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REALTOR® ASSOCIATION EXECUTIVE
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|  Summer 2002 Leadership Liability Responsibilities and protections for your association and its volunteers under the law by F.P. Maxson, NAR Legal Affairs Can Realtor® associations be held legally responsible for the actions of their volunteer leadership? The answer is yes and no. Recently, a federal appellate court considered a case in which an association volunteer alleged sexual discrimination against a fellow association volunteer, and included the association in the lawsuit. In York v. Association of the Bar, a New York City bar association member volunteered to serve on two environmental law committees. The job required extensive travel on behalf of the association and in return, the association provided her with a workspace and staff support and covered her out-of-pocket expenses. The member claimed that when she rejected the committee chair's sexual advances, he subsequently limited her participation on the committee. The member filed a charge of unlawful discrimination against the association, making allegations that are typically brought under Title VII, the federal statute that makes it unlawful for an employer to discriminate against an employee because of the employee's gender, among other things. A trial court ruled against the member and she appealed. On appeal, the federal appellate court weighed whether the member could be considered an employee of the association based on the benefits that she received while serving on the committees. Volunteer or employee? Looking at previous cases, the court determined that the test for whether someone is an employee is whether the person received direct or indirect financial compensation from the purported employer. The court then said that receiving benefits, such as a pension or life, medical, or disability insurance could amount to the kind of financial remuneration that would qualify a person for employee status under Title VII. In examining the benefits the member received in York, the court ruled that she did not qualify as an employee under Title VII. The clerical support, office space, and minimal expense reimbursement that she received was part of the association's program designed to benefit the entire membership, not as compensation for her work and time. The court found that incidental benefits, like those received by the member, do not pass the remuneration tests formulated by courts under Title VII. Therefore, she could not bring Title VII claims against the association. This case demonstrates that an active volunteer member will not likely be considered an employee of a Realtor¨ association under Title VII if the association only provides support for the volunteer's activities on behalf of the association. As long as the association is not supporting the member outside the scope of their volunteer activities on behalf of the association, such as by providing health insurance, an association should be insulated from liability from a Title VII lawsuit brought by a member. Still, in some cases, associations can be held liable for the actions of their volunteers. Recently, two Realtor¨ associations were named in separate lawsuits by staff who alleged they were sexually harassed by members. One of those sexual harassment cases was recently settled; the other is ongoing. Protection and insurance against liability Realtor® associations, their boards of directors, and their volunteers can be sued for any number of reasons. However, there are safeguards: liability insurance for associations and laws that protect volunteers. Associations and their volunteers are covered by the National Association of Realtors®' Professional Liability Insurance Program for Associations of Realtors®. This unique program provides coverage for NAR, its member associations while they function in their capacity as a real estate trade association, and association volunteers when they perform activities on behalf of the association. The policy applies to a wide variety of possible lawsuits that an association can face, ranging from lawsuits by the association's employees to investigations by governmental agencies, and covers defense costs. (The liability insurance program is subject to the association's bylaws being in compliance with NAR policy.) NAR's insurance program is crucial to state and local associations because it covers not only the association but also the volunteers who do not qualify for legal protection under state and federal laws. Federal statutes such as the Volunteer Protection Act exempt 'volunteers serving nonprofit organizations and governmental entities' from liability. The federal Act protects volunteers who do not receive any compensation exceeding $500 and do not engage 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 liability protections extend to punitive damage awards as well. The Act applies to Realtors¨ who are members of a nonprofit Realtor¨ association and who act within the scope of their duties as volunteers. For example, an association could be sued for taking an action approved by its directors, but the individual directors could not be sued for making the decision in the first place. Keep in mind that the federal law only applies to nonprofit corporations, and not all Realtor¨ associations are organized that way. A volunteer board of directors serving a Realtor® association that is set up as a for-profit company would not be covered under the Volunteer Protection Act. State laws can provide additional protection to volunteers and associations and, in some cases, state laws offer much broader security against lawsuits. These state and federal statutes cover actions taken by volunteers while performing their roles in the association. The rationale behind these laws is to encourage people to serve as nonprofit directors without the fear of being sued when they make good-faith decisions on behalf of an organization. Without these laws, many charities, for example, might have to earmark some of their charitable assets to purchase liability insurance in order to entice people to serve as directors. And when charities have to use contributions to pay for exorbitant amounts of insurance, they compromise their mission of helping the public. Another protection that may exist for your volunteer leadership is indemnification from the corporation. Indemnification is a legal concept in which, for example, the corporation agrees to defend and pay the legal costs for a director in the event of any kind of loss suffered by a third party. Almost every state allows a corporation to indemnify a director regardless of whether it's organized as a for-profit or nonprofit organization. The right to indemnification is usually contractual but not mandatory. If your association provides indemnification, you'll find it codified in the association's governing documents. Avoiding lawsuits is always the best protection. But knowing that your association, staff, and volunteer leaders are shielded by laws and insurance can help all parties get down to the business of running the association. |
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