LACK OF BOARD OVERSIGHT MAY HAVE CAUSED PROBLEMS FOR THE COSTMETOLOGISTS

The decision in Cosmetology Industry Association of British Columbia v. Nguyen, 2010 BCSC 1051, may serve as a warning to regulatory boards, that they must pay attention to the activities of their employees and carefully consider how much authority ought to be delegated to their registrars or executive directors.
The province decided to deregulate cosmetologists in December 2003, at which point the cosmetologists incorporated pursuant to the Society Act. Therefore, a cosmetologist does not have to be a member of a professional organisation in order to work and use titles associated with the industry, but practically, most salon owners require certification from the Society before hiring. Unfortunately in this case, the Association's CEO and a former board member "ran amok" causing serious financial loss for the Association which it was unable to recover.
In an effort to make it easier for BC cosmetologists to work in the USA an examination process was developed. The Association contracted to an organisation known as "NIC" to administer NIC's examinations. It would charge candidates a fee to take the exams. The idea was that candidates who passed these exams would be qualified to work in most US states. The project was viewed as beneficial financially to the Association. It is important to note that the CEO was not required to obtain approval for this contract from the Board of Directors. It appears from the decision that the Board knew nothing about it.
The CEO and former director Nguyen produced a questionable list of candidates to NIC, obtained the first examination and answer sheet and completed the exams with the assistance of another employee. The candidates did not complete the exams at all! However, it was not long before NIC concluded that there had been cheating and who was responsible for it.
NIC sued the Association for its expenses to ($254,000.00) to develop a new examination. A compromise was reached and the Association paid NIC nearly $200,000.00 Canadian funds to settle the claim.
The Association fired the CEO and unsuccessfully sued the former director, Nguyen in fraud to seek to recover its losses. It tried to put the blame all on the shoulders of the former director despite the fact that its CEO was heavily involved in the scheme from the beginning. Since she was found to be the Association's directing mind and was authorized to enter into the contract without reference to the Board of Directors, it could not be said that she was acting on her own and no fraud occurred because the Association, through its directing mind, did not rely on Nguyen and was not deceived by him.
This decision is a reminder that boards must be careful about the extent of authority granted to employees. Further, a board is responsible to oversee its operations and act responsibly in doing so. It appears that the board of this Association, at least in respect of this matter, was not fulfilling its duties.