Slavery and Human Trafficking How the Newest Supply Chain Risk Impacts the Fashion Industry United States Fashion Industry Association Dynda A. Thomas December 10, 2015 010-8170-5783
Disclaimer The information contained in this presentation contains general information and is provided for informational purposes only and should not be construed as legal advice on any subject matter. Recipients of this presentation should not act or refrain from acting on the basis of any content included in this presentation without seeking the appropriate legal advice on the particular facts and circumstances at issue from an attorney licensed in the recipient s state. Conflict minerals compliance is especially driven by each company s own facts and circumstances and general guidance, such as included in this presentation, will not necessarily be appropriate for your circumstances. 2
Slavery and Human Trafficking Definitions What is slavery and human trafficking Slavery where ownership is exercised over a person, where individuals are coerced into providing their services or do so unwillingly under threat of a penalty Human Trafficking arranging or facilitating the travel of individuals with a view to exploiting them (being exploited includes slavery, servitude and forced or compulsory labour) 3
Child Labor Definitions According to the International Labour Organization, child labor is often defined as work that deprives children of their childhood, their potential and their dignity, and that is harmful to their physical and mental development. This includes work that: is mentally, physically, socially or morally dangerous and harmful to children; and interferes with their schooling by: depriving them of the opportunity to attend school; obliging them to leave school prematurely; or requiring them to attempt to combine school attendance with excessively long and heavy work. 4
Slavery and Human Trafficking and Fashion Industry Source: www.asiainspection.com Will Consumer Awareness Put an End to Modern Slavery? 5
Supply Chain Disclosure Risks - Background Setting Supply chain regulations are being used to solve human rights issues throughout the globe by a public name and shame regime Companies must post disclosure on homepage Non-governmental organizations (NGOs) demand more action and disclosure than is required by law 6
Supply Chain Disclosure Risks - Background Catalysts Newspaper articles, television news segments, YouTube exposés, all revealing awful to horrific labor conditions Existence of modern slavery and forced labor brought to light Detailed information about living and working conditions Detailed information about the connection of particular suppliers to these conditions 7
Supply Chain Disclosure Risks - Background Result Increased awareness of human rights abuses Customers require clean supply chains Consumers demand ethical or slavery-free products Activist shareholders require companies to meet and report on efforts Consumer class action fraud lawsuits based on slavery and human trafficking disclosures by companies (7 ongoing cases) Lawsuits for examination of books and records to lay the groundwork for a lawsuit 8
Principal Regulations Regarding Slavery & Human Trafficking California Transparency in Supply Chains Act of 2010 UK Modern Slavery Act 2015 Federal Acquisition Regulations / Defense Federal Acquisition Regulations (FAR/DFAR) More being considered 9
California Transparency in Supply Chains Act 2010 Entities Subject to the Requirement Does business in California Does not have to be California entity Has annual worldwide gross receipts over $100 million Is identified as manufacturer or retail seller on California state tax returns 10
California Transparency in Supply Chains Act 2010 Disclosure Required Post statement on website Conspicuous and easily understood link on homepage If no homepage, must provide statement within 30 days after request Describe efforts to eradicate slavery and human trafficking from direct supply chain for tangible goods offered for sale 11
California Transparency in Supply Chains Act 2010 Topics to be Covered in Statement [Mandatory Elements] Verification of product supply chains Audits of suppliers to evaluate compliance with company standards Internal Accountability of employees and contractors who fail to meet standards Certification by direct suppliers that materials in products comply with local laws Training of employees and management that have direct responsibility for supply chain management 12
California Transparency in Supply Chains Act 2010 Signatures/Company Approvals Signatures not required 13
California Transparency in Supply Chains Act 2010 Remedy/Penalty California State Attorney General can compel the posting 14
California Transparency in Supply Chains Act Many retailers, apparel and textile companies are already posting slavery and human trafficking disclosures as required by the California Act. and Federal legislation on slavery and human trafficking examination and disclosure has been introduced and is in process. 15
