Community Engagement: Legal and Regulatory Requirements

The legal issues associated with the community engagement and investment activities of an organization will depend on the decisions made by the organization regarding the types of contributions that will be made (i.e., cash, in-kind, human resources etc.), the nature of the projects and activities that will be supported and the specific topical areas of interest.  As discussed above, all businesses will need to determine the appropriate legal and organizational structures for their community-focused activities and this often means that a decision will eventually need to be made about whether to form a separate legal entity, owned and controlled by the parent company, through which community investments will be funneled (i.e., a corporate foundation).  Other common legal issues arise due to the nature of the business’ involvement in the community and would include mitigating potential legal risks associated with employee volunteer programs, sponsoring and/or hosting community events and entering into joint ventures and other types of alliance arrangements with local nonprofit organizations.  Specialized legal guidance will be required when businesses get involved in complex and high-regulated areas such as helping to provide financial services for low-wealth and underserved communities, supporting public and private financing of community cultural facilities, participating in community-based efforts to preserve open space while expanding the availability of affordable housing and assisting local courts looking to positively and proactively address juvenile delinquency by providing vocational training and job opportunities.

Charitable Contributions

When businesses engage in philanthropic activities in their communities, such as making cash and/or in-kind contributions to local charities or other nonprofit organizations, they need to establish compliance programs to ensure that their activities conform to applicable laws and regulations and that their contributions are being put to effective use.  Due diligence with respect to potential donees has become particularly important as the size and scope of corporate philanthropy has expanded.  Many businesses, particularly larger ones, have taken on global issues such as disaster relief, humanitarian crises, health and education and in doing so they have taken to giving to organizations working far away from the communities in which the companies are operating.  Another reason that international giving has expanded is the desire of businesses to engage in strategic philanthropy to build their brands and customer loyalty in new markets.  As long-distance philanthropy becomes more popular, companies face new challenges in getting to know who will be accepting and using their contributions, particularly since there are more and more “rogue non-profits” operating all over the world and using sophisticated techniques to fraudulently collect and misappropriate donations toward lavish lifestyles of the promoters and even terrorist activities.[1]

Compliance programs for charitable contributions need to incorporate consideration of all applicable laws and regulations pertaining to the initial transfer of funds and other resources to the charitable organization and the capacity of the recipient to effectively use the funds and resources free from financial abuse and mismanagement.  Among the questions that should be asked and considered before any contribution is approved and completed are the following:

• Is the proposed recipient a duly organized nonprofit organization in good standing under the laws of its jurisdiction of organization based on certificates obtained from the authorized regulator (e.g., the secretary of state or the state attorney general for organizations formed in the US)?
• Is the proposed recipient in compliance with all requirements for tax-exempt status under the regulations applicable to its specific types of activities (e.g., in the US is the recipient a valid and current 501(c)(3) organization or equivalent)?
• Has the proposed recipient and its named directors, officers and principal donors been screened against a comprehensive set of sanctions lists, both domestically and internationally?
• Does the proposed form of the contribution create any issues that might adversely impact the nonprofit/tax status of the entity of the business that will be making the contribution (e.g., foundation status of an affiliate of the main business established to engage in philanthropic activities)?
• Has sufficient information regarding the proposed recipient between collected and analyzed to allow the business to properly report the contribution on tax and other reports?
• Have all internal policies regarding charitable contributions been complied with and has the company’s database of established charitable organizations been updated to reflect all new information gathered during the due diligence process?
• If the business will be asking employees to consider donating to the proposed recipient have steps been taken to ensure the recipient has in place adequate security procedures to protect the personal and financial information of donating employees?
• Has sufficient investigation been done of the controlling persons of the proposed recipient to ensure that there are no conflicts of interest involving directors and/or officers of the business?
• If the relationship involves volunteer activities by employees of the business that are endorsed by the business as opposed to cash donations has consideration been given to relevant legal issues?

