Under the Canada Not-for-profit Corporations Act, the articles or by-laws of a not-for-profit ("NFP") corporation may provide that an organ of the corporation has the power to discipline a member or terminate a membership. Notably, this disciplinary provision is opt-in. The decision-making organ can consist of the directors, a committee of directors or a committee of members of the corporation. Presumably, all of the members or all of the voting members could also comprise a committee of members for this purpose.
If the articles or by-law provide for such discipline, they must set out the circumstances and manner in which the disciplinary power may be exercised.
Apart from these bare-bones provisions, the Act says nothing further about disciplining members, which leaves tremendous scope for tailoring a set of expulsion and disciplinary provisions to the specific needs of the corporation and its members.
The expulsion, suspension or other disciplining of members is one of the most common sources of litigation involving NFP corporations. Courts also regulate the fairness of discipline procedures and specific proceedings through the omnibus oppression remedy.
Corporations that opt to include the power to discipline members should start with two questions:
● What practical rights and benefits does membership in the corporation carry? Stated otherwise, what would be at stake (financially, professionally and reputationally) for a member if she were to be expelled? The higher the stakes for the parties, the more checks and balances should be built into the disciplinary process.
● What benefit does the corporation hope to gain from having the power to discipline members? For example, is the corporation exposed to organizational risk if members run amok and purport to act in the name of the corporation without adhering to its rules? Will the corporation need the flexibility to act quickly?
Building discipline provisions in the by-laws (or, less commonly, the articles) should also take into account the general lessons from the case law, which may be summarized as follows:
● The provisions should not only be fair but should be seen to be fair. The design of the discipline rules must balance the interests of the corporation (and through it, the membership as a whole) and those of the member who is to be disciplined. Organizations that design heavily one-sided rules often pay the price for that in court.
● Fairness is often described as incorporating the elements of natural justice. While the two concepts are not the same, they overlap. The principles of natural justice provide something of a benchmark or starting point in designing the internal rules governing the discipline process. The content of the principles of natural justice is flexible and depends on the applicable circumstances, which may be summarized as follows:
● the most basic requirements are that of notice, opportunity to make representations and an unbiased tribunal. Natural justice requires procedural fairness no matter how obvious the decision to be made may be. Adhering to the principles of natural justice is what the law requires even if it may not change the result;
● a member must be given notice of the cause for which she is to be disciplined. Notice is required so that the person who may be disciplined can seek reconciliation or prepare to defend herself, and also so that members who must decide on expulsion can attend the meeting and contribute to the discussion (or seek an adjournment);
● a member must be given an adequate opportunity to respond to the allegations made against her. There is some flexibility in the scope of the opportunity required. For example, under the Act, the corporation is not required to provide for a hearing, but may act on written submissions only; and
● the tribunal (or decision maker) should be as unbiased as circumstances allow. The courts recognize that, in private NFP organizations, it is almost inevitable that the decision-makers will have at least in indirect interest in the issue in question. But it is important to ensure that all the members of the tribunal are as free from bias or perceived bias as the circumstances of the organization allow.
● If feasible in the circumstances, adding an internal appeal process is helpful. It adds a further check and balance in the system and is a further indicium of fairness. Any internal appeal process should also be unbiased (including free from the influence of any members of the first decision-making tribunal).
● In most cases, the by-laws should provide that the internal process (including any internal appeal) is final and binding and that no appeal lies to the courts (except for fraud).
● Finally, the members can oust the jurisdiction of the courts if the by-law (or articles) provide for final and binding arbitration of all disputes (including decisions of internal tribunals who mete out discipline).
● Once a fair and balanced discipline process has been carefully built into the by-laws (or articles), all that remains is to follow it. Corporations often get into trouble because they do not adhere to their own disciplinary procedures, giving the member grounds to seek an order requiring adherence to the internal rules and setting aside any disciplinary rulings made in proceedings that did not strictly conform to the by-laws.
Generally, most organizations seem to give insufficient attention to designing the disciplinary provisions of their by-laws. This inattention only becomes apparent years later when they try to enforce them against a member - often with disappointing, embarrassing and expensive results.