What does a Canadian company owe to workers for overseas suppliers?
A pending appeal court ruling in Ontario involving Loblaw and the Rana Plaza factory collapse could change how international companies do business — or it could expose some corporate social responsibility codes as empty promises. Loblaw says the lawsuit has no precedent In a packed commercial district outside Dhaka, Bangladesh, there’s a large, rectangular plot of land overgrown with bushes and weeds amid several tall but decrepit industrial buildings — an eerie reminder of a structure that’s no longer there.
On a visit two years ago, when the plot was just a muddy pond, fish were swimming amid floating scraps of clothing, some with brand labels still attached. Joel Rochon, a Toronto lawyer, spotted some in a familiar orange: “Joe Fresh.”
Rana Plaza, a nine-storey clothing factory and commercial building, collapsed into that space on April 24, 2013. The death toll reached 1,130, alongside 2,500 injured, in one of history’s deadliest industrial disasters.
A day earlier, cracks had appeared in the structure. Despite warnings from local authorities to keep the building empty, an investigation into the collapse revealed garment workers were ordered to come to work that morning to finish an order of 24,000 pairs of Joe Fresh jeans.
The workers were employees of New Wave, the Rana Plaza-based factory from which Loblaw — owner of the Joe Fresh brand and one of Canada’s largest retailers — contracted manufacturing services. The majority of these employees were young women. Joe Fresh orders accounted for 50 per cent of New Wave’s operations at the time.
Rochon, a founding partner of the Toronto law firm Rochon Genova, visited this site in January 2016, with three colleagues. He had decided eight months after the 2013 collapse to take Loblaw to court. The $2-billion proposed class- action suit marks one of the first legal actions in Ontario against a western retailer accused of contributing to deaths and injuries along its supply line.
For the plaintiffs, a big part of the case relates to what they see as the inefficacy of Loblaw’s corporate social responsibility policies — the voluntary guidelines that commit the company to make every effort to ensure all its workers are protected.
The lawsuit against Loblaw and its auditing firm, Bureau Veritas, was dismissed in Ontario Superior Court last year, but on April 24, the fifth anniversary of the collapse, appeal arguments were heard in Toronto. The Superior Court justice had found there was no direct cause of action that linked Loblaw to the collapse, and thus denied certification. Neither Loblaw, the court found, nor the auditor it hired owed a duty of care to the Bangladeshi workers.
While experts see a ruling against Loblaw as a distant prospect, the case could send a message to all corporations: that they have a duty of care to all members of their manufacturing operations — including the workers that make their products in a foreign country — that goes beyond being just an act of goodwill.
Alternatively, the case could help prove that corporate social responsibility policies are largely meaningless.
“If this doesn’t demonstrate the futility of corporate social responsibility, I’m not sure what would.” PROF. DAVID DOOREY ON A RULING THAT COMPANIES AREN’T LIABLE FOR PROTECTING WORKERS IN THEIR SUPPPLY CHAINS
The lawsuit that seeks to represent almost 4,000 people was launched in 2015, and includes survivors who have suffered debilitating injuries and lost their livelihoods, and family members of those killed in the collapse.
Loblaw Companies Ltd. spokesperson Kevin Groh told the Star there is no precedent for legal action in a case like this. “No court anywhere in the world has ever imposed liability on a company with respect to a supplier’s employees,” he said.
Rochon believes it’s time for that to change. In the statement of claim his firm authored, the suit alleges Loblaw and its auditor, Bureau Veritas, breached their duty of care “to ensure that the workers manufacturing garments in Rana Plaza worked in a safe and lawfully constructed and operated factory.”
It alleges Loblaw, having sourced products in Bangladesh since 2007, “had acquired an unparalleled and profound understanding of the troubling history of factory collapses and dangerous building conditions in Bangladesh,” and failed to “abide by applicable standards of care and social and corporate responsibility.”
None of these allegations have been proven in court. All have been vehemently denied by Loblaw, with Groh stating in an email to the Star they “were so broadly false and distorted we had no choice but to defend.
“Ultimately, the claim suggested we had knowledge we did not have and did things we did not do,” Groh said.
He said the company was unaware of any issues with the structural integrity of the building before it came down, as it “did not own, operate or do anything but order products from a vendor that produced goods in the factory, alongside many other global brands.”
“We are not a manufacturer and don’t own or operate factories,” Groh said. “We purchase from manufacturers who are in some cases factory owners as well.”
Meanwhile, the plaintiffs contend Loblaw violated its own voluntary corporate social responsibility code, failing to take all the required steps to protect the workers creating its products.
Voluntary corporate social responsibility standards have become common among large multinational corporations. Loblaw introduced its code in 2007, committing the company to comply with core workplace standards and to observe local laws.
Loblaw, the statement of claim alleges, violated both aspects: by failing to perform a thorough structural audit, despite receiving audits that showed the building lacked a legitimate business licence, and that the factory owners were rapidly adding new floors without proper permits.
