Rethinking Liability for Unpaid Wages in a Fissured Economy - PowerPoint Presentation

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Rethinking Liability for Unpaid Wages in a Fissured Economy

June 25, 2019

LLRN4 – Santiago, Chile

Professor Kevin Banks

Centre for Law in the Contemporary Workplace

Queen’s University

Outline

The problem

2. Current responses (policy models and academic proposals) and their limitations

3. Towards a Canadian variant of a better response

The Problem

Non-payment of wages (minimum wages; contractually agreed wages; statutorily required overtime pay) constitutes the single largest group of claims presented to labour inspectors under employment standards legislation – the primary venue for wage claims.

Better enforcement practices are probably the most important possible response (Banks 2016)

But a significant and growing (but hard to measure) fraction of these claims arise in situations where fissuring chronically incentivizes non-compliance and may render enforcement futile.

Three Fissuring Scenarios

1. Subcontracting work previously done by the business

2. Obtaining labour, via contracts with intermediaries, from workers in a position of economic dependence on the business (layering within a somewhat disintegrated enterprise).

3. Directly and indirectly controlling the terms on which obtain an essential input to the business’s product (good or service) (supply chains or franchising); as distinct from obtaining a good or service to assist the operation of the business (extended vertical disintegration).

An example – the Lian Case

L claimed that wages not fully paid, that not paid minimum wage and not paid any overtime or vacation pay by Eliz World – total about $5000.

EW had hired her to sew garments in her home.

EW produced garments for J. Crew, Venator, and Modern Times, through subcontracting arrangements (none had a direct contracting relationship).

EW filed no statement of defence.

An example – the Lian Case

L claimed against EW, and all of the retailers

L (with the support of UNITE) led affidavit evidence from industry experts that:

Manufacturers were price takers, with retailers setting price quantity and delivery times on a take it or leave it basis.

Contractors often subcontract; practice is well known to retailers

Buyer-centered production chain very sensitive to market demand and production costs.

Court finds that it is reasonable to foresee that there will be ESA compliance problems with some suppliers’ contractors in this industry.

Current Responses and Their Limitations

Existing legislation in Canada

Joint employer based on common control and direction

Joint and several liability in subcontracting the work of an existing enterprise (Quebec and Saskatchewan)

Joint and several liability in agency employment (

eg

Ontario)

Joint and several liability for farm labour contractors (British Columbia)

Current Responses and Their Limitations

Other common law jurisdictions

Accessorial liability (Australia)

Joint employer based on vertical economic dependence (US DOL 2016)

Joint and several liability in problematic sectors where knew or ought to have known funds insufficient (California Labor Act s. 2810)

Current Responses and Their Limitations

Limitations

Scope not congruent with the problem

Normative basis of legal responsibility for unpaid wages not articulated with sufficient precision

What type of knowledge (actual or constructive) of and/or control over remuneration is/are needed before legal responsibility is justified?

Lack of a determinate model of legal responsibility of non-contracting parties leads courts and tribunals to forego extension of responsibility based on purposive interpretation of legislation (as in the

Lian

case)

Current Responses and Their Limitations

Limitations in Action – Ontario’s 2016 Changing Workplace Review

All options in other common law jurisdictions (listed above) on the table in interim report

None retained in final report

Indeterminacy of purpose and scope of alternative models of liability substantially weakened case for reform in the face of stiff political resistance from employers and other proposals competing for expenditures of political capital.

Towards a Canadian Response to the Problem

 Potentially receptive legal environment

History of purposive interpretation of employment statutes by autonomous administrative tribunals has weakened the hold of traditional common law tests and enabled extension of responsibility beyond contractual relationships

Supreme Court’s struggles with the definition of employment have led to move away from formalism – core of common law test now asks whether the worker is in business for him/her/themselves or not

Towards a Canadian Response to the Problem

Steps in analysis

Identify principles of legal responsibility of third parties to contracts, beginning with those that are indigenous to the Canadian legal system

Outline potential approach

Consider practicalities of implementation – the retail vs wholesale determination problem

Principles of Legal Responsibility – Academic Literature

Causation

Foreseeability

Capacity to prevent

Unjust benefit

Principles of Legal Responsibility – Canadian Legal System

Enabling torts:

In general terms, responsibility of third parties in negligence requires that:

defendant intentionally attracts and invites parties to an inherent and obvious risk that he or she created and controls (competitions; supplier of an instrument of danger; suppliers of goods and services to consumers; commercial hosts serving alcohol); and

2. fails to take reasonable care to prevent harm

Principles of Legal Responsibility – Canadian Legal System

Regulatory offenses of permission

Only responsible for activities of another if had the ability to control behaviour which could have foreseen and failed to do so

Due diligence defence presumptively available if all reasonable care is taken to avoid any foreseeable harm

Simply relying on subcontractors to self-regulate is not due diligence

Fact-intensive and case-specific determinations

Principles of Legal Responsibility – Canadian Legal System

Purposive interpretations of health and safety and anti-discrimination law:

Responsibility assigned on the basis of capacity to control what harm to be prevented by legislation.

Again, very fact-specific determinations

Construction liens

Legal responsibility imposed without regard to circumstances of control or foreseeability

Towards a Better Approach

Knowledge or constructive knowledge requirement

A purposive approach would attach legal responsibility to a third party to the contract of hire where that third party knows or ought reasonably to know that there is a substantial risk that legally required remuneration will not be paid to workers producing inputs to the products or services that its business provides.

Knowledge could be imputed on the basis of industry circumstances (analogously to inherent and obvious risks in enabling tort law), or inferred from the particular circumstances of the case.

Towards a Better Approach

Knowledge Requirements: What We Know About Factors Leading to Non-Payment of Wages

Low cost of entry sectors

Competition on the basis of labour costs

Fluctuations in demand with short response times

Fungible labour force

Towards a Better Approach

Retail or Wholesale Application?

Wholesale or standardized approaches to responsibility and duties only justifiable on the basis of particular industry conditions – sector-specific regulation

Retail determinations of responsibility and duties likely to be prohibitively expensive and viable only by class action or test case