Establishing a compliance program for corporate philanthropy is not a “one time” activity and provision must be made for ensuring that the group responsible for corporate philanthropy remains current with all relevant laws and regulations.  When giving activities extend across foreign borders, attention needs to be paid to continuously changing sanctions screening and watch lists and evolving laws in foreign jurisdictions relating to money transfers, tax filings and data privacy.  Fortunately, the burden of carrying out the extensive screening has become more manageable through the availability of technology platforms that corporate philanthropy teams can access to receive reliable support in screening, verification and other aspects of due diligence. 

The details of any specific compliance program will be determined by a variety of factors including the amount of the contributions and the number of organizations that the company is willing to support.  Choices will depend on the preferences of employees, given that corporate philanthropy is an important way to enhance employee engagement, and whether support will be provided through cash provided by the company or through donations that employee make on their own.

Corporate Volunteer Programs

There is a growing body of evidence that employees who engage in volunteer activities for causes that are important to them with the support of their employers are happier and more loyal; however, employers must bear the legal risks associated with employee volunteering in mind.  Two major areas of concern for businesses sponsoring corporate volunteering programs in which their employees will have the opportunity to participate are compliance with federal and state labor laws, especially the federal Fair Labor Standards Act (“FLSA”), and liability for injuries or other damages to employees arising from their engagement in the volunteer activities.  The key question under the FLSA is whether the employee’s participation is truly “voluntary”, which goes to whether the employee gave up his or her non-work time to engage in the volunteer activity without a reasonable expectation of compensation from his or her employer.  If it turns out that an employee had no choice about whether or not he or she should participate, was required to engage in the activity during a period that was otherwise inconvenient and was subject to directions from management personnel of his or her employer during the activity, rather than a supervisor from the party holding the volunteering event, failure to compensate the employee will likely expose the employer to liability for violations of minimum wage, overtime and timekeeping requirements.  Statutory liability is also a real risk for employers in situations where failure of an employee to participate in a volunteer activity as directed, or “strongly suggested”, by the employer leads to some sort of adverse employment action against the employee.

In order to reduce potential problems under the FLSA businesses should implement clear formal policies regarding participation of employees in volunteer programs sponsored or other endorsed by the company.  While businesses can, and often do, select specific volunteer activities to support, the policy should allow employees to select the programs and events that are best suited to their schedules and interests.  Businesses should also allow the volunteering activities of their employees to be overseen by personnel from the outside charity or other organization conducting the event or activity.  In addition, before the employee begins his or her work he or she should sign a date a certificate that includes an acknowledgement that his or her participation is truly voluntary, the location and time of the activity is convenient for him or her and that participation in the activity will not have any impact, favorable or unfavorable, on the employee.

The certificate from employees described above should also be used as an opportunity to attempt to mitigate potential liability for injuries to the employee during the volunteering activity by including a waiver of liability against the employer for any such injuries.  However, employers should not rely only on such releases for protection and should take other steps such as inspecting the locations where the volunteer activities will be occurring, seeking and obtaining indemnification from the party conducting the event or activity and checking with insurance carriers to confirm that the company’s general liability and workers’ compensation insurance policies covers employees participating in corporate volunteer programs.  

Events

As part of their initiatives relating to community involvement and development it is likely that businesses will hold events to which community members will be invited.  Each event must be considered separately; however, there are certain issues that are fairly common place such as governmental permitting and licensing requirements; contracting for venues and/or equipment to be used in connection with the event; intellectual property issues; insurance, safety and security considerations; providing for access to events; sponsorships; and raising money and/or soliciting in-kind donations in connection with the event.  In addition, businesses should consider the impact of the event on the surrounding neighborhoods in the community.  For example, failure to consider how noise from the event and/or litter from persons walking to the event might impact the neighbors may trigger legal complaints from neighbors (and even if neighbors don’t make formal complaints, upsetting neighbors by hosting events does nothing to improve the “community citizen” profile of the business).[2]

