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4.1 Compliance With the Code 4.1.1 Theoretical Aspects of Compliance Compliance issues are crucial elements in the design and implementation of laws such as those encompassing labour standards. The extent to which the laws have their intended effects will ultimately depend on the extent to which compliance occurs. Both theory and empirical evidence suggest that parties respond to a wide-range of considerations, including economic incentives and concepts of equity and fairness. It is useful to consider these factors and how they may influence compliance. Firstly, economic models of compliance treat the decision to comply with labour laws as a rational response of private actors to economic incentives (i.e., the costs and benefits) involved with compliance versus non-compliance. In the case of the labour standards legislation examined here, the costs of compliance include the direct increase in labour costs associated with such factors as higher minimum wages, increased overtime premiums, and advance notice of termination32 or severance pay. They can also include any indirect costs associated with such factors as the early loss of the best workers in the case of advance notice of a group termination, and "ripple effects" from minimum wages that lead to wage increases elsewhere in the wage structure. The costs of non-compliance depend upon the direct and indirect penalties associated with non-compliance. The expected direct penalties involve various components associated with the probability of being penalized and the expected penalty if penalized. The indirect penalties involve such factors as adverse publicity that can affect sales, recruiting or morale. Some economic models of compliance can lead to the somewhat counter-intuitive conclusion that, other things being equal and given normal risk aversion, non-compliance is more likely for individuals or organizations that are wealthier.33 This is so because they can afford the "gamble" or risk associated with a non-compliance strategy; that is, they can afford any high penalty associated with the low probability of being detected. Poorer individuals or organizations cannot afford such risks and hence are more likely to follow the risk averse strategy of complying with the law. However, poorer individuals or organizations are more likely to be credit constrained and unable to borrow in capital markets. Hence, especially if they have expectations that their situation may improve in the future, they may engage in non-compliance to save on current cost and accept the risk of being penalized in the future.34 In essence, they use non-compliance as a "source of credit." This strategy is likely to be found in many of the growing number of small businesses and in periods of economic downturn. It would especially be the case under the risk of bankruptcy to the extent that the penalty is simply added to the list of creditors. In essence, firms that are at risk of bankruptcy may engage in an "end-game" strategy whereby they are willing to engage in the risk of non-compliance since it does not add much to their downside risk (if they are not going to be there to pay a penalty). Economic models of compliance may also overlook the difficulty for employers of measuring or determining the benefits side of the cost-benefits equation. Many aspects of labour standards may be seen by employers as having positive benefits (such as the fact that paying overtime may increase employee satisfaction), but the dollar value of such benefits is difficult to weight against the dollar costs of achieving them. Secondly, beyond economic models of compliance, other factors may affect employers' behaviours in their decision to comply with labour standards regulations. Socio-psychological models of compliance,35 for instance, emphasize that compliance is more likely when the parties perceive the regulation to be appropriate and fairly applied to others in similar situations. This suggests that it is important to inform and educate the parties about the rationale for the legislation and to highlight any positive effects that may result. It is also important to ensure that the regulations are uniformly applied and enforced, especially in situations where they apply to competitors. This raises the question of whether Canadian employers are more likely to engage in non-compliance if they are increasingly compelled to compete with other countries where labour standards are not as stringent or not enforced. Thirdly, a human resources perspective may influence compliance with labour standards. Under this perspective, providing good employment conditions and increasing employee satisfaction may simply be seen as the correct way to manage people and organizations. In this case, compliance with labour standards may be somewhat incidental to other objectives, and not assessed from a cost perspective in the usual way. In conclusion, these theoretical considerations illustrate that compliance with labour standards is a complex phenomenon which rests partly, but not exclusively, on economic considerations. Many other factors may affect compliance and it is possible from a policy perspective to achieve greater compliance by designing appropriate strategies and responses to affect workplace behaviours. The next section of this report will examine non-compliance with the Canada Labour Code from an empirical perspective (what is the actual level of compliance/non-compliance) and discuss potential correlates of non-compliance and the responses available to the Labour Program to affect employer's behaviours in the area of labour standards. 4.1.2 What Does the Evidence Tell Us About Compliance? Empirically measuring the actual level of compliance with labour standards is a complex task. The Labour Program maintains a data base of recorded labour standards complaints and violations, but it is widely known that reported violations of the Code may only show the tip of the iceberg of non-compliance. The literature suggests that non-reported violations of the Code are frequent, and the extent of the problem may be hidden by the fact that many infractions of the Code can be the result of voluntary bargaining, or occur through sheer ignorance of the parties. Evidence From the Literature: The little factual evidence existing on the topic suggests that non-compliance is common for many aspects of labour standards. In Ontario, for example, where permits were required for long hours beyond the standard workweek, previous research estimated that about 24 "illegal" hours were worked for every "legal" hour granted under a permit a non-compliance rate of about 96 percent.36 Non-compliance (and non-coverage) with minimum wage legislation in Ontario has been estimated as ranging from 20 percent37 to 45 percent, 38 with extensive non-compliance also documented in the United States.39 Non-compliance rates of 10 to 20 percent have also been estimated for overtime provisions in the United States.40 Most employment standards violations occur at the point of separation41 with employees not receiving wages owed or severance pay, suggesting substantial non-compliance over issues of termination. Clearly, the literature indicates that non-compliance may be high and issues of compliance merit particular attention with respect to such standards as hours of work and overtime, minimum wages and termination, and that non-compliance rates may be relatively high overall. Administrative Data: The Labour Program receives some 5,000 complaints every year on labour standards, about one third of which result in recorded violations of Part III of the Labour Code. It is important to note that this