I. Introduction
Over 40 million people around the world are victims of modern forms of slavery: forced labour and human trafficking.Footnote 1 Workers are tricked into onerous working conditions through deceptive recruitment and payment of recruitment fees that plunge their families into debt, are deprived of their legal documents and are unable to leave or return home. Much of this forced labour supplies goods to the United States (US) and other multinational corporations, which profit by relying on the lower wages earned by workers in their global supply chains.Footnote 2
Yet forced labour and human trafficking violate longstanding international and domestic norms that go back over a century. For decades, multinational corporations have been on notice about mechanisms to prevent the use of forced labour in their global supply chains. In the 1990s, workers, unions, intergovernmental organizations, governments, non-governmental organizations (NGOs) and corporations themselves began to monitor supply chains and identify the use of forced labour. Codification of international prohibitions against modern human trafficking followed in 2000. The legal framework to address forced labour and human trafficking in supply chains included international law, federal and state statutes as well as implementation mechanisms such as codes of conduct, contracts, risk assessments, human rights due diligence, monitoring and audits, and non-judicial grievance mechanisms.
In response, some companies took effective action to use these mechanisms to prevent and address trafficked labour. Many, however, took no action or made superficial changes that were little more than public relations efforts. The failure to address supply chain reliance on forced labour and human trafficking is a key issue facing the corporate accountability movement today.
US law offers a powerful but under-utilized tool to address this enforcement gap: Section 1595 of the Trafficking Victims Protection Reauthorization Act (TVPRA) of 2008, which imposes liability on those who ‘knew or should have known’ about forced labour or human trafficking in their corporate ventures,Footnote 3 including their supply chains. The extension of liability to those who ‘should have known’ recognizes the duty to inquire; that is, not just to act once information about these practices comes to the attention of companies purchasing or selling these products, but an affirmative duty to determine whether such practices are taking place. Application of the ‘should have known’ standard has the potential to dramatically change the supply chain dynamic that enables US corporations and consumers to benefit from the exploitation of workers around the world.
However, the TVPRA will only be effective if courts applying the ‘should have known’ standard recognize that US corporations have an obligation to inform themselves of the conditions in the factories from which they purchase goods. Superficial actions that merely go through the motions of inquiring about supply chain working conditions – compliance in name only – are insufficient to meet the ‘should have known’ standard. Practices that constitute human trafficking create a Gresham’s dynamic:Footnote 4 as long as trafficked labour is widespread, companies with good practices have trouble competing against companies that create or exploit cheap and abusive labour sources. The failure to effectively combat the conditions then increases the demand for more trafficked labour and threatens to drive more reputable businesses out of the industry.
One example of what is at stake is the first corporate global supply chain trafficking case to reach a US appellate court, Ratha v Phattana Foods, in which trafficked workers alleged that the defendants were in the ‘compliance in name only’ category. The Ratha allegations are that between 2010 and 2012, Cambodians were recruited under false pretences for what they believed to be financially beneficial jobs overseas and then took out loans, left their families and travelled to Thailand. Once they got there, employers took away their passports and subjected them to toxic working conditions in factories processing shrimp and seafood. Low pay and unforeseen charges led them even further into debt. The companies ignored complaints to supervisors and requests to return to Cambodia.Footnote 5 In 2016, seven people brought suit in a US federal court against Phatthana Seafood Co. Ltd, SS Frozen Foods Co. Ltd, Rubicon Resources LLC, and Wales and Co. Universe Ltd.
On a motion for summary judgement, the defendants asserted both that the plaintiffs were not trafficked and that the company had conducted audits that found no trafficking.Footnote 6 The District Court for the Central District of California, in a decision now on appeal to the US Court of Appeals for the Ninth Circuit, dismissed the workers’ claims, accepting the defendants’ superficial assurances that labour conditions were adequate. The Court ruled that the ‘methods of coercion’ – including wage deductions, holding workers’ passports and false statements in recruiting – ‘were either impossible to detect or unlikely to be detected by merely visiting the factory to review operations’.Footnote 7 Yet, plaintiffs had persuasively argued that the company’s audit of labour practices did not meet international or US standards that would have enabled it to identify the trafficking. The trial court’s reliance on what could be detected by ‘merely visiting’ the factory ignored effective methods of detection; the court’s conclusion that the practices were ‘impossible to detect’ was simply wrong.
If upheld, the District Court’s ruling threatens to gut enforcement of the TVPRA. The case underscores the critical role courts have to ensure that corporations implement best practices and reject claims of ignorance and superficial ‘compliance’ efforts that do not meet international and industry standards.
On appeal, a new threat to the TVPRA’s enforcement appeared. Although the Ratha defendants and the District Court accepted the ‘knew or should have known’ standard used in the TVPRA’s civil provisions, the defendants revisited this issue on appeal, and raised the standard in the TVPRA’s criminal provisions (‘knew or acted in reckless disregard’), instead of the ‘knew or should have known’ standard.Footnote 8 This case is thus particularly important both in establishing standards to address labour abuses in supply chains and in establishing the requisite liability standards where the law has imposed an affirmative duty to know what is taking place in multinational business operations.
This article takes on two key issues about corporate supply chain accountability: first, the correct standard to be applied for civil claims brought under Section 1595 of the TVPRA; and second, the legal standards and mechanisms available to businesses by the end of this century’s first decade when the 2008 TVPRA went into effect so that they would know or should have known that there was forced labour or human trafficking in their supply chains.
Part II explains that there is no credible argument that a company operating in the twenty-first century could not know that international standards prohibit human trafficking and forced labour; and of business and human rights norms with regard to corporate supply chains. The legal standard for the corporate duty of care was codified under the TVPRA, and Part II includes a focus on the ‘knew or should have known’ standard, and the errors in using a higher standard of ‘reckless disregard’. Part III demonstrates the development by 2010 of ways in which a responsible business could or should have known about forced labour and trafficking in their supply chains: multiple mechanisms existed to detect and address these violations including codes of conduct, risk assessments, contracts, human rights due diligence, human rights audits and benchmark standards and complaint mechanisms. Part III also provides examples of companies that have successfully used these mechanisms, thus making it clear that companies have at their disposal the means to detect forced labour and trafficking if they choose to use them. In Part IV, the article concludes with an analysis of the ‘good business’ reasons for addressing human trafficking and forced labour and the public policy importance of enforcing a legal framework that protects workers, levels the playing field for all businesses and rewards those that lead in setting standards to address human trafficking and forced labour, and holds accountable the companies that are complicit in human rights violations. A detailed timeline in the Appendix gives additional examples.
