By Joey Novick, Esq.
One of my many jobs when I was the Executive Director of the New Jersey Volunteer Lawyers for the Arts was to work as “crisis manager” for the very many arts nonprofits that would call with issues on a daily basis.
Since the main job of an arts organization executive director is handling day-to-day matters and putting out their own crisis ‘fires,’ I’d often get calls when all hell broke loose on a legal matter. I’d function as an Emergency Room doctor doing triage on their legal matter first.
However, I’d much rather have functioned as their regular doctor–a general practitioner whose job it is to prescribe a good diet, an exercise program, stress-reducing activities and healthy sleep habits.
Once I had learned that it was better to be a good medical doctor who keeps his/her patients in good health, I developed a key list of areas of legal concern of which all arts nonprofits should be made aware. The overall health of an arts nonprofit is very much reliant upon their overall legal health.
Here are key legal areas for an arts nonprofit organization to keep in mind. Have your attorney provide a periodic assessment of these areas–and save your organization from legal crisis management.
Arts Law Toolbox
Your organization’s bylaws are a vital tool to manage your organization. They outline the structure of your governing body, detail the responsibilities of your board of directors, and describe how board actions and amendments take place.
Updated bylaws protect both your board members, and the organization as a whole. Organizational bylaws should include such details as:
Once you’ve created your non-profit bylaws, you’ll have a better understanding of your legal rights and responsibilities, and can get down to business.
Your nonprofit’s bylaws are both a legal document and a roadmap for your organization’s actions. To be incorporated, an organization must have a set of bylaws. If your nonprofit decides to seek 501(c)3 tax exemption from the IRS, it’s much easier if you are incorporated, and incorporation requires you to set up all the legal requirements, such as bylaws, that the IRS requires when granting tax exemption.
Bylaws vary according to the nature of the organization but consider them as the internal manual for how your organization will operate. They should address basic activities, such as:
2-Independent Contractor vs Employee
For large nonprofit arts organizations, the choice to classify someone as an employee or an independent contractor can be reasonably simple. However, for smaller arts nonprofits with few or no staff, this decision can be confounding and perhaps a costly mistake.
While calling a new hire an “independent contractor” can save an organization a fair amount of money in taxes, benefits, and reimbursements to start off, that decision could possibly cost the non-profit organization enormous IRS fines — not to mention tax burdens for the employee.
The basic and easy-to-use criteria for determining whether your newly hired staff member is an independent contractor or an employee is the IRS’s Factor Test, available at https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee.
These factors include criteria like what level of instruction will the person have and will they have a weekly, biweekly or monthly pay schedule. To be classified as an employee, a new hire only needs to meet a few of these many factors. The IRS explains that these factors fall into three categories that provide evidence about the degree of control and independence the new hire will have. The three categories are Behavioral, Financial, and Type of Relationship. An executive director should be well acquainted with these factors before bringing new staff on and determining their employment status.
3- Intellectual Property (IP): Copyrights and Trademarks.
Like any other legal entity, nonprofits have the right to own and profit from their intellectual property. However, any arts nonprofit should be aware of many important IP issues that could impact its legal health.
Copyright protects original works of authorship fixed in a tangible medium of expression, including books; publications; software; website design; photos; art, including pictorial, graphic, and sculptural works); music; sound recordings; dramatic works; motion pictures; architectural work; choreography; and, in some cases, data.
A trademark is a name, word, phrase, symbol, logo, design, or sound used in connection with a good or service, and used to indicate the source of the goods/services and to distinguish them from the goods/services of others.
Your nonprofit organization must be careful in the manner in which way this material is used and maintained. There are such important issues as inurement, private benefit, taxable expenditures (IRS Section 4945), ownership, ‘Self-Dealing’, the exploitation of IP owned by the non-profit, and the hiring of a for-profit entity to create intellectual property.
4-Advocacy vs Lobbying
This question comes up a great deal–exactly what is the line of demarcation between advocating for your organization with your local government, your state arts council, and in Washington, and lobbying?
From the Center for Non-Profits in New Jersey: “Nonprofits are expressly prohibited from intervening in a political campaign of any candidate for public office, and from engaging in partisan activity of any kind. In addition, nonprofits may not use government funds, such as government grants or contracts, to lobby, including the use of federal funds to lobby for federal grants or contracts.”
Nonprofit organizations face many crucial issues, and therefore it is more important than ever that they become involved in the arts funding public policy debate. But, in actuality, federal laws exist to encourage nonprofits to lobby within certain specified limits. Knowing what constitutes lobbying under the law, and what the limits are, is the key to being able to lobby legally and safely.
Nonprofits are permitted to lobby–within limits. According to the Center for Non-Profits, “federal law clearly states that a 501(c)(3) publicly supported charity may devote no more than an ‘insubstantial’ portion of its activities to lobbying.” Also, the IRS does not view attempts to influence administrative rules, regulations or other executive branch actions as lobbying. The best brief source to explain the difference between lobbying and advocacy can be seen at http://www.njnonprofits.org/NPsCanLobby.html.
ArtPride New Jersey, for example, annually attends National Arts Advocacy Day in Washington D.C. joined by many nonprofit arts organizations to meet with members of the New Jersey Congressional Delegation. Congressman Leonard Lance (NJ-7) is the co-chair of the Congressional Arts Caucus and he and other members of Congress are very open to hear updates on arts related issues from non-profit arts organizations.
ArtPride New Jersey also has training and resources for the boards and staff of nonprofit arts organizations on this topic. This training helps arts advocates better understand their role in the legislative process.
I hope this article is of some benefit to you and your arts nonprofit. This is by no means a complete list of all the areas of law an arts nonprofit organization might confront in its journey to provide services to its stakeholders. If your organization has specific questions, it is strongly advisable that you seek legal counsel with regard to any particular situation.
Joey Novick, Esq. is the former Executive Director of the New Jersey Volunteer Lawyers for the Arts. He is a member of the Executive Board of the Entertainment & Sports Law Section of the New Jersey State Bar Association, and sits on the Board of the National Volunteer Lawyers of the Arts organization. He is a performing comedy artist himself, having appeared at comedy clubs nationally; his one man show, “Comedian Elected to Town Council in New Jersey” will be a featured part of the United Solo Festival this fall in New York City. He may be contacted at firstname.lastname@example.org