Are There Problems with the Ontario Not-For-Profit Act?

Published September 25, 2012

The Ontario Not-For-Profit Corporations Act (ONCA) is expected to come into force on January 1^st, 2013 and organizations will have three years to comply with the new legislation. We have been following the developments around the ONCA very closely and we have noticed substantial pushback from other (mostly non-sport) areas of the not-for-profit sector in Ontario.

The Ontario Nonprofit Network (ONN) is an organization that was organized in 2007 and claims its network reaches 6,000 organizations that are concerned with the contents of the ONCA. In July 2012, the ONN submitted a letter to Margaret Best, the Ontario Minister of Consumer Services, requesting a delay in the proclamation of the ONCA. The ONN’s letter cited a number of potential problem areas should the ONCA come into force as written.

We have carefully reviewed the ONN’s letter to the Minister and the ONN’s proposed amendments to change the ONCA. Notably, some pieces of the ONCA that the ONN suggests should be changed have already been adopted at the national level with the Federal NFP Act (particularly, that non-voting members are now permitted to vote on issues that affect their membership class).

However, there are some sections in the ONCA that are not mirrored by the Federal NFP Act and the ONN raises interesting and salient points regarding their implementation. Even so, we believe that even if the ONCA were adopted as written, sport organizations would have only minor challenges transitioning to the new legislation – compared to the “impossible position” that the ONN claims not-for-profit organizations (chiefly, perhaps, non-sport organizations) would find themselves in.

The ONN claims the following areas of impact on the non-for-profit sector, which we have summarized below:

1. Expanded membership rights may create governance difficulties
2. Uncertainty and complexity around the Board of Directors’ authority and ability to govern, combined with greater conflict with members, will discourage volunteers from serving on the Board
3. The requirements of the ONCA (for example, tallying mandatory proxy voting) will be expensive and time-consuming
4. Increased member proposals will distract from the organization’s mission and will deplete resources
5. Clarifying the ONCA and applying it will cost money in legal fees
6. Expanded member roles will empower small factions of members who will propose more meetings and motions
7. Non-members may have no interest in voting and simply want affiliation with the organization
8. Current guidance offered from the Ministry is complicated and written for lawyers
9. Regulations and draft by-laws will not be ready until fall of 2012
10. There is no plan for distribution or education
11. There is no funding to help organizations with transition

We agree that the above areas will impact sport organizations and we know that there are other areas in the ONCA (such as the difference between public benefit and non-public benefit corporations) that have particular relevance to sport organizations. However, we believe that sport organizations will be able to manage each area of impact so long as the organization: acts quickly, seeks advice where necessary, engages membership, and is open to changing its style and method of governance. An organization that delays, turtles, hides or disengages from membership, or resists complying with the new legislation will undoubtedly run into major roadblocks and feel significant stress while handling the transition.

If the ONCA comes into force as written, sport organizations can take steps to address each of the areas of impact.

Empowered Members:

In a small provincial or local organization, members having more power can be both positive and negative. On one hand, members may become more engaged with the running of the organization, as volunteers or decision-makers, and become stakeholders concerned with the welfare of the organization as a whole. On the other hand, organizations that have relied on longtime volunteers, tradition, or convenience may find themselves challenged by increased member involvement and by members who do not like the status quo. A ‘sport solution’ may involve these longtime volunteers taking on more of an advisory role – guiding the empowered members and acting as stewards of the organization’s tradition. This is not to say that organizations cannot continue to operate the status quo – but only if members wish it.

Problem Members:

Back in 2007 we wrote about how organizations could handle ‘problem members’. The same strategies would still apply under the new ONCA. Also, the ONCA protects organizations from members who are trying to ‘hijack’ the organization with personal issues. Section 56(6) of the ONCA requires members to submit new proposals 60 days before they are voted on (not permitting any ‘surprise’ proposals during a meeting) and allowing directors to dismiss proposals that do not ‘relate in a significant way to the activities or affairs of the organization’ or proposals that try to ‘enforce a personal claim or redress a personal grievance’ against the organization or its directors. Directors still must give reasons for rejecting member proposals and this extra step adds transparency to the process.

Membership Classes:

Under the ONCA, non-voting members are permitted to vote on resolutions that effect fundamental changes to their membership class. A similar change has been legislated at the Federal level with national sport organizations transitioning to compliance under the Federal NFP Act.  Ontario sports organizations (certainly provincial bodies) could look to their national counterpart to determine if the national approach will work with their organization – or if some sort of hybrid solution could be created. Local and provincial sport organizations may not need the full-scale governance reviews that national organizations are undergoing, but organization-specific governance changes and membership revisions may be required. We have identified this area as the most impactful and important for sport organizations in Ontario – one that we recommend organizations begin attending to as soon as possible.

Proxy Voting:

The ONCA requires all members who are permitted to vote (and this could be a lot of members, depending on any changes to membership classes) be sent a notice of the meeting along with a proxy form. The intention of this part of the legislation is to empower members to attend meetings and vote on proposals and amendments – but it could cause a logistical nightmare for sport organizations that potentially count thousands of individuals as members. Most sport organizations do not have the capacity. Or do they?  It may seem daunting to contact every member and keep track of eligible voters and signed proxies – but organizations could follow a two-pronged strategy.

First, a prudent and comprehensive change to membership classes should pre-organize all the eligible voters. For example, for provincial organizations, a membership class may simply be “Clubs” and each member club in good standing is permitted a number of votes based on size or geography. For local organizations, a membership class may be “Athlete or Designate” and each athlete is permitted a single vote (which must be assigned to a designate parent/guardian if the athlete is a minor).

Second, organizations should craft a system of distribution and record-keeping that minimizes staff involvement. For example, notice of meetings and proxy forms could be distributed by email or regular mail to each eligible voter at same time as registration notices for the upcoming year. Voters could be assigned registration numbers which could be signed away by proxy to another member. At a meeting, eligible voters could be given a card or sign to display their vote. Proxy-holders would produce signed proxies and registration numbers and be given multiple signs or cards when they enter the meeting.

Proxy-voting and keeping track of eligible members may appear daunting. But some pre-planning (there are still three+ years until the ONCA comes into force) can help spread out the logistical challenges.

Cost and Guidance:

Time, three+ years, is currently on the side of sport organizations. But organizations that delay will find the challenges bunching together and causing even more problems. Though there are few resources available for organizations right now – there will be some coming soon – and staying on top of the new developments (such as by watching our website or subscribing to our newsletter) can help organizations stay informed.

We disagree with the ONN’s position that transitioning to the new ONCA will be costly and involve many legal expenses. For sport organizations, much of the true cost will not be in dollars but instead in volunteers’ time and effort (in doing your own research, meeting with and educating members, developing voting processes, etc).  Certainly there will be costs associated with legal advice but we believe these costs will be reasonable. Organizations with financial concerns could consider budgeting for any expected expenses over the next three years.

The proclamation date of January 1^st, 2013 can still change. But even if it does not, and the ONCA comes into force as written, we are confident in the resilience and flexibility of sport organizations to respond to and overcome any problems during the transition. Please feel free to contact us (Steve Indig sji@sportlaw.ca & LeeAnn Cupidio llc@sportlaw.ca) for advice or assistance.