II. International and Domestic Law Standards Prohibiting Forced Labour and Human Trafficking by Corporations
A. The Longstanding Prohibition of Forced Labour and Human Trafficking
International and domestic norms against forced labour and trafficking grew out of the prohibitions of slavery and slave trading that emerged in the nineteenth century and have been clear for decades, through US federal and state statutes, international treaties and intergovernmental mechanisms, such as the International Labour Organization (ILO). This section addresses the development of these legal standards, the development of corporate supply chain human right standards, and the incorporation of the prohibitions against forced labour and human trafficking and enforcement mechanisms in the TVPRA.
1. Forced Labour
Some of the earliest prohibitions of forced labour were enacted by the US at the time of the Civil War and its immediate aftermath and international prohibitions developed on a parallel track. This overlapping body of domestic and international law leaves no doubt about the strong statutory and regulatory framework prohibiting forced labour, despite the ongoing failures to enforce compliance with these standards.
The US prohibition of slavery traces to the Thirteenth Amendment to the Constitution, adopted in 1865, which bars slavery and involuntary servitude; the latter includes peonage and debt bondage (such as sharecropping)Footnote 9 within US jurisdiction.Footnote 10 The Thirteenth Amendment prohibition also barred creation of conditions producing involuntary servitude.Footnote 11
International prohibitions against slavery and slave-trading are among the most established international legal norms.Footnote 12 The 1926 League of Nations Convention to Suppress the Slave Trade and Slavery prohibited slavery in all its forms.Footnote 13 In the same time frame, the ILO, a United Nations (UN) agency consisting of governments, employers and workers,Footnote 14 began a longstanding focus on the elimination of slavery and other forms of forced labour. The 1930 ILO Convention Concerning Forced or Compulsory LabourFootnote 15 defined forced labour as ‘all work or service which is exacted from any person under the menace of any penalty and for which the said person has not offered himself voluntarily’,Footnote 16 and debt bondage was included in this definition.Footnote 17
US law in the twentieth century first addressed corporate use of forced labour as early as 1930, in the Tariff Act, which banned the import of goods made with forced labour.Footnote 18 The Tariff Act included ‘all work or service which is exacted from any person under the menace of any penalty for its nonperformance and for which the worker does not offer himself voluntarily’.Footnote 19
After the Second World War, the Nazi concentration camps use of forced labour renewed focus on these violations and led to the ILO’s 1957 Abolition of Forced Labour Convention.Footnote 20 Also in the aftermath of World War II, additional international instruments prohibited forced labour and codified the right to freely choose employment.Footnote 21 Post-war documents used the definition of forced labour adopted by the 1930 Convention: all involuntary work or service that is exacted from any person under the threat of a penalty.Footnote 22 Varying types of forced labour have been prohibited for decades, including, for example, debt bondage.Footnote 23 More recently, the Statutes for the International Criminal Tribunal for the former Yugoslavia (1993) and the International Criminal Court (1998) offered expansive definitions of ‘enslavement’ that included forced labour and trafficking.Footnote 24
In the 1990s, popular movements, policy makers and the private sector itself increasingly addressed corporate responsibility for forced labour. As part of concerns about globalization and the need to level the playing field for US workers, in 1994, the US General Accounting Office (GAO) issued a report on the use of sweatshops in the garment industry.Footnote 25 The 1996 Model Business Principles Best Global Practices Program issued by the US White House and Department of Commerce implemented interagency programmes for monitoring and promoting fair employment practices, ‘including avoidance of child and forced labor and … seeks to enhance respect for the rights of workers and the elimination of child and forced labor’.Footnote 26 In December 1996, Ministers of the World Trade Organization (WTO) committed to observe internationally recognized core labour standards (including the prohibition against forced labour).Footnote 27
US courts have addressed forced labour as a violation of customary international law under the Alien Tort Statute (ATS). In 1997, the US Court for the District of California allowed a case to proceed against a corporate defendant because it determined the case involved ‘allegations of forced labor and because slave trading is included in that “handful of crimes” for which the law of nations attributes individual responsibility’.Footnote 28 In 2003, the US Court for the Northern District of California stated that ‘modern forms of slavery violate jus cogens norms of international law, no less than historical chattel slavery’.Footnote 29 Other courts around the US have found forced labour to be a recognized violation of customary international law.Footnote 30
2. Human Trafficking
Trafficking has sometimes been categorized to be an extension of slavery and slave-trading,Footnote 31 but is also a distinct act.Footnote 32 Early focuses of anti-trafficking efforts were on trafficking of women and girls for sexual exploitation, although notable broader international standards on migrant workers existed as early as 1949,Footnote 33 and were updated in 1975Footnote 34 and 1990.Footnote 35 International agreement on the definition of human trafficking (other than for sexual exploitation) is more recent than for forced labour, with the general consensus that the definition was codified in 2000,Footnote 36 in the Protocol to Prevent, Suppress and Punish Trafficking in Persons, Especially Women and Children (known as the Human Trafficking Protocol or the Palermo Protocol). The Protocol defined human trafficking as:
the recruitment, transportation, transfer, harbouring or receipt of persons, by means of the threat or use of force or other forms of coercion, of abduction, of fraud, of deception, of the abuse of power or of a position of vulnerability or of the giving or receiving of payments or benefits to achieve the consent of a person having control over another person, for the purpose of exploitation. Exploitation shall include, at a minimum … forced labour or services, slavery or practices similar to slavery, servitude …. Footnote 37
The US ratified the Human Trafficking Protocol in 2005.Footnote 38 The Protocol also required each state party to ‘ensure that its domestic legal system contains measures that offer victims of trafficking in persons the possibility of obtaining compensation for damage suffered’.Footnote 39 Throughout the first decade of the twenty-first century, the UN and the ILO published multiple guidelines and recommendations focused on identifying and preventing trafficking.
Trafficking was also found to be a violation of customary international law in ATS cases. In one prominent example, in 2009 the US District Court for the Southern District of Texas held that ‘human trafficking and forced labor, whether committed by states or private individuals, have been recognized as violations of jus cogens norms, and therefore fall within the jurisdictional grant of the ATS’.Footnote 40
The most significant statute in the US addressing forced labour and human trafficking is the Trafficking Victims Protection Act, discussed in more detail below.
