Ontario Takes a Step Closer to Implementing the ONCA

Kate Lazier, Toronto

On July 16, 2012 the Ontario Ministry of Government Services (the “MGS”) and the Ontario Ministry of Consumer Services (the “MCS”) released outlines of proposed regulations for the Not-For-Profit Corporations Act, 2010 (the “ONCA”).  The public is invited to comment on the proposed regulations by August 31, 2012.  

The backgrounder to these documents confirms that the ONCA is targeted to come into force on January 1, 2013. The documents also clarify the role that the MGS and MCS will perform with respect to the ONCA.

MGS will be responsible for the filing, recording and searching requirements under the ONCA, including handling new applications for incorporation.  MGS is seeking comments on the following aspects of the proposed regulation:

• rules governing corporations' names, including prohibited, restricted and permitted words or expressions, and punctuation and other marks, as well as rules respecting the form and language of a name;
• rules respecting the content, form and filing (both paper and electronic) of articles, applications and other documents;
• the supporting documents required to accompany articles and applications filed under the Act;
• rules governing the endorsement of articles and applications and the issuance of certificates by the Director appointed under the Act in both paper and electronic format;
• signature requirements for both paper and electronic filings;
• the methods by which notices or other documents may be sent by the Director and deemed receipt rules; and
• the manner in which the Director shall make the standard organizational by-laws publicly available.

MCS will oversee other technical matters in the ONCA.  It proposes, in summary, the following regulations:

• prohibiting a not-for-profit corporation from having as a purpose stated in its articles an authorization permitting the corporation to engage in activities that are contrary to the law;
• establishing the Canadian Institute of Chartered Accountants Handbook Accounting, as amended from time to time, as the standard for audit and review engagement reports;
• prescribing information in corporate registers for directors, officers and members (i.e., their name, an address for service, an email address if the person has consented to receiving information or documents by this method, the date on which each person became a director, officer or member) and the names of every former director, officer and member who ceased to be the same within the last six years. The members' register would also include the class or group of membership of members, if there is more than one class or group;
• permitting a corporation to give internal corporate notices electronically in certain circumstances if its by-laws provide for giving notice in this manner (e.g. notice of meetings, notice of refusal to members for not including a proposal in a notice of meeting, notice to members regarding the right to dissent);
• prescribing that a member's proposal and supporting statement cannot exceed 500 words in keeping with other Ontario and federal corporate law statutes;
• prescribing information that is required to be included in the form of proxy as follows:
  • the meeting where the proxy is to be used;
  • whether the proxy is solicited by or on behalf of the management of the
    corporation;
  • the name of the person appointed as the proxyholder to attend and act on the member's behalf at a members' meeting (or an alternate if the first proxyholder is unable to act); and
  • means to allow a member to:
    • specify how the proxyholder shall vote on a specific matter;
    • give a proxyholder general authority to vote on all matters to be voted upon at the meeting at the discretion of the proxyholder; or
• requiring certain notices, statements (including consents, dissents, waivers and revocations) and other documents to be given in writing (either on paper or electronically) (e.g., a director's consent to hold office as a director must be in writing). This requirement would generally maintain the status quo between the current Corporations Act and ONCA, harmonize with similar requirements under other corporate law statutes and be useful for evidentiary purposes.

Miller Thomson LLP’s Charity and Not-for-Profit Group can assist corporations transitioning under the ONCA.

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CRA Releases Updated Information re Application Procedures

Andrew Valentine, Toronto

In July 2012, CRA released an updated summary of its procedures when dealing with an application for charitable registration.  This guidance is a helpful tool both as an overview of the process, and as reminder of some of the tips and traps to bear in mind when applying for charitable registration.

In order to be registered as a charity under the Income Tax Act, an organization must submit to CRA Charities Directorate a completed T2050 Application for Charitable Registration.  This requires that the applicant organization submit a detailed description of its proposed charitable activities and budget, along with certain other required information about the organization and supporting documents.

CRA notes that the first step in its review of an application is to confirm that the application is complete and that all required information and documentation is included.  If the application is complete, CRA will send the organization a standard acknowledgement letter confirming that the application has been received and providing an estimate of when the application will be assigned to an examiner (typically 2-5 months). If the application is incomplete, it will be rejected and returned to the applicant, forcing the applicant to re-apply and lose its place in line.