does not necessarily indicate that all other complaints are unfounded, as LAOs will sometimes not record a violation when the matter is not litigious or when employers agree to correct the situation immediately.42 Moreover, a large proportion of complaints relate to unjust dismissals where LAOs serve as mediators between employers and employees, rather than investigating potential violations of the Code. Nonetheless, this indicates that about one formal complaint is received every year for every 200 Federal jurisdiction employees, while the ratio of recorded violations is about one for every 600 employees.43 The majority of complaints relate to two specific areas of the Code, namely payment of wages (about 35 percent of total) and unjust dismissals (about 28 percent). Consistent with the literature reported above, other complaints relate primarily to standards dealing with the termination of employment, particularly with respect to the notice of individual termination and severance pay. Other complaints in the areas of vacations and hours of work represented respectively less than 5 percent of the total number of complaints received every year. The above data must be interpreted with caution. It is hardly surprising that the bulk of employee complaints under Part III relate to wage and termination issues, as these are the provisions of the Code that often evoke strong employer-employee disagreements, and are the most likely to be litigious. It does not, however, indicate that other components of the legislation (particularly the hours of work provisions) are well-complied with. On the contrary, the evidence from the literature cited above and survey results presented below would suggest that non-compliance with respect to hours of work and other provisions is also widespread.44 Results of the Employer Survey: The Survey of Employers conducted as part of this evaluation examined the issue of non-compliance from several different perspectives. Indicators developed for the survey were not expected to produce a definitive measure of compliance-non-compliance. Rather, the objective was to contribute to build a better understanding of how labour standards are applied in Federally-regulated workplaces and particular problem areas for the Code, and to test a survey approach to measuring compliance/non-compliance. This effort appears to have been a success, with a wide range of insights resulting from it. Generally, survey results suggest that non-compliance with certain provisions of the Code is much more widespread than administrative data indicates. Moreover, as will be discussed below, a major factor in non-compliance appears to be the lack of understanding of labour standards by employers. Employer Awareness of Part III Provisions: The first measure of non-compliance examined simply asked employers to indicate if, in their opinion, current employment practices of their firms were above, below or match labour standards under Part III of the Labour Code. Not surprisingly, very few employers indicated being in non-compliance with the Code (varying between 0-5 percent), but a very substantial percentage of employers reported not knowing whether they complied with the regulations or not. Employer lack of awareness was particularly high for certain areas of the Code, particularly: protection against sexual harassment (38.1 percent); severance pay (36.2 percent); and maternity and parental leaves/reassignments (26.3 percent) (Display 5).45 A Measure of Actual Employer Compliance: The second measure of non-compliance was based on responses from employers on their workplace practices relating to specific areas of the Labour Code. The objective was not to measure incidence of non-compliance (this would require an estimate of the number of situations of non-compliance), but simply to create a "proxy" of the percentage of firms reporting practices apparently in non-compliance. Given the complexity of certain aspects of the Code, it was not expected that a questionnaire-type measure would be definitive, but it was seen as providing a broad indicator of the extent of non-compliance in the population of Federally-regulated firms. The results presented in Display 6 indicate a range of non-complying firms for each labour standard covered by the survey. This range is based on an estimate of the percentage of firms reporting actual or usual practices inconsistent with the Code in 1996 and bears no exact relationship to the number of violations or the number of employees whose rights may have been denied.46 Display 5
This distinction is important because non-compliance was found to be higher in smaller firms and employment in Federally-regulated industries is (numerically) concentrated in a relatively small number of very large corporations.47 Consequently, the percentage of all Federal sector workers exposed to sub-standard employment conditions is certainly considerably smaller than what might be suggested by the percentage of employers who are in non-compliance with any given provision. The results suggest that non-compliance is very high, particularly for some standards where more than 20 percent of firms reported practices inconsistent with the Labour Code.48 Non-compliance was found to be most widespread for normal hours of work and severance pay regulations. Many firms also reported that their policies did not allow for bereavement leaves or sickness leaves, although the survey did not measure whether requests were made by employees in these areas. Also, the vast majority of employers reported not having a policy on sexual harassment, although this is a requirement of the Code. On the whole, employer survey results suggest that lack of awareness of Part III is a major driving force behind non-compliance. Many employers reported that they were unaware of Part III standards, while others did not understand how it applied to them. As one Federal-sector employer stated: "[I am] not sure if we need Federal intervention, but [we] are satisfied with the Alberta regulations". Most firms reporting practices inconsistent with the Code believed that their practices matched or were above labour standards, or reported ignoring if they met the requirements of the Code. However, there is also evidence of deliberate non-compliance among some employers. This is illustrated by the fact that some employers indicated knowing that their practices fell short of Part III requirements, particularly in the areas of normal hours of work (5.0 percent); overtime pay rate (4.4 percent); and severance pay (3.9 percent) (Display 5).49 Display 6
