Department of Justice Issues Rulemaking Notice on Mandatory Website Accessibility for the Disabled

Website accessibility is important for nonprofit or nongovernmental organizations.  In the United States, our Americans with Disabilities Act (ADA) requires that all governmental or private entities that open their doors to the public be accessible, and that includes their websites.  However, the notion of accessibility should be an important subject for nonprofits throughout the world.  According to the New York based Disabled in Action, 18% of people have a disability with 12% reporting a severe disability.  Internet accessibility is especially important to those who have visual or auditory disabilities.  And this becomes even more critical as populations age.  So while this article from the law firm Venable is United States centric, I hope it gives our international readers ideas for making their online presence even more friendly to disabled populations.  Bunnie

Department of Justice Issues Rulemaking Notice on Mandatory Website Accessibility for the Disabled
by George W. Johnston, James Edward Fagan, III and
Jeffrey S. Tenenbaum

The United States Department of Justice (DOJ) recently reiterated its intent to enforce website accessibility standards under the Americans with Disabilities Act (ADA). The DOJ is focusing on ensuring that covered entities provide ready access for the disabled to their websites. In short, the ADA accessibility rules cover any entities (governmental or private) that open their doors to the public, including nonprofit organizations, places of lodging, retailers, restaurants, medical facilities, banks, local governments, and schools, among others. Any nonprofit with a public website is directly affected by theses accessibility rules. The DOJ has consistently maintained the position that websites operated by covered entities are “public accommodations,” and recent court decisions have supported this view. The courts have reasoned that websites serve as extensions of, and invitations to, the physical structures that serve as more traditional public accommodations.
and Jeffrey S. Tenenbaum

 The DOJ has issued an Advance Notice of Proposed Rulemaking (ANPRM) for public accommodation websites and has promised increased enforcement and heightened scrutiny of public and private websites. Through the public comment process, the DOJ seeks input on such matters as barriers to website accessibility, coverage limitations of the ADA, cost of compliance on small organizations and the need for increased DOJ enforcement. While the DOJ will solicit comments over the next several months before it issues final regulations, now is the time for entities covered by the upcoming rules to address any accessibility issues on their websites.

Nonprofit organizations should review their website content and design for accessibility by individuals with disabilities, including visual, motor and cognitive impairments. For example, web designers should be employed to provide text descriptions for visual content that is compatible with assistive technology (braille and screen readers) used by the blind. Web design should be consistent and easy to navigate, and all video and audio should be captioned and should minimize the use of color cues. Online recruitment and hiring capabilities should conform to all ADA standards as well.

In addition, website content should include a full description of how your organization provides full access to the disabled at its physical locations. Architectural and engineering compliance should be fully explained and all online purchasing opportunities should be available to persons with disabilities. Any barriers to, or limitations upon, accessibility should be fully disclosed. For example, a travel industry association should consider counseling its members to provide informative descriptions of access limitations for all facilities it recommends to the public. Similarly, retail industry associations should describe best practices to its member stores that regularly host the public.

Failure to comply with the new regulations may leave a covered entity exposed to damages and other compliance measures initiated by the DOJ, as well as lawsuits by individuals under the ADA. Venable attorneys will be monitoring DOJ’s rulemaking, as well as legal developments in the legislative and judicial arenas.

Assessing Associations' Identity Theft Red Flags and Risks

I love getting articles from the attorneys at Venable.  Many times the content is something I've never thought about, like this one...association identity theft red flags and risks.  So many nonprofits have online options for paying dues or making donations, which leaves donors or members vunerable to identity theft.  Or perhaps they have paper or electronic records of sensitive donor information such as credit card and bank account numbers, security codes, etc.  Have you done a risk assessment of your nonprofit?  Not just the possibility of your nonprofit accounts and identity being stolen but how safe is the identity and information of your donors?  Bunnie

Update: On May 28, 2010, at the request of several Members of Congress, the Federal Trade Commission announced it is further delaying enforcement of the “Red Flags” Rule through December 31, 2010, while Congress considers legislation that would affect the scope of entities covered by the Rule. If Congress passes legislation limiting the scope of the Red Flags Rule with an effective date earlier than December 31, 2010, the FTC indicated that it will begin enforcement as of that effective date.

