Non-Profit Organization Contract Disputes

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 What Is a Non-profit Company?

A non-profit company is a type of organization structure that is set up to funnel any revenue earned back into the company in order to advance the mission of the company. This is opposed to a normal organizational structure wherein revenues are dispensed to company owners, investors, or employees via bonuses.

A non-profit company, otherwise known as a non-profit organization, non-profit institution, or non-business entity is a legal entity that is formed to further a particular social cause, instead of aimed at generating a profit for the company owners. Because non-profits tend to extend a public or social benefit, non-profit companies are given certain benefits that a normal for-profit company does not receive.

For instance, non-profit companies are given tax-exempt status by the Internal Revenue Service (“IRS”) so long as it is demonstrated to the IRS that they further a charitable, religious, educational, literary, scientific, public safety, or cruelty-prevention field.

Non-profits may include any of the following organizations:

  • Public charities;
  • Private foundations;
  • Chambers of commerce;
  • Public clinics;
  • Churches;
  • Fraternal organizations;
  • Civic leagues.

According to the National Center for Charitable Statistics (“NCCS”), there are more than 1.8 million non-profit organizations that are registered in the United States. Further, each year, more than one-quarter of all adult citizens volunteer to support a non-profit organization of some type, whether through their monetary donations, purchasing the non-profit’s product, or volunteering their time. Additionally, non-profit organizations employ 10 percent of the United States workforce.

What Goes Into a Non-profit Organization Contract?

Non-profit organization contracts may include many different terms and cover a variety of different matters. This is because there are many different business transactions and agreements that a non-profit engages in, such as buying equipment or leasing a business space.

In order to prevent misunderstandings and legal disputes, all non-profit organizations and the parties that they deal with should utilize contracts and agreements in order to establish what is being agreed to.

As mentioned above, non-profit organization contracts may involve a variety of different topics. Non-profits are typically formed with certain business goals, such as supporting a technology advancement effort in a community. Because of this, contracts are often entered into and required in relation to for-profit companies or vendors.

The following is a list of what a non-profit organization contract may cover:

  • A detailed description of the non-profit project or goals of the organization;
  • Information regarding any parties that may be forming the non-profit or involved in running the non-profit;
  • Any contracts with vendors;
  • Any agreements concerning the board or any managers of the non-profit;
  • Any agreements concerning employment with the non-profit;
  • A schedule or timeline for the project being maintained by the non-profit;
  • The duration of the contract agreement and whether it is renewable;
  • The tasks and duties of each party involved in the non-profit;
  • How any legal disputes between individuals or parties involved in the non-profit may be resolved, such as requiring arbitration or mediation.

What Types of Contract Disputes Are Common With Non-profit Organizations?

When it comes to legal issues involving non-profit organizations, the three most common reasons for suing non-profits include contract disputes, employment law claims, and personal injury lawsuits. It is important to note that non-profit organizations are not exempt from liabilities similar to those of a for-profit organization. This is because non-profits are businesses just like any other organization. Examples of common contract disputes involving non-profits include:

  • Disputes Regarding Services, Products, or Pricing: Disputes over the quality or quantity of services or products that are provided by a non-profit organization are common;
  • Employment-Related Disputes: As mentioned above, non-profits employ 10% of the United States workforce. As such, harassment, wrongful termination, and wage/hour disputes often arise, similar to other for-profit companies;
  • Non-Litigation Clauses: Many non-profit organization contracts include a clause stating that if there is a disagreement between the parties, each party agrees not to sue the other in court. Instead, they use alternative dispute resolution forums such as mediation or arbitration. Limitations on resolving legal disputes can result in disputes themselves;
  • Renewal Terms: Disputes often arise if the parties aren’t clear on whether a contract is renewable or not;
  • Property Disputes: Property disputes are also common sources of contract disputes for non-profit organizations. Many non-profit groups don’t own the real estate space where they operate or may even share the property with other organizations.
    • Shared spaces and property rentals often require that additional contracts be negotiated;
  • Sale of Goods: Non-profits often have to acquire inventory or goods to further or complete their state goals. As such, they may engage in sales contracts. Sales contracts are heavily disputed, especially in wholesale and liquidated merchandise transactions;
  • Non-Compete Agreements: In some businesses, the business may want their key employees to agree that if they terminate working for the company, they cannot work for a competitor for a certain number of years. These non-compete clauses often result in legal disputes.

As can be seen, there are often numerous contract disputes that may arise concerning non-profit organizations. It is important that the court will always first look at any existing contract as to how legal disputes are to be resolved, so long as that contract conforms to the laws of that jurisdiction. As such, it is often advised to have an attorney draft and review the contract concerning the non-profit organization.

How Can I Avoid Contract Disputes?

Properly written contracts with clear language that each party can understand could stop many contract disputes before they ever start. No one can predict where and when another contract dispute or breach of contract may arise. However, with clear wording, any breaching party would be hard-pressed to deviate from their responsibilities as stated in the contract. As such, the best way to avoid contract disputes is to have a clearly written contract that covers situations or legal disputes that may arise in the operation of the non-profit.

What Are the Consequences for Breaching a Contract?

Remedies for a breach of contract will often be addressed within the contract itself. Remedies for a breach of contract typically involve a monetary damages award in the amount of the financial costs related to the breach of the contract.

In some cases, consequential damages may also be awarded. Consequential damages are damages that are above and beyond money lost as a result of the breach of contract. Direct damages generally focus on the costs associated directly with the contract breach. However, consequential damages focus on the costs of the breach outside the contract.

Recovery for breach of contract cases is usually limited to money that is lost because of the breach. However, some courts have held that tort damages may also be available for breach of contract in the limited circumstances where there is a special relationship between the parties. These include those arising from elements of public interest and fiduciary responsibility.

Do I Need a Lawyer if I Have a Non-profit Organization Contract Dispute?

As can be seen, non-profit organizations are still subject to many different business, contract, and tax laws. Further, many of the legal issues that may arise concerning non-profits are specific to the particular state or city in which the non-profit operates. As such, if you are unsure about a non-profit project or contract, it is in your best interests to consult with an experienced contract lawyer.

An experienced contract lawyer will be able to assist with drafting or reviewing the terms of a non-profit organization contract. Further, if a legal dispute arises as a result of a non-profit organization contract, a contract lawyer can represent your interests in court, mediation, or arbitration.


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