January 22, 2015

The Important Role for Socially Responsible Businesses in the Fight Against Human Trafficking and Child Labor in Supply Chains

E. Christopher Johnson, Jr.

The general view of human trafficking is that it is something only occurring "over there," in places such as Africa and India. However, this perception is wrong. Trafficking is a problem not just "over there," but right here, right now. Indeed, trafficking and child labor abuses are part of our lives right here, right now. 

For example, slavery may taint the computer, smartphone, or tablet that you are using right now. A recent NGO study by Verité shows that one in three Malaysian electronics workers toil at forced labor. Slavery may have tainted the shrimp that you enjoyed last week. A recent investigation by The Guardian cited evidence that threats of extreme violence may have forced slaves to toil without pay for years harvesting shrimp in Thailand for sale abroad. The bad news is that these and other similar situations exist. The good news is that as businesspeople, there is something that we can do about it. As an example, The Guardian reports on efforts by businesses to form a task force to address the shrimp issue. 

You might be wondering, is this really an article in Business Law Today? Did I click the wrong link? You’ve got the right link. This article addresses two significant initiatives of the Business Law Section: its Corporate Social Responsibility Law Task Force and its Working Group on Model Business and Supplier Policies on Labor Trafficking and Child Labor. These supply chain and corporate social responsibility initiatives work together. While basic social decency demands elimination of labor trafficking from supply chains, corporate social responsibility supplies the business case for doing so.

The Supply Chain Issue

The International Labor Organization (ILO) estimates that 20.9 million individuals worldwide are victims of human trafficking. Of that number, 14.2 million are victims of forced labor or labor trafficking, and 4.5 million in sex trafficking or forced prostitution. As illustrated above, many of these slaves support the supply chains of products that we all use. As further confirmation, one only need look at the December 2014 version of the U.S. Department of Labor List of Goods Produced by Child Labor or Forced Labor to identify 136 goods in 74 countries produced in this manner (child labor is estimated by the ILO at 168 million). 

Human trafficking and child labor are against the law everywhere. Yet the reality is that in the countries “over there” where trafficking is most prevalent, the rule of law isn’t what it is in this country. The problem is that slaves produce goods that enter the supply chains of goods made here, used here, worn here, and eaten here. True, the Supreme Court took the teeth out of the Alien Tort Claims Act with its Kiobel ruling. Yet Congress still knows how to write laws (like Dodd-Frank’s conflict-minerals provision) having extraterritorial reach. As I counseled students in my LL.M. course on Corporate Professional Responsibility, basing risk management on nonenforcement of existing laws is unduly risky business. 

Responsible businesses already know about the supply chain problem and are trying to do something about it. They include a group that belongs to the Global Business Coalition Against Trafficking (gBCAT). Members include Carlson, Cison, Coca Cola, Delta Airlines, Hilton Worldwide, LexisNexis, Ford Motor Company, Manpower, NXP, and Travelport. The coalition has several worthwhile initiatives that dovetail nicely with the ABA Model Principles (Model Principles) and Polices (Model Policies) discussed below. 

Trafficking’s and child labor’s tainting of supply chains starts here in the United States and in other mature economies with consumer demand for cheap goods and services. Demand drives corporations to exact lower prices from supply bases. Price pressure, exacerbated by globalization, outsourcing, and use of labor brokers lead to exploitation of workers. Foreign workers are easily exploited because so many are extremely poor. Among the laborers my wife and I encountered in India, 20 percent live on one dollar a day, 50 percent are malnourished, 67 percent can’t read, and 33 percent don’t have access to safe drinking water. Consider that the present value of a single slave working in early nineteenth century America would be $40,000, while today, a slave sells in the sex or labor-trafficking market for just $90. Noted slavery expert Kevin Bales understandably titles his book citing these statistics Disposable People

Certainly, supply chain exploitation and other forms of trafficking like forced prostitution, which goes on both in the United States and abroad (see U.S. State Department Trafficking in Person Reports) conflict with the concept of human dignity that all major religions and atheists alike recognize. The Declaration of Independence provides “that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.” Similarly, the UN’s Universal Declaration of Human Rights states, “All human beings are born free and equal in dignity and rights. . . . Everyone has the right to life, liberty and security of person. . . . No one shall be held in slavery or servitude.” 