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The Identity Theft Red Flags Rule (the “Rule”), 16 C.F.R. Part 681.2, was developed by the Federal Trade Commission pursuant to the Fair and Accurate Credit Transactions Act of 2003. Under the Rule, financial institutions and creditors with covered accounts must have identity theft prevention programs to identify, detect and respond to patterns, practices or specific activities that could indicate identity theft.

While many associations meet the Rule’s definition of a “creditor” because they accept payments over time for good/services provided, such as membership dues, publications, events, etc., many of these associations will not meet the Rule's second prong for coverage, which is having a “covered account.”

An account is “covered” under the Rule if it is for personal/household use. If not, the account can still be “covered” if there is a reasonably foreseeable risk of identity theft to either the account holder or the association, based on past experience in the opening, accessing or transactional use associated with the account.

Therefore, it is crucial to first conduct a risk assessment to see whether or not the association’s risk of identity theft regarding customer accounts (including those of both members and non-members, whether corporate or individual) is reasonably foreseeable; if not, then the association does not have “covered accounts” and is not within the scope of the Rule. In that case, the association should keep a copy of this written risk assessment on file, and update the risk assessment at least annually, as evidence of Rule non-coverage.

If, on the other hand, the risk assessment indicates a reasonably foreseeable risk of ID theft and hence Rule coverage, then the association's Identity Theft Prevention/Red Flag Program must also include a written Policy and Procedures. The following risk assessment tools are one possible way to weigh some of the various facts that might go into such an assessment. But each association must consider its own facts and experiences in dealing with customer account information, to arrive at its own particular assessment of the ID theft risks.

Finally, it is important to remember that there are numerous other laws and regulations, at both the federal and state levels, that may cover associations' privacy and information security practices, depending on the type of information obtained, used, sold/transferred, and retained and/or disposed. Associations, therefore, must consult legal counsel to determine their specific coverage and compliance issues with regard to privacy and information security practices.

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RISK ASSESSMENT

Number of Customers, during the period from 1/1/XX to date: ______________
Number of Customer Transactions, from 1/1/XX to date: __________________

[Appropriate time frame for risk assessment: past 3-5 years preferable, past 2 years minimum. Customers includes both members and non-members, whether corporate or individual]

Risk Assessment Key

O=Open

A=Access (view balance; change personal information; change payment method)

T=Can conduct transactions (make a payment; transfer funds; obtain products)

“Experience” indicates whether association has had previous experiences with identity theft with respect to each specific type of account.

Risk ratings* are “High” (H), “Moderate” (M), and “Low” (L).

*Explanation for risk ratings: Risk ratings are based on the association’s size in terms of customers and annual transactions, the number of individuals authorized to access each customer's account, and the association's existing policies and procedures (such as Internet security, account oversight, account agreements, etc.). The risk also depends on the types of products/services normally sold to each customer, the accessibility of the customer account, the association’s experience with identity theft, and how susceptible the offered products and services are to fraudulent activity.

Our next posting will be the second half of this article ASSESSMENT OF ASSOCIATION’S ACCOUNTS/SERVICES, METHODS FOR OPENING ACCOUNTS, METHODS FOR ACCESSING ACCOUNTS

Supreme Court Decision Opens New Doors for Associations

As long as I can remember it has been forbidden for nonprofit associations to support any candidates for public office.  However with the historic Citizens United decision, nonprofit associations (other than 501 (c) 3's) can now endorse, promote and even put their favored candidates on the websites, literature, etc.  This is a HUGE sea change.  When Citizens United was first announced there was much discussion about corporate America taking over political campaigns.  My personal opinion, with which you may not agree, is that the chest pounding was a bit silly.  If you have lived for more than five minutes on this planet, you would know that "corporate America" has influenced our political landscape and there is no politician or legislator that is independent of its reach. 