Measure of Overall Compliance with the Code: Survey responses from employers were used to compute an overall indicator of compliance for each firm included in the sample. This indicator represents a "proxy" of the firm's general approach to labour standards. It was used in a number of analyses reported throughout this report.50 The indicator of compliance was based on a score system. Employers' responses indicating non-compliance with any of the 13 items of the Code measured in the survey were attributed a value of "-1", while responses indicating compliance were attributed a value of "+1". Thus the total score for each employer included in the survey varied from -13 (always in non-compliance) to +13 (always in compliance). By this measure, only about 25 percent of employers were in compliance with most provisions of Part III, with about half of all employers being more compliant than not, and about 25 percent generally likely to be in non-compliance with most provisions. Correlates of Non-Compliance: The extent to which non-compliance with labour standard regulations is a predictable phenomenon depends on whether it can be linked to specific employer characteristics. The correlation between the overall compliance score (discussed above) and various employer characteristics was examined to determine the extent to which compliance and non-compliance with the Code can be predicted and explained. Overall, the results indicate that compliance with labour standards is correlated with a number of characteristics in a statistically significant manner.51 Not surprising, unionization was correlated with higher levels of compliance (r = .30, see Appendix D, Display D.8 for details). This is probably true by virtue of the fact that most collective agreements provide for employment conditions generally superior to those of Part III, at least in a number of areas. Also, unionized employers are probably more likely to have a better structured and developed human resources function. In a related vein, the use of human resources specialists by an employer was also found to be correlated with higher compliance with the Code (r = .22), source = analysis of employer survey data. Size of the employer organization was also found to be correlated with compliance, with larger firms being more likely to be in compliance with the Code (r = .15) (see Display D.8, Appendix D). This is consistent with conventional wisdom, since smaller firms are more likely to have no or little administrative support (human resources staff, accounting, legal experts) and, consequently, to ignore the existence of specific regulations. Results also indicate that firms that had been in operation for longer periods were more likely to comply with the regulations than newly created businesses (r = .24) (tabulation from employer survey). This could be because these firms are more likely to have experienced managers and better administrative structures. Moreover, newly created firms are more likely to be small businesses, so that these correlations may be related. On a sectoral basis, employers from the trucking industry were found more likely to be in non-compliance with the Code than other industries, although the correlation is modest (r = .17, see Appendix D, Display D.8 for details), and some other sectors were also high in non-compliance. This is consistent with information reported in interviews where informants indicated that small trucking companies faced particular challenges in complying with labour standards. Trucking comprises a large proportion of small firms operating on very little capital in a highly competitive industry. This points to the need to review particular challenges faced by this sector and how their concerns can be addressed in the future. Overall, however, these results do not indicate strong predictability of non-compliance-compliance behaviours, given (in some cases) the moderate size of statistical correlations. This may simply reflect the fact that non-compliance with respect to some of the Code provisions is so widespread that it is not closely related to specific firm characteristics. This would be consistent with the view that the lack of awareness of labour standards regulations is extensive in the population of Federally-regulated employers, and that this underlying factor makes it difficult to predict behaviours on the basis of other characteristics. LOIS Data: The survey compliance indicator was compared to administrative data extracted from the Labour Operations Information System (LOIS) and analyzed in conjunction with a number of employer characteristics. First, results indicate that the survey compliance indicator is correlated in a statistically significant way with the rate of violations recorded in LOIS for specific firms,52 but not with the rate of complaints. This is consistent with information provided to the Evaluation Team on the data contained in LOIS.53 Secondly, other analyses were conducted to determine whether the correlates of non-compliance discussed above were equally correlated with the rates of violations or complaints in LOIS for each firm included in the survey. In this case, regression analyses were used to control other variables in the analysis. The results indicate that while reliable predictions are possible (see Appendix D, Section D.3.3), few employer characteristics discussed above were strong predictors of the rate of violations or complaints in LOIS. A similar result was obtained for a discriminant analysis as noted in Appendix D, Section D.3.3). These results suggest that most firm's characteristics correlated with non-compliance in the survey cannot precisely predict violations of the Labour Code recorded in LOIS. Exceptions were unionization, belonging to the trucking industry, and high involvement in exporting, which were found to be modest predictors of the rate of violations.54 Sectoral Variations: The issue of sectoral variations merits further comments. The trucking industry was, as expected on the basis of prior data, to be high in violations, but was not the only sector high in violations: the grain sector was also high in violations. However it is noteworthy that the grain sector had a higher percentage of employers who reported violations (62.4%) than did the trucking sector (49.8%). In terms of compliance, trucking was not alone in reporting practices which were non-complaint. The air transportation sector was similar to trucking in compliance/non-compliance. First Nations were the next most non-complaint in actual practices55 with grain and communications not far behind (see Appendix D, Display D.6 to D.8). Significantly, the discriminant analysis suggested that past violations were a meaningful predictor of current non-compliance, suggesting that, at the present time the program has a high rate of persistent non-compliers. Firms Not Known to the Labour Program: At the start of the study, it was hypothesized that employers not known to LOIS would likely be high in Part III compliance, as they would have never had complaints registered against them. Yet, as the study proceeded, a variety of other factors came to the fore as potential reasons why employers might never have had complaints registered. For example, statistically speaking, smaller employers might be less likely to experience complaints, simply because of having fewer employees. In a similar vein, newer operations (an important part of the population of firms not known to the Labour Program), would have had fewer years in which to experience complaints. The proposition that LOIS and non-LOIS employers would be statistically different in compliance levels was tested. To this end, LOIS and non-LOIS employers were compared as to compliance with Part III provisions as measured by the employer survey. The results (Display 7, below), suggest that these two groups of employers are not very different at all in terms of compliance with Part III. Generally, LOIS employers were somewhat more likely to be in compliance than non-LOIS employers, by 70.7 percent as compared to 66.4 percent. However these differences the reverse of what was originally hypothesized, were not statistically significant. Display 7
