Legal Status of Unincorporated Organizations - Trade Unions

In Berry v. Pulley, the Supreme Court of Canada recognized that a trade union is a legal entity that can enter into contracts with its members and that can sue and be sued on those contracts. A party suing a trade union can recover judgment from the assets of the union but not from the personal assets of its members. However, while recognizing the legal status of trade unions, the Court was careful to say that this recognition does not automatically extend to other unincorporated associations.

1. Facts

The case arose out of a proposed class action brought on behalf of all Air Ontario pilots who were members of the Canadian Air Line Pilots Association (CALPA), an unincorporated trade union that represented over 4,000 pilots across Canada, including pilots employed by Air Ontario and Air Canada. Personally named as defendants in the proposed class action were all Air Canada pilots who were members of CALPA. The claims against the defendants included breach of contract contained in the union constitution. These claims were all dismissed on summary judgment, and the plaintiffs appealed.

At the Supreme Court of Canada, the only remaining issue was whether a union member who breaches, or causes the breach of, a union constitution may incur personal liability in breach of contract to another union member who suffers damage as a result.

2. Rulings

For various reasons discussed below, the Court ruled that the time has come to recognize formally that, when a member joins a union, a relationship of contract arises between that member and the union as a legal entity. Upon creation of a membership, both the union and the member agree to be bound by the terms of the union constitution, and an action may be brought by a member against the union for breach. However, since the union itself is the contracting party, any remedy for breach is against the union and is limited to the assets of the union. Liability cannot extend to its members personally.

Unions are legal entities, at least for the purpose of discharging their function and performing their role in the field of labour relations. Therefore, a union has the legal status at common law to sue and be sued in its own name and to be held liable to the extent of its assets.

The Court provided several reasons for this recognition of unions as legal entities. In part, this recognition arises from the statutory regime under which trade unions are recognized as entities with significant rights and remedies. It would be inconsistent with the public's expectations to deny unions the right to enter into legally enforceable contracts with their members.

On a policy level, it would discourage member participation in union affairs and erode union democracy if courts were to allow disagreements between union members to result in claims against the personal assets of dissenting union members. Trade unions would find it difficult to recruit members or be certified as collective bargaining agents if the act of joining a union exposed individuals to personal liability in damages to other members for alleged breaches of the union constitution. Also, if union members were permitted to bring actions against other members instead of resorting to internal dispute-resolution mechanisms where breaches of the constitution were alleged, the ability of unions to resolve internal conflicts would be hindered. A loss of control over internal affairs would undermine the ability of unions to present a united front to employers and to pursue the collective interests of their members.

However, the Court drew the line at recognizing all unincorporated associations as legal entities, stating:

I emphasize that the above recognition of the legal status of trade unions does not automatically extend to other unincorporated associations. The unique status of trade unions is a consequence of the complex labour relations regime governing their existence and operations.

3. Key Observations

While the Court did not rule out the possibility that, some day, other types of unincorporated associations might be recognized as legal entities (at least for the purposes of entering into contracts, enforcing contracts and insulating members from personal liability), it limited that recognition to the facts of the case before it, which related to groups of members of the same unincorporated trade union.

Unlike trade unions, unincorporated associations are rarely recognized in legislation and never to the same extent that trade unions have been so recognized. Also, none of the policy considerations that weighed in Berry v. Pulley apply to other types of unincorporated associations.

Accordingly, it cannot be said that unincorporated associations (apart from trade unions) have legal status - in particular that they can enter into binding contracts that they may enforce by suit or that may be enforced against them by suit and judgment execution against the assets of the unincorporated association. Indeed, the law governing unincorporated associations remains in an embryonic state.

The only path to certainty in contractual relations (and insulation of members from personal liability) is to incorporate the association. For example, the Canada Not-for-Canada Corporations Act explicitly provides that members of a corporation governed by the Act are not, in that capacity, liable for any liability of the corporation or any act or default of the corporation, except to the limited extent otherwise provided in the Act.

Even apart from this provision of the Act, the common law has long recognized that a corporation is a separate legal entity apart from its members and entitled to its own property and responsible for its own obligations. Members are not responsible for corporate debts nor entitled to corporate assets (except, in the case of non-soliciting corporations, upon dissolution). Likewise, a corporation is not responsible for the debts or obligations of its members.

In the case of unincorporated businesses with two or more members, the law of partnership applies. There is no equivalent general regime that applies where there are two or more members operating a non-profit activity.

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