So what makes Citizens United important for nonprofit associations?  I believe it finally levels the playing field for nonprofits when it comes to the electoral soap box.  No longer will nonprofits (again, other than 501 (c) 3's) have to sit idly by or form separate PAC's in order to put their support behind a candidate that cares about their agenda.  And while corporations will give money to associations to conduct candidate endorsements, less endowed associations will finally be able to say to their members "Support Mr. or Ms. X because they support us" in their newsletters, on their websites, in their blogs, etc.  And frankly, for a lot of associations, I think that's a good thing (again, my humble opinion).  Bunnie

Supreme Court Decision Opens New Doors for Associations

by Ronald M. Jacobs, Esq. and Alexandra Megaris, Esq., Venable LLP, Washington, DC

The U.S. Supreme Court has issued its long-awaited decision in Citizens United v. FEC. The Court struck down a federal ban on “independent expenditures” and “electioneering communications” made by nonprofit and for-profit corporations. A number of states have similar bans, and those too will likely fall under the reasoning of Citizens United. A related question is whether a similar ban on expenditures by labor unions will fall.

The decision did not impact direct giving to candidates, political action committees (“PACs”), or parties. Thus, corporations, including associations, may not use their general funds to make contributions to candidates. Accordingly, individuals and PACs will have to continue to make direct contributions.

Although for-profits and nonprofits alike are now free to engage political speech, given the perception that for-profit entities may not be willing to engage in public candidate-advocacy directly, it is likely that much of the work will be done by associations on behalf of their members. This article explains the Citizens United decision and how it may benefit associations.

Brief Legal Background

The laws at issue in Citizens United prohibited two types of corporate expenditures:

(1) Independent Expenditures: any expenditure—at any time, through any medium—that expressly advocated the election or defeat of a clearly identified candidate for federal office. Examples include television advertisements, newspaper advertisements, and postings on corporate blogs, which contain phrases such as “Reelect Congressman Jones” or “Vote Against Smith.”

(2) Electioneering Communications: expenditures by corporations made within 60 days of a general election or 30 days of a primary election if the expenditure is used to fund a communication that is made by broadcast, cable, or satellite, and refers to a clearly identified candidate for federal office. Prior to Citizens United, the Supreme Court had already narrowed this definition to include communications that are the “functional equivalent” of express advocacy and the FEC has adopted a complicated 11-factor test to make such a determination.

Before Citizens United, associations could make these two types of communications only through their PACs. In reality, this was a major limit on funding such expenditures, given the rules restricting how associations solicit for their PACs and the relatively low limits on contributions to a PAC ($5,000 per year). Now, however, associations will be able to fund these expenditures from their general treasury funds.

Conduct Permitted by the Decision

One direct impact of this decision is that for-profits may engage directly in independent expenditures. More important for associations, however, is that for-profit companies may now donate to associations for the specific purpose of having those nonprofits make independent expenditures. In addition, nonprofit corporations—other than 501(c)(3) organizations—may use their general funds, even if those include payments from corporations, to make independent expenditures.

As a result of the Citizens United decision, there are a number of specific activities now permitted, some obvious, some not so obvious:

1.) Paying for print, internet, radio, television, satellite, and cable advertising;

2.) Placing endorsements on association web sites;

3.) Placing advertisements on association web sites;

4.) Using association email lists to support candidates; and

5.) Using association blogs to post messages of support for candidates.

Coordination Not Permitted

Any such activity, however, may not be coordinated with a candidate; coordinating such activity would change the independent expenditure into an in-kind contribution, which is still prohibited. The FEC is currently working on regulations defining what it means to coordinate with a candidate. The definitions are broader and much more complex than what many might consider to be “coordinating” with another entity. The regulatory framework is complicated by the fact that the Court of Appeals for the District of Columbia Circuit has struck down the FEC’s two previous attempts to create such regulations in Shays v. FEC, 414 F.3d 76 (D.C. Cir. 2005) (“Shays I”) and Shays v. FEC, 528 F.3d 914 (D.C. Cir. 2008) (“Shays III”).

