Client Alert 01 Mar. 2021

Modern Slavery: 2021, the new XVIII Century

The alert is available for download with the bibliography in English, Italian and Spanish.

What is Modern Slavery?

The term “slavery” inevitably takes us back to past centuries and it seems unthinkable that today, in the year 2021, we still have to add this topic into governmental and companies’ agendas. “Modern slavery” is the severe exploitation of other people for personal or commercial gain, which can come in several forms, such as human trafficking, forced labor, debt bondage, descent-based slavery, forced marriage and the use of child labor (Anti-slavery). This matter does not differentiate between industries and regions, and sometimes becomes an ingredient in the clothes we wear and even the food we eat.

The International Labor Organization (ILO) and Walk Free Foundation estimate that around 40 million people are currently involved in some form of modern slavery globally, where 25 million are in forced labor and 15 million in forced marriage, with women and girls accounting for 71 percent of all cases of modern slavery (ILO, 2017). This is nothing more than an estimation since, as Stop The Traffik points out, the hidden and illegal nature of human trafficking makes gathering statistics difficult (Traffik).

Corporations may unwittingly act as a catalyst and drive up the demand for forced labor. To stop this race to the bottom, there is an urgent need for more corporate awareness regarding supply chains and transnational legislation that sets basic standards for all businesses, as established by the UN Guiding Principles on Business and Human Rights (UNGP) and the OECD Guidelines for Multinational Enterprises (Anti-Slavery, 2020).

Out of Sight, Out of Mind

According to the UNGP, States have a duty to protect against human rights abuses, and corporations have a responsibility to respect human rights by taking steps to prevent abuses and to remedy infringements (Rights, 2011). Despite the good intentions of these guidelines, extra-territorial legislation is imperative to uphold human rights principles.

Leaders of the G20 and G7, the Human Rights Council and the Global Call to Action, inter alia, have developed initiatives to fight against this issue. However, whether these or other accords are effective will be “largely based on whether any introduced domestic legislation or international treaty includes mandatory due diligence and/or penalties for non-compliance. ‘The presence of such measures is likely to result in more concerted effort, whereas the lack of such measures is likely to see a more limited action response’” (IBA, 2019).

And therein lies the rub. Since the California Transparency in Supply Chains Act of 2010 – the first to combat forced labor and human trafficking through corporate supply chain disclosure requirements – many other jurisdictions have strengthened their regulations on compulsory transparency obligations. Namely, the British Parliament enacted the UK Modern Slavery Act, which requires all commercial organizations trading in the UK with a turnover of £36 million or more to publish an annual statement on action to eliminate slavery from supply chains. The US federal government adopted the US Trade Facilitation and Trade Enforcement Act, which prohibits companies from importing goods manufactured by forced labor into the US and, more recently, the Australian Federal and New South Wales (NSW) Modern Slavery Acts required companies to publish an annual statement on actions to address modern slavery in their businesses and supply chains (Anti-Slavery, 2020).

These have represented a huge step into a new era, yet the lacking of “teeth” is evident. In France, for example, a 2017 law obliged global companies to establish a ‘Vigilance Plan’ aimed at preventing serious violations to human rights and fundamental freedoms, among others. However, the penalty for non-compliance contained in the original draft (fines of up to €30 million) was removed. The mentioned UK Act “contains no legal requirements on what needs to be included in a statement and no penalties or enforcement action for organizations that produce very brief statements and/or do little within their organizations to combat slavery” (IBA, 2019).

As for the European Union, in April 2020, the European Commissioner for Justice announced that the EU will introduce in 2021 legislation on mandatory sustainable due diligence for companies, as part of the Commission’s 2021 action plan and the European Green Deal. In October 2020 the Commission launched public consultation on sustainable corporate governance, which closed on February 8, 2021. The Commissioner promised that the new law would require companies to carry out checks on their supply chains and look at whether their activities may be harming human rights, in order to identify, prevent, mitigate and account for human rights abuses and environmental damage linked to corporate operations, subsidiaries or value chains. The companies will have to publicly report on the risks identified and on what they have done to deal with them, demonstrating to investors, consumers and local communities that they are committed to responsible and sustainable business (Centre, 2020).

However, this new trend toward mandatory reporting and non-financial disclosure is not without its criticism and the risk of greenwashing is just around the corner (Amaro, 2020).

