Loblaws, Joe Fresh, Nevsun Resources, Hudbay Minerals, and Tahoe Resources. What do these Canadian companies have in common? They have been targeted in significant lawsuits in Canadian courts for alleged labour and/or human rights violations in their overseas operations or supply chains.

Canadian multinational corporations must take note that our courts are revealing a new willingness to expand their jurisdictional reach in light of modern commercial realities and perceived corporate impunity (see: Chevron Corp. v. Yaiguage, 2015 SCC 42), and they are keeping an open mind as to whether a duty of care exists between Canadian companies and the foreign workers who produce their products (see: Choc v. Hudbay Minerals Inc., 2013 ONSC 1414). This emerging trend in Canada is taking place against the backdrop of hardening and expanding international business and human rights standards and norms.

A key test case for this shift in Canada is the ongoing class action lawsuit against Loblaws and Joe Fresh (the “Loblaws Defendants“), which was launched by Bangladeshi garment workers in response to the well-known 2013 Rana Plaza collapse in Dhaka, Bangladesh, which killed 1,130 workers.

Foreign Actions on Canadian Soil – the Rana Plaza example

The plaintiff garment workers are suing the Loblaws Defendants, as well as the firms used to inspect and audit their Bangladeshi subcontractors for $2 billion CAD, alleging that they knew or ought to have known about the potential risks associated with the Rana Plaza structure.

Assuming that a court agrees to hear the claim, the plaintiffs will be required to demonstrate that the Loblaws Defendants were negligent in managing their arm’s length supply chain operations. The plaintiffs must prove that the Loblaws Defendants had a duty to protect their subcontractors’ employees, and that by purchasing products manufactured in Bangladesh, they took on health and safety responsibilities that would normally rest with the overseas employer. The plaintiffs must also prove that the Loblaws Defendants could reasonably have done more to protect the workers within their supply chain.

International Human Rights Norms and the Duty of Care

The plaintiff garment workers point to a number of factors as evidence of both a self-imposed and externally-imposed duty on the part of the Loblaws Defendants. Among them are the Loblaws Defendants’ internal codes of conduct, supplier policies, and public statements, as well as their commitment to adhere to international business and human rights principles, including the UN Guiding Principles on Business and Human Rights. That the plaintiffs are using the Loblaws Defendants’ active participation in these “best practice” initiatives against them lays bare a key underlying tension in this realm and points to a shift in this area.

The tension is clear. On the one hand, the plaintiffs have effectively claimed that the Loblaws Defendants should have known better and done more, given that they held themselves and their suppliers to a high standard. On the other hand, the documents and representations at issue appear to evidence the Loblaws Defendants’ good faith efforts to carry out precisely the type of due diligence and risk mitigation that the plaintiffs accuse them of failing to undertake.

It is important to remember that, regardless of the current trends regarding business and human rights, courts do not expect perfection. Instead, they ask whether a defendant who foresees a risk of harm has taken all reasonable measures to mitigate the risks that a reasonable person would have done in the circumstances. By conducting inspections, commissioning supplier audits, and making ongoing business relationships contingent upon meeting certain expectations regarding workers’ rights, the Loblaws Defendants arguably did exactly what a reasonable company ought to have done in the messy and sometimes less-than-ideal world of supply chain management. If a court accepts that argument, participation in and compliance with voluntary initiatives and standards may contribute to exempting the Loblaws Defendants from liability. If, alternatively, a court believes that the steps taken were insufficient – for instance, that the Loblaws Defendants “talked the talk” but failed to “walk to walk” in terms of compliance with business and human rights principles – the companies may be held liable.

Increasing public awareness of the intersection between business activities and labour/human rights considerations has given rise to a number of “soft” law standards and initiatives aimed at ensuring that companies operating in foreign jurisdictions proactively manage their human rights impacts. What were initially considered voluntary standards have become the yardstick against which corporate activities are judged, whether in a court of law or the court of public opinion. While previously the risk was predominantly reputational, it is quickly expanding to include legal liability with the potential for substantial damages awards.

Continuing Lessons

While the Rana Plaza lawsuit highlights some of the current issues within the evolving business and human rights framework, it also highlights the importance of understanding the international principles and expectations that are becoming the new norm. In light of efforts being taken by some of the world’s largest companies, particularly in industries such as garment and textile manufacturing or the extractive sector, it seems unlikely that a court would favour allowing companies to take a “wait and see” approach in the face of well-publicized supply chain risks, regardless of whether those risks relate to health and safety issues, potential labour or human rights violations, or allegations of corruption. In addition, some jurisdictions have begun adopting “hard” laws – such as the California Transparency in Supply Chains Act of 2010or the United Kingdom’s Modern Slavery Act 2015 – to supplement the “soft” law of international standards and principles, further embedding modern human rights norms into the global marketplace.

The ongoing shift in public opinion, Canadian jurisprudence, and legislative action herald potentially extensive legal and reputational liability for multinational companies who choose not to assess their global operations or who fail to take steps to investigate and remedy deficiencies. The development of business and human rights standards is progressing at a rapid pace and all signs point to continued expansion and reach.

While there is no “one size fits all” solution, respect for human rights, a comprehensive understanding of the direct and indirect impacts of business activities and supply chains, and effective due diligence processes are increasingly essential for large and small businesses alike in minimizing financial and brand risk. The necessary first step is a legal risk analysis of current activities and operations, followed by the implementation of human rights policies and supplier codes of conduct, and swift action to investigate and remedy problem areas.

One thing is clear – the intellectual debate is over. The human rights of workers, wherever located, must be respected by corporate actors who are increasingly seen to be the ultimate employer. A failure to understand and act upon the emerging risks will eventually have a significant negative impact on profitability and will undermine a company’s social license to operate. As “hard” laws around transparency become commonplace and large civil claims for alleged overseas human rights violations find welcoming courts in Canada, it is critical for multinational employers to take stock and commit to action.