Legal focus: Hidden pitfalls of the law

The onus is on charities to ensure they operate within the law in all areas, from IT to employment, says Gary Flood.

There are thousands of good reasons for charities to be aware of the law and how it affects them. Unfortunately, 'thousands' usually has a pound sign in front of it.

Take the alarming recent case of a charity that ignored all the reminder letters in the frightening brown envelopes from Companies House, the UK's official central administrator of business information. It turns out that if a charity is registered as a company under guarantee, its trustees are held responsible by law for administering it, which includes filing annual reports there. Because this basic bit of administration was ignored, the organisation ended up being ruled technically bankrupt.

"The charity will get everything back from the Crown, but that's a needless expense running into thousands of pounds that could easily have been avoided," says Catriona Wheeler, partner at Andrew & Co, the solicitor helping this luckless group sort it all out.

That's just one of the mines in the minefield. Did you know that if you're given free IT equipment, you not only become legally responsible for its later safe disposal, but you immediately come under the strictures of health and safety legislation, the Electricity at Work regulations 1989, the Data Protection Act, copyright rules and, if there's any illegal software on it, theft laws?

Alas, ignorance is no defence. Charities have been prosecuted for failing to know such details. Even non-profits that are aware of the obligations of basic employment or discrimination law could be exposing themselves to unnecessary risks if they don't find out what other laws and rules their activities must abide by.

"Chief executives of charities should rightly focus on the sort of regulation that directly affects how they run their organisations," says James Mullock, a partner in the commercial department of law firm Osborne Clarke. "But many other, less day-to-day aspects of the law that aren't on their radar can still affect them. It's worth trying to be aware of what else can go wrong."

George Wilkinson, a partner at solicitors Ashford, agrees. "Charities have a unique issue in that they're covered by two sorts of law - the specific charity law framework and the rest of the law," he says. "So they need to be up to speed with the law and other issues concerning the Charity Commission and, say, employment - but they need an additional awareness of the special conditions concerning working with volunteers. It can be a struggle for smaller charities, especially those run by trustees for whom this is not their day job."

The issue of accepting donated office equipment is a case in point. What should be straightforward is anything but, it appears. In August this year the EU Waste Electrical and Electronic Equipment directive comes into force. According to Gerry Hackett, an expert in IT disposals at the IT re-use and recycling subsidiary of IT services company Computacenter, this means charities will need to be much more careful about accepting and, especially, recycling donated electronic equipment such as computers and printers.

The electrical waste directive is the continuation of a lengthy process by the EU to reduce the volume of hazardous waste going into landfill sites, and covers all electrical equipment, from transistor radios and mainframe computer systems to toasters and printers. Even electric kettles don't escape.

The problem is that as soon as you accept someone else's computer, photocopier or fridge to sell on, the law says you become a distributor - and if it's no good and has to be disposed of, you require a waste treatment licence.

"The laws covering both these activities are immensely complex, so by taking in old electrical equipment you risk exposing the charity to any number of potential opportunities to be prosecuted," warns Hackett.

It is still possible to accept people's gifts of electrical items. Indeed, many charities enjoy a healthy stream of equipment passed on by local companies, for which there are tax incentives, provided they work through a recognised disposal specialist. But it's essential to make sure your organisation has put in place the correct framework to deal with them.

This means making sure the law is your friend, not your enemy.

Charity regulation itself is under review, and familiarising yourself with the changes must be your first step. The Charities Bill, which will become law at some point, changes some of the basics of charity registration and recognition, as well as introducing changes to fundraising licences, notes Julie Garbutt, a solicitor at Dickinson Dees.

"The aim of the reform is to consolidate issues of common law and case law around the way charities act," she says. "The law will also change to allow new categories of charity to be established, such as those aiming to advance arts, heritage and science, or promote human rights or environmental protection, amongst others. But a big part of all this is changes to do with what is seen as a charity's function. A charity must demonstrate public benefit or risk not being classed as eligible for charitable status."

All new charities - and eventually all existing ones - will have to complete an application form to secure that status, but as yet it's unclear what will and won't be allowed. It would be a good idea to keep track of what the Charity Commission defines as being in the public interest, suggests Garbutt.

Keep abreast of legal changes

On top of these changes, the next five-yearly change in the Sorp rules on how charities file their accounts is due out shortly. This needs to be monitored, and not only by the charity's accounts team, because the new Sorp is expected to introduce extra duties for trustees too.