B. The Development of Corporate Supply Chain Human Rights Standards
Parallel to and reinforcing the development of legal norms against forced labour and trafficking was the development of the overarching framework to prevent and hold corporations accountable for complicity in human rights violations. This section will provide an overview of the development of corporate social responsibility and business and human rights standards and will illustrate that the norms for corporate social responsibility for supply chain standards were well developed in bodies responsible for implementing those standards including the private sector.
The idea that corporations have duties beyond turning a profit has a long history in the US: in the mid- to late-1800s during the Industrial Revolution and increasing organization by workers, early concepts of corporate social responsibility developed in the United States, with attention to corporate engagement in philanthropic practices.Footnote 41 Another longstanding, albeit more controversial, principle is that corporations themselves have responsibilities under international law.Footnote 42 In the early twentieth century, labor organizers, ‘muckraker’ journalists and political leaders focused on excesses of corporate monopolies.Footnote 43 There have been ebbs and flows in corporate social responsibility for the last century, with movement intensifying in the 1930s, 1960s and 1970s and with a particular focus on human rights and supply chains in the 1990s. The overall movement has been towards an increasing focus on human rights standards for multinational corporations. By the first decade of the twenty-first century, industry best practices included a consideration of human rights in company operations, and this rested on a series of developments since the early part of the twentieth century; a responsible company knew or should have known of these changes.
In the 1930s, the increase in the corporate social responsibility movementFootnote 44 resulted in US legislation and international standards. The above-referenced US Tariff Act prohibiting forced labourFootnote 45 and the tri-partite ILO Standards were highlights of the 1930s, recognizing the role of businesses in addressing human rights violations.Footnote 46
Transnational corporate initiatives in the 1960s included the development of standards for corporate social responsibility.Footnote 47 Key developments at the UN during the 1970s focused on equitable investment and economic development, such as the UN Economic and Social Council study of the role of multinational corporationsFootnote 48 and the 1974 establishment of the UN Centre on Transnational Corporations.Footnote 49 In 1976, the Organization for Economic Cooperation and Development (OECD) established Guidelines for Multinational Enterprises.Footnote 50 In 1977, the ILO established the Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy to provide guidance to businesses on issues including workplace practices.Footnote 51
Beginning in the late 1970s, advocates and academics also began to discuss ‘business and human rights’ (BHR) in addition to ‘corporate social responsibility’ (CSR).Footnote 52 To simplify, CSR predominantly focuses on companies taking voluntary measures out of a sense of responsibility for their impact on society and includes philanthropy and ‘self-guided decision making’,Footnote 53 whereas business and human rights proponents seek binding standards and state-sponsored oversight and measures behaviour in terms of universal norms and access to remedy for victims of violations is a priority.Footnote 54 The two frameworks are sometimes seen as in tension but can also be regarded as performing complementary functions: CSR pushes forward development within corporations alongside BHR’s push for consistent universal standards.
In the 1980s, applying human rights norms to business entities received less attention, one scholar noting that even mechanisms such as codes of conduct were ‘unfashionable’.Footnote 55 However, strong international movements opposing Nestle practices selling baby formula, South African apartheid and the Bhopal disaster in 1984 focused attention on questions of corporate responsibility.
Globalization in the 1990s included the increased dependence of business on global supply chains.Footnote 56 Responding to concerns about mistreatment and competition from international workers in sweatshop conditions, labour unions and other activists brought forward public reports focused on working conditions in the apparel industry; the US executive and congressional branches responded.Footnote 57 As mentioned above, in 1994, the US GAO issued a report on the garment industry and sweatshops.Footnote 58
The ILO directly addressed forced labour in corporate supply chains from the 1990s onward (notably, prohibitions such as those against recruitment fees date back much further, to the early action after the establishment of the ILO in 1919).Footnote 59 In 1994, the organization issued a report on the role of private employment agencies in the functioning of labour marketsFootnote 60 and in 1996, published a report on employing foreign workers.Footnote 61 ILO conventions included focuses on private employment agencies in 1997.Footnote 62 In 2001, the ILO began producing global reports on forced labour and human trafficking, including violations such as debt bondage and recruitment practices.Footnote 63 The Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy (updated periodically, including in 2006) encouraged the positive contributions multinationals can make to economic and social progress and contained recommendations on implementation of international labour standards.Footnote 64 In 2007, the UN launched a Global Initiative to Fight Human Trafficking, consisting of civil society, government and companies.Footnote 65 The 2009 report, Cost of Coercion, noted that the highest rate of forced labour was in the private economy and particularly discussed supply chains and recruitment intermediaries’ abusive practices including debt bondage and economic coercion.Footnote 66
Other examples of important initiatives engaging the private sector became more prominent through the 1990s and 2000s. The UN Global Compact was established in 2000 after a call for action at the 1999 Annual Meeting of the World Economic Forum.Footnote 67 The Global Compact incorporated principles against forced labour, following the accepted definition: ‘Forced or compulsory labour is any work or service that is exacted from any persons under the menace of penalty, and for which that person has not offered himself or herself voluntarily’.Footnote 68 Delineated types of forced labour included slavery, debt bondage, forced overtime, ‘lodging’ personal documents, false promises about work, ‘threats to denounce workers in an irregular situation to the authorities’ and work obtained through psychological and physical violence.Footnote 69 While a voluntary organization, the Global Compact began with 34 members in 2000; by 2004, membership was more than 9,500 companies in over 160 countries.Footnote 70 The Global Compact also offered sources of information on how to run a commercial or agricultural business to avoid forced labour practices’Footnote 71 and established an advisory group on supply chains to integrate the Compact’s Ten Principles into supply chain management systems.Footnote 72
Another trend beginning in the 1990s was the development of well-respected NGOs to assist in the development of supply chain standards, which included Business for Social Responsibility, advising businesses on supply chain standards since 1992;Footnote 73 and Verité since 1995.Footnote 74 The Fair Labor Association (FLA), first convened in 1996 and formalized in 1999,Footnote 75 incorporated standards on forced labour; it identified more than a dozen indicators for companies at all levels of the supply chain.Footnote 76 Scholars focused on the role of businesses in supply chains, including in small businesses.Footnote 77
In 2005, the UN Secretary General appointed Harvard Professor John Ruggie as Special Representative on the issue of human rights and transnational corporations and other business enterprises. Professor Ruggie conducted 14 multi-stakeholder consultations, including with businesses and business associations, and completed analyses of legal provisions applying to corporations.Footnote 78 In 2008, Ruggie set out the important three pillar ‘Protect, Respect, Remedy’ framework consisting of the state duty to protect human rights, the corporate responsibility to respect, and the duty to provide remedy for violations. Important for an analysis of supply chains, the 2008 framework included the key principle that business duties were throughout all levels of their operations.Footnote 79
In 2008, the Secretary General of International Employers stated, ‘companies can play an important and positive role by taking on board some of the principles contained in international labour standards’ (citing the Global Compact that incorporates some of the most vital ones ‘that are considered to be human rights principles. The ILO Declaration on Fundamental Principles and Rights at Work is the source of these principles’).Footnote 80 The ILO Declaration stated that even if ILO members have not ratified conventions, members are obliged to follow the ILO Constitution and principles of the conventions including the elimination of all forms of forced or compulsory labour.Footnote 81 The ILO and the Global Compact worked together to produce guidelines and manuals explaining the legal standards and how to identify forced labour in practice.Footnote 82 Increasingly detailed standards on how to detect and address forced labour such as those in the 2008 Handbook for Employers and ses were written and introduced by the International Organization of Employers.