The business question is whether moral considerations like those in the ABA Model Principles are enough to motivate a corporation to act. Maybe so, but maybe not. My experience is that in certain situations the personal moral standards of a CEO or board will lead a corporation to address social issues. Yet a surer way to ensure that responsible action survives leadership change or insensitivity is to base that action on a business case.

The Case for Corporate Social Responsibility

Corporations address social issues under the banner of corporate social responsibility (CSR), also known as corporate citizenship, corporate responsibility, sustainability, social enterprise, triple bottom line, or corporate ethics. A member of the Business Law Section’s CSR Task Force, Stanford Law School Professor Chip Pitts, coauthored the premier law school text on the subject, Corporate Social Responsibility: A Legal Analysis, urging that we view CSR as a set of assessment, strategic-development, and commitment practices. 

The widely recognized Carroll Model defines CSR as “the economic, legal, ethical and philanthropic expectations placed on organizations by society at a given point and time.” The Carroll Model depicts a pyramid with the economic imperative to generate a profit at the base, on top of which lie legal obligations to obey the law, ethical obligations to do what is right and fair, and philanthropic obligations to be a good corporate citizen.

An alternative also puts economic obligations at the base, but then represents legal, ethical, and philanthropic obligations as concentric circles sitting on the base. This representation illustrates that while some CSR obligations fall squarely within one category, others overlap two. 

Supply chain efforts to address trafficking primarily fall into the ethical area, because guides like the ABA Model Principles and Policies and UN Guiding Principles are voluntary. Yet California’s Transparency in Supply Chain Act is one state supply chain law already on the books. This law, like the proposed federal law H.R. 4842 discussed below, requires corporations to disclose actions to clean up the supply chain rather than actually undertaking actions to do so, as Dodd-Frank’s conflict minerals law requires. 

Significant potential criminal penalties and civil liability already attend labor trafficking. Congress enacted the Trafficking Victims Protection Act in 2000. Offenders also violate Title VII, the Fair Labor Standards Act and state equivalents, and the Thirteenth Amendment. Corporations could also consider the social and ethical implications. They already do in the environmental arena, where although laws like the Clean Air Act, Superfund, Resource Conservation and Recovery Act, and Clean Water Act certainly provide heavy regulation, voluntary green initiatives in some instances nonetheless predominate. 

Extensive discussion on the Business Law Section Model Policies Working Group website make more of the moral and social case for addressing trafficking in the supply chain. 

The Business Case 

We have yet to consider the business reasons why corporations would voluntarily model their supply chain policies after the ABA Model Principles and take appropriate action. The business risks include unstable supply chains. Worker unrest over trafficking or trafficking-related issues can lead to work stoppages, consumer boycotts, product quality issues, and product recalls. Even without direct economic impact, media reports that a company has slaves in its supply chain can cause huge reputational damage, loss of investor confidence, and enormous stock-value loss. 

You should now clearly see the value to a proactive policy to eliminate trafficking and child labor from the supply chain. One sure way to address the issue is to adopt and implement the ABA Model Principles. By doing so, corporations can increase the supply chain stability and sustainability while increasing reputation for responsibility. Appealing to the growing number of socially conscious consumers can increase sales. Institutional investors are also becoming more socially conscious. Due in large part to the 2012 collapse of Bangladesh’s Rana Plaza, in which 1,100 workers lost their lives, institutional investors controlling $4.2 trillion in investments continue to advocate for worker safety while urging companies to commit to a trust fund established to provide victim and family assistance. 