Garbutt says these changes will simply continue the Government's aim, expressed in the Charity Commission's mission statement, to guarantee transparent and accountable conduct of charity operation."Apart from the large ones, which probably have legal departments, charities tend to need educating about what the law means for them," she says. "They tend to come to people like us when they have specific needs. It might be better to have an ongoing dialogue or some sort of review so that everyone knows about the potential issues."

That's certainly the opinion of Stuart Crooks, a director of charity Lincolnshire Wildlife Trust, which recently took legal advice that helped it take advantage of changes in the land registry's regulations and protect the trust's land from squatters and illegal occupation or use. "We found a large area of our land wrongly registered to a neighbour, among many anomalies," he says. "It's been a very useful process, but not the first time, of course, that we have found it very useful to talk to our solicitors.

We talk to them regularly on matters ranging from general advice on leases and other property matters to contracts, employment law and probate. We simply couldn't do what we need to without them."

If your organisation owns land, it's worth noting that the Government aims to have all land registered and is offering reduced fees for voluntary registration - a discount for large numbers of registrations brings the cost down to only £7.50 per plot.

It's quite possible, especially for smaller charities, that the call to the lawyer is seen as a distant and potentially expensive last resort.

But this could be short-sighted - many organisations are not only affected by the regulations discussed above and basic Charity Commission rules, but also come under the provision of laws concerning data protection, disability and discrimination, protection of intellectual property and brand, the issues surrounding land registry and a host of others. Few charities can cope with all of these areas in-house.

Handbooks can help with employment law

One subject that is likely to be central, no matter what your charity does, is employment. The good news, according to Phillip Hoskins, managing partner at law firm Andrew & Co, is that one way to cover yourself against any potential sticky issues is to ensure all staff are issued with a written handbook outlining all the organisation's main policies.

"A written statement of terms is a requirement, but is also the best way for the employee to know what is expected of him or her, and where they can expect to stand on any issue," he advises. This is where you, as an employer, should outline your policies on equal opportunities, anti-discrimination and issues under other legislation - the Race Relations (Amendment) Act (2000) and the Disability Discrimination Act (1998), for example.

Employment equality regulations now make it unlawful to discriminate against workers on the grounds of their sexual orientation, religion or belief. The National Council for Voluntary Organisations has just won DTI funding to ensure voluntary sector organisations have the information to comply with this change and will be producing a factsheet, so it is worth checking its website for updates.

A vital element of the handbook should be the benefits package. "Look here to lay out clear policies on what you can and can't do as an employee," says Hoskins. "Include topics such as 'what if I don't take all my holiday in one year? Can I carry it over?'"

But you shouldn't see the handbook as insurance only, says Hoskins - it has a value in employee relations too. "Having this handbook and a written contract of employment should limit your financial exposure to any problems with an employee," he says. "It also provides security for the employee."

Indeed, the concept of the contract is central to making sure you use the law effectively in all areas, says Osborne Clarke's Mullock. One particularly risky area is intellectual property. "Something that can cause problems is the charity's website," says Mullock. "It's amazing how many charities try to end or change the business relationship they have with the agency that built the site, only to find they didn't look at the standard terms and conditions and that the third party 'owns' the website. Ownership needs to be specifically assigned. That can be a nasty surprise."

This rule also translates to work done by outside contractors - in IT, for example. To what extent are the shiny new systems yours or theirs?

"Like any commercial organisation, a charity has a duty to protect its assets," says Mullock. "The best way to do that is to make sure the law is on your side."

WHERE TO GO FOR ADVICE

- The Charity Commission's website is a useful resource on the law and charities, especially the sections on registering a charity and meeting the commission's statutory requirements. See www.charitycommission.gov.uk

- The National Council for Voluntary Organisations website, www.ncvo-vol.org.uk, is another good place to look. The organisation also has an excellent microsite, which gives practical advice on a range of legal issues, including data protection, treasury, investment rules, health and safety, protecting your IP and employment law. See www.askncvo.org.uk

- The DTI's website is a comprehensive source of information on employment law and other topics affecting you and your employees. See www.dti.gov.uk

- The Disability Rights Commission's homepage gives information on disability and discrimination at work - including how you as a service provider might need to change the way your buildings are structured to ensure adequate access. See www.drc-gb.org.

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