News: Director-on-director discipline acceptable if in society’s best interests

Rob Hurson - Hsin May and Vancouver seafront - Creative Commons

The BC Supreme Court has clarified when a suspension of a society’s director is not a removal, and provided an example of when director discipline may occur without the court’s intervention under the provisions of the Society Act, R.S.B.C 1996, c. 433 (the “Act”).

In George v. The B.C. Wildlife Federation, 2016 BCSC 718, a majority of the Board of Directors (the “Board”) of the BC Wildlife Federation (“BCWF”), a society incorporated under the Act, voted to suspend its Vice President. The suspension removed the director’s right to attend meetings of the Board and committees, and from his roles as both a director and Vice President. It did not remove him from office. The suspension arose due to inappropriate e-mails sent to BCWF employees over its office e-mail system, in violation of the BCWF director Code of Conduct and its human resources manual. The main issue was whether this was “removal”, outside of a special resolution of the members under s.61 of the Act, or whether this was akin to discipline of an employee, and acceptable.

The suspended director had sent e-mails to both a male and female staff member, which had resulted in a request by the BCWF President to cease contact with the female staff member and not engage in further conduct. The director did not respect this condition. Two months later, BCWF’s counsel requested he voluntarily step down, or the Board would consider disciplinary action. On receiving no resignation, a discipline package was provided to the Board for review. The suggested discipline was a suspension of approximately three months, to the end of the suspended director’s elected term.

The Board was provided with the suspended director’s submissions through counsel, where the director denied sexually harassing the female employee, alleged a lack of policy, and alleged the discipline was harsh and disproportionate. BCWF’s counsel responded that the suspension was reasonable and appropriate in the circumstances.

The Board decided by resolution to suspend the director for three months. Notice of this was sent to 50,000 BCWF members. The suspended director brought this petition, under the court’s power to remedy irregularities.

To exercise this power, a “defect, omission, error, or irregularity” must exist. Mr. Justice Punnett canvassed the relevant events, the language in the bylaws which vested all powers into the Board, and the relevant law on director removals. The court determined that in this case, there was no irregularity on which the court could act as there was no “removal”. In the alternative, there was no unfairness or inappropriateness to the suspension, as adequate procedural rights had been granted to the suspended director and there was no lack of good faith on behalf of the Board.

Unlike in previous cases, where director removals by the board had been done with bad faith, such as to seize power or in attempt to skirt court orders, the Board’s actions were not a complete removal and were justifiable in the circumstances.

By analogy to employment law, the court put weight on the fact that the director remained “in office”, though he could not exercise powers, and likened this to a temporary employment suspension. The court also considered that BCWF did not seek to end his term nor interfere with his ability to run again, unlike a constructive dismissal.

What does this mean for discipline of directors? In short:

  • temporary suspensions of a director’s powers and obligations can be justified, even where the bylaws are silent on the removal process by the Board;
  • the director in question should be provided with adequate chance to know the allegations and to defend against them, as well as to have counsel;
  • suspensions should be papered: investigation, discipline letter, and then a board hearing may be an appropriate process in most cases; and
  • the court continues to avoid interfering in the affairs of a society without a problematic behaviour being identified.

The new Societies Act, coming into force November 28, 2016 (the “New Act”), provides greater clarity regarding the ability of a society to include director disciplinary or director removal provisions in the bylaws.

Under the New Act, if the bylaws allow for it, a director may be removed in any manner. For example, director removals may occur:

  • after a disciplinary hearing before a disciplinary committee, comprised of members and other directors;
  • automatically, on ceasing to be qualified for the position; or
  • on a simple majority vote of the Board of Directors.

The New Act also specifically provides for discipline and expulsion of members by special resolution, or in any other manner set out in the bylaws, provided written notice is sent to the member of the proposed discipline, and the member has a reasonable opportunity to make submissions.

The New Act provides much more flexibility for societies in managing their affairs. Properly worded discipline provisions in a society’s bylaws could avoid such disciplinary litigation, as could properly worded removal provisions.

This is a cross-post with the Alexander Holburn Beaudin + Lang LLP Business Law Blog.

Photograph by Rob Hurson, used under a Creative Commons license.

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