Relationships within not-for-profits unfortunately sometimes break down. This post discusses the legal requirements to remove a director before the end of their term on the Board, when the director will not resign.
Whether for a new not-for-profit or if your organization is reviewing its governing documents, it can feel awkward to discuss the process the organization would like for this situation. But the topic deserves attention, especially for not-for-profits governed by Quebec’s Companies Act.
If it helps, imagine the rules you’d want the organization to have in place after everyone currently involved has moved on. For example, if a justified harassment complaint is ever made against a member of the Board by an employee. If the organization’s governing documents don’t allow a director to be removed, the organization would be in a difficult situation given its legal duty to provide a workplace free of psychological harassment.
Removing a Director
The board cannot remove one of its own directors from office, irrespective of what the organization’s governing documents say.
The general rule is that the power to remove a person from office is held exclusively by the body responsible for electing the person. Because directors of a not-for-profit are elected by the general meeting of members, only a resolution at a general meeting can remove them.
A director of an organization governed by the Canada Not-for-profit Corporations Act can be removed by a resolution passed by simple majority at a special general meeting of members, irrespective of the contents of the organization’s governing documents (see articles 130(1) and 7(5) of the Act). If a director is elected by a specific class of members, the right belongs to that class of members.
The situation for not-for-profits governed by the Quebec Companies Act is slightly more complicated. If these organizations’ governing documents are silent on this issue, it seems that not even a general meeting can remove a director. However, this has never been tested in court.
The guide on incorporating a not-for-profit (in French only) published by the Registraire des entreprises (REQ) therefore states that if the members wish to be able to remove a director, the organization’s letters patent must include the following clause in the section entitled “Autres dispositions” (“Other provisions”):
Les membres peuvent, lors d’une assemblée, destituer un administrateur de la personne morale. L’avis de convocation de l’assemblée doit mentionner qu’une telle personne est passible de destitution et préciser la principale faute qu’on lui reproche.
[My translation: “The members may, during a general meeting, remove a director of the legal person. The notice of the general meeting must mention that such a person is subject to removal and specify the main fault alleged against them.”]
Leading corporate law scholar Paul Martel has written that he believes that the REQ’s statement on this issue could be misleading in at least two ways (although again, neither have been tested in court). Namely:
- First, it is probably enough to have this type of provision in the organization’s by-laws, although it is more clearly valid if included in its letters patent.
- Second, Paul Martel doubts whether there is any need for the letters patent to require the members to have a good reason for removing the director, nor even require them to provide any reason at all.
For information on how to change your by-laws or letters patent, see this earlier blog post on that topic.
Disqualification of a Director
In addition to being removed, directors can also be disqualified. Unlike removal, disqualification isn’t the (direct) result of a decision to remove. It instead happens automatically when a director ceases to meet the eligibility criteria established.
As an illustration, imagine a prison justice organization that, in order to ensure representation on its board of people directly affected by incarceration, required in its by-laws that to be eligible for a seat on the board, a person must currently be incarcerated. When that person’s incarceration ended they would be disqualified as a director without any intervention by the board or anyone else.
Eligibility: Being a Member
Organizations’ by-laws sometimes make membership in the organization an eligibility requirement to act as a director. If the by-laws also make the board responsible for revoking membership, it can be tempting to see this as a workaround to avoid a general meeting. The board could revoke the unwanted director’s membership, which in turn immediately disqualifies them as a director. But in this type of situation, courts have generally not hesitated to reverse the board’s decision when it appears to be a political maneuver aimed at circumventing the normal removal rules.
If the organization is able to convincingly demonstrate that revocation of membership is legitimately required by the governing documents, rather than being politically motivated, however, it seems more likely that disqualification on the basis of revoked membership could be upheld. If the decision is made by the board alone, however, it is likely to be treated as inherently suspect. Federally incorporated not-for-profits may in some cases have more latitude in this respect.
If a disciplinary committee established by the organization’s by-laws is tasked with investigating complaints of harassment or violations of the organization’s code of ethics, revocation of membership on the basis of a recommendation of the committee after investigating, even if it results in a director’s disqualification, is one example where disqualification becomes more likely to be upheld as legitimate.
The size of the organization’s membership will also play into this assessment. The process is more likely to still be seen as politically motivated in organizations with small memberships who very rarely investigate member transgressions, when compared with larger organizations who can demonstrate that their disciplinary process consistently operates in the same way irrespective of whether a member also holds another office. Because the validity of this type of process is context-specific and because it touches on a number of legal issues including sensitive issues relating to fair treatment and dignity, putting this type of process in place is best done with legal advice specific to your organization.
Removing an Officer
It’s important to distinguish removal of the officers (e.g. president, secretary, treasurer) from the removal of directors. Officers often hold both of these offices at the same time. Note also that an executive director is generally an employee and not a director in the sense of sitting on the board of directors.
If the officers are elected by the board of directors, then following the principle that the power of election includes the power of removal, the board can remove an officer from office. The board does not need to provide a serious reason. The removed officer will, of course, remain a director.
It’s important to note that if the officer occupies a paid position or has an employment contract with the organization, the board may not be able to remove them without violating that contract.
Legal Information for Non-Profits in Quebec
COCo maintains a large amount of legal information on other topics pertinent to nonprofits, which you can find here.
We also recommend checking out the Educaloi website for additional information!
Mark Phillips wrote this blog post! Mark is a lawyer who advises non-profits and charities. He can be reached at firstname.lastname@example.org. Nothing in this blog post is legal advice: please consult a lawyer to receive advice regarding your organization’s situation.