Under the original and revised rules, promulgated in 2002 and 2006, respectively, a public communication is coordinated (and thus is a contribution) if:

(1) someone other than the candidate, party, or official campaign pays for it;

(2) the communication itself meets specified “content standards”; and

(3) the payer’s interaction with the candidate/party satisfies specified “conduct standards.”

The FEC has proposed a number of ways to satisfy the content and conduct prongs, several of which have been the subject of court challenges over the years. In October 2009, the FEC issued a Notice of Proposed Rulemaking to revise the content and conduct standards in accordance with Shays III.

Content Standards: The content prong is satisfied if the communication either:

(1) is an electioneering communication;

(2) distributes or republishes campaign materials prepared by a candidate or his authorized committee;

(3) expressly advocates the election or defeat of a clearly identified candidate for federal office; or

(4) if it refers to a political party or clearly identified federal candidate, is publicly distributed 120 or 90 days or fewer before an election (depending on whether the coordination is with a Presidential candidate, congressional candidate, or political party), and is directed to certain voters.

The fourth standard was successfully challenged in Shays I and Shays III. In Shays III, the Court of Appeals expressed concern that more than 90/120 days before an election, candidates may ask wealthy supporters to fund ads on their behalf, so long as those ads contain no “magic words” (such as “vote for” or “vote against” which would qualify them as express advocacy communications).

To address the court’s concerns, the FEC proposes to retain the existing four content standards and adopt one or more of the following: (1) a standard to cover communications that promote, attack, support, or oppose a political party or a clearly identified federal candidate (the “PASO standard”); (2) a standard to cover communications that are the “functional equivalent of express advocacy”; (3) clarification that the existing express advocacy standard includes communications containing more than just “magic words”, such as certain campaign slogans; and (4) a standard that expressly prohibits explicit agreements to establish coordination.

Prior to Citizens United, a corporation’s ability to fund the types of communications covered by the content prong was significantly limited. Because corporations can now make such expenditures from their general treasury funds, it is likely that the use of such communications will increase. As such, corporations and associations will have to be especially mindful that their communications do not meet any of the conduct standards, described below.

Conduct Standards: The conduct prong of the FEC’s test for determining whether a communication is coordinated is comprised of five standards. The first three conduct standards are be satisfied if a communication was created or distributed (1) at the request or suggestion of, (2) after material involvement by, or (3) after substantial discussion with, a candidate, a candidate’s authorized committee, or a political party committee. The remaining two standards are satisfied if a candidate’s former vendor or employee created or distributed a communication using material information about campaign plans, activities, or needs, or shared such information with the person funding the communication, for 120 days.

The FEC proposals presently under consideration retain the five conduct standards, but offer three alternatives for the time periods in the former vendor and employee standards. The FEC aims to tailor the time periods to “the realistic ‘shelf life’ of the types of information that a campaign vendor or former employee is likely to possess.”

Even after Citizens United, associations, in particular those whose members are, or even formerly were, active in federal political campaigns, must ensure that any advertisements that they fund do not fall within one of the five conduct standards. Under both the current or proposed rules, the range of interaction between the candidate/party and the association that may establish impermissible coordination is wide. For example, under the former vendor or employee standards, an association may be “coordinating” with a candidate without ever communicating with that candidate or his campaign.

Disclosures and Disclaimers

While it overturned a number of restrictions, the Supreme Court did, however, uphold certain disclosure obligations that apply to electioneering communications. “Disclaimer and disclosure requirements may burden the ability to speak,” the Court reasoned, “but they ‘impose no ceiling on campaign-related activities,’ . . . and ‘do not prevent anyone from speaking.’”

Therefore, to the extent a corporation spends over $10,000 during any calendar year to fund communications through broadcast, radio, satellite, or cable that refer to clearly identified candidates within 30 days of a primary election or 60 days of a general election, it will have to file disclosures with the FEC revealing the corporation making the communication, the amount spent, and certain contributors.

