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Tuesday, March 2, 2010

How CSR Practice Can Create Legal Rights or Obligations

I have noted in previous postings that CSR standards, once adopted and consistently acted upon by organizations or industries, could become evidence of customary practice that might have legal implications.  The purpose of this post is to develop this thought and briefly discuss one way in which this could happen.

There is debate in the legal community on whether "custom" can be considered "law", or whether it is simply a fact that may be recognized by law.  While such arguments may matter in technical litigation, for the purposes of business it should be assumed that a "customary" obligation recognized by law is tantamount to a "legal" obligation. 

There are many circumstances where customary practices can give rise to legal rights or obligations.  An interesting historical example is provided by customary practices that have existed "since time immemorial" or "for the time of living memory" which have been preserved as rights despite the development of modern systems of property rights.  In England for example, where communities have historically used land for a certain purpose (like cultural events or sports), the right to continue such activities may trump property ownership rights.  Similarly, Aboriginal rights and title may take precedence over private property rights, although their source is considered unique (sui generis) and therefore not necessarily dependent upon common law principles.

In employment law, there are sometimes "implied" terms of employment contracts that are derived from customary practices.  In a unionized work environment, past practices can be considered an implied promise creating an "estoppel" (preventing the practice from being altered unilaterally) where the other party relies on the practice to its own detriment.  Area practice in the construction industry can determine what union has jurisdiction to perform a particular kind of work.  Courts in certain Canadian provinces have even implied terms into the employment contracts of short term construction workers and real estate agents that they can be terminated "at will" - something that is not permissible otherwise in Canada.  In health and safety legislation, employers may be required to show that they have exercised "due diligence" when an accident, injury or other incident happens.  Showing that the steps the company took to protect employees was consistent with "industry practice" is one of the ways due diligence can be demonstrated.

As these examples illustrate, there are many ways that custom, as illustrated by organizational or industry practice, can be implied into contracts, or otherwise form the basis of legal rights and obligations.  This begs the question whether CSR practices could be the same?  I am not aware of any cases that have considered this question.  However, I think the cautious answer is "possibly yes".  Certainly CSR practices, if generally followed, would provide evidence of past practice that could amount to custom in certain circumstances.  The persuasiveness of a CSR practice as evidence would depend on facts such as how long it has existed and how consistently it has been followed.  It may also be relevant whether other parties have relied on the practice being continued.  Often times this transformation from practice to right or obligation will also depend on public policy considerations.

What does this mean for business leaders?  Simply, it serves to illustrate the point that CSR practices should not be seen as entirely divorced from legal obligations.  I have said before that the logical structure of CSR and legal obligations are very similar - both are social obligations that constrain otherwise unfettered behaviour.  They are not synonymous concepts however, and it is apparent that not all CSR obligations are legal obligations, or vice versa.  Nevertheless, to the extent that CSR is illustrative of an organizational or industry practice, or "best practice", it may well have evidentiary weight in a number of circumstances. 

By consequence, it should be recognized that effective governance and risk management demands that legal compliance and CSR compliance activities be coordinated, so the left hand knows what the right hand is doing, and "voluntary" commitments don't inadvertently become legally enforceable.

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