UK Modern Slavery Act 2015 Entities Subject to the Requirement Commercial organization (body corporate or partnership, limited partnership or similar entity) Does not have to be UK entity Carries on a business or part of a business in UK Applies to entities that supply goods or services Applies to entities with annual turnover of 36 million (~$56 million) 16
UK Modern Slavery Act 2015 Disclosure Required Requires entities to describe steps taken to ensure that slavery and human trafficking is not taking place in any of the supply chains or in its own business operations Post statement on website Disclosure for a financial year Link to statement in prominent place on website s homepage If no website, must provide within 30 days after request 17
UK Modern Slavery Act 2015 Topics to be Covered in Statement [Suggested elements] Organization s structure, business, and supply chains Policies relating to slavery and human trafficking Due diligence process When there is a risk of slavery and human trafficking and steps taken to identify and manage risk Effectiveness in ensuring slavery and human trafficking not in business or supply chain Training available to staff 18
UK Modern Slavery Act 2015 Signatures/Company Approvals Requires statement signed by a Director or Partner For a company o Board approve/director sign o Members approve/designated member sign For a partnership: o General partner approve and sign 19
UK Modern Slavery Act 2015 Remedy/Penalty UK Secretary of State can compel the posting 20
UK Modern Slavery Act 2015 First required posting under the Act must appear no later than October 2016 for companies whose financial year-end is April 30, 2016. For company with financial year-end of April 30, 2016, its actions in preceding financial year (from May 2015 through April 2016) will be disclosed. So, what that company is doing TODAY will be reported upon. Companies should turn their attention to slavery and human trafficking compliance now to be prepared for when the statements must be posted. 21
Supply Chain Transparency Challenges Faced by Companies in the Fashion Industry Customer demand for fast fashion at low cost Long and complex supply chains raw materials inputs cut-make-trim Supply chains run through many at-risk countries Corruption is prominent in many low-cost countries On-site visits are expensive and impractical Difficult to be aware of all the growing risks 22
Disclosures and Statements Regarding Slavery and Human Trafficking Posted Statements Policies Supplier Codes of Conduct Business Codes of Conduct Industry-Driven Principles and Pledges 23
Focus on Slavery, Human Trafficking, Forced and Child Labor in Fashion Industry NGOs (advocacy and reporting) for example, Responsible Sourcing Network WalkFree As You Sow Development International (new) Industry efforts Cotton Pledge Better Cotton Initiative Note: In other contexts (cocoa), plaintiffs have cited the existence of these industry efforts as proof that companies are aware of the issues and continue to source in the face of them! 24
Enforcement of California and UK Acts California Attorney General UK Secretary of State Enforcement = Compel Postings 25
Risk Environment for Fashion Industry Customers Activist consumers Non-governmental organizations Socially responsible investors Competitors Media Potential plaintiffs 26
Risk Environment for Fashion Industry Consumers/Plaintiffs Filing consumer fraud class action lawsuits relating to slavery and human trafficking disclosure 7 cases since late August 2015 o o o NGOs 4 cases forced labor (seafood/pet food) 3 cases child labor (cocoa) What industry will be next? Decreeing what is good/best practices Publishing scoring and reports based on their increased expectations Identifying laggards in benchmarking studies on supply chain disclosures (directly or indirectly) Socially Responsible Investors Suggesting that investors wield their power Considering shareholder proposals 27
NGOs Become the Regulator NGO studies of slavery and human trafficking disclosures Development International website tells: o o o Methodology of report New company scores on compliance and affirmative conduct Companies that should post statements NGO influence and voice likely to grow NGOs have become the new regulator without the checks and balances and requirements to take comments from industry Potential plaintiffs look to NGO reports and media reports to provide basis for litigation claims and to support factual allegations 28
Plaintiffs and Activist Shareholders Become the Enforcer Activist shareholders are contacting companies and requesting audiences with management to discuss compliance programs and sourcing practices Shareholders are considering making shareholder proposals 29