The Canadian retailer did not have anyone posted in Dhaka at the time of the disaster, Groh said. It was unaware of any issues that would necessitate it to perform a structural audit. No issues were apparent to the company at the time, Groh added, that required halting the order for Joe Fresh jeans due that Friday. The collapse was on the Wednesday.
Rochon argues that these red flags should have been heeded. But he, and the legal system, face a difficult question: can an Ontario court hold a Canadian corporation liable for deaths and injuries suffered in a foreign country?
In July 2017, Ontario Superior Court Justice Paul Perell dismissed the Rana Plaza lawsuit in a 130-page decision. He argued that while Loblaw may have a moral or ethical duty of care, “it certainly is not plain and obvious that a purchaser of goods does or should have a legal duty of care to the employees of a manufacturer of those goods.”
Perell called the issues “extraordinarily complex,” but ultimately found that Loblaw had no control over how the two supplier companies it hired to make its clothes operated and was not responsible for the collapse.
The lawsuit’s claim in this regard, Perell said, were “bloated with conclusory statements that simply allege a cause of action as if it was a material fact.”
If any such liability existed, Perell said, it could create an unfair disparity between companies that do “good deeds,” by creating corporate social responsibility standards, for example, and those that don’t. The former would be punished if they failed to act to help its workers, while the latter would not be scrutinized in any way.
Perell goes on to say that part of the complexity of the case was figuring out which country’s laws should be applied in examining the tragedy. Because the victims were in Bangladesh, the audits were commissioned there, and the harm happened there, Perell found Bangladeshi law should be applied. Any link made between actions of a company based in Ontario and harms suffered in Bangladesh was artificial, he added.
In other words, even though the decisions about which supplier factory to employ to produce jeans, and what kind of monitoring and audits to permit, occurred in Ontario, the decisions wouldn’t be punishable under Canadian law if harm resulted in a foreign country.
David Doorey, professor of labour law at York University, wasn’t surprised by the earlier ruling.
“Courts are cautious about extending liability to parties that are not directly liable for the act that caused the damage,” he said in an email interview. But he was disappointed. “The court basically ruled that corporations don’t have a legal duty to actually take steps to protect workers in their supply chains, even if they have made public promises to do so.”
Doorey called the decision a “damning indictment of the entire project of voluntary corporate social responsibility.”
In the aftermath of the collapse, western companies sourcing from the Rana Plaza building claimed there was nothing they could have done, and nothing in their responsibility standards that required them to check if the building was safe for manufacturing.
“If this doesn’t demonstrate the futility of corporate social responsibility,” Doorey said, “I’m not sure what would.”
A month after the collapse, Loblaw was one of the first signatories to a 2013 landmark agreement to improve workplace standards in clothing factories — one that is legally binding.
The more than 200 companies and unions that joined the Accord on Building and Fire Safety in Bangladesh — a global corporate response to Rana Plaza — have inspected and improved1,600 factories to date, and provided health and safety training to nearly half a million workers. It binds retailers to the independent oversight of the International Labour Organization.
The Accord expires in May 2018, but Groh said Loblaw has already signed its successor, the Transition Accord.
The company has also put 25 Loblaw representatives on the ground, up from zero in 2013, who visit the factories in Bangladesh and five other countries where its goods are produced. It now publicly lists the names of all factories (as demanded by the Accord) that produce Joe Fresh products “as a demonstration of transparency around workplace standards.”
The retailer has also provided relief and compensation of $5 million (Canadian) for the families of Rana Plaza victims.
But for the plaintiffs and their lawyers, these steps come too late.
“Loblaw had a very extensive Bangladesh operation both prior to and after the Rana Plaza collapse,” Rochon said in the interview. “When you’re engaging these garment workers, you have to ensure they are working in a safe environment. That should go without saying but until Rana Plaza collapsed that wasn’t the case.”
Groh said Loblaw was unaware of the history of structural and factory damage in the country before Rana Plaza.
The company has sourced products in Bangladesh since 2007. The country — the world’s second largest manufacturer and exporter of garments, after China — has an average wage of 24 to 33 cents an hour. The industry there is loosely regulated, and recent years have seen deadly results.
In April 2005, the nine-storey Spectrum Sweat- er factory, just north of Rana Plaza, collapsed, killing 64 people. Ten months later, in February 2006, a fire destroyed a four-storey factory in the port city of Chittagong, killing at least 54.
Seven years later, the Rana Plaza collapsed, its death toll on a scale beyond previous accidents.
“You kind of think about structural issues as something that exists but isn’t visible,” said Golnaz Nayerahmadi, Rochon’s associate, who went to Dhaka with him. “That is palpable when you go to Bangladesh. The buildings are crooked. When you’re looking straight ahead you’re not sure if it’s going to stay upright.”
In 2011, two years before the disaster, Loblaw retained the giant social auditing company Bureau Veritas to conduct a basic audit of the New Wave factory at Rana Plaza. The audit cost $1,200 (U.S.).
