Canadian HR Reporter

CANADIAN HR REPORTER March 20, 2017 INSIGHT 19 Legislating supply chain transparency Should Canada follow the lead of other countries to prevent human rights abuses? In late February, the French government passed a new law requiring companies to establish and disclose plans and process- es to address and prevent human rights abuses in their global supply chains. e Netherlands also proposed legislation that, if passed, would require companies to address risks of child labour in their supply chain. Shortly thereafter, Australia an- nounced an inquiry by the Joint Standing Committee on Foreign Aff airs, Defence and Trade into whether it too should adopt a law on modern slavery in supply chains, including forced and child labour. Does this represent a growing trend in international regulation? Yes. ere are already at least three other supply chain transpar- ency regulations on the books in the United Kingdom, Euro- pean Union and California that, alongside these new initiatives, represent a worldwide move to ensure companies are taking steps to eliminate the scourge of any forced labour in their global operations. While few Canadian compa- nies are legally required to report under these foreign laws, Canada may well have to play catch-up if it wants to compete in a global in- vestment marketplace. As major investment jurisdic- tions such as the U.K. normalize corporate disclosure around sup- ply chain practices, investors are starting to expect comparable dis- closure from companies in other jurisdictions, including ours. And well they should. Investors are increasingly at- tuned to the risks in the global supply chain, especially the in- cidence of forced labour or child labour. Although no company sets out to use products made with forced labour, the reality is there are more than 21 million people working in conditions of forced labour worldwide, and the In- ternational Labour Organization estimates 19 million of those are employed in the private sector. Billions of dollars' worth of goods entering Canada each year come from jurisdictions or indus- tries where forced labour has been uncovered. Electronics, food, clothing and commodities such as coff ee are cited by the United States Depart- ment of Labor as "at risk" of child and forced labour, depending on their country of manufacture or origin. As investors, we don't want to be linked to human rights abuses such as forced labour any more than the companies themselves do. While companies face the reputational risk of negative hu- man rights performance, opera- tional risks of supply disruption or blocked shipments of goods made with forced labour, and as- sociated legal risks, institutional investors themselves have their own responsibilities under inter- national norms. Complaints under the OECD Guidelines for Multinational Enterprises from the Organisa- tion for Economic Co-operation and Development, for instance, have targeted investors as well as companies, and the Offi ce of the United Nations High Com- missioner for Human Rights has argued "institutional inves- tors would be expected to seek to prevent or mitigate human rights risks identifi ed in relation to shareholdings." The Shareholder Associa- tion for Research & Education (SHARE) represents Canadian institutional investors that have an active interest in eradicating forced labour and other human rights abuses from the supply chains of the companies they own. First and foremost, like most Canadians, we abhor the abuse of basic human rights, and our cli- ents make an eff ort to contribute positively to respect for human rights through their actions as ac- tive shareholders. We also recognize that bad labour practices are ultimately bad for business, and represent a genuine risk to the reputation and profi tability of those companies that don't conduct adequate due diligence. at's why we are paying close attention to jurisdictions such as the U.K., California, France and the EU that have started to take action to combat the growth of forced labour by enacting leg- islation requiring companies to monitor their global supply chains for forced labour and to report publicly on their eff orts. e thousands of reports now fl owing in from companies re- quired to report under the U.K.'s new Modern Slavery Act, for ex- ample — including some Canadi- an fi rms with U.K. operations — is a testament to the power of this growing wave of legislation. Legislative steps Recently, we took a closer look at this new wave of supply chain transparency legislation. We asked what works well, what doesn't, and what best responds to the investor interest in critical dis- closures that will allow us to dis- tinguish between well-managed companies and the others. Our review concluded Canada would do well to enact legislation akin to the U.K.'s Modern Slavery Act to improve disclosure to in- vestors and help Canadian com- panies to raise the bar on human rights due diligence. While there are some Canadian fi rms that have taken leadership positions on human rights in the supply chain, and are providing useful information to investors, broad, legally mandated report- ing requirements for the rest of the market have real advantages over the patchwork of voluntary reporting Canadian investors are faced with now. Investors need legal standards and frameworks that provide con- sistency in company reporting, while allowing for variance where business models diff er. We need