Overall, these results seem more consistent with the notion that compliance is strongly affected by information LOIS employers, through periodic contacts with the labour program, are more likely to be aware of requirements, and thus more likely to comply. This is reaffirmed by the high proportion of non-LOIS employers surveyed, 26 percent, who reported only learning that they were Federally regulated, through the evaluation survey contacts. This suggests that extensive non-compliance occurs beyond the view of Labour Program. Of course, then, if the program's mandate were to ensure compliance nationally these results would point towards significant new work to be undertaken by the Labour Program. In conclusion, the survey generally provides support for the view that non-compliance with the Code is widespread in a number of areas, particularly for normal hours of work and severance pay provisions. Lack of awareness may be a major driving force behind non-compliance with the Code, but there are also some indications that deliberate non-compliance occurs for a small number of firms. Compliance with the Code can be predicted from such factors as firm's size, presence of human resources specialists, unionization, and number of years of operation. Generally, LOIS data were seen to significantly underestimate the extent of non-compliance with the Code. 4.2 Labour Program Promotion of Compliance 4.2.1 Types of Part III Interventions Labour standards enforcement mechanisms can involve various degrees of adversarialism and co-operation. Traditionally, enforcement of labour standards was regarded as an adversarial concept, but in today's workplace and under global competition, there is considerable agreement that adversarial approaches can be very costly and not conducive either to a high commitment workforce or to high-performance workplaces. Efforts to foster co-operation in businesses abound (e.g. alternative dispute resolution, joint labour-management committees, employee involvement) and such an environment may be favourable to harmonious conflict-resolution of labour standards issues in the workplace. Priorities in Program Delivery: Consistent with these views, the Labour Program has established a Compliance Policy to provide guidelines in the delivery of services and enforcement activities under the Code. According to the Compliance Policy, the Labour Program is committed to promote compliance mainly through the provision of information and education, rather than strict enforcement, the imposition of fines and penalties etc. The two-fold purpose of the policy is to ensure (i) consistent, effective and cost-efficient compliance activities; and (ii) graduated measures to deal with non-compliance. The surveys collected the views of employers and unions on what should be the main priorities for the Labour Program in the administration of Part III of the Canada Labour Code. Not surprisingly, these parties provided views highly reflective of the traditional interests of each group in the application of labour standards. The survey of LAOs provided a complementary perspective. Employers were highly supportive of priorities in the areas of education and voluntary compliance. Indeed, 57.9 percent of employers indicated that the provision of educational services was a high priority for the program. Two other areas were considered to be a high priority by about one third of the employers, namely the mediation of disputes between employers and employees and the investigation of complaints or potential violations. The one area which was not seen as a key priority by employers was the conduct of inspections and spot checks by LAOs (Display 8). There is a clear preference among employers for voluntary compliance and a reactive approach to compliance. Display 8
On the other hand, union respondents see the investigation of complaints (an enforcement stance) as the key priority for the Labour Program. About two-thirds of union representatives surveyed indicated this activity as a high priority. Other key roles of the program according to union respondents include the provision of information (50.7 percent) and the conduct of inspections and spot checks (46.8 percent). Only about one-third of union respondents also saw the mediation of disputes (39.3 percent) as a key role. Clearly, unions are more supportive than employers of the enforcement function of the Labour Program, while educational efforts are also generally seen as an important priority. Education and Information: Education and information on employment standards and their purposes can be important in facilitating compliance. Voluntary compliance is difficult if employers do not know the law, and employees do not know their rights. The information problem is compounded given today's trend to smaller workplaces, decentralized decision making, non-standard employment and workforce diversity. Lack of information has been identified as an important source of non-compliance in a number of jurisdictions,56 and this evaluation has also identified the lack of understanding of labour standards as a significant factor in non-compliance with Part III of the Canada Labour Code. Survey results reported above indicate that many employers are simply unaware of whether their current employment practices meet Part III requirements. A small portion of covered employers (about 12 percent) were not even aware they were covered by Federal labour standards.57 In fact, many comments on the employers survey expressed this view: as one employer commented: "What is Part III? and where do you get information on it?" Unions echoed a related problem, as one union representative commented "Further information should be given to all employees of federally regulated enterprises". Lack of information (in itself) may indicate that further education efforts could yield positive outcomes in terms of compliance. However, the question remains as to whether labour standards raise sufficient interest and concerns within the workplace to ensure that employers and employees are going to use new or existing educational resources. Generally, employers differ in information needs when asked which areas of the Code they would like to receive more information on. About 60 percent of the respondents indicated no need for additional information on any of the various items covered by Part III of the Code. But significant minorities of employers identified specific areas where information was needed. Information needs in relation to specific labour standards reported by more than 20 percent of employers included: policy on sexual harassment; individual terminations; sick leave/work-related illness; and severance pay (Display 9). These results suggest important strategic and targetting issues for increased education and awareness efforts. On this issue, the fact that many employers indicated no information needs with respect to labour standards, while non-compliance appears widespread, provides some indication that passive educational programs (i.e., simply making the information available) may not by itself achieve full compliance with Part III of the Canada Labour Code, since many employers are not likely to seek the information. Thus education may have to be coupled with more active interventions in workplaces in order to produce changes and to effect compliance. Display 9
Labour Program Services to Employers: The Survey of Employers examined the type of services received by firms and the level of satisfaction with these services. About half of the employers indicated that their firm had not had any contact with the Labour Program regarding labour standards in the previous three years. This is not surprising considering the limited resources of the Labour Program, particularly relative to the number of Federally-regulated firms. The other half of employers reported receiving various services from the program. Of these, about one third of the firms requested information on labour standards at one point or another in the last three years. About one fifth of the employers surveyed indicated that they had received a brochure from the program on labour standards, while only about one tenth of employers indicated that LAOs had investigated complaints, negotiated settlements, or provided counselling to representatives of their firm (Display 10). Display 10