Legal Consequences Affecting the Business Case 

Potential financial impacts from legal exposure are also growing. Beyond the Trafficking Victims Protection Act, the House of Representatives’ Business Transparency on Trafficking and Slavery Act bill (H.R. 4842) would, if enacted, require disclosure similar to California’s Transparency Act, although federal disclosure would be to the SEC. Ahem: the SEC. The administration also backs proposed regulations to implement President Obama’s Executive Order on Trafficking in Federal Contracts, which would in some cases require mapping the supply chain. Potential Foreign Corrupt Practices Act liability also exists when a company uses a labor broker. 

State laws are also becoming tougher in this area. With the assistance of University of Michigan Law trafficking expert Bridgette Carr and others, Michigan’s Attorney General Bill Schuette led a group of legislators including State Senator Judy Emmons in securing the adoption of 22 provisions toughening existing laws fighting sex trafficking and protecting its victims. The National Association of Attorneys General remains engaged in fighting trafficking. While the present focus is on sex trafficking, labor trafficking could easily become more of a focus. 

Internationally, law-reform advocates in 2013 approved the Uniform Law Commission Model Human Trafficking Law. Advocates also propose UN treaty negotiations to increase the responsibility of businesses to remedy of human rights violations. The European Union and India are each instituting corporate reporting on CSR issues. 

Litigation on behalf of trafficking victims also increases as the movement identifies more trafficking victims. An EEOC lawsuit involving Henry’s Turkey Service of Texas led to $242 million in damages based on findings involving alleged abuse of 32 mentally disabled turkey plant workers whom employers for decades paid hourly rates as low as 41 cents. A recent class action lawsuit involving 350 Filipino teachers whom corrupt labor recruiters charging exorbitant fees allegedly lured to teach in Louisiana public schools returned $4.5 million in damages for the teachers. A prominent plaintiff’s lawyer noted at a recent conference that damages could easily exceed $150 million even in cases involving as few as 100 employees. The array of potential civil causes of actions includes a private right of action under the Trafficking Victims Protection Act, Thirteenth Amendment, Ku Klux Klan Act, Civil Rights Act of 1866, Alien Tort Claims Act, RICO, Fair Labor Standards Act, Title VII, and state labor codes, plus common law claims for intentional torts, negligence, and breach of contract claims. 

Professional Responses

During the 2012 tenure of Laurel Bellows as ABA president, the American Bar Association formed a Human Trafficking Task Force to attack human trafficking from a professional standpoint. Efforts include training for lawyers and law enforcement officials who are often the first to respond to trafficking reports, strengthening pro bono networks to ensure that all civil legal needs of trafficking victims are addressed, and a media campaign including a video explaining how the legal community can help. See Laurel Bellows, “Breaking the Shackles: More Must Be Done to End Human Trafficking and Help Victims,” ABA Journal, Sept. 1, 2012. 

President Bellows asked the ABA’s Business Law Section to develop business practices for corporations encountering and addressing human trafficking. While certain businesses have adopted and implemented codes of business conduct to address labor trafficking including child labor in their operations, other businesses have not done so. U.S. corporations have not yet widely adopted standard business conduct codes. Even corporations that do have codes in place can benefit from periodic policy review to reflect evolving best practices particularly around trafficking. 

The Business Law Section responded to this request by creating a Working Group made up of over 50 leading business law experts who prepared the ABA Model Business and Supplier Policies on Labor Trafficking and Child Labor. The Model Policies consist of six parts: Part I Introduction, Part II Model Principles, Part III Model Business Policy, Part IV Model Supplier Policy, Part V Model Glossary, and Part VI Endnotes. 

The Model Policies assist both corporations and their suppliers currently having labor trafficking and child labor policies in place, but wishing to update those policies, and also corporations and suppliers lacking any current policy. The Model Policies can stand alone or be adapted for particular industries and be incorporated into existing business codes of conduct. 