The implementation of standards and business obligations were actively discussed at international meetings attended by representatives of business, the U.S. Chamber of Commerce, the International Organization of Employers, governments and NGOs. For example, the report of a 2008 Atlanta conference described companies working closely with the US Trade Representative and Department of Labor to facilitate remedies, and the ‘Better Work’ project implemented by the ILO and the International Finance Corporation.Footnote 83 The Atlanta meeting also discussed a forthcoming policy on forced labour by the International Organization of Employers.Footnote 84 A 2008 Bangkok meeting discussed a strategic plan for the formal launch of a business alliance in early 2009 with the International Organization of Employers; the plan included the role of transnational recruitment agencies and the role of codes of conduct, monitoring, auditing and compliance in addressing forced labour and human trafficking.Footnote 85
The development of a CSR framework applied to supply chains, and the increasing acceptance in the BHR framework that businesses had responsibilities and states had duties to enforce human rights norms, added weight to the norms against forced labour and human trafficking. As illustrated below, a significant number of corporate leaders put these standards into practice. These initiatives show the capacity for companies to detect and address trafficked labour in their supply chains.
C. The Trafficking Victims Protection Act
The Trafficking Victims Protection Act (TVPA) enacted in October 2000 is recognized as one of the most important statutes to address both trafficking and forced labour in all their forms. The statute added to the previous provisions of the US Code prohibiting slavery, involuntary servitude and peonage and importing goods produced with forced labour.Footnote 86 The TVPA was enacted to combat trafficking in people, ensure the prosecution of traffickers of children, women and men, and to protect and compensate the victims of trafficking.Footnote 87 A 2008 amendment to the statute provided for civil liability when a defendant (including a corporation) benefited from a venture including trafficking and knew or should have known about trafficking or forced labour in their supply chain as well as required widely recognized reputable annual public reports on trafficking in people.
1. Codification of Forced Labour and Human Trafficking
The TVPA definition of forced labor and human trafficking through the 2008 amendments are consistent with the Palermo Protocol and address what the statute includes as ‘severe forms of trafficking in persons’ including sex trafficking and ‘the recruitment, harboring, transportation, provision, or obtaining of a person for labor or services, through the use of force, fraud, or coercion for the purpose of subjection to involuntary servitude, peonage, debt bondage, or slavery’.Footnote 88
A forced labour violation was defined to include labour obtained through threats, physical restraint, psychological coercion, or abuse or ‘threatened abuse of the law or legal process’.Footnote 89 Unlawful conduct included the seizure of passports and work authorization documents in furtherance of trafficking, peonage, slavery, involuntary servitude or forced labour.Footnote 90 From the enactment of the statute, the TVPA was intended to address trafficking within and across borders.Footnote 91
In 2003, the Act, at 18 USC §1595, was amended to specify a civil remedy so that people alleging trafficking violations could bring private claims for the enforcement of their rights.Footnote 92
2. The ‘Knew or Should Have Known’ Standard
The Trafficking Victims Protection Reauthorization Act (TVPRA) includes criminal and civil liability for trafficking and forced labour. As amended in 2008, the criminal standard finds culpability where a defendant acted in ‘reckless disregard’Footnote 93 and civil liability under 18 USC §1595 can include where a corporation ‘knowingly benefits, financially or by receiving anything of value from participation in a venture which that person knew or should have known has engaged in an act in violation of this chapter’.Footnote 94 The ‘knew or should have known’ standard is commonly regarded as a negligence standard.
To assess negligence, a court must assess whether there is a duty of care, violation of duty, causation and damages. First, as discussed above, corporate duty must begin with the clear prohibitions against forced labour and human trafficking that are codified in the TVPRA. The Restatement of Torts states that a party may be found negligent for actions that involve ‘an unreasonable risk of harm to another through the foreseeable action of a third person.’Footnote 95 A corporation can be found liable for negligence if a plaintiff can show a corporate policy or pattern. The duty of care is for a party to inquire; wilful blindness is never a defence. The ‘knew or should have known’ negligence standard has a long history, with courts finding that knowledge is presumed when facts are obvious, a party is liable when there is constructive knowledge, and that a party cannot ignore ‘red flags’ indicating harm.
In supply chain cases, a corporate defendant may be liable even though it did not directly commit the violation – that is, the corporation need not have ordered the abuse or be physically involved in its commission for the corporation to be legally complicit in the violation. This is particularly relevant for abuses involving a supply chain where multiple corporations or levels of a single corporation are involved in the production and sale of a commodity, but each entity performs different functions in the chain.
Ratha v Phattana Foods is critical as an international corporate supply chain case that includes corporate defendants beyond the labour recruiters themselves.Footnote 96 At the District Court level, the Court, plaintiffs and defendants all agreed that ‘knew or should have known’ was the applicable standard for a party’s state of mind with regard to civil liability under the TVPRA.Footnote 97 However, on appeal, defendants raised the argument that instead of ‘should have known’, the courts should ask whether the defendants acted with ‘reckless disregard’ of information about the use of forced labour (the language used in sections 1589 but not 1590 of the TVPRA). This contradicts the legislative history, rules of statutory interpretation, the definition of negligence, and recent court decisions that have analysed the mens rea standard.
The history of the TVPRA amendments make clear that there was a distinction in the criminal and civil standards. The 2000 TVPA defined forced labour, trafficking, sex trafficking and other acts of trafficking, and these definitions are referred to in both civil and criminal cases.Footnote 98 A 2008 amendment used ‘reckless disregard’ when discussing criminal penalties and ‘knew or should have known’ in the provision on civil cases.