Satisfaction With Services: Employers indicated a reasonable level of satisfaction with some aspects of the LAO's work, particularly the clarity and helpfulness of the information provided (64.5 percent) and the fairness of LAOs' decisions (60.4 percent).58 Other aspects of the LAO's work more directly related to enforcement activities were not as highly regarded by surveyed employers. For example, consistency between LAOs was rated satisfactory by 56.5 percent of employers.59 Employer satisfaction was particularly lower with respect to the amount of extra paperwork (42.7 percent) involved when dealing with the Labour Program and orders for payments of an employee's wage (39.9 percent). LAO's Views on Compliance: For specific labour standards contained in the Code, LAOs were asked if they believed that employers had significant difficulties complying with the provisions and, if so, what type of remedies would facilitate compliance. LAOs were asked to choose among three types of remedies, namely simplifying the Code, better education or stronger enforcement activities. Generally, LAOs rated education as the best "remedy" for non-compliance for the vast majority of Part III provisions. This was particularly true for certain Code items such as: statutory holidays (48.6 percent); severance pay (44.6 percent); sickness leave (44.6 percent); protection against sexual harassment (41.9 percent); and maternity and parental leaves/reassignments (41.9 percent). Education, however, was not the only remedy indicated by LAOs, and a number of them reported that stronger enforcement activities and penalties were sometimes the most effective way to achieve compliance. This was particularly the case, LAOs noted, for provisions on the timely payment of wages (58.1 percent), individual terminations (41.9 percent), overtime pay rate (37.8 percent) and normal hours of work (36.5 percent) (Display 11).60 Display 11
Simplifying the Code was perceived as the best remedy to improve compliance by a sizeable number of LAOs only with respect to statutory holidays (36.5 percent). Several LAOs indicated that current requirements with respect to statutory holidays were too complex, involving too many criteria to determine the entitlement of workers (e.g. continuous operations, averaging of hours, etc.). One LAO commented that "employers cannot be bothered figuring out what category each employee belongs to and usually pay out one flat rate in the hope that this is enough". In conclusion, these results illustrate the complexity of designing an effective strategy for interventions in the workplace. Employers and unions have different perceptions of the desirable priorities of the Labour Program. While employers indicated a need for more education and voluntary compliance, union representatives view the investigation of complaints and enforcement as important aspects of the program. On the one hand, education could address the serious lack of employers' awareness of labour standards, but if it is not coupled with more active forms of interventions, the impact of educational efforts may be insufficient to produce a good level of compliance. An effective intervention strategy could mean having different types of approaches, geared towards different employers and labour standards. Proactive intervention is a key element of this equation, as is more fully discussed below. 4.2.2 Proactive and Reactive Interventions Allocation of Resources: Activities of LAOs are divided between "proactive" and "reactive" interventions. The distinction is that reactive activities are client-driven, while proactive assignments are more generally targeted by the Program to promote compliance with Part III of the Code. Proactive interventions include: general inspections, individual counselling and seminars or promotion. Reactive interventions are mainly the investigation of labour standards complaints and the mediation of complaints of unjust dismissal. Education and voluntary compliance are guiding principles for both proactive and reactive activities. Administrative data indicate that the bulk of LAO's activities under Part III relate to reactive interventions in response to complaints. These data show that, on the whole, LAOs spent more than 85 percent of their total Part III assignment time on reactive activities. Moreover, between 1992-97, the reactive function of the Labour Program under Part III has grown substantially, while proactive activities have been decreasing. The total time spent on reactive assignments under Part III increased by 27 percent between 1992-97, while proactive activities declined by 9 percent. Impacts on Part II: As noted above (see Section 3.2), the growth of the reactive function has also impacted on the distribution of resources within the overall activities of the Labour Program. LOIS data show that the increase in Part III activities is matched by an almost corresponding decrease in safety and health (Part II) proactive activities, which have historically corresponded to the bulk of Part II work. This shows that compliance issues in relation to Part III can also impact on other components of the Labour Program, such as occupational safety and health or fire prevention, and emphasizes the importance of improving compliance. Investigation of Complaints: The above data illustrate that Part III activities of the Labour Program have been almost exclusively driven by complaints in recent years. This is a concern for a variety of reasons. For example, systems that rely exclusively on individual complaints can suffer from the problem that individuals fear reprisals even if there is legislated protection against such reprisals. Complaints have a "public good" characteristic to them in that the individual who complains often bears the full cost of the complaint (including potential reprisals), while benefits are shared by others in similar situations. In such circumstances, either few complaints are forthcoming or they poorly target firms in non-compliance with labour standards. As well, complaint-driven systems may be ineffective if both employers and employees benefit by not having the legislation enforced. This is particularly an issue with regulations on long hours of work. Employees who work the long hours often want the additional income. The unemployed and underemployed who could potentially benefit from the worksharing aspect if hours were reduced are seldom at the worksite to lodge a complaint. Unions may also find it difficult to complain if they run the risk of alienating their members who want the long hours. Additionally, complaints are poorly designed to address the problem of non-compliance, if awareness of the regulations differ significantly among different groups. Finally, a system driven by complaints may be ineffective if no wider reviews of compliance or education of employers is conducted, and if the complaint process does not remedy the underlying causes of complaints or violations. Both LAOs and key informants stressed the need to increase proactive interventions (particularly workplace inspections) in order to achieve greater compliance with the Code. About 60 percent of LAOs surveyed indicated that more inspections would be a significant improvement to the program. Similarly, key informants often deplored the fact that resource constraints have resulted in fewer inspections and audits in recent years. Indeed, some informants from the "busier" Provinces pointed out that if a company receives a complaint against it, the Labour Program will investigate that complaint, but generally does not audit the firm more generally to ensure that the firm is complying with regards to other employees, or