Case studies

This is a charity, not a charity!

Governance | Tesse Akpeki | 1 Mar 2008

Lucy McLynn and Tesse Akpeki respond to an anxious new trustee flabbergasted at the generosity of a cash-strapped charity's employment terms.

Dear editor,

I am a new trustee and have just discovered that the staff has extremely generous terms and conditions of employment. Each year staff are entitled to 25 days holiday; three extra days at Christmas, an extra day's holiday for each of the remaining bank holidays; time off in lieu which is not monitored; 15 days study leave although no one checks that they are studying for a qualification; up to 15 days for childcare each year; very generous sick leave; health insurance paid for by the charity; and every five years an employee is entitled to a three-month full-time sabbatical or a six-month part-time sabbatical. Not surprisingly, employees tend to stay a long time.

I do not feel we can justify such generous employment terms especially as we have ongoing serious financial difficulties. I am told that the charity has tried to move to less generous terms but has not been successful so no one wants to try again.

What is my position and that of my fellow trustees if we do nothing?

Yours sincerely,

A concerned new trustee

Dear concerned new trustee,

As the charity is in serious financial difficulties, clearly the trustees need to take steps to reduce expenditure. It is advisable that the board thinks about whether they do this through changing contractual terms, with the related problems, or some other route, eg redundancies. The board must seek advice from a specialist employment lawyer.

Certainly the first step would be to start to monitor ‘time off in lieu’ and study leave more closely, and change the contracts for new employees. Employers are often unhappy to think of having staff on different contractual terms, and think that this may be unfair or discriminatory, but it is not a problem legally, as long as the new position is applied absolutely consistently to all new employees, and the fact that the charity has decided to make this change is documented in board minutes, etc.

Changing the terms for existing staff is problematic. They are clearly unlikely to agree to these changes voluntarily, although perhaps a discussion making it clear that redundancies are the other alternative might focus their minds to some extent.

If the charity cannot get consent to make changes then they would have to alter the contracts by way of terminating the contracts giving the appropriate notice in each case, and offering re-engagement immediately after expiry of the old contracts on the new terms, with continuity of employment preserved.

The problem with this, of course, is that it is a dismissal and is likely to be unfair. The charity would have to be able to rely on ‘some other substantial reason’ – and would need to show cogent evidence of serious financial difficulty, and having considered other options, in consultation with staff. Tribunals take a very dim view of employers altering employees’ terms of employment, particularly when it leaves them less well-off. They would, understandably, take the view that the charity should never have entered into contracts on this basis in the first place if it could not afford to honour the terms.

The charity would also have to show that they had gone through a fair procedure, which would involve following the statutory dismissal procedure.

The issues and related questions need to form a substantive part of the board’s deliberation. Trustees need to consider the merits of different options (advantages, disadvantages and risks) and the views of their professional advisers (employment law specialists and auditors). A written record of these deliberations, professional advice taken and conclusions reached with reasons must be kept.

With the charity in serious financial difficulties, doing nothing could leave trustees in ‘breach of trust’ and personally liable.

Yours sincerely,

Lucy McLynn is partner of Bates Wells & Braithwaite London LLP.

Tesse Akpeki is a consultant for OnBoard

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