• Governmental Permits and Licenses: It is obviously important to determine whether any permits or licenses from local governmental authorities are required for the event. The answer depends on several factors including the type of event, the activities that will be taking place, the facilities that will be provided to participants, the impact of the event on surrounding communities and, of course, specific rules that have been adopted by the authorities in the community.  Local requirements vary; however, it should be expected that a permit or license will be required to hold an event on public land, set up a temporary structure, serve food and/or alcohol, play live or recorded music, display signs and banners or close a road.  Preparation of a risk management plan may be required as a condition to obtaining a permit or license and such a plan is a good idea even if not mandated by local government authorities.  Businesses should also notify local transit authorities if it appears that the event will have an adverse impact on access into the area where the event is being held.
• Hiring Venue and Equipment: While businesses may use their own facilities and/or equipment in connection with events, they often enter into contracts with outside parties for the venue at which the event will take place and/or equipment that will be needed for the activities to be conducted during the event.  Contract terms will vary; however, businesses need to be concerned about insurance requirements, indemnification obligations, the consequences of damages to the venue or equipment and the company’s right to terminate the contract in the event is cancelled.
• Copyright, Trademarks, Marketing and Promotions: When recorded music or music videos will be played at an event it may be necessary to obtain a license from the performer or the performer’s agent and, if necessary, pay a license fee.  When the event includes live performers, the contract with those performances should include representations from them that they have all the requisite licenses for the works they will be performing.  Licenses or other permissions may also be required to use photos, videos, text and trademarks of others in connection with the marketing and promotion of the event and/or the presentations made during the course of the event.  These items might be used in a number of different ways including on websites discussing the event brochure, newsletters, pamphlets or posters.  If videos or photos will be taken during the event with the intent of distributing them publicly during or after the event signed permissions and releases should be obtained from attendees appearing in such videos or photos.
• Event Insurance: A number of the legal issues surrounding a community event are based on mitigating potential liabilities to the business as a result of its decision to host and sponsor an event, either at its own facilities or at another venue, and invite members of the community to attend.  As such, the business needs to be sure that it has adequate insurance coverage for the event, either under an existing policy or by purchasing additional policies or riders that cover the particular event.  For events held on property and/or in facilities owned by outside parties those parties will require proof of insurance that extends to them.  Additional insurance will often be required depending on the particular activity including product liability insurance if food or other products will be sold to the public at the event; personal accident insurance for employee and non-employee volunteers working at the event; and workers compensation insurance for employees working at the event during their paid time.  If independent contractors will be used to conduct the event the agreements with those contractors should describe the insurance coverage they are expected to have in place to address liabilities that may arise from the services they provide during the event, such as putting up and maintaining a temporary structure to which attendees have access during the event (e.g., if a member of the public attends the event and is injured due to the actions of an independent contractor and sues the business the contractor’s insurance coverage should extend to any damages and costs incurred by the business).   
• Safety and Security: Safety and security are paramount considerations for businesses hosting or sponsoring a community event.  Businesses have legal responsibilities to fulfill their duty of care to participants and this means taking reasonable precautions to be sure that participants are kept safe from injuries that might occur from participating in activities at the event and secure from dangers from outsiders encroaching on the event.  The duties of safety and security extend to personal property that the business can reasonably foresee will be brought to the event, although businesses can and should impose restrictions on participants bringing certain items to the event.  Businesses should consider engaging privacy security contractors to assist with the event and informing the local police and other persons or groups that might be needed to provide emergency services (e.g., qualified first aid providers).  Unfortunately, given the times that we are living, it is often necessary to screen workers and participants upon entry to the event to ensure that they are not bring banned items into the venue. 
• Accessibility: One of the key tenets of both legal and voluntary standards relating to community involvement for businesses is free and open access without discrimination against any person or group based on physical impairments, age, sex or sexual orientation, race, religious beliefs or other attributes. Hosting or sponsoring a public event is like any other actions by a business, including sales of goods and services, and must be done in a manner that complies with letter and spirit of equal opportunity laws.  Community involvement requires engagement and engagement comes from making it easy for everyone in the community to come together.  Businesses must also be sure that they take reasonable steps to ensure that persons with physical disabilities are able to access and enjoy the events (e.g., providing preferred parking for disabled attendees; wheelchairs inside the venue and sign language translators when speeches are given). 
• Sponsorships: Businesses often collaborate with other organizations that are willing to provide some sort of support for the event as sponsors.  The terms of any sponsorship arrangement should be set out in a contract between the business and the sponsor and will generally cover the contribution of the sponsor, which may be cash and/or other resources, and what the sponsor expected to receive in return in terms of publicity and perhaps access to a list of persons who attended the event (if those persons have consented to the disclosure of their personal information).  Sponsorship agreements should also address sharing of liabilities associated with the event and will thus include insurance and indemnification provisions.
• Fundraising: Businesses may host and/or sponsor community events at which community members are asked to make cash contributions to a local charity that the business has selected for support. In those situations, it is important to consider whether the business, as well as the supported charity, has any specific obligations under federal, state or local fundraising laws or regulations (e.g., must the business itself register as a “fundraiser”).  It is also necessary to provide for adequate recordkeeping, including receipts, of donations made on site during the event.

