Sunday, September 13, 2020

Guest Blog: ULC's work on Coercive Labor Practices in Supply Chains, Part 5

Welcome to the final guest blog discussing the work of the ULC study committee that focuses on coercive labor practices.  In previous blogs I have discussed other frameworks the study committee is considering, including disclosure-based regimes and frameworks that are centered on procurement.  In this final blog, I will examine what some consider the next frontier for combating coercive labor practices in supply chains: mandatory human rights due diligence.   

More after the jump …

            A mandatory human rights due diligence framework (“HRDD”) would specifically target supply chains by requiring corporations to examine their vendors and other suppliers to see if they can assess the presence of coercive labor practices.   Specifically, HRDD would require companies to undertake an evaluation of human rights risks within their supply chain.  HRDD draws upon traditional corporate due diligence concepts but, varies from the traditional notion of corporate due diligence in ways that are significant for the committee’s present charge.  Traditionally in corporate practice, the concept of due diligence was associated with one-time transactions such as mergers and acquisitions. In those instances, the board’s function was to monitor management as it performed its due diligence for the transaction and then to make sure that all of the correct protocols had been followed.   More recently, the board’s due diligence role has become a continuous one, often conflated within the legal issue of oversight.  However, as noted by Michelle Harner, whether it’s done for a particular transaction or within a more comprehensive oversight role - traditional due diligence examines corporate risks and includes them in an assessment of the organization’s objectives. 

             In contrast, HRDD mechanisms requires corporations to undertake a risk assessment to evaluate what risks impact an individual’s human rights, rather than what risks are present to the corporation. 

            In addition, HRDD can also be contrasted with the disclosure mechanisms discussed, above.  To wit, HRDD  goes beyond requiring corporations to report what (if anything) they have done to address coercive labor practices in their supply chain. Instead, according to the UN Guiding Principles on Business and Human Rights (UNGPs), HRDD mechanisms provide “an ongoing risk management process that a reasonable and prudent company …  follows in order to identify, prevent, mitigate and account for how it addresses its adverse human rights impacts.”

As the UNGPs note, typically these HRDD frameworks involve four key components:

(1) A corporate assessment of any actual or potential human rights impacts;

(2) Integrating these findings into the corporate structure and making changes based on what the findings uncovered;

(3) Tracking how effective, in turn, these changes have been to reduce trafficking and forced labor, and;

(4) Reporting the results (both internally and externally).

            While there is currently no U.S. jurisdiction that has implemented such a law, there is some precedent in other countries.

  1. New French Law

             In 2017, France passed Law No. 2017-399, which requires corporations to engage in due diligence over issues of trafficking within their supply chain.

            The French law also has a reporting obligation component, in that it requires companies to publish their plan in an annual management report.   However, in addition to its reporting obligations, companies must actually implement their due diligence plan and undertake “reasonable vigilance” to make sure the plan is implemented. Much like the UK law (and in contrast to SB657), the law in France applies to any corporation, regardless of industry that: (1) has at least two thousand direct employees for two years in a row and; (2) whose registered offices are in France. 

            Specifically, the law requires first that companies subjected to the Act develop a vigilance plan.  The vigilance plan must relate to “the activity of the company” and its subsidiaries.  The plan should include “reasonable vigilance measures” to identify, among other things, human rights risks. The law also provides that companies consult with stakeholders in deciding how the due diligence plan should be drawn up.  Specifically, according to the law, the corporate plan should have four parts:

  • A risk mapping document that allows the corporation to identify, analyze and rank issues;
  • Procedures that regularly assess the relationships with subsidiaries, subcontractors and suppliers;
  • A policy for mitigating risks and serious harms;
  • A mechanism to assess the plan’s effectiveness.

The law also allows for private actions for corporations that fail to comply with the law.

  1. Other Jurisdictions

             This approach - one of mandatory HRDD -  is a slow but increasingly used approach taken by regions around the world.  For instance, on April 29, 2020, an EU Commission announced that it will introduce legislation early next year regarding a mandatory due diligence framework.  This was announced shortly after the EU published a comprehensive study it had commissioned examining the need for, and potential promise of, mandatory due diligence processes in supply chains. While no specifics of the proposed framework have yet been given, advocates in the field have already offered proposed requirements that could also be used to guide the work of the Study Committee. For instance, the European Coalition for Corporate Justice has advocated for a legislation that includes the following set of “minimum requirements”:

1)  Apply to all business entities;

2) Make sure the business respect all international human rights, environmental and labor rights instruments as well as “ensure respect and compliance with those rights and standards throughout their global value chain”;

3) “Require undertakings to take all necessary measures in the exercise of due diligence, to meaningfully consult stakeholders for the purpose of defining and implementing due diligence, and to publicly report on these processes and their results.

4) Require that due diligence extend to the undertakings’ entire global value chains.”

  1. Potential Benefits and Pitfalls of this Approach:

    An HRDD approach has the flexibility of being used in multiple contexts: it can be tied to labor procurement, procurement of goods & services or used as a stand-alone legal framework. It can also be used in a system of either public or private procurement contracts.  However, as mentioned earlier, because the HRDD framework is a process-oriented system that does not require specific outcomes, it can lead to idiosyncratic results.  For instance, In June 2017, Waitrose, a top UK supermarket, pulled its cans of corned beef off the shelves after an investigation revealed that the meat might have been produced with slave labor.  At the time of the recall, Waitrose was in compliance with the UK Modern Slavery Act. In fact, just a few weeks prior, Waitrose’s parent company, the John Lewis Partnership, filed an updated report in which it stated that “Waitrose and John Lewis have clear processes in place for supplier approval and monitoring to assess how they are implementing the Responsible Sourcing Code of Practice, and ensure they are meeting our standards.”  As one commentator wrote:

    The U.K. is home to much-lauded legislation to root out human trafficking, child labour and other forms of modern slavery in the supply chains of British companies, the Modern Slavery Act 2015. So why did it take an investigation from The Guardian to uncover this case? Waitrose had been fully in compliance with the law, yet they somehow missed the existence of possibly hundreds of slaves in their supply chain.

Conclusion

            As the previous blogs have discussed, there are a number of different options that the study committee is considering in deciding the feasibility of crafting a uniform law that combats coercive labor practices in supply chains.  Each potential framework has benefits and shortcomings. So, what do you think? In the comments below please weigh in on which framework you think would best address coercive labor practices. 

    Want to know more? As I mentioned before, 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.  Just remember 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.

Finally, I'm grateful to the Business Law Prof Blog for being able to share my work on this important subject. I owe a special shout out to my former colleague (and continued friend) Josh Fershee for helping with everything ...

https://lawprofessors.typepad.com/business_law/2020/09/guest-blog-ulcs-work-on-coercive-labor-practices-in-supply-chains-part-5.html

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