In addition, each electioneering communication must include certain specified disclaimers. Communications not authorized by the candidate, as would almost certainly be the case for an independent expenditure or electioneering communication not coordinated with the candidate, must provide a name and address (or web address) for the entity making the communication, state that the communication is not authorized by any candidate, and include the following audio statement: “___ is responsible for the content of this advertising.” If transmitted through television, this statement must also appear on screen in accordance with specifications set forth in FEC regulations.

Expenditures for express advocacy must be reported to the FEC when they aggregate more than $250 for an election. This includes information about the amount of the expenditures and information about contributors who gave more then $200 if the contribution “was made for the purpose of furthering the reported independent expenditure.” If the independent expenditures exceed $10,000, then reports must be filed with the FEC within two days of the expenditure (one day for expenditures that exceed $1,000 made within 20 say of the election).

Independent expenditures must include disclaimers that are similar to those required for electioneering communications.

The Broad Impact of the Decision

Although the specific legal impact of the decision is clear, it is not clear exactly how corporations will make use of their new right to make independent expenditures. Consider:

• Will a for-profit corporation be willing to spend money on a television advertisement for or against a candidate and risk alienating customers or employees?

• Will highly-regulated industries (e.g., banks, car manufacturers, government contractors, etc.) be willing to alienate an incumbent office holder?

• Will those highly-regulated companies feel compelled to support an incumbent office-holder, given the influence the government has over their business?

• Will for-profit corporations—in tough economic times—be willing to give larger sums to nonprofits that will then make independent expenditures?

• Will shareholders allow companies to make independent expenditures or give to groups that will do so? Several shareholder’s rights groups have force companies to disclose their political activities in an effort to limit such activities. Indeed, some companies specifically prohibit their trade associations from using their dues payments for political expenditures.

• Will PACs become a less-favored approach to participation in the political process?

The Court’s Reasoning

In 1990, the Court upheld a state ban on independent expenditures by corporations in Austin v. Michigan Chamber of Commerce, 494 U.S. 652 (1990). The Court has never directly considered the federal ban on corporate expenditures before Citizens United. Following the Bipartisan Campaign Reform Act in 2002, the Court upheld the ban on electioneering communications in McConnell v. FEC, 540 U.S. 93 (2003). That decision relied on Austin.

The majority opinion—authored by Justice Kennedy, and joined by Chief Justice Roberts, and Justices Scalia, Thomas, and Alito—takes the First Amendment at face value: Congress shall make no law . . . abridging the freedom of speech.” The Court succinctly explains that “[t]he Government may regulate corporate political speech through disclaimer and disclosure requirements, but it may not suppress speech altogether.”

One of the key themes in the decision is that the campaign finance laws have become overly convoluted and complicated. “The First Amendment does not permit laws that force speakers to retain a campaign finance attorney, conduct demographic marketing research, or seek declaratory rulings before discussing most salient political issues of our day.” As a result, such laws silence permissible speech because they are so complicated. Unlike prior decisions in this area upholding additional rules and limits to avoid circumventing the rules already in place, the Court decided “informative voices should not have to circumvent onerous restrictions to exercise their First Amendment rights.”

The Court explained that any restriction on speech—including corporate speech—must survive strict scrutiny, which requires a compelling governmental interest. The government advanced three such interests and the Court rejected them all.

Anti-Distortion: Under the Court’s 1990 Austin v. Michigan decision, the Court had found that because corporations have perpetual existence and can amass great wealth, there is a compelling governmental interest in restricting their influence on elections. This theory ran counter to earlier precedents that had held that campaign finance laws cannot be used to balance the scales between the wealthy and less wealthy. In Citizens United, the Court held that “[t]he rule that political speech cannot be limited based on a speaker’s wealth is a necessary consequence of the premise that the First Amendment generally prohibits the suppression of political speech based on the speaker’s identity.”

The Court went even further, recognizing that “[a]ll speakers, including individuals and the media, use money amassed from the economic marketplace to fund their speech. The first Amendment protects the resulting speech, even if it was enabled by economic transactions with persons or entities who disagree with the speaker’s ideas.”