in compliance with other provisions. Despite the clear commitment made by the Labour Program to promote greater compliance with regulations through co-operative and proactive actions, the program has been limited in its preventive compliance efforts by reason of the substantial and increasing proportion of resources devoted to the investigation of complaints. This may have resulted in too few, or mis-targeted interventions for educational purposes and may have limited the impact of LAO's work on overall compliance with the Code. Overall, there is no "quick fix" to the resources problems of the Labour Program. The current high level of complaints, combined with fixed resources, prevents significant proactive inspections and audits from being conducted at this time. The investigation of complaints is clearly a high priority in the administration of the Code and unless additional resources are injected into the system, inspections will remain infrequent. Some alternatives are currently being examined by the Labour Program, such as to grant discretionary powers to LAOs to refuse to investigate frivolous or vexatious complaints, or to require complainants to use other avenues for redress (such as small claims courts) when they are available. If any of these options are implemented, they could allow for some resources to be redirected to inspections and audits in the future. Overall, however, it appears that more radical measures would be required to achieve a turn-around in the non-compliance complaints spiral. One such measure for the program would be the creation of a new special sub-component to be devoted to education and the reduction of non-compliance. This topic is addressed further in the conclusion of this report. 4.2.3 Other Delivery Techniques Despite the policy preference for voluntary compliance and co-operative attitudes, the implementation of Part III of the Labour Code involves the application of "binding" regulations and the primary "mission" of the Labour Program is to achieve compliance with the Code in one way or another. To this end, various other instruments are available to LAOs in the application of labour standards. Payment Orders: The payment order is a powerful tool which forces employers to pay sums of money due to an employee. Payment orders are issued by LAOs and can be filed in the Federal Court, in which case they become enforceable as a judgement of that Court. An employer can appeal a payment order to the Minister, but this must be done within 15 days after the service of the order and the firm must agree to pay the amount at issue to a suspense account pending the outcome of the appeal. The appeal is heard by a referee named by the Minister. About 80 percent61 of LAOs reported that payment orders were an effective tool in the administration of the Code. They allow for a speedy and effective remedy for employees, but (as key informants pointed out) this mechanism is not trouble free. For example, payment orders may seriously hinder small companies falsely accused of non-compliance by removing from use, in many circumstances, a sizeable part of their operating budget while awaiting the outcome of the proceedings. The legal ramifications of using this tool are much greater than for other tools that LAOs have at their disposal, and the consequences of using the payment order inappropriately are quite serious. There is no clear evidence, however, that payment orders have been used inappropriately and generally very few orders are contested by employers. One problem frequently reported by LAOs in the survey is the difficulty in enforcing payment orders when employers refuse to comply with them. As one LAO observed: "when payment orders have to be filed in Federal courts, complainants are upset and feel abandoned by [the] labour [program]". There is little incentive for employers to comply with payment orders before they are filed in court and what is meant to be a speedy and effective remedy can often become slow and cumbersome when enforcement steps are required. Assurance of Voluntary Compliance: An Assurance of Voluntary Compliance (AVC) is an undertaking made by an employer to correct a situation of non-compliance by a certain date. When an AVC is recorded, the assignment file is considered "closed", but follow-up inspections are possible to verify that employers have respected their undertaking. While AVCs are no doubt useful instruments consistent with the policy of voluntary compliance, they sometimes lack "teeth" in the sense that LAOs must solely rely on persuasion to obtain an undertaking on the part of employers. The only alternatives in situations where employers refuse to comply is to use payment orders (if the violation relates to non-payment of wage) or prosecution. Nonetheless, the survey indicates that a large majority of LAOs (72.2%)62 believed that AVCs were an effective tool to ensure compliance with the Labour Code. Permits and Votes: The Code allows for some flexibility in the application of certain standards, particularly in the area of maximum hours of work. An employer can obtain a permit from the Minister to occasionally exceed the maximum hours or the employer can seek approval from the firm's union or 70 percent of the affected employees for averaging plans or modified work weeks. But the complexities of a permit system have often led to it being ignored. Previously, the Ontario Task Force on Hours of Work and Overtime, for example, described the Ontario system of exemptions, special provisions and permits as "complicated and bewildering" indicating that "the structure is so complicated that its totality is likely understood by only a handful of persons."63 These complexities have invariably contributed to the rampant non-compliance with the permit system which has been reported for Ontario.64 To a large extent, the same observations can apply to Part III, since less than one percent of survey respondents reporting having sought permits from the Minister to extend hours of work in 1996. In this context, it is not surprising that a recent Working Group of the Labour Program recommended the abolition of the permit system.65 Historically, permits may have been an efficient system in an industrial workforce where overtime was often regular and predictable. Today, however, they seem anachronistic and burdensome, particularly for smaller employers where overtime is more irregular and unpredictable, often associated with just-in-time delivery systems. In the absence of a permit system, however, alternatives must be sought to provide flexibility in the provisions on hours of work. One possible alternative to maximum hours of work regulations is to rely exclusively on the overtime premium, which is a simpler "penalty", known in advance, that has to be paid for overtime hours. It may discourage long hours by simply putting an additional tax on those hours, and by requiring that the revenue from the tax goes to the employee who works the long hours. However, it has often been pointed out in the literature that current overtime premiums do not constitute an effective disincentive to use overtime, because of the high costs associated with hiring and training employees. Moreover, in today's environment with the dominance of the two-earner family, the right-to-refuse overtime may become an increased priority for employees, especially where overtime conflicts with childcare responsibilities or family time in general. This issue is further discussed in the conclusion of this report. Mediation: As stated above, a large proportion of complaints received by the Labour Program relate to unjust dismissals. In these cases, LAOs investigate the complaint and act as