The Model Principles form the centerpiece of the Model Policies. The ABA House of Delegates formally adopted the Model Principles as ABA policy, apart from the balance of the Model Policies. In addition to adopting the Model Principles as ABA Policy, the ABA House of Delegates in a second resolution urged businesses to adopt policies consistent with the Model Principles. Four Model Principles address both businesses and suppliers:

  • Principle 1 – The Business/Supplier will Prohibit Labor Trafficking and Child Labor in its Operations.
  • Principle 2 – The Business/Supplier will Conduct a Risk Assessment of the Risk of Labor Trafficking and Child Labor and Continually Monitor Implementation of this Policy.
  • Principle 3 – The Business/Supplier should: (i) Train Relevant Employees, (ii) Engage in Continuous Improvement, and (iii) Maintain Effective Communications Mechanisms with its Suppliers.
  • Principle 4 – The Business/Supplier will Devise a Remediation Policy and Plan that Addresses Remediation for Labor Trafficking or Child Labor in its Operation.

The Model Principles are consistent with the UN Guiding Principles on Business and Human Rights, which are the globally recognized guidelines on the roles of states and business enterprises in addressing human rights issues. The Guiding Principles recognize that: (1) states have existing obligations to respect, protect, and fulfill human rights and fundamental freedoms; (2) business enterprises including suppliers must comply with all applicable laws and respect human rights; and (3) rights and obligations should carry appropriate and effective remedies when breached. 

The Model Policies’ Parts III and IV consist of two main parts. Four Model Business and Supplier Policies each relate to one of the Model Principles. Each Model Policy starts with a statement of the applicable Model Principle. A commentary and guidance section recommends provisions to use in a business enterprise’s policy or code of conduct. These Model Policies are not ABA policy in the same manner as the Model Principles, hence a business enterprise can modify any or all of the provisions to suit its environment. 

The Model Policies’ Parts V Definitions and VI Endnotes are also part of the Model Policies and as such were not adopted by the ABA as policy. 

Companies are undertaking more ethical activities related to trafficking, beyond those related to the ABA Model Policies. The Working Group plans a database of resources to permit companies to post their policies and other relevant materials for sharing with others. For example, Apple’s code of conduct requires suppliers to refund to workers any excessive recruitment fees. Since 2008, this initiative has resulted in $17 million going back to workers, $3.9 million during the last year. 

Philanthropic Consequences

Corporations have demonstrated good corporate citizenship in this area. These efforts include the corporations mentioned earlier that formed the Global Business Coalition Against Trafficking. This initiative can become much more than philanthropic as this coalition develops additional tools. Some of those same corporations are signatories to the Luxor Implementation Guidelines to the Athens Ethical Principles, including the Gap, the Body Shop, Microsoft, and Manpower. Microsoft and Manpower are members of End Human Trafficking Now. Google had donated $11.5 million to Polaris and International Justice Mission to Fight Human Trafficking. Hilton Worldwide, Carlson/Radisson, and Delta Airlines have signed the ECPAT Code. 

Conclusion 

Lawyers discern the legal, financial, ethical, and moral risks of noncompliance with local, state, and federal laws, and international norms and rules, or the “rule of law.” We do not substitute the public good for shareholder return. CSR starts with a corporation’s economic interests and then moves through the legal, ethical, and philanthropic opportunities and concerns. Lawyers help corporate boards and CEOs recognize the risks of violating laws and the long-term reward of acting within those laws, even when others might pursue short-term rewards carrying unacceptable risks. Model Rule 2.1 permits lawyers to consider social and moral concerns relevant to its client’s situation in rendering legal advice. Yet lawyers should go beyond advocating correction of social or moral wrongs to also articulating a cogent business case. Lawyers can help corporate leaders communicate to shareholders broad and lasting value from eradicating trafficking from the supply chain. Doing so can build and protect equity while appealing to the growing number of customers, shareholders, and investors who care about human rights. Conversely, making a profit off of slavery presents unacceptable social, legal, litigation, and reputational risks that no corporation should accept as it could lead to significant erosion of a company’s business.

E. Christopher Johnson, Jr.

E. Christopher Johnson, Jr. is CEO and Co-Founder of the Center for Justice, Rights & Dignity and the retired General Motors North America Vice President and General Counsel.