All content on this page is correct as of April 3, 2020
Charities have had to made the tough decision in the current climate to cease engaging the services of some or all of their casual workers
Some of the charity staff may be regular and longstanding members of staff (albeit without the level of legal protection enjoyed by the organisation’s employees).
The charity may wish to make a discretionary payment to them as a goodwill gesture, for example a payment equivalent to two week’s pay. Usually, the charity has no legal obligation to make such a payment but may feel it has a moral obligation to do so. In those circumstances, what should a charity do?
The starting point is that a charity’s funds must be used only in promoting its charitable objects.
Usually, all the powers available to the trustees will be contained in the charity’s governing document so you’ll need to check to see what it says. Retaining or employing workers and paying them for their work is a standard power, but rarely is anything said about making payments to staff other than in respect of work actually done for the charity.
Where the governing document gives trustees the power to make a discretionary payment they can make the payment provided they also think doing so is justified as being in the best interests of the charity. It will be important (in case of challenge) for trustees to ensure they carefully document their decision-making process and reasons, taking into account all relevant factors. In our experience it is rare that governing documents do contain the necessary power.
Alternatively some charities may be able to justify the payment as furthering their charitable objects. For example, a charity that has relief of poverty objects, might justify the payment as a hardship grant.
Charity Commission consent will be needed, otherwise the trustees risk making the payment in breach of trust and, potentially, being personally liable to repay the monies to the charity. Obtaining the Commission’s consent will protect the trustees against this risk.
The next step will be for the trustees to consider whether they think the payment is justified as being in the charity’s best interests. After all, these are funds that are being diverted from charitable activities. There may be many reasons why it is in the charity’s best interests to make a payment even if it is not legally obliged to do so, for example showing the charity to be a good organisation to work for and helping to ensure it is able to recruit good workers in the future. Of course, it will also be important that the amount paid is appropriate – the lower the payment the easier it may be to justify making it. To help protect themselves against challenge the trustees should properly document their decision-making process and reasons.
Although it is possible to obtain Commission consent to a payment where the trustees don’t think the payment is justified as being in the interests of the charity (otherwise known as an ex-gratia payment), it is likely to be easier to obtain consent where the trustees can put a persuasive case to the Commission that the payment is in the best interests of the charity. Generally, we are finding that the Commission is taking a more pragmatic regulatory approach in order to help charities manage significant issues resulting from the coronavirus pandemic.
But what if the charity has a pressing reason for wanting to make the payment without delay, and without first obtaining consent from the Commission? As best practice, we would recommend that the trustees apply for such consent, marking it as urgent, making clear to the Commission the deadline needed for a response. Not obtaining consent, or at the very least not making an application for consent, is a risk, and is a greater risk the higher the payments that are being made. If the trustees do not hear back from the Commission by the time it becomes necessary to make a decision, then, technically, the trustees would be acting in breach of trust in making the payment without consent and it would be open to the Commission to subsequently order the trustees personally to repay the monies to the charity out of their own funds. They could also be deemed to be mismanaging the charity, leading to investigation and other potential sanctions. However, given the current circumstances, it is reasonable to anticipate the Commission may take a somewhat more lenient approach, particularly where trustees can demonstrate they have a good case and have fully documented their reasons for making the payment without first receiving the Commission’s consent.
This information is necessarily of a general nature and doesn’t constitute legal advice. This is not a substitute for formal legal advice, given in the context of full information under an engagement with Bates Wells.
All content on this page is correct as of April 3, 2020.