mediators between employers and employees. The LAO can inform the parties on their rights and obligations and assist them in settling the dispute. If the parties fail to come to an agreement, either party can ask the Minister to refer the matter to an adjudicator. The National rate of unjust dismissals being settled by LAOs has varied between 70 to 75 percent of all complaints during the 1990s.66 In the survey, LAOs reported their own assessment of the level of effectiveness of mediation procedures. About 85 percent of LAOs indicated that mediation was a useful procedure in administering the Code. Generally, no problems were reported with respect to this area of the Code, other than the fact that it used substantial resources within the Labour Program. Fines and Prosecutions: LAOs overwhelmingly reported (78.4 percent) that a significant improvement in the administration of Part III of the Code would be the implementation of stronger enforcement tools (Display 12). Currently, penalties under the Labour Code can only be imposed following prosecution in court actions, and penalties are reportedly lower than in many other jurisdictions. Moreover, as one LAO commented: "there appears to be a great deal of reluctance on the part of Labour Standards at NHQ to encourage prosecution". Labour Program key informants agreed that fines are not being implemented and that prosecution is too long and too expensive a process to be effective. In some cases, the amounts in dispute are very small in comparison to the costs of prosecuting. This led some key informants to question the larger picture of the process: is the money spent on prosecution an investment when, at times, the amount in dispute is considerably less than the costs of the proceedings. Is this an area where the government wants to save money? Or is the educational component (i.e. if you don't comply this could happen to you) worth the money spent. In this respect, it is unclear to what extent "examples" are brought to the attention of, or are noted by, other employers. Currently, prosecutions are very rare because of the costs involved, and employers understand this. Hence, in the current situation, there is little apparent incentive for the employers to comply. An alternative to the imposition of penalties and the prosecution of firms under the Code would be the establishment of cost-recovery mechanisms which would transfer a part of the administrative costs of investigating complaints and inspecting firms to employers found in violation of a provision of the Code. This option could either be applied systematically (for all violations) or be targeted to firms with frequent violations. A large proportion of LAOs (77.6 percent) (Display 12) were in favour of the cost recovery option, and interestingly, a significant proportion of employers (38.8 percent) (Display 13) also indicated some support for cost-recovery alternatives for firms with repeated violations. Both LAOs and employers, however, objected to a systematic cost-recovery mechanism for all violations of the Code, perhaps because this would undermine the underlying rationale of the Compliance Policy which favours co-operation and voluntary compliance by employers. Enforcement of Part III through penalties and cost recovery is an important issue. Targeted cost-recovery, however, may lack a clear rationale, since it would necessarily be seen as "disguised" penalties if only applied to employers with repeated violations. If the objective is to achieve greater administrative efficiency in the enforcement of penalties, other options may be available such as the establishment of a system of fines and tickets (with an appeal to the Minister) or simply the imposition of more severe penalties.67 A change in one direction or the other seems to be much in need. Display 12
4.3 Alternative Service Delivery Options The Labour Program has been studying the issue of alternative service delivery for some time, consistent with the Federal Program Review and overall efforts of reorganization in the Federal public sector. In 1995, a Working Group on Regulations and Enforcement Alternatives was formed and recommended a number of possible changes in the delivery of services. To date, few of these changes have been implemented, but many of the recommendations of the Working Group served as the basis for exploring alternative service delivery options in the context of this evaluation. Report of the Working Group: Recommendations from the Working Group were numerous. Some of them touched on potential improvements and productivity gains in the delivery of services, while others involved legislative changes to the Labour Code. In the service delivery structure, the Working Group proposed changes to consolidate certain Departmental activities and to achieve better information dissemination on labour standards through the implementation of Department-wide information systems and 1-800 inquiry lines. The report also stressed the need to explore various partnership options, particularly with provincial governments and other Federal Departments, and cost-recovery mechanisms for certain services. Some of the proposed changes required legislative changes. For example, the Working Group suggested a review of penalties under the Code to provide for a system of fines and tickets and to increase sanctions already provided in the legislation. The establishment of legislated internal committees similar to the safety and health committee for Part II of the Code was also recommended for labour standards. Finally, the Working Group proposed legislated changes which would allow inspectors to refuse frivolous or vexatious complaints, or to refuse a complaint when other avenues of redress exist for complainants. Dissemination of Information: Options for a better dissemination of information on Part III of the Code are numerous, and several were examined in the surveys including toll-free inquiry lines, seminars, Internet sites, etc. The effectiveness of such mechanisms would depend on the extent to which employers and employees would use them and whether it would affect behaviours in the workplace. Generally, the evaluation surveys show that LAOs are highly supportive of such options, while employers vary greatly in their degree of interest for information on labour standards, and mechanisms to supply such information. Most LAOs indicate that more seminars to explain Part III (62.2 percent), and more information for firms on Part III generally (63.5 percent), would be effective improvements to the program (Display 12). Employer's support for such alternatives is lower, however, with about one-third of survey respondents indicating an interest in more Part III information (seminars, brochures etc.) and a somewhat higher proportion favouring the establishment of a toll-free inquiry line (40.9 percent). Generally, most employers indicated their interest in at least one of the various options for disseminating information (Display 13). Display 13