This underscores the importance of ensuring that an application is complete before submitting it to CRA.  This means ensuring that all questions on the T2050 Application have been answered.  Failure to answer even one question can result in an application being rejected as incomplete.  It also means that an organization must ensure that it provides the required supporting documentation, which includes the constitution of the organization (e.g. Articles of Incorporation, Trust Indenture, etc.), its general bylaws and financial statements if the organization has been operating for more than one year.

CRA states that delays commonly occur when applicants fail to provide the following:

• a complete list of the directors, trustees or like officials (with each person's address, telephone number and date of birth);
• a complete set of governing documents (including any by-laws and amendments, if applicable);
• a certificate of good standing or similar document from the appropriate registrar (if the organization has been incorporated for five years or more, or if the organization is incorporated and applying for re-registration);
• complete financial information about the organization (this includes completing Q17 on the application form, as well as providing the organization's latest financial statements, if applicable);
• a complete description of the organization's activities to show that they are charitable and fulfill the organization's purposes, as stated in its governing documents; and
• copies of any agreements or contracts the organization has with representatives carrying out the organization's activities inside or outside Canada (if applicable) and complete details about these arrangements.

With respect to the governing documents, CRA notes that it will review these documents in draft on a one-time basis when reviewing an application.  Thus, it is not necessary to proceed to incorporate before applying for registration.  In some cases, particularly where the objects of an organization are unusual or may not be exclusively charitable, it may be more efficient to postpone incorporation until CRA has confirmed that the objects are charitable.  This enables the organization to deal only once with the incorporation process and avoids the needs to make subsequent amendments to its objects if CRA does not agree that the original objects are exclusively charitable.  Upon concluding that an organization will likely qualify as charitable, CRA will require that the organization provide certified copies of its governing documents before registration.  It is important that organizations move quickly to incorporate or formally establish themselves upon receiving confirmation from CRA that it will register the organization.

The application process often involves follow-up questions from CRA regarding the purposes and activities of the organization.  Where CRA is not satisfied that an organization qualifies for registration on the basis of its initial application, it will set out its concerns in a letter to the organization and provide the organization with a limited deadline to reply.  It is important that the organization reply as promptly and fully as possible – the assistance of qualified counsel can be valuable in this process.

If CRA ultimately refuses registration, it will provide the organization with a Notice of Refusal of Registration.  Upon receiving a Notice of Refusal, an organization has 90 days to file a notice of objection with the Appeals Branch of CRA.  Again, it is important that an organization decides as soon as possible whether it wishes to file an objection.

If CRA grants registration, it will issue a Notice of Registration.  The Notice will include the organization’s registration number, its effective date of registration and will outline in brief the new charity’s rights and obligations.  Charities should review this information carefully as CRA will review the charity’s compliance with its obligations on audit.

CRA also addresses the topic of expedited or priority reviews of an application.  CRA states that if an organization needs to have its application reviewed on a priority basis, it must send CRA details in writing that explain the reason. An application will not be reviewed ahead of others for reasons such as "to give tax receipts for donations" or "to receive grants from funding agencies". These reasons are shared by almost all organizations applying for registration.  It is generally necessary to establish that a specific time-limited opportunity will be lost if the application proceeds in the ordinary course.

Miller Thomson’s Charities and Not-for-Profit lawyers can assist organizations with all aspects of the application and appeals process.

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The Case of the Missing Records – Part 1

Hugh M. Kelly, Toronto

Frequently, charities and non-profit organizations that are structured as non-share capital corporations face challenges arising out of deficiencies in their required corporate records.  These records may be incomplete or missing altogether. This is not an entirely unusual situation for non-share capital corporations.  Operational focus is on the organization's activities and finances, and not necessarily on keeping up the paperwork. So, quite typically, the enthusiasm for the continuing corporate paperwork varies inversely with the very few volunteers (who may have limited time and/or expertise) stepping forward to do the necessary tasks.  Often, the older the corporation, the greater the record-keeping deficiencies.

