Audit, Compliance and Risk Blog

Are Your Climate Risks “Material”, and If So, Do You Disclose Them?

Posted by Jon Elliott on Thu, May 17, 2018

The Securities and Exchange Commission (SEC) administers reporting requirements for companies listed on national securities exchanges (“listed companies” or “public companies”), under the federal securities laws, including the Securities Act of 1933 and the Securities Exchange Act of 1934. These requirements include detailed specifications for some reporting, such as financial reporting consistent with Generally Accepted Accounting Practices (GAAP). But SEC also administers vaguer reporting standards – including requirements to report any information that might be “material” to investors’ evaluation of a public company. Registered entities must disclose material information, including details or caveats necessary to ensure that the disclosures are not misleading. Materiality is open to wide differences in interpretation, at any given time across companies with different activities and resources, and over time based on developments in markets and the wider world. The Government Accountability Office (GAO) recently issued an evaluation of SEC’s “Commission Guidance Regarding Disclosure Related to Climate Change” (referred to below as the “2010 Guidance”), and subsequent general and company-specific guidance related to this topic. Read More

Tags: Corporate Governance, Business & Legal, SEC, directors, directors & officers

Does Sex Discrimination Include Sexual Orientation – The Second Circuit Changes Sides

Posted by Jon Elliott on Tue, Apr 24, 2018

Because federal anti-discrimination statutes include “sex” discrimination but do not define the term, its interpretation evolves with social and political changes, with policy changes by the Equal Employment Opportunity Commission (EEOC), which administers and enforces Title VII of the Civil Rights Act of 1964 and a variety of subsequent laws, and with court decisions. A major present debate is whether “sex” encompasses “sexual orientation” – which would protect non-heterosexual employees against employment action based on their sexual orientation. On February 26, 2018 the Second Circuit Court of Appeals reversed its own precedent, and decided that homosexual employees are protected.

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Tags: Employer Best Practices, Employee Rights, Workplace violence, EEOC, directors, directors & officers

Ninth Circuit: Salary History Doesn’t Justify Male-Female Pay Disparities

Posted by Jon Elliott on Tue, Apr 17, 2018

On April 9, a majority of the Ninth Circuit Court of Appeals ruled that an employer cannot rely on newly-hired employees’ salary histories to justify paying men more than women for the same work. Although the federal Equal Pay Act of 1963 allows disparities based on factors “other than sex,” the court found that salary histories are sufficiently tainted with sex discrimination to bar such reliance. Since it’s taken over 50 years for an appeals court to reach this conclusion, it’s worth exploring the court’s reasoning.

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Tags: Employer Best Practices, Employee Rights, directors, directors & officers

SEC Expands Public Company Cybersecurity Disclosure Expectations

Posted by Jon Elliott on Tue, Apr 10, 2018

The Securities and Exchange Commission (SEC) has just published Interpretive Guidance to “assist” public companies with evaluation and reporting of their cybersecurity risks. This Guidance expands similar SEC guidance issued in 2011, reflecting the growing importance of the issue and highly-publicized cybersecurity breaches during the intervening years. The following discussion summarizes the new Guidance, and provides context.

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Tags: Corporate Governance, Business & Legal, SEC, Internet, directors, directors & officers

NLRB Eases Restrictions on Employer Policies

Posted by Jon Elliott on Tue, Feb 06, 2018

Most employers promulgate a wide range of employee-related policies and work rules, which some compile in employment manuals. All too frequently, these policies and work rules contain ambiguities that employees try to parse to understand what rules really apply, and why. What if employees interpret – or might reasonably interpret – an ambiguity in a way that appears to restrict employees’ rights to organize themselves? Do these provisions violate the National Labor Relations Act (NLRA)?

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Tags: Business & Legal, Employer Best Practices, Employee Rights, NLRB, directors, directors & officers

A Cautionary Tale for Employers Drafting Discretionary Bonus Plans

Posted by Jennifer M. Fantini on Tue, Jan 23, 2018

In the recent British Columbia Supreme Court decision of Kenny v. Weatherhaven Global Resources Ltd., the plaintiff successfully claimed unpaid bonuses and bonus amounts owed over the contractual notice period of approximately $170,000.

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Tags: Employer Best Practices, Employee Rights, Canadian, directors, directors & officers

For First Time, FTC Goes After Bloggers For Paid Endorsements

Posted by Eric Robinson on Thu, Nov 16, 2017

The Federal Trade Commission’s guidelines for testimonials and endorsements require disclosure of any payment or benefit that endorsers receive for their endorsements.

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Tags: Business & Legal, Internet, directors, directors & officers

Dangerous Assumptions Leave Directors Liable For Unpaid Taxes

Posted by Ron Davis on Thu, Sep 14, 2017

The Tax Court of Canada ruling in Sud v. Canada (2017 TCC 106), reinforces the saying “a little knowledge is a dangerous thing” for directors trying to mitigate their personal liability for tax remittance risk. Arun Sud was advised to incorporate his courier business by his employer for tax reasons. He incorporated 1186271 Ontario Inc. (the “Corporation”) under the laws of Ontario on June 21, 1996, and operated the business as its sole director and shareholder until it ceased operations in August, 2005. GST collected was owed for the period from January 1, 2003 to December 31, 2005. In November 2006, the Corporation was assessed for unpaid GST and it filed an appeal of the assessment in the Tax Court. In February of 2010, a consent agreement was filed with the Court in which the Corporation was to pay $36,363.28. This amount was never paid.