Global Solutions for a Cross-cutting Problem

A. Transparency and certification marks

Even though there are some challenges to transparency, namely, added costs and lack of strong legal enforcement mechanisms (see above), consumers are crying out for it and companies across industries should listen. Here are the main reasons:

  1. Stronger brand. Transparency improves brand recognition and also “incentivizes companies to clean up their supply chains” (Gehman, 2016), making their brands’ trademarks stronger. Increased positive brand recognition among consumers can be achieved by using certification marks on the labeling of their products. In the fashion industry, FAIR TRADE CERTIFIED® and GOODWEAVE® are the main ones. “The use of certification marks … to certify the conditions under which the product was made would improve the lives and communities of factory workers, and provide transparency to consumers” (Gehman, 2016). Transparency also demonstrates corporate social responsibility which can allow “companies to avoid burdensome government oversight” (Gehman, 2016).
  2. Reduced litigation risk and better conditions for workers. Companies are becoming more aware of what is happening in their supply chains, which reduces litigation risks and the attendant costs and reputational damage to the brand. A natural consequence is the improvement in the working conditions of the workers.
  3. Satisfied customers. Customers want good quality products at the best possible price, but they also want to feel good about the product they purchase – and transparency helps customers feel satisfied.

B. Internal Codes

As a response to consumer demand, companies have implemented codes of conduct establishing labor standards for their international suppliers. However, the key issue here is to put this self-regulation into practice since it tends to remain mere words. “Sweatshops are prohibited in virtually every code of conduct, yet they still exist” (Gehman, 2016).

The Out-of-Style Fashion Industry

How come a beautifully hand-embroidered shirt cost less than $10? Who is sewing customers’ clothes? Where? … The fashion industry has an “enormous influence on society and the environment” (Brewer, 2019), and consumers are starting to ask questions. Companies such as Benetton, Vivienne Westwood and Stella McCartney are “well-known champions” of the promotion of social issues and sustainability (Brewer, 2019). However, they are the exception in an industry that is substantially detrimental not only on the environment, but also on society. Indeed, “[s]lavery in the fashion world can appear in a variety of forms from harvesting the cotton for a t-shirt … [to] modelling the final product. The difference between slavery and extremely exploitative labour can be vague and the fashion industry walks a fine line” (Clay, 2021).

Fashion brands generally do not have full control over their supply chains, making it more difficult to tackle slavery and other labor issues. Yet, it is imperative that they start investing more time and money in these issues. A company’s brand is one of its most valuable assets, and labor violations directly threaten brand value. World-renowned apparel brands have experienced this firsthand. In 1991, Levi Strauss & Co. discovered that some of its Bangladeshi garment factories were engaging in child labor practices. Instead of terminating its contract with the factory or firing all the underage workers, the company acknowledged that particular society’s reality (a child would normally support an entire family on his or her wages) and developed a plan by which, among other things, “factories would have to pay currently employed children their salary and benefits while the children attended school, and agreeing to offer them full-time employment upon their reaching a legal working age” (Gehman, 2016). Levi’s brand strengthened and increased in value, while receiving praise for implementing this empathic solution. On the other hand, Gap, Inc. did not have such a good outcome since it was a third party and not the company who discovered the irregularities. In 2007, a British newspaper reported child labor in a Delhi sweatshop. To enhance its reputation, Gap announced a remedial plan as well as its commitment to eliminating child labor in the production of its clothing; nonetheless, in spite of its efforts, the scandal damaged the brand’s reputation and value. Moreover, years later the same newspaper discovered more sweatshops, which led to the birth of a “Human Rights Policy” within the Company. “The Institute for Global Labor and Human Rights reported in 2013 that Gap was selling clothing manufactured in a Bangladeshi sweatshop” (Gehman, 2016).

Conclusion

Complex supply chains, migrant workers, sub-suppliers and a greater need to cut costs are some of the high-risk factors that corporate leaders need to take into account when creating their business strategies. Companies around the globe are aware of the global dimensions of modern slavery and should intensify their efforts to tackle this issue. Now more than ever, companies should have experts devoted to the analysis and control of their supply chains as well as elite legal teams that understand the needs of their clients, understand the industry, and are constantly updated with respect to the current applicable regulations. Legal advice and compliance assistance from expert legal counsel can help strengthen the brand, reduce litigation and regulatory risk, and maximize the value for both the client and the client’s customers.

Attorney advertising. The material contained in this Client Alert is only a general review of the subjects covered and does not constitute legal advice. No legal or business decision should be based on its contents.

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