23 March 2018
An employment dispute provides a useful reminder to charity trustees about personal liability and confirms that it may be inappropriate to award litigation costs against volunteer trustees.
A former charity director brought proceedings against the charity’s trustees in the employment tribunal. He had been dismissed when the charity ran out of money and he was owed unpaid salary. The trustees defended the action on the basis that they were not personally liable; they had formed a company limited by guarantee to administer the charity and therefore that company was the liable party. The judge held that this defence could not be maintained on the facts. It was therefore misconceived and it was unreasonable to have maintained it for so long. The judge therefore awarded compensation to the former director, to be paid by the trustees personally.
However, the judge did not award costs against the trustees, firstly because they were volunteers and volunteering is a public good that should not be discouraged, secondly because they had already been made personally liable for the compensation to the former employee. Thirdly, the judge noted that the employee would not be out of pocket for his legal costs because he had obtained litigation expense insurance.
The trustees appealed to the Employment Appeals Tribunal on the issue of costs. The EAT held that the volunteer status of trustees is relevant to the question of costs and the judge had been entitled to take it into account. She had not suggested that it was never appropriate to award costs against charity trustees, only that it was not appropriate in this case. However she had been wrong to take into account the fact that the director had legal expenses insurance – that was not a relevant factor.
The case is useful a reminder:
- to trustees of unincorporated charities that if the charity is unable to pay its debts from charitable funds the trustees may be personally liable to do so;
- that costs are at the discretion of the judge if certain criteria are met so this risk cannot be ruled out; given that costs are not routinely awarded in employment tribunals, the trustees put themselves at risk of a costs award because the employment judge found that they had persisted with a defence that was misconceived; and
- that the fact that an opponent has funded a claim through insurance or other means is no bar to costs being awarded.