In the rare case analysing the legislative history, Nunag-Tanedo v E Baton Rouge Parish School Board makes clear that the standard for civil liability was ‘knew or should have known’.Footnote 99 A number of other TVPRA cases provide important direction and show the potential of the ‘knew or should have known’ standard. A series of cases claimed TVPRA violations against the Signal Corporation and other co-defendants for the use of trafficked labour in the clean-up of the toxic disaster resulting from Hurricane Katrina in New Orleans. In these cases where the company and agents, including an attorney, were alleged to be using, facilitating or benefiting from trafficked forced labour, the court repeated the ‘knew or should have known’ language of Section 1595 standard but did not analyse these provisions.Footnote 100 The David court properly applied the provisions of the statute, though, and looked to the provisions of Sections 1589 and 1590 only for the definitions of forced labour and trafficking and for the inclusion of ‘financial harm’ provision of 1589(c)(2). It did not mention the ‘reckless disregard’ standard.Footnote 101
In two decisions of 2018 and 2019, the court in Lesnik v Eisenmann SE provided more analysis of the ‘knew or should have known’ standard. The alleged facts were that Eisenmann, the manufacturer of specialized paint shop equipment had relationships to perform construction work with companies such as Tesla. Eisenmann hired subcontractors to perform work including Defendant Vuzem. Vuzem allegedly hired foreign workers brought to the US using fraudulent visas; workers were then forced to work on average 12 hours a day and paid far below the minimum wage; employers threatened to withhold workers’ pay if workers were sick or injured.Footnote 102 In a 1 October 2018 Order, the court found sufficient plaintiffs’ allegations that Tesla and Eisenmann ‘knew or should have known’ of Vuzem’s alleged mistreatment of workers.Footnote 103 On 31 October 2018, plaintiffs submitted a Third Amended Complaint and the Court elaborated further that these forced labour claims were ‘brought under 1589’ and the court gives the elements of forced labour under 1589.Footnote 104
To assess the mens rea, the Court uses the ‘knew or should have known’ standard of Section 1595 (rather than the criminal ‘reckless disregard’ of 1589) and found that defendant Eisenmann knew or should have known about Vuzem’s mistreatment of workers because, inter alia, Eisenmann submitted false letters to secure visas for plaintiffs, had a subcontractor relationship with Vuzem, ‘directly employed field managers and project managers for the work sites’, and Eisenmann supervisors ‘came from time to time to take a look to see how the work was performed’ by plaintiffs. The court found plaintiffs’ allegations sufficient that defendant Tesla ‘knew or should have known’ because Tesla kept records of workers’ entries and exits, Vuzem’s workers were transported in company vans to company accommodation, and a Tesla senior engineer provided instructions to one of the plaintiffs.Footnote 105 The detailed analysis demonstrated a correct application of the steps created by all of the provisions of Section 1595 and adopted the ‘knew or should have known’ civil standard and looked to Section 1589 only for its definition of forced labour.
Some isolated decisions have conflated the ‘knew or should have known’ standard of the civil action section (1595) with a different standard, knowledge or ‘reckless disregard’ in the section providing for criminal penalties: one unpublished case against an individual employer for forced labour as defined in Section 1589Footnote 106 and a few others for sex trafficking in Section 1591.Footnote 107 These cases, however, should not distract from the correct analysis of Section 1595; the error in application was never central to the courts’ analyses and did not reflect an alternative interpretation of the statute, but was merely a passing reference.
3. TVPRA Public Reports
Another aspect of the US trafficking victim protection acts provided a widely available source of key information for a company seeking to detect and prevent trafficking and forced labour in their supply chains: from the first enactment, the TVPA required public official government reports on global trafficking practices and the use of forced labour; these reports have been widely consulted and publicized.
Annual reporting requirements required by the TVPA as enacted in 2000 were one of the most well-known and highly regarded sources of information about global human trafficking practices.Footnote 108 Beginning in 2001, the State Department prepared Trafficking in Persons Reports that rated country practices and divided countries into three ‘tiers’: Tier 1 denoted countries in compliance with TVPA standards; Tier 2 was for countries making progress but not fully compliant; Tier 3 was for countries that were neither in compliance nor making progress.Footnote 109 In the 2003 TVPRA, Congress added Tier Two Watch, which designated countries that were attempting to comply with the standards but where trafficking was increasing or at high levels.
Another TVPRA enforcement mechanism is the List of Goods Produced by Child Labor or Forced Labor, often referred to as the ‘Dirty Goods List’, created by the TVPRA’s 2005 amendments (and affirmed in subsequent reauthorizations). The list is maintained by the US Department of Labor Bureau of International Labor Affairs (ILAB) and consists of goods and source countries that ILAB ‘has reason to believe are produced by child labor or forced labor in violation of international standards’.Footnote 110 After procedural guidelines were issued in late 2007, the first List was produced in 2009.Footnote 111 The list was meant to raise awareness and promote efforts to combat forced labour, including for corporate risk assessments and due diligence efforts on labour rights in their supply chains.Footnote 112
These assessments will be addressed in further detail in the discussion below on corporate audits and monitoring mechanisms.
The legal prohibition of forced labour and trafficking is well known. US law creates corporate liability for businesses that benefit from human trafficking if they know or ‘should have known’ about such exploitation including in their supply chains.Footnote 113 By the early 2000s, multiple sources of international, national and state law were clear that businesses have a duty throughout their supply chains. The next question is whether corporations had the means to detect and address trafficking and forced labour in their supply chains.
III. Corporate Capacity for the Implementation of Standards
The sections above demonstrate the clarity of the underlying legal norms prohibiting trafficked labour and corporate social responsibility and business and human rights expectations to implement these legal and voluntary standards. This section will turn to the question of whether, if businesses knew or should have known about the legal prohibitions, should they have also known about the means to implement these standards? The short answer, as demonstrated by corporations who did take action, is ‘yes’. For decades, corporations have had the means to detect, prevent and address human trafficking and forced labour in their supply chains. In the 1990s and 2000s, measures included codes of conduct, contracts, traditional internal risk assessments, due diligence, monitoring and audits, and the use of non-judicial grievance mechanisms.
A. Codes of Conduct
Codes of conduct are one of the oldest frameworks for corporate ethical behaviour and include initiatives within corporations, on industry-wide bases, inter-governmental codes (international and regional), and multi-stakeholder initiatives.Footnote 114 The long history and widespread use of corporate codes show that they were a means by which a diligent corporation should have known about the ability to detect forced labour in their supply chain by 2010.