Finally, the Court reasoned that the idea of leveling the playing field actually hurt smaller corporations. For example, when big business communicates with the government directly, “the result is that smaller or nonprofit corporations cannot raise a voice to object when other corporations, including those with vast wealth, are cooperating with Government.”

Anti-Corruption: The Court had previously held that campaign finance laws can legitimately be used to prevent both actual corruption (i.e., quid pro quo bribery) and the more nebulous “appearance of corruption.” The Court made clear, however, that because it was addressing only independent expenditures, there was no threat of actual or perceived corruption. “[I]ndependent expenditures do not lead to, or create the appearance of, quid pro quo corruption. In fact, there is only scant evidence that independent expenditures even ingratiate. Ingratiation and access, in any event, are not corruption.”

Dissenting Shareholders: Finally, the Court considered whether the law was a valid way to protect a shareholder who does not want the corporation to spend money on an election. It found this argument failed for three reasons. First, it would allow a law to limit the speech of any corporation, including a media corporation, solely to protect the shareholders who disagree with the editorial position of the company. Second, because the electioneering communications ban applied only during certain time periods, it was not an effective way to protect shareholders. Third, it applied to all corporations, including nonprofits and for-profits with a single shareholder.

 * * * *
Mr. Jacobs is a Washington-based partner in Venable’s regulatory group. He heads the political law practice at Venable and counsels numerous associations on campaign finance, tax, lobbying disclosure, and ethics issues.

Ms. Megaris is an associate in Venable’s regulatory group, where she focuses on transactional, regulatory, and policy matters in a broad range of industries, including nonprofit organizations and trade and professional associations.

This article is not intended to provide legal advice or opinion and should not be relied on as such. Legal advice can only be provided in response to specific fact situations.

Nonprofit Executive Contracts: Don't Overlook These Key Issues

Many small nonprofits and even large nonprofits, often overlook the importance of an executive employment contract. And I can't imagine a nonprofit executive taking a position without a contract...but some do. Patrick Clancy and Jeff Tenenbaum, attorneys at Venable, offer point by point advice on what should be in an executive contract. Even if you think your organization is too small, you would be well served (and could avoid potential litigation) by making sure you have an executive employment contract in place. Bunnie

(Top, Jeff Tenenbaum. Bottom, Patrick Clancy)

Nonprofit Executive Employment Contracts: Don’t Overlook These Key Issues

by Patrick Clancy and Jeff Tenenbaum, Venable LLP

Hiring a new executive, especially a president or chief executive officer, is always a major undertaking for any nonprofit organization. A great deal of time and effort are invested in finding quality candidates, interviewing the most promising ones, and making a decision about to whom to extend an offer. Often, monetary resources are invested as well using search firms and similar services.

Throughout this process, both your organization and the prospective candidates strive to appear at their best and make themselves attractive to the other. Typically, the major terms of employment are discussed, including salary, bonuses and benefits. Other details are often left for later discussion following an acceptance of an offer and the preparation of a written employment agreement.

During the courtship process, neither party, understandably, wishes to think about, much less talk about, the divorce. Sooner or (hopefully) later, the relationship between the executive and the organization will end.

For the protection of the organization, as well as in fairness to each party, it is important that the when and how the relationship can end, and what happens when it does end, should be expressly and clearly expressed in the written agreement. It is surprising how often what might seem like basic terms are either overlooked or unclear even after the new executive has been presented with an employment agreement.

Moreover, it is important that the executive candidate be presented with the material terms and conditions of their newly-offered employment prior to their acceptance of the offer and, importantly, prior to the time they notify their existing employer that they are leaving (or prior to the time they decline other offers). Material terms include not only such items as compensation and benefits, the contract term, and under what circumstances employment can end, but also may include such things as post-employment restrictions (e.g., non-compete agreements) and restrictions on outside activities. Courts in some jurisdictions have held that an intentional or negligent failure to disclose a material term and condition of employment, when relied upon by the new executive in leaving their former employment (or potentially declining other employment), can result in liability for the new organization.