Such corporations must therefore determine how to deal with deficiencies in their corporate records. This series of articles will address what should be done when:

• there are incomplete corporate records
• the corporation has not maintained its membership list
• the directors have not been elected properly
• the corporation has not held annual meetings or filed corporate returns
• the corporation has never passed a by-law or has not followed it in many years
• the corporation has never been organized

This is the first in a series of articles on how these issues can be addressed in a practical way. While there is no perfect solution, the remedial steps outlined will generally suffice for practical purposes and allow the corporation to continue operating with reasonable security that it has been properly organized and that its actions have been properly undertaken.  Most of what follows is simply common sense, because there are no definitive answers, no readily ascertainable statutory provisions and little or no relevant jurisprudence. 

This issue is particularly relevant for federal non-share capital corporations, all of which must apply for continuance under the Canada Not-for-Profit Corporations Act on or before October 17, 2014.  If they do not, they will be dissolved – that is, they will cease to exist as corporations. In order to complete the continuance process, it is necessary to hold meetings of the directors and members to approve Articles of Continuance and new Bylaws. Without proper records, it may be difficult or impossible for a corporation to be assured that these meetings have been properly conducted and the continuance duly sanctioned by the membership. The continuance process is therefore a good (and in some cases an essential) opportunity for corporations to review and update their corporate records.

The bottom line in each of the situations above is this: the organization has to find, on paper if possible, otherwise in the personal recollections of those who have been involved over time, whatever historical information can be gleaned.  From this information, the corporation (with assistance from qualified counsel) must try to reconstruct a written record of what relevant corporate actions have taken place.  For those interested in family roots, the process will be similar to a current search for ancestors and the reconstruction of a family history. 

The focus here is upon four broadly described types of records: minutes of meetings; bylaws; lists of directors and members; and forms required to be filed with government.

The Most Important Step: The Searches

This is the most important step that must be completed. There is little to distinguish between, on the one hand, the complete absence of records, and, on the other hand, missing pieces of needed records. Experience suggests that although it does happen, it is rare to encounter circumstances in which there is a complete absence of records. It is much more likely that there will be missing pieces — individual meeting minutes or, more likely, one or more records-free years.

The first task for the organization is finding out and examining what records do actually exist. What the organization needs to undertake is a high stakes scavenger hunt, ferreting out the history of the organization. The collection of the necessary information typically lies in the hands of the organization members, not the lawyers (though previous counsel for an organization may have some corporate records, and it is a good idea to check).

It is sometimes quite amazing how the obvious may initially be "hidden" from the eyes of the organization.  Over time, the files, folders and books that could contain relevant records might very well have been passed hand-to-hand to successors in the offices of the then current president or secretary and stored in the homes or offices of such successors. It is often the case that the information necessary to reconstruct events will be found in personal files and folders, attic and locker storage boxes, as well as in the personal recollections of current and past members, directors and officers.

On the practical level, the following steps are recommended when searching for corporate records and the organizational history:

• Find and examine whatever official binders or folders may have been formally maintained; often, these will be found in the hands (most likely in a desk drawer, the attic or the garage) of a past president or secretary.
• Even where there are no official binders or folders or minute books, experience suggests that, despite denials of existence, there are likely to be some records that were created around the time of individual events, whether meetings in the formal sense or activities more of a social or historic nature.
• Every organization has its share of "pack-rats" who keep everything that passes through their hands: official announcements, newsletters, bulletin board notices, regular and special event programs, correspondence, etc.
• The search may need to extend to past members and directors, and particularly to all past presidents and secretaries. Telephone calls to the "old-timers” can often yield relevant historical information gleaned from personal diaries and journals, all assisting in the reconstruction of the relevant events that can solve the problem of missing minutes.
• Don't forget that there may be lawyers who have previously acted for the corporation; in such a case, the organization should be asked to sign a direction and consent to permit access to such relevant information as might be found in their files.

If searches disclose approved minute books and records, they should be placed in a safe place with more than one current officer being aware of the location. Where records do not disclose that they have been approved, the client should be asked to obtain signatures from the persons who were chair and/or secretary at the time of the events.

Subsequent chapters of "The Case of the Missing Records" will examine specific remedial steps, which may depend upon the precise nature of the missing records.