Corporate codes traces precursors going back to 1913 (JC Penney Code of Ethics) and Johnson & Johnson 1945 ‘Credo’.Footnote 115 The initial versions of these codes have been criticized due to their general content and voluntary nature, but even these early versions framed standards and, notably, a range of companies in varying industries established the codes and took measures to follow them.
Some of the early codes addressing workers’ rights were developed in the 1980s, when unions and other NGOs included a focus on workers’ rights in trade initiatives.Footnote 116 Two early governmental codes to prohibit forced labour were the 1989 Slepak Principles, which addressed forced labour in the Soviet Union,Footnote 117 and the 1991 Miller Principles in China which suspended use of all goods, merchandise ‘mined, produced or manufactured, in whole or in part by convict labour or forced labour if there is reason to believe that the material or product is produced or manufactured by forced labour, and refuse to use forced labour in the industrial cooperation efforts’.Footnote 118
The 1990s saw a proliferation of corporate codes of conduct as part of a decade of actions linking human and labour rights to international business practices. Examples of specific corporate codes included that of Levi Strauss in 1992, which stated that the company would not ‘knowingly utilize prison or forced labor in contracting or subcontracting relationships in the manufacture of our products … or to knowingly utilize or purchase materials from a business partner utilizing prison or forced labor’.Footnote 119 In March 1992, Sears, Roebuck and Company and the Amalgamated Clothing and Textile Workers Union (ACTWU) announced that Sears would no longer purchase goods from subcontractors or suppliers in the Peoples Republic of China that used forced labour.Footnote 120 The Reebok code in 1993 included forced labour as one of seven areas of labour rights.Footnote 121 By 1993, JC Penney, Walmart, Home Depot, Philips Van-Heusen and Timberland adopted similar codes for overseas suppliers and subsidiaries.Footnote 122 In 1995, Starbucks adopted a code requiring subsistence level wages and decent working conditions.Footnote 123
In 1995, the Clinton Administration White House and Department of Commerce issued the Model Business Principles that encouraged US multinational corporations to adopt codes of conduct. The Principles suggested that these codes include the provision of a safe and healthful workplace and ‘Fair employment practices; including avoidance of child and forced labor’.Footnote 124 Also in that year, the US Department of Labor published an assessment of the apparel industry and codes of conduct that gave examples of companies following best practices for transparency, monitoring and enforcement.Footnote 125 In 1997, the executive issued further guidance to agencies to ‘actively support US efforts to promote model global business practices’Footnote 126 – the Best Global Practices Program in the US Department of Commerce.Footnote 127 The same year, the US enacted its apparel industry code,Footnote 128 a coalition of US private industry, labour, consumer and human rights representatives, coordinated by the Apparel Industry Partnership (formed in 1996) created a Workplace Code of Conduct, including provisions prohibiting forced labour.Footnote 129 Also in 1996 Disney enacted its code of conduct for labour standards.
In a widely cited 2001 study for the United Nations Research Institute for Social Development, Rhys Jenkins linked the increased dependence on global supply chains to the increased demand for codes of conduct on labour standards in the 1990s. As the buyer controls delivery dates, quality standards, design speculations and other aspects, ‘it is then but a short step to argue that the buyer should also take responsibility for the conditions under which subcontractors operate, in terms of their relations with labour …’.Footnote 130 Jenkins’ analysis divided codes of conduct into five categories: company codes, trade associations, multi-stakeholder codes, model codes and inter-governmental codes.Footnote 131 The UN report concluded that codes had limitations but also positive benefits for stakeholders including improvement in working conditions; firms increasingly accept responsibility for the activities of their subsidiaries and suppliers.Footnote 132 The report examined a number of studies and found that forced labour was one of the most recognized aspects.Footnote 133
The important intergovernmental organization of which the US has been a member of since the end of the Second World War, the OECDFootnote 134 published a 2001 survey of 246 voluntary codes of conduct that found content related to forced labour as follows: forced labour was specifically prohibited in 38.5 per cent of codes; related content included ‘reasonable working environment’: 75.7 per cent; ‘compensation’: 45.3 per cent; and ‘obligations’ on contractors/suppliers: 41.2 per cent.Footnote 135 By 2006, in the apparel industry alone there were an estimated 10,000 codes of conduct.Footnote 136
Codes of conduct have not been limited to general platitudes on the evils of forced labour but instead have explained the specific conduct that was prohibited, and the steps corporations should take to address violations and the conditions leading to forced labour and trafficking. Multi-stakeholder initiatives have developed codes since the 1990s.Footnote 137 The 1997 Fair Labor Association (FLA) prohibited forced labour and bonded labour.Footnote 138 Examples of specific policies included that of IBM, which in 2002 stated a no-tolerance policy for forced labour in its own operations, suppliers and contractors.Footnote 139
In a 2003 report detailing codes of conduct in the apparel, footwear and light manufacturing sector, the World Bank found that ‘the greatest point of conformity on every code of conduct examined was the prohibition against the use of forced labor.’Footnote 140 The World Bank reported that codes of conduct included benchmarks such as not binding workers to employment as a condition of fulfilling terms of a debt; not requiring workers to live in employer-owned or controlled residences; and not requiring workers to deposit their identity papers.Footnote 141
The World Bank gave a number of examples of companies with codes of conduct taking measures to prevent and address forced labour. The Reebok code ‘guarantee[d] workers right to freedom of movement during the course of employment’Footnote 142 and ‘mandate[d] that the firm maintain hiring and employment records to verify compliance with its prohibition on forced labor’.Footnote 143 In terms of monitoring and compliance, Reebok reportedly ‘[i]mplements and monitors standards through on-site inspection of facilities, off-site interviews, and regular reporting requirements for factory management’.Footnote 144
A 2005 report by Verité completed after the organization had completed 1,500 factory audits recommended that Code of Conduct provisions to foreign contract workers be extended throughout their supply chains.Footnote 145
A common factor in critiques of Codes of Conduct was the need for enforcement through audits, benchmarking, complaint mechanisms and legal mandates. Analyses of pitfalls by industry leaders emphasized the dangers of a ‘race to ethical and legal minimum’, and the importance of ‘combining regulatory power of voluntary codes and compulsory state legislation’.Footnote 146
As can be seen below, some of the leading codes included enforcement mechanisms from their inception; in response to internal assessment and/or external pressure, other corporations developed these mechanisms. Another means of enforcement is through statutes such as the Trafficking Victim Protection Act to demonstrate what the state of knowledge in the field on forced labour and trafficking, one of the questions implicated in Ratha v Phattana Foods.