This article will discuss some key issues that should be addressed in an executive’s employment contract with a nonprofit organization. Those issues include, of course, the term of employment – How long does the employment last under the contract? While employment can be at-will (meaning that it can be ended at any time by either party without cause or notice), many candidates for president and high-level executive positions will not accept that sort of uncertainty when considering a position. Thus, most executive employment contracts include an express term of employment.

In addition, the agreement should address what happens at the end of the term – How does it expire? What notices, if any, must one or the other party provide? Will the term, or some variation of the term, automatically renew absent some action on the part of one or both parties?

The agreement also should address the ways in which the employment can end other than by expiration of the term. Most agreements include some provision for ending the agreement for “cause,” with varying degrees of detail as to what constitutes cause. However, agreements also can provide that one or both parties may end the employment prior to the expiration of the term upon certain notice, even without cause.

In addition, it is important that the agreement address what happens following termination. That is, are there any particular payments (such as severance) or benefits that will continue or be made to the executive or, as importantly, that no payments or other special benefits are due upon termination? The agreement needs to address this question for every way in which employment might end. These particular points are addressed in further detail below.

The Term of Agreement. As discussed above, most agreements for nonprofit organization chief executives include some fixed term of employment. Many agreements include both an initial term and a renewal term.

a. Initial Term. Often the initial term is two or three years. Many candidates will not consider less security than two years; organizations should be very careful when considering terms longer than three years. A key factor for organizations to consider when assessing the length of the term is the ways in which the term can end prior to expiration, which is discussed below.

b. Renewal Term. The agreement should specify clearly what happens at the end of the initial term. There are several options.

First, the agreement could simply expire upon the end of the term, with no obligation on either party to continue employment (remember that parties are always free to negotiate extensions if both parties desire to continue the relationship).

A common provision in executive agreements is an automatic renewal in the absence of some affirmative notice to the contrary. For example, if one party does NOT provide notice at least 180 days prior to the expiration of the initial term, the agreement might renew automatically for one year. The renewal period could be two years, if desired (although one is probably more typical); more than two years would be unusual, and in most instances, would not be recommended.

The automatic renewal provision could continue for each year of the extension as well (i.e., in the absence of notice during an extension year, the agreement automatically renews for another year). However, the automatic renewal need not continue; the agreement could contain a single renewal of one or two years. Whatever approach is adopted, the agreement should be very explicit as to what happens upon the end of the initial term or renewal term.

A cautionary note regarding automatic renewal provision – It is important that the organization's board remain aware of any approaching deadlines for notices and adhere carefully to the specified procedures for providing notice as set out in the agreement. This need is particularly acute when, as is typically the case in nonprofit organizations, there are significant changes in director and officer composition over time. Do not wait until the last month of the executive's term to consider the question of what happens at the end of the term; it may have already "renewed."

Termination of the Agreement. The agreement should specify how it can end other than by expiration of the term. There are several ways the agreement might end prior to the term expiration.

a. Notice by the executive (no cause or reason). Although by no means required, many agreements have provisions that allow the executive to terminate early – without the need for a reason or cause – by giving certain notice. If your organization agrees to such a provision, the notice period should take into consideration the hiring cycle and lead time required – that is, if the search process takes six months, the agreement might specify a notice period of six months. This lead time would give the organization time to conduct a search; it still might require an interim period before a new executive could come on board, but such time would be short.

b. Notice by the organization (no cause or reason). Organizations should carefully consider including in the agreement a provision that allows the organization to end the agreement early without cause. Establishing cause sufficient for terminating an agreement can be difficult and costly, and result in public embarrassment to the organization (and the executive). The organization may need the flexibility to end the relationship without cause. The executive, on the other hand, will negotiate for sufficient notice to enable her/him to enter the search market, and, thus, the same cycle and timing issues considered above will come into play. From the organization’s standpoint, the shorter the period, the better. If the executive has a notice provision as discussed above, it would be typical for the notice periods to be the same (i.e., perhaps 180 days). However, the organization typically will seek a provision that allows it to provide the executive with pay in lieu of the notice so that the relationship can be severed immediately if the organization deems it necessary.

