Sunday, August 23, 2020

Guest Blog: ULC's work on Coercive Labor Practices in Supply Chains, Part 2

            Welcome to the 2nd in a series of 5 guest blogs discussing the work that I have done as a reporter for the ULC study committee on coercive labor practices in supply chains. In the last blog, I provided some context for why the study committee was adopted. In this blog, I want to provide a deeper dive into one of the regulatory options the study committee is reviewing: the use of corporate disclosures.

More after the jump…

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            Currently, one popular approach to addressing coercive labor practices in supply chains has been through requiring businesses to report what measures (if any) it has taken to address these practices in their supply chain. Although the reporting initiatives are mandatory, as will be discussed below, in most jurisdictions corporations can satisfy their obligations by noting what steps (if any) they have undertaken, rather than having to demonstrate that they are taking affirmative steps to prevent trafficking and forced labor in their operations.  In the United States, this approach has been used in the state of California.  This approach has also been used in other countries, most notably in the United Kingdom.

The California Approach:

 

            In 2010, the California legislature passed the Transparency Supply Chains Act (TSCA or SB657). The TSCA, which went into effect in 2012, requires retail sellers with worldwide annual revenue of over $100 million to disclose on its corporate website, what if any, initiatives it has undertaken to eliminate slavery and human trafficking in its relationships with its vendors.

            The law was a significant development for addressing coercive labor practices in supply chains.  California’s approach could have a significant impact nationwide.  Of all the state economies, California’s is the biggest, representing over 14% of the national GDP.  As the largest economy in the nation, California’s economy represents a significant portion of nationwide supply chains overall.

            Under the law, a company must disclose initiatives to eliminate slavery and human trafficking in five areas:

(1) verification and evaluation of trafficking risk in its supply chains;

(2) auditing of suppliers;

(3) supplier certification;

(4) accountability standards and procedures for both employees and suppliers and;

(5) corporate training on slavery and human trafficking. 

            In addition, SB 657 requires companies to: (1) specify whether they have established supplier compliance systems and (2) state whether those supplier compliance systems are done through independent and unannounced audits.   SB 657 does not require companies to take steps to fix issues regarding human trafficking in their supply chain. Rather it simply requires companies to report on whether they are taking steps to address issues of trafficking, and if so, to detail what they are. 

            There is no private right of action for violations of SB 657.  Instead, “the Attorney General has the exclusive jurisdictional authority to bring an action for injunctive relief for a violation of this law.”  As a result, while consumers and civil society can use information to make purchasing decisions or shed light on issues regarding potential human rights abuses, if a company does not comply with SB 657 the California Attorney General’s office has exclusive jurisdiction for remediating the issue.

            There are several potential  limitations to SB657.  For instance, as the group, KnowtheChain notes “it is not possible to definitively determine all of the companies that are subject to the law with current public information” Determining who is within the ambit of the law is an important first step in any legal regime. The list of corporations who are required to make disclosures is procured by the Franchise Tax Board and made available to California Attorney General.  However, the database is not made public.  In addition, SB 657 has no periodic reporting requirement – rather it seems that once a corporation has made an initial disclosure, there are no updating obligations.

            Compliance has also proved challenging.  To date, the California Attorney General has not yet brought an action against a corporation for non-disclosure under SB657 even though KnowtheChain’s report concludes that many corporations have failed to comply with the statute. 

The United Kingdom:

 

            In March 2015, the United Kingdom passed a disclosure-based law to address coercive labor practices. The law, entitled the Modern Slavery Act (MSA or the UK Act) was enacted to “make provision about slavery, servitude and forced or compulsory labour and about human trafficking, including provision for the protection of victims.”  In addition to defining slavery and human trafficking, the UK Act includes Part 6, which discusses “transparency in supply chains.”  Under Part 6, any business who falls within the parameters of the MSA must prepare an annual “slavery and human trafficking statement.” 

            Most of the details outlining a corporation’s annual statement are listed as suggested parameters that a corporation may discuss in its statement. They include corporate structure, corporate policies, and due diligence policies.

            The MSA does not require companies to take specific substantive steps to eradicate slavery or trafficking from its supply chain.  Instead, the MSA merely requires corporations to report on any action or inaction that it has taken on this issue.  The method of publication is also the same in that both the MSA and SB657 require corporations to place these statements on their website. However, in many other ways the MSA differs significantly from the scope of SB657. For instance, unlike SB657, the UK Act applies to all industries, not simply manufacturing and retail.  Also, the threshold and jurisdictional requirements to be brought within the purview of the MSA are significantly lower than the ones required for California. Finally, unlike SB657 (which requires only a one-time statement), the UK Act requires an annual corporate statement.  

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            Because of their early adoption and relatively minimal action required on the part of corporations, many feel as if these disclosure laws are a “first-generation” regulatory approach to fighting coercive labor practices: suitable for highlighting the issue and bringing the problem into the spotlight but perhaps not the most effective or efficient approach to actually eradicating coercive labor practices.  In the next blog, I’ll discuss an alternative approach to handling the issue – using labor procurement laws. 

My ongoing Disclaimer:  The work of the study committee is currently underway and is expected to continue until December 2020.  Any interested parties are able to participate as observers.  To be added to the committee as an observer please contact Leang Sou (lsou@uniformlaws.org) at the ULC.  Also, keep in mind that the work being done at this stage is to determine the feasibility of a uniform law on the issue.  Comments that provides suggestions on what specific language this proposed uniform law should contain, are premature.

https://lawprofessors.typepad.com/business_law/2020/08/guest-blog-ulcs-work-on-coercive-labor-practices-in-supply-chains-part-2.html

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Comments

Jena, these are great posts. I wish I had these when I taught my summer course on compliance, governance, and sustainability. I've written to get added as committee observer. Thanks for your important work in this area.

Posted by: Marcia Narine Weldon | Aug 24, 2020 7:29:30 AM

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