reporting across an entire market, allowing consum- ers and investors to compare per- formance amongst all competi- tors rather than amongst the few leaders who voluntarily disclose. For companies, standardized reporting also creates opportu- nities to learn from peers and develop common approaches to due diligence. Legislation can promote con- tinuous improvement by requir- ing a regular schedule of report- ing that allows companies to learn from experience and adopt new practices over time. e wave of supply chain trans- parency legislation now sweeping through other countries has been welcomed by investors in those countries, and in some cases like the U.K., investors were intimately involved in crafting the rules. Similar legislation in Canada would be welcomed by investors here, and we hope companies and investors will contribute positive- ly to its development. Kevin omas is the Toronto-based director of shareholder engagement at the Shareholder Association for Research and Education (SHARE), an association devoted to responsible investment services, research and edu- cation for institutional investors. For more information, visit www.share.ca. In late February, the French government passed a new law requiring companies to establish and disclose plans and process- es to address and prevent human rights abuses in their global supply chains. e Netherlands also proposed legislation that, if passed, would require companies to address risks of child labour in their Kevin omas GUeST COMMeNTaRY A case of he said, she said Should an employer issue discipline if it has no actual evidence other than hearsay? Question: Should an employer issue disci- pline if it is aware of misconduct but has no actual evidence other than hearsay that isn't any more reliable than the suspected employee's denials? Answer: Whenever there is an allegation of misconduct, an em- ployer should conduct an investi- gation before making the decision to discipline. Issuing discipline without reliable evidence is risky and not recommended. For the results of an investiga- tion to be reliable and, if chal- lenged, defensible, it must be per- formed by someone with training or experience performing investi- gations, and the investigator can- not be, or be seen to be, biased. Dismissal of an employee based on a faulty investigation could leave the employer open to significant liability beyond wrongful dismissal damages. In Elgert v. Home Hardware Stores Ltd., the employer dismissed a 17-year employee after conduct- ing an investigation into allega- tions of sexual harassment. A jury found the employee was wrongfully dismissed and in addi- tion to awarding 24 months' no- tice, awarded $60,000 for defama- tion, $200,000 in aggravated dam- ages and $300,000 for punitive damages. On appeal, the Alberta Court of Appeal set aside the ag- gravated damages but found puni- tive damages to be justifi ed in light of the employer's actions, includ- ing a sub-standard investigation. e court's concerns included: the employer's failure to remain neutral, the appointment of an inexperienced investigator, the fact the employer had predeter- mined it would terminate, and the employer's overall treatment of the employee during the in- vestigative process (which the court described as "high-handed and vindictive"). Ultimately, the court reduced punitive dam- ages to $75,000, an amount it be- lieved appropriately punished the employer. Level of proof What level of proof is necessary to justify termination? While it is always preferable to have absolute proof, that is not always possible. e good news for employers is absolute proof is not the standard. Except in the case of alleged criminal misconduct (where the standard is "beyond a reasonable doubt"), the standard of proof in civil courts and arbitrations is "the balance of probabilities." In other words, is it more likely than not the alleged events occurred. Where evidence is lacking, and the employer must assess the credibility of the witnesses to determine who are telling the truth, the employer should be able to justify its assessment. For in- stance, the complainant's version of events may be consistent with timekeeping records, while the ac- cused employee's is not. Or the accused employee's ac- count may be consistent through- out, whereas the complainant's account varied considerably. Bottom line: Issuing discipline in the absence of evidence is risky and not recommended. Instead, the employer should undertake an investigation to inquire into what happened. When in doubt, an employer should ask itself two questions: Would discipline hold up to the scrutiny of a judge or arbitrator? If not, what are the possible rami- fi cations of an unfavourable deci- sion both fi nancially and in the workplace generally? Natasha Zervoudakis is a lawyer at Sherrard Kuzz, a management-side employment and labour law fi rm in Toronto. Natasha can be reached at (416) 603-0700 (main), (416) 420- 0738 (24-hour) or by visiting www. sherrardkuzz.com. Question: Should an employer issue disci- pline if it is aware of misconduct but has no actual evidence other than hearsay that isn't any more reliable than the suspected Natasha Zervoudakis TOUgHeST HR QUeSTiON Where evidence is lacking, the employer should be able to justify its assessment. Standardized reporting creates opportunities to learn from peers and develop common approaches to due diligence.

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