Does such a "no cause" provision reduce the job security for the executive that might otherwise exist under an agreement for a term of, say, two years? Yes, however, the issue of security can be addressed through the length of notice and severance and/or other benefits.

c. Termination for cause. The agreement should contain a provision for termination for “cause.” Cause should be defined. Typically, it includes such things as malfeasance, breach of the agreement, fraud, embezzlement, dishonesty, gross negligence, etc. Not surprisingly, executives try to negotiate more objective, higher-threshold definitions of cause. The organization would prefer a definition giving it more discretion. For example, be careful of definitions of cause that require convictions of crimes; no organization wants to await the outcome of a criminal proceeding, with the potential negative publicity and other ramifications, before acting upon the employment issue (another reason for a "no cause" provision, as discussed above). It is strongly suggested that the organization consider a definition that includes, among other things, conduct that does or is reasonably determined could bring unfavorable publicity or disrepute to the organization.

What Happens when the Agreement Terminates? The agreement should specify what happens in each of the circumstances under which the agreement can end; in the examples outlined above, this includes four contingencies: (1) expiration of the term (and renewal terms, if any); (2) executive gives notice; (3) organization gives notice; and (4) termination for cause. The interests of the parties here are clearly distinct; the executive is looking for as much security as she/he can get, and the organization wants to have as little expense as possible tied up in a person who is no longer performing services for the organization. The negotiations should find the right balance between the needs of the parties.

If an agreement expires, typically the departing executive does not receive any compensation beyond that earned during the term. However, some agreements include severance as a means of providing some job security to the executive (thus lowering the risk to the executive of leaving her/his current position to join the organization). The shorter the term of the agreement, the more likely there is to be a severance payment upon expiration. For example, if the initial term of the agreement is one year, the agreement might include a six-month severance payment if the agreement is not renewed by the organization. This type of provision gives the executive at least eighteen months of security. As the term of the agreement increases, there generally is less need for this type of security.

If the agreement is ended early by the executive giving notice, typically there is no compensation due beyond that due during the time the executive works for the organization. There is typically no severance in such a situation.

If the organization gives notice (that is, notice prior to the end of the specified term, without cause), there are two alternative approaches that are often taken.

a. Under one approach, no compensation is due beyond the notice period. The theory underlying this approach is that the notice period itself provides the security the executive needs.

b. Another approach might include severance; perhaps a sliding scale of severance depending on how early in the term the notice is given. For example, the agreement might provide that if the organization gives notice during the first twelve months, the executive will receive the notice period plus severance necessary to bring the total of working compensation and severance to eighteen months (again, providing the executive with at least eighteen months’ security). Alternatively, the agreement could provide that if the organization gives notice after the first twelve months, the executive will receive the notice period plus some specified amount (perhaps three months) of severance. In one sense, this approach may be counterintuitive, as the longer the term of service, the less severance is paid. However, considered from the standpoint of how much income security it provides to the executive when viewed from the beginning of the relationship, it may serve the needs of both the organization and the executive.

If the executive is terminated for cause, the agreement typically provides that the executive receives nothing beyond what was due prior to termination.

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Protecting your nonprofit organization while attracting quality candidates for executive positions requires diligence and planning. The details of an agreement are very important, and may become critical to your organization in years to come. Failure to attend to those details prior to the signing of an agreement can lead to acrimonious (and costly) issues down the road.

Patrick Clancy is a partner in the Venable LLP law firm and focuses his practice on labor and employment law. He counsels may of the firm’s nonprofit clients on employment law matters and also represents them in the defense of litigation, arbitration and administrative proceedings. Mr. Tenenbaum is the chair of Venable’s nonprofit organizations practice. They can be reached at plclancy@venable.com, jstenenbaum@venable.com or at 202-344-4000.