Sponsorships and Collaborations

A company, either directly or through its sponsored corporate foundation, may enter into a collaboration agreement with several local nonprofit organizations to develop and implement a project intended to provide objective benefits to a target group within the local community where all the parties are operating.  For example, the collaborators may assist individuals currently living at or below the poverty line to provide them with vocational and on-the-job training as well as assistance with job search, placement and retention services.  The project may also provide support services to beneficiaries including domestic violence, addiction/recovery, mental and physical health, childcare and other family services.  The collaboration agreement should include clear and objective goals for the program, such as serving a specified minimum number of beneficiaries, and should describe the specific responsibilities of each of the parties collaborating on the project, it usually being the case that each party brings its own unique set of skills and resources to contribute to the broader program (e.g., one party may serve as project manager while other parties provide specific services such as vocational training, daycare, health services, internships etc., the provision of which should be detailed in separate agreements between the project manager on behalf of the collaborative and the specific provider).  The agreement should also include duties for all parties including compliance with laws, attending regular meetings and maintaining insurance covering their activities in connection with the project.  Governance and dispute resolution should be addressed in the agreement and the parties should commit to developing and continuously reviewing a strategic plan related to the project.

Another way that companies can work to bring community stakeholders together is through the formation of a “collaborative” group with formal rules and guidelines to facilitate ongoing discussion of projects that can help the community and the ways in which each of the members of the collaborative can support those projects financially or otherwise.  The collaborative would have separate legal status; however, provision would be made for rules to be followed for admission to the collaborative and deliberations among and decisions by collaborative members.  In addition, many such collaborative groups do receive and disburse funds and when such activities are anticipated it will be necessary for the members to provide for one of them to serve as the fiscal sponsor of the collaborative to handle the funds, establish a bank account and provide reports on how funds have been received (e.g., grants, revenues from events sponsored by the collaborative, donations from collaborative members, donations from community members etc.) and used (this should be accomplished through a separate fiscal sponsorship agreement).  The collaborative may even have its own personnel to handle day-to-day activities under the direction of the governing group of the collaborative provided that sufficient funds are available (and may also rely on the support of volunteers from collaborative members or the community itself). 

In addition to their voting rights, members of the collaborative may have opportunities to receive funding from the collaborative for services rendered in connection with community projects sponsored by the collaborative; however, such services and related compensation should be addressed in formal contracts approved by members unaffiliated with the subject matter of the contract.  Collaborative members should be required to maintain insurance covering their activities in relation to the collaborative and inform their constituencies about the collaborative and its activities as a means for generating project ideas.  Collaborative members may be required to provide funding to the collaborative for projects in order for them to maintain full voting status (community groups unable or unwilling to commit to funding may nonetheless be involved with the collaborative as non-voting “associated” members).  A collaborative arrangement of this type can be challenging, and the parties often provide for a finite term, say five years out, to ensure that there is a date upon which the parties seriously consider whether to continue with the arrangement, perhaps with a new and different mission and strategic plan, or terminate the venture.

