal obligations under applicable law
• the requirements of their governing documents
• any relevant legislation, such as the Corporations Act 2001 (Cth)

Depending on the seriousness of the dispute, formal processes may be necessary, including:

• a process of mediation between the parties
• conducting a charity dispute investigation into the allegations
• the termination of employment, if warranted

It is critical to follow the specific requirements of the applicable legal framework to ensure natural justice and that every perspective is considered before a final decision is made.

The complexity of these situations, particularly those involving whistleblower protections or potential unfair dismissal claims, seeking specialist legal advice is essential. A lawyer with expertise in not-for-profit law can provide guidance on your charity’s rights and obligations, helping you manage the process lawfully and protect the organisation from further risk.

Conclusion

Managing disputes between a charity’s board and senior staff requires a clear understanding of distinct governance and management roles, alongside adherence to fair processes. Navigating the complexities of ACNC standards, employment law, and whistleblower protections is essential for lawful and effective conflict resolution.

Given the legal intricacies involved, obtaining expert guidance is a critical step in protecting your organisation. If your charity needs assistance managing a conflict of interest or requires guidance on its governance obligations, contact our not-for-profit lawyers at LawBridge for specialised advice to help you navigate your obligations with confidence and integrity.

Frequently Asked Questions