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Faulty Workplace Investigations Can Lead to Hefty Damages

Stuart E. Rudner, Markham

The recent decision of the Alberta Court of Appeal in Elgert v. Home Hardware Stores Limited addresses two issues of importance to employers, including charity and non-profit employers, when engaging in workplace investigations.  The case highlights the importance of conducting proper investigations in the context of a summary dismissal of an employee, and the potential dangers employers face if they do not conduct thorough, objective and fair investigations.  The case also addresses the circumstances in which courts will award moral damages, or “the damages formerly known as Wallace,” as well as the different approaches courts have taken to this changing aspect of employment law.

In Elgert, Mr. Elgert was responsible for supervising a number of employees, including the boss’s daughter (Ms. Bernier). Unfortunately, complaints were made about the boss’ daughter’s performance. Not wanting to exacerbate the situation, Elgert relocated her within the workplace. There was evidence from co-workers that Bernier was very unhappy with the transfer, and that she would “get even” with him. She then apparently went to her father and reported that Elgert had made an unwanted advance towards her several months earlier. At the same time, one of Bernier’s friends and co-workers spread the word to other colleagues that Elgert had made similar advances toward her.

The company retained a friend of the Bernier family that worked at Home Hardware’s head office to conduct an investigation. Unfortunately, this individual had little, if any, experience conducting investigations. There was evidence Bernier’s father was inappropriately involved in the conduct of the investigation. Furthermore, the evidence was clear the investigation was poorly conducted and Elgert did not have a reasonable opportunity to respond to the allegations or defend himself. At the conclusion, the investigator met with Elgert, suspended him and informed him he had been accused of sexual harassment. However, he did not provide any details to him.

Subsequently, Home Hardware asked to meet with Elgert in order to discuss the allegations. Elgert indicated he wanted counsel to be present, but Home Hardware refused his request. As a result, Elgert did not attend the meeting and his lawyer wrote to Home Hardware and denied the allegations. Within a week, Home Hardware terminated his employment for cause.

The matter was tried before a jury. Perhaps not surprisingly, the jury concluded the investigation was not performed in a fair or appropriate manner, and there was no just cause for dismissal. In addition to 24 months' pay in lieu of notice, the jury awarded Elgert $200,000 for aggravated damages (the damages formerly known as Wallace), and another $300,000 in punitive damages. Not surprisingly, the matter was appealed.

Wallace damages used to be awarded when a court found that an employer had acted in bad faith in the course of dismissal. Once the bad faith had been established, the court would extend the applicable notice period. In Keays v. Honda Canada Inc., the Supreme Court of Canada adopted a different approach, holding an employee would have to prove actual damages flowing from the employer’s bad faith, and that any damages awarded should be compensatory.

In Elgert, the trial decision confirmed Elgert had not committed any misconduct, and that his dismissal was a result of a shoddy investigation. The Court of Appeal, however, noted that while Elgert had led evidence he had been extremely upset by the manner in which he was dismissed, there was insufficient evidence to support the award of $200,000 in aggravated or moral damages. Furthermore, while the Court of Appeal agreed Home Hardware’s conduct was deserving of an award of punitive damages, the court scaled the award back from $300,000 to $35,000. This is more in line with historical awards in the context of employment law cases; $75,000 is still at or near the high water mark.

While awards of moral damages have been made on a somewhat inconsistent basis, the case law seems to be crystallizing the fact that the courts will require some evidence of actual damages or loss before they will award “the damages formerly known as Wallace”. Merely proving bad faith on the part of the employer will not lead to such an award without additional evidence.

That said, employers expose themselves to liability for numerous types of damages when they dismiss an employee based on shoddy investigations.  It is important that any investigation of workplace complaints be conducted in a fair and impartial manner, and that employees be given an opportunity to respond fully to any allegations against them.  Organizations are well advised to develop a policy covering workplace investigations so as to ensure that proper procedures are followed in every case.  The advice of legal counsel is also advisable in these circumstances.

Miller Thomson’s Labour and Employment Law lawyers can assist in developing an appropriate policy on workplace investigations.

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What's Happening at Miller Thomson

Susan Manwaring presented “CRA Audit Initiative - A Status Report” at the CharityVillage LIVE Webinar hosted by CharityVillage on July 18, 2012.

Susan Manwaring and Andrew Valentine published “Charities, and the Use of Social Enterprise” in Lawyers Weekly, Vol. 32 No. 13 July 27, 2012.

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