Disclosure-Related Litigation Slavery and Human Trafficking Regulations US and UK Industries with higher litigation risk o Fishing and Aquaculture (4 consumer class action cases) o Agricultural Products (3 consumer class action cases) o Textiles and Apparel (none to date) Risk factors o Labor practices and conditions o Geographic conditions o Industry conditions o Media and NGO reports 30
Disclosure-Related Litigation: Costco Defendants Costco and suppliers One named plaintiff (Monica Sud consumer) Northern District of California Shrimp sold at Costco for human consumption California Transparency in Supply Chains Act disclosure Supplier Code of Conduct 31
Disclosure-Related Litigation: Costco Costco California Act Disclosure Statement Costco has a supplier Code of Conduct which prohibits human rights abuses in our supply chain... Our suppliers contractually agree to follow the Code and to ensure that their sub-suppliers also comply... To evaluate compliance, we arrange for the audit of facilities of selected suppliers... Audits are performed by independent third-party auditors who specialize in social responsibility audits... If we discover a violation of our Code of Conduct, we respond in a manner commensurate with the nature and extent of the violation. Critical violations are considered serious enough to require immediate and decisive remedial action and may result in the termination of the business relationship. For less serious violations, we allow the supplier reasonable time to develop and implement a plan for remediation. In those instances we conduct follow-up audits to monitor progress... 32
Costco Case Claims Allegations are: Prawns from Southeast Asia that Costco sold to its customers were farmed using forced labor Costco s use of forced labor is inconsistent with its California Transparency in Supply Chains Act disclosure Costco s Supply Chain Disclosure stated, among other things, that Costco has a Supplier Code of Conduct which prohibits human rights abuses in our supply chain. Costco s Supply Chain Disclosure also stated that Costco conducts supply chain audits and imposes consequences to prevent and correct violations. 33
Disclosure-Related Litigation: Costco Fisheries Fishmeal Companies Shrimp Farmers Costco Suppliers Costco 34
Costco - Background March 2014 Environmental Justice Foundation documentary, Slavery at Sea: The Continued Plight of Trafficked Migrants in Thailand s Fishing Industry The Guardian Article, Revealed: Asian slave labour producing prawns for supermarkets in US, UK, June 10, 2014 35
Risk Factors Relating to Slavery & Human Trafficking in Fashion Industry Labor Practices and Conditions Low-skilled or dangerous work Seasonal work (need for large work force for a short period of time) Use of brokers/intermediaries for hiring (exposes company to Foreign Corrupt Practices Act, anti-bribery, and anti-corruption risk) Migrant work force Employer takes possession of identity, travel, or personal documents Source: Verité Report, Strengthening Protections Against Trafficking in Persons in Federal and Corporate Supply Chains, January 2015 36
Risk Factors Relating to Slavery & Human Trafficking in Fashion Industry Geographic Conditions Regions with low protections for civil rights and liberties Tolerance of corruption Low economic development Export Processing Zones or Free Trade Zones (export oriented regions) Expensive guestworker Visa programs (Qatar, Malaysia, US agra workers) Source: Verité Report, Strengthening Protections Against Trafficking in Persons in Federal and Corporate Supply Chains, January 2015 37
Risk Factors Relating to Slavery & Human Trafficking in Fashion Industry Industry Conditions Agriculture and processed foods Construction Electronics Mining Fishing and aquaculture Forestry / timber Healthcare (including healthcare equipment manufacturing) Hospitality Textile and apparel (including prison labor) Transportation and warehousing Source: Verité Report, Strengthening Protections Against Trafficking in Persons in Federal and Corporate Supply Chains, January 2015 38
Risk Factors Relating to Slavery & Human Trafficking in Fashion Industry Media and NGO reports 39
First Steps in Light of Litigation Risk Companies should review the following documents with the disclosure litigation risk in mind Policies Disclosure postings Supplier code of conduct Business code of conduct Statements to customers Advertising 40
First Steps in Light of Litigation Risk Even robust programs and actions do not guarantee no litigation However, robust programs and actions do put you in the best position possible to respond in litigation Seek external input and advice to evaluate and assess existing programs and build additional steps 41
Slavery and Human Trafficking How the Newest Supply Chain Risk Impacts the Fashion Industry Thank you! Dynda A. Thomas 1 216 479 8583 Dynda.Thomas@squirepb.com www.conflictmineralslaw.com 42
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