The aim was to check if the factory complied with Loblaw’s supplier code of conduct, included in its corporate social responsibility standards. Although, as both Loblaw and Bureau Veritas said in court, the code did not include any obligation to check if a factory is likely to collapse.
In the 2011 audit, 13 major instances of noncompliance were found at the New Wave factory, including a seventh floor under construction without a work permit. In the 2012 audit, four major violations were revealed, including the absence of a factory licence, required under Bangladeshi law. Emergency routes and exits were found to be unmarked in both, and the workers poorly trained in safe workplace practices.
Inside, large-scale industrial, diesel-powered generators and hundreds of heavy-duty sewing machines were situated on several floors, which had not been designed to support such machines or with proper permits. When the machines worked at once, workers said, the whole building shook.
Neither audit examined the structural integrity of the building, which would have cost $800 more to assess.
Justice Perell noted that “the remediation of the deficiencies noted in the social audits was not followed up on.” Loblaw, according to Perell’s decision, increased its orders from New Wave. In January 2013, the company terminated its relationship with Bureau Veritas and retained a new auditing firm, which did not visit Rana Plaza before the collapse.
Industrial safety specialist Garrett Brown, who worked as a safety consultant in the aftermath of Rana Plaza, was retained by Rochon as an expert voice to speak about this during the lawsuit proceedings. In an affidavit, he said even before the disaster, “effective and reasonable audits of garment factories in Bangladesh would have required consideration of the high degree of corruption and structural deficiencies which have resulted in factory building collapses.”
Brown said the chief causes of such collapses have historically been poor building design, construction and expansion without permits, and the widespread practice of converting buildings intended for commercial use to industrial purposes.
Loblaw has tried to change this. “We did not conduct structural integrity audits, because this was not the industry practice at the time,” Groh told the Star about the Rana Plaza audits. Since 2013, the company has fully audited the 30 factories it currently works with in Bangladesh. The audits included structural integrity. Doorey questions why that wasn’t the practice all along. He wrote in an article about the lawsuit that the company “paid for a limited ‘social audit’ rather than a slightly more expensive audit that included a structural assessment of a building constructed on a drained pond in a country known for (flimsy) enforcement of building codes, and then ignored the violations even that limited audit uncovered.”
At the annual general meeting that year, Loblaw’s executive chairperson, Galen Weston Jr., said “this was a senseless tragedy and it should not have happened.” He said the company could have done more.
“Based on what we know, the top floors of the building should never have been built. Reports from the ground suggest that garment workers never should have been allowed back in the building after an evacuation was ordered. And we are asking ourselves, what more should we have done to ensure a safe working environment in this facility?”
Rana Plaza workers were aware of the hazards of working in the factory. In the statement of claim, Rehana Khatun, who operated a sewing machine in the building and is a plaintiff in the lawsuit, said she and her coworkers had gathered outside the factory’s entrance the day of the collapse, fearful of the major cracks that had appeared in the wall. But there was that Joe Fresh jeans order.
“The production manager from New Wave ordered me to enter the building and resume work,” the then-18-year-old said in the claim. Fearing for her job if she objected, she went in, and was found in the rubble many hours later. She lost both legs.
She used to be the primary income earner but now struggles to raise a family and pay for her medical treatment.
Rochon and his team met Khatun and other injured Rana Plaza workers in January 2016. With the help of Bangladeshi legal-aid workers, they set up a pink tent on the shore of the swamp and watched throngs of people queue to sign up and have their case heard in Toronto.
“There has never been a class action in Bangladesh,” said Obaidul Hoque, a Bengali-speaking former member of Rochon’s legal team who spent months in Dhaka laying the groundwork for the lawsuit.
Over two months, Hoque signed up the nearly 4,000 people. that continue to engage with Loblaw in a legal battle. With the help of Rochon and Nayerahmadi, the Toronto legal team returned with boxes upon boxes of signed consent forms.
The vacant, rectangular plot is now a living memorial, where hundreds of people from across the country keep vigil for the lost children, the lost parents. Tea stalls have been set up to serve members of the grieving families who travel there. The industrial buildings around them echo the doomed Rana Plaza: fully built structures which are now seeing additional floors being added on top of them.
“They’re hopeful for the possibility of justice,” said Hoque, who believes this case will have reverberations in other garment-producing countries like India, Sri Lanka, Cambodia, Vietnam and Thailand, where Loblaw and other large retailers also have suppliers. “They believe Canada has a system they can trust.”
Rochon believes a legally binding decision would lead to change. “A decision in Canada, that is the western world, is the only case that is in the backyard of these massive retailers where true behaviour modification can occur,”he said. “Because a judgment here is enforceable here.”
Groh says the retailer is “proud to have made Loblaw a contributing voice in the Rana Plaza response and its unfolding legacy of greater factory safety.”
York University’s Doorey remains skeptical that these changes will carry any weight.
“Sadly, history suggests that once the spotlight fades on tragic events like Rana Plaza, companies will return to complacency.
“Until the next big disaster.”