B. Contracts
This section addresses the question of how forced labour and human trafficking prohibitions were incorporated into corporate contracts, and how these policies developed. It analyses two aspects of contracts to protect workers: first, being contracts with the workers themselves; and second, contracts that companies have with their suppliers.
Contracts with workers can prevent abuse, especially when it is a negotiated contract with an on-site labour union. Rights to freedom of association and collective bargaining are included in the Universal Declaration of Human Rights (UDHR), and in ILO Convention on Freedom of Association No. 87Footnote 147, the Right to Organize (No. 98).Footnote 148 These rights are considered primary in the ILO’s core labour standards for all workers.Footnote 149
An ILO 2005 Training Manual gives model contracts and a ‘Good Practice Example’ of the Philippines Overseas Association Model Employment Contract providing for voluntary agreement on terms of employment including regular working hours, overtime pay, free transportation to site of employment, ‘war risk insurance’, termination conditions (one month’s notice without conditions), termination for cause (including inhuman or unbearable treatment by employer or representative)Footnote 150 and licensed private employment agency’s efforts to protect women migrant workers.Footnote 151
Within company operations and dealings with other businesses, businesses should ensure that employment contracts are provided to all employees stating the terms and conditions of service, the voluntary nature of employment, the freedom to leave (including the appropriate procedures) and any penalties that may be associated with a departure or cessation of work. The 2009 ILO report, Cost of Coercion, found that many vulnerable migrants had not been given contracts at all, or were required to sign contracts but not permitted to keep copies of them, or were provided with contracts in languages they did not understand.Footnote 152
In the second category, one well-known type of contract to prevent forced labour and trafficking was the ‘flow-through’ contract by which legal responsibility was assigned at all levels of the supply chain. In 2007, the Special Representative of the Secretary-General on the issue of human rights and transnational corporations and other business enterprises partnering with the International Finance Corporation, found State–investor contracts to be an important method for States and businesses to manage human rights risks. The UN Guiding Principles includes contractual terms as a mechanism to create incentives for parties to respect human rights.Footnote 153
In contracts with suppliers, Nike, Walmart and other companies included a requirement that the supplier comply with the corporate code of conduct,Footnote 154 providing further evidence that in the first decade of this century, corporations were well able to prohibit forced labour and trafficking in their contracts.
C. Risk Assessments
Risk assessments are a long-standing practice that a corporation undertakes, including prior to engaging in a corporate venture. One important analysisFootnote 155 traced the origins to the US Securities Act of 1933,Footnote 156 and noted that human rights risk assessments would allow companies to prevent harm or the potential for harm, ‘where that harm constitutes a violation of internally proclaimed human rights’.Footnote 157 US corporations were conducting risk assessments that should have included legal prohibitions against forced labour from at least the early 1990s.
Risk assessments include assessing available standards and developments set by governments, NGOs and press accounts.Footnote 158 The process of making an assessment for an ethical, social or environmental or human rights risks include the following steps: investigators obtain the input of experts, conduct interviews and meet stakeholders in the field and report to corporate management.Footnote 159 Beginning in the 1990s specific industries and locations were widely known within the business community to present a high risk of labour exploitation, including in supply chains and by businesses using third-party recruiters.Footnote 160
One example of a US company’s risk assessment about the use of forced labour by an overseas subsidiary was the Unocal corporation in its natural gas pipeline project in Burma in the early 1990s. The risk assessment in that case found that forced labour was a focus of ILO investigations between 1960 and 1992; the consultant hired in May 1992, the Control Risk Group, informed Unocal that ‘[t]hroughout Burma the government habitually makes use of forced labour to construct roads’.Footnote 161
The standards identified by international organizations, the US government, businesses and NGOs in the late 1990s and early 2000s, included a clear and accessible set of factors indicating an elevated risk of human trafficking and forced labour that companies should include in risk assessments. Factors ‘identifying forced labour in practice’ that should have been part of a risk assessment included ‘physical confinement…, psychological compulsion…, induced indebtedness (by falsification of accounts, inflated prices, reduced value of goods or services produced) and excessive interest charges.Footnote 162 Deception was also identified as a factor in all stages of trafficking: the recruitment process, ‘transport’, and ‘reception and job assignment.Footnote 163
In 1994, the US Department of Labor guidelines on risk assessments pointed to features of the industry, including the type of labour utilized.Footnote 164 Responsible risk assessments for corporations doing business in the US were expected to include meeting minimum standards include statutory requirements such as the US Trafficking in Persons reports beginning in 2001.