Since in many cases businesses collaborate with other organizations to carry out specific community engagement and investment programs it is important to develop templates of standard agreements that can be used to easily and effectively highlight and resolve the key issues associated with most collaborations.  For example, a company may decide to partner with a community nonprofit organization to provide vocational training as part of a larger effort to improve job skills in the community to enhance job opportunities for community members who may be struggling due to lack of technical skills.  In that situation the collaborators may enter into an agreement, perhaps in the form of a memorandum of understanding, that covers the size and characteristics of the target population for the programs, the schedule and content of training activities, the availability of volunteers from each of the collaborators to provide mentoring services and any financial assistance that will be provided to support the training activities (i.e., marketing the training sessions, leasing equipment etc.).  The agreement should also cover communications between the parties to ensure that representatives meet regularly to coordinate the schedules for the training sessions (i.e., developing a master training calendar) and other matters such as monitoring the impact of the program on the target population and the broader community.  Other matters that should be covered in the agreement include rights to intellectual property arising out of the collaboration, duties to maintain insurance and the terms upon which collaborators may perform services for one another (e.g., the company may provide some of its own consultants to the nonprofit organization to build long-term capacity within the organization relating to the curriculum for training programs that the organization may provide in the future outside of the agreement with the company).

Community Consultation Requirements

Before proceeding with any community investment program, particularly one that will involve the development of new structures and/or impacts to the natural habitat in the community, consideration needs to be given to laws, regulations and informal community expectations regarding engagement and consultation with members of the community.  Community consultation requirements have long applied to local governments and provide that governmental bodies must consult with the community for a specified minimum period of time in advance of considering and ultimately making decisions regarding a community development project.  In many cases, the laws and regulations pertaining to government community engagement mandate the preparation and use of a communications strategy for the new project (and for any material amendment or modification of an existing project).  The communications strategy, or plan, should normally include a description of how the impacted community will be drawn into the consultation process, the target groups within the community who need to participate in the consultation process, the potential impact of the project on the community and the methods that will be used to facilitate the consultation process.  Schedules, milestones and tools for measuring the level and quality of engagement should also be part of any comprehensive consultation plan created by local governments.[3]

Practices within communities vary so it will be important to seek advice from local experts familiar with any permitting or licensing requirements applicable to community development activities.  In most cases even a small project such as making changes to the landscaping around the company’s facility and/or adding more lighting to the parking lot used by customers and employees will require preparation and publication of an “impact report” and a minimum period of “waiting” before proceeding with the project during which community members can submit comments on, and raise objections to, the project.  Evidence that the company has completed these preliminary steps will need to be presented to the regulatory body responsible for issuing permits or licenses.

Fair Labor Standards

Many community investment and development activities focus on training and skills development for community members, including students, to improve their opportunities in the local job market and businesses interested in that area need to be mindful of applicable provisions of the FLSA, which has been introduced and discussed above.  The FLSA includes extensive requirements between parties in an “employment relationship” relating to minimum wage, overtime pay, record keeping (i.e., personal employee information, wages, hours), and child labor, and businesses need to consider whether or not students receiving vocational training in work settings will be considered employees under the FLSA and thus be entitled to the benefits and rights of employee status under the FLSA.  Recognizing that businesses may be reluctant to launch training and internship programs, the federal Departments of Labor and Education developed guidelines that can be followed to properly structure the programs so that participants have access to the protections of the FLSA and businesses have proper and clear guidance as to how the programs should be designed and executed (see, for example, the Statement of Principle relating to vocational exploration, assessment and training programs for students with physical and/or mental disabilities).

This article is part of the Sustainable Entrepreneurship Project’s extensive materials on Community Engagement and Investment and an excerpt from Community Engagement and Investment: A Guide for Sustainable Entrepreneurs by Alan S. Gutterman, which is available for purchase at various online booksellers.  Readers may also enjoy the author’s Responsible Business: A Guide to Corporate Social Responsibility for Sustainable Entrepreneurs.

[1] Portions of the discussion in this section are adapted from Regulatory Compliance for Corporate Philanthropy: Why, What, How?, July 28, 2014

http://blog.cybergrants.com/regulatory-compliance-for-corporate-philanthropy-201407.html; and The Importance of Compliant Giving Programs (CyberGrants, 2014)

[2] The list of issues in this section is adapted from several sources including Legal Issues to Consider When Holding Events (Melbourne: Justice Connect, October 2014).

[3] Community Engagement Toolkit for Planning (The State of Queensland Australia: Department of Infrastructure, Local Government and Planning, August 2017), 3.