On August 1, 2014, Sud was assessed $17,298.32 of the Corporation’s unremitted GST as the Corporation’s director and he filed his appeal to the Tax Court. He argued that he had not acted as the Corporation’s director since it had ceased operations in 2005 and that the assessment in 2014 was outside the two-year limitation period for assessing director’s liability in s. 323(5) of the Excise Tax Act. He also argued that since no annual corporate returns had been filed since 2005, he believed the Corporation would be automatically dissolved after two years. In fact, the Ministry of Finance of Ontario by Notice of Dissolution effective October 24, 2016, dissolved the Corporation, at which point its certificate of incorporation was cancelled.

The Tax Court noted that the two-year limitation in the Excise Tax Act only begins to run after a person “last ceased to be a director,” and therefore, the question was whether Sud ceased to be a director before the date of his assessment. It held that that issue was determined by the rules in the applicable corporate statute, which, in Ontario, would occur on the director’s death, resignation, removal or disqualification. The Court held that the first and the latter two rules were not applicable in this case. The Ontario rule regarding resignation required the corporation must receive a written resignation in order to constitute an effective resignation. Sud had never submitted such a resignation.

The Court rejected the argument that Sud had ceased to be a director because the Corporation had ceased operations, relying on an earlier decision, Bremmer v. R., (2007 TCC 509), finding that a director’s duties continue after the corporation ceases operations. The Court also noted that even if Sud had submitted a written resignation, it may not have been effective because the Ontario statute required the corporation have at least one director, so in order for Sud to resign, another director would have had to be appointed or elected. Accordingly, the Court dismissed Sud’s appeal.

In another decision by the Tax Court of Canada, Grant v. Canada (2017 TCC 121), Christopher Grant, a director of RII Holdings Inc. (the “Corporation”) was found liable for unremitted source deductions, interest and penalties of $ $66,865.44. The Corporation that had made the deductions had become bankrupt and its assets were taken over by a bankruptcy trustee August 1, 2006. The assessment against Grant as a director was made in May 2012. Grant claimed that he had ceased to be a director when the Corporation became bankrupt and the bankruptcy trustee assumed control of its assets in 2006, well beyond the two-year limitation period for assessing directors after they cease being directors.

The Court held that bankruptcy did not terminate a director’s status as a director of the bankrupt corporation, despite control being asserted by the trustee. The Court held that the only legislation governing how a director ceases to hold office is the relevant corporate legislation, in this case the Ontario Business Corporations Act (OBCA), which requires a written resignation be received by the corporation in order for a director to effectively resign. As no resignation had been submitted, the Court found that Grant was still a director and able to be assessed for the liability for the source deductions.

These decisions, once again illustrate that individuals serving as corporate directors, need legal advice about the avenues available to mitigate their personal liability risks. Corporate law statutes have various requirements that must be met if an individual wishes to effectively resign their directorship. Relying on common sense understandings, as Sud and Grant apparently did respectively, regarding the effect of ceasing to file the corporation’s annual reports, or the effect of corporate bankruptcy, may lead to unanticipated liability for that individual. For further information on the risk mitigation strategies with respect to tax liability, see Canadian Directors’ Liability, Chapter 5, “Liabilities Relating to Taxation Law,” Section 2, Subsection a.2, “Ceasing to be a Director.”

Specialty Technical Publishers (STP) has just published an update to its publication Directors' Liability in Canada and provides a variety of single-law and multi-law services, intended to facilitate clients’ understanding of and compliance with requirements. These include:

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About the Author
Ronald Davis is an associate professor emeritus at the Peter A. Allard School of Law, University of British Columbia. He obtained his Bachelor of Laws degree from the Faculty of Law, University of Toronto in 1990, graduating as that year’s silver medalist. He was called to the Ontario Bar and practiced law in Toronto for 10 years before returning to graduate studies at the University of Toronto. 

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Tags: Accounting & Tax, Canadian, directors, directors & officers

Federal Agencies Making First Annual Civil Penalty Inflation Adjustments

Posted by Jon Elliott on Tue, Sep 12, 2017

Nearly all regulatory laws provide for civil – and sometimes even criminal – penalties for noncompliance. Penalty amounts (“XXX dollars per day of violation” for example) are typically adopted as part of the original legislation. But over time, the relative sting of these penalties declines with inflation. To counteract the possibility that less painful penalties will be less effective incentives for compliance, U.S. federal law has directed most agencies to make periodic “cost of living” adjustments to maximum available civil penalty levels (there are no provisions for standing periodic adjustments to criminal penalties).

How Did These Requirements Work During 1990-2016?

The first version of this approach was enacted by the Federal Civil Penalties Inflation Adjustment Act of 1990, which directed the President to report annually on any adjustments made under existing statutory authority, and to calculate what such adjustments would have been if more agencies had the authority to make them.

Congress amended the Act in 1996 to require most agencies to make inflation adjustments every four years, but precluding adjustments to penalties under the following:

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Tags: Business & Legal, OSHA, Environmental, EPA, directors, directors & officers

$600,000 Awarded in Blog Libel Case

Posted by Eric Robinson on Thu, Sep 07, 2017

If bloggers and other social media posters need a reminder that they can be held accountable for their online musings, a $600,000 jury verdict against an online poster in Georgia is such an example.

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Tags: Business & Legal, Internet, directors, directors & officers