The proportion of employers indicating an interest for further information dissemination suggest that there is a reasonable demand for such services, but (as discussed above) its effects on compliance are less certain. It appears clear from the survey that there is widespread ignorance of certain provisions of the Code, but it is not certain that labour standards will elicit sufficient interest and concerns in these workplaces to have employers actually seek the available information. Therefore, it is likely that information dissemination initiatives on the part of the program will have to be accompanied by more active educational activities (such as calls or mailings, association programs, visits to workplaces, etc.) to achieve greater compliance. Targetting information to the employers who need it the most is also a key aspect of information dissemination. A related strategy would be the increased dissemination of information to employees who would then "pressure" employers to recognize their rights. However, such an approach would create major problems for the Labour Program (in terms of backlog of complaints, etc.) if not preceded by strong efforts to educate employers and improve compliance. Internal Responsibility System: The report of the Working Group recommended legislative changes for the establishment of internal Human Resources Committees within the workplace to deal with Part III issues, similar to the system of Safety and Health Committees currently operating under Part II of the Code. These committees would be required to investigate employee complaints, develop human resources programs and monitor procedures relating to Part III within the workplace. The survey examined the issue of internal responsibility by asking employers and unions about their interest in internal dispute resolution systems to deal with Part III issues in the workplace. As shown in Display 13, a large majority of employers (79.8 percent) reported having no experience of any kind with internal dispute resolution on labour standards matters. The few firms reporting experience with internal dispute resolution generally indicated that employees were invited to refer complaints to senior management in the firm. Use of joint management-labour committees was reported by only a handful of firms (5.4 percent). Interest in internal dispute resolution was relatively low among both employers and unions respondents. The majority of employers (66.4 percent) reported no interest at all for such options. It is quite possible that most employers are not interested by such options, because they fear a potential increase in the administrative costs of their human resources function. While unions demonstrated more interest for several options in the area of internal dispute resolution, a substantial minority (33.9 percent)68 reported no interest at all.69 Overall, the surveys indicated only a moderate interest for some of the proposed alternative options, the most attractive of which among employers (21.4 percent) was training in dispute resolution for employers. Other options such as the use of joint management-labour committees interested only a handful of employers (9.1 percent) but 30.6 percent of union representatives.70 Partnership, Privatization and Other Options: The Labour Program has been examining the possibility of co-delivering some of its services in collaboration with the Provinces. This option was supported by a large proportion of LAO respondents (39.2 percent) who saw it as a potential improvement to the current system. Some of the areas where potential for co-delivery was reported by LAOs included: education and awareness programs (40.5 percent), joint delivery in remote areas (31.1 percent) and joint intake (28.4 percent). Potential for co-delivery was reported less frequently by LAOs for joint information management services (13.5 percent) (Display 12).71 The option of privatization found little support among key informants particularly in the area of enforcement. It was often pointed out that enforcement was strictly a governmental role, and that private agencies would not have the same legitimacy in the eyes of the public. Contracting out enforcement, it was feared, would also leave too much room for potential abuse by the private company. According to some key informants, privatization in Alberta has not been successful, and the province is more or less returning to the old model. Almost all LAOs rejected privatization of enforcement activities as unworkable, with less than 10 percent of respondents indicating this option as a potential improvement to the program. Self-regulation in various forms was only slightly more popular than privatization among LAOs. About one-quarter of respondents indicated that industry-level dispute resolution mechanisms could be an improvement to the current system. That option was also unsupported by employers, with less than 10 percent of respondents supporting it. Alternatives for delivery for First Nations were, however, noted by a number of those surveyed as a need for the program. This was a concern of LAOs in particular, who reported facing a number of unique needs in their work with First Nations. As several commented: "Determining whether a First Nations undertaking is under Federal jurisdiction appears to face continually varying opinions from legal advisors and the courts"; "there should be self-delivery through Tribal Councils"; "we need more cross-cultural training to work effectively with First Nations"; "there is a serious need to educate First Nations clients". In addition, the evaluators noted that about one in three First Nations surveyed expressed an interest in alternative delivery for First Nations. Combined with the increasing scope of First Nations enterprises (casinos, for example), the importance of this area for the future is likely to increase, and is therefore identified by the evaluators as an area for future program development. 4.4 Communications Issues Complementary to other program development initiatives, development of a communications strategy for the program, could be a significant improvement to the current delivery system. This could include a wide range of elements, improving linkages among the program elements. To illustrate, as a backdrop to improved dissemination of information (as discussed above), the communications strategy could improve the content of communications. For example, even when employers seek information about labour standards, existing informational documents do not really explain why federal labour standards exist, or what the rationale is. Including such explanations could improve the understanding among employers, helping them to understand why they might benefit from compliance. Indeed, even the distribution of information from a report such as this could help to educate employers in a more complete way. This is important because people respond better to a law which is explained. The Part III "poster" represents another illustration. This 8.5 x 11 page contains virtually no information for employees, and is without any redeeming communications features. Such a poster should be made eye-catching, and should provide key information. The vast majority of LAOs reported that the poster was not an effective educational tool, while a number of LAOs even ignored the existence of this poster. Other communications more at the symbolic level may also be important. For example, in the evaluation surveys, the evaluators found that many employers did not respond right away to HRDC, in relation to labour standards. Only when they were reminded "formerly Labour Canada", did respondents understand which standards and government agency was involved. In contrast, when HRDC was mentioned, many employers began to think about training or Employment Insurance. Communications with employers could be improved by systematic identification of the program as unique. For example, to ensure that employers focus on the unique issues of the Labour Program when dealing with labour standards issues and not the broader issues of HRDC (such as Employment Insurance), it is suggested that the program might always be identified to employers as "Labour Canada, HRDC", or "Labour Program, HRDC". Overall, a more integrated communications strategy will be an important part of any effort to increase compliance.
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