From the late 1990s, the ILO identified policies and procedures to provide greater protections for migrant workers. as well as the steps government and the private sector could take to address and prevent violations.Footnote 165 The first annual ILO Global Trafficking report was issued in 2001; in 2003, additional reports were issued.Footnote 166 A 2005 manual focused on recruitment of migrant workers; it promoted hands-on learning and emphasized policy measures, skills and techniques to be applied in identifying the abusive practices.Footnote 167 A 2005 training manual on forced labour for employers’ and busineses contained similar factors.Footnote 168 The Global Compact’s 2006 Athens Ethical Principles identified ‘primary risk areas’ for human trafficking: ‘within a company’s supply chain’ including ‘the use of forced labor by suppliers or sub-contractors’ and ‘utilization of personnel supplied by third party agents (domestic or overseas) over which the company has limited oversight, as in labour brokers whose unscrupulous treatment of workers amounts to trafficking’.Footnote 169
A 2007 UN Report used the definition of the International Association for Impact Assessment, ‘the process of identifying the future consequences of a current or proposed action’Footnote 170 and assessed various tools available to business. The UN Report concludes: ‘Given the proliferation of public information on human rights, including the numerous specialized resources for business…there is no excuse for any company, lender or investor to claim to be unaware that their investments could impact human rights’.Footnote 171
An example of a risk assessment undertaken by a corporation was by Intel in 2007 when the company’s Corporate Social Responsibility Report used a series of social performance indicators, one of which involved identifying operations that are at significant risk for incidents of forced or compulsory labour; the company prohibits suppliers from using forced, bonded or indentured labour.Footnote 172
As mentioned above, forced labour was included by the Global Compact in 2000.Footnote 173 In 2008 the International Organization of Employers and the International Trade Union Confederation initiated the Global Compact Labour Working Group; an initial report noted the significance of the Global Compact as ‘the largest corporate citizenship initiative with over 6000 business participants and other stakeholders involved in more than 130 countries’.Footnote 174 This guide for business listed factors for identifying forced labour, and provided training materials and resources including the ILO Helpdesk and multiple prior ILO, International Organization of Employers and Global Compact reports.Footnote 175
A handbook specifically for labour inspectors was issued in 2008, with detailed standards specifically on trafficking.Footnote 176 Also, as one example of outreach and public discussion of these standards: in 2008, the US Council for International Business, the US Chamber of Commerce, the International Organization of Employers and the ILO organized an international conference for roughly 80 representatives from employers’ organizations and individual companies with the goal of sharing experiences and best practices to combat forced labour.Footnote 177 Panels 2 and 3, were entitled Case Studies and Innovative Approaches Against Forced Labour and Implementing Business Strategies to Address Forced Labour, respectively. General Electric’s Vice President for Corporate Citizenship moderated Panel 2. One of the speakers mentioned a set of standards implemented by Ford, called the Basic Code on Working Conditions (2004). Panel 3 included representatives from Hewlett-Packard and Manpower, Inc.Footnote 178
The 2008 report, Combating Forced Labour: A Handbook for Employers and Business, provided guidance for assessing compliance, an action guide, and case studies of good practice.Footnote 179 Through a consultative process that culminated in 2009, the International Standards Organization, an international body consisting of national standard-setting institutions,Footnote 180 promoted ISO 31000:2009, Risk Management – Principles and Guidelines.Footnote 181 Those guidelines provide that companies should understand both internal and external risks, including ‘relationships with and perceptions and values of external stakeholders’.Footnote 182 Risk assessments should include an analysis of ‘social responsibility’ and the ‘tolerance of the risks borne by parties other than the organization that benefits from the risk’.Footnote 183 The UN Inter-Agency Project on Human Trafficking reports on labour abuses in the Thai shrimp processing industry in 2009 and 2010 also identified particular risk factors in that industry.Footnote 184
Risk assessments following the well-publicized standards of the ILO, the Trafficking in Persons reports and Global Compact standards were one important very traditional means by which a company would know or should have known about forced labour or human trafficking in their supply chains.
D. Human Rights Due Diligence
As described above in the analysis of risk assessments, due diligence is a common concept that has its origins in the US Securities Act of 1933.Footnote 185 The core principle of this method was the need for businesses to investigate in order to prevent harm, which became a key component of risk assessment, and reconcile the demands of doing business with the demands of respecting human rights.Footnote 186 While risk assessments are commonly associated with assessments prior to an investment or business operations, human rights due diligence is a continuing obligation throughout the time of development, and part of standing procedures, standard contracts or supply chain management procedures.Footnote 187
The prevention of negative impacts on human rights is the most critical piece of due diligence. Another important element is that transparency on the steps taken is necessary to assess whether a company’s actions are adequate and whether there is a priority put on human rights considerations. The company must have direct engagement and consultation with people whose human rights are violated or at risk of being violated.Footnote 188
Numerous examples demonstrated corporate expertise in implementing these due diligence standards to address forced labour and human trafficking.
In 2006, the Ford Motor Company, discovered that its supply chain to produce charcoal included slave labour.Footnote 189 Ford had previously developed a Code of Human Rights, Basic Working Conditions and Corporate Responsibility. In response to the reports of forced labour, the company mapped its supply chain and followed up with suppliers in its due diligence efforts to prevent forced labour in the supply chain.Footnote 190 An operational approach to due diligence was developed in a research project for StatoilHydro in 2007.Footnote 191
Human rights due diligence was also a key part of the framework developed by UN Special Representative on Human Rights and Business, John Ruggie. The UN 2008 report included the delineation of due diligence requirements for companies to fulfil their responsibility to respect human rights; the minimum ‘substantive content’ for the due diligence process included the international bill of human rights and the fundamental conventions of the ILO, and the basic process included proactive impact assessments and tracking performance, including monitoring and audits.Footnote 192 The Report noted the long-standing nature of due diligence processesFootnote 193 and key elements: knowing the country contexts to identify specific human rights challenges, the human rights impacts one’s own corporate activities have, including ‘in their capacity as producers, service providers, employers, and neighbours’ and ‘whether they might contribute to abuse through the relationships connected to their activities, such as with business partners, [and] suppliers’….Footnote 194
E. Monitoring and Audits
Key to the enforcement of the prohibitions of forced labour and trafficking were means of monitoring whether corporations were actually taking action to comply with their own codes or external laws and performing due diligence to identify and address alleged violations. These standards have included multiple forms of audits,Footnote 195 including those performed internally, and by third parties, and benchmarking systems and rankings. Supply chain audit standards began to be solidified in the 1990s, and key factors of successful audits were identified and implemented. The TVPA Trafficking in Persons Reports for country practices began in 2000. Tripartite organizations (composed of representatives of governments, businesses and NGOs) such as the ILO developed standards to identify trafficking and published lists of indicia beginning in 2001.
Critical characteristics of what constituted a good monitoring system were an independent third party conducting the audit, the inclusion of questions about the existence of trafficking and forced labour and major factors or conditions facilitating abusive recruiting practices, including payment of recruitment fees and the inability of prospective migrants to finance their trip,Footnote 196 the use of deception as a recruitment tactic, sometimes leading to debt bondage,Footnote 197 and whether they had control of passports and other travel or personal documents.Footnote 198 A key method identified was to question workers separately from supervisors or government or security officials. Additional mechanisms included external ranking and public pressure in cases where companies avoided or resisted internal change.Footnote 199
Corporations began supply chain audits for forced labour in the 1990s. The Levi Strauss 1991 code mentioned above included audits for foreign supplier plants with methods such as surprise visits; a discovery of forced labour could result in termination of a suppliers’ contracts.Footnote 200 Enforcement included a three-tiered approach to suppliers violating standards (including prohibition of forced labour): Level 1 included business partners found to be unwilling to address the situation, where a relationship would be terminated; for Level 2 companies, where there was a possibility for improvement, a timeline was established to resolve problems; the third level were those companies that were in compliance with company standards. These standards first applied in 1992 to contractors on Saipan; 30 contracts around the world were terminated and the company demanded employment practice reforms in more than one hundred others.Footnote 201 In March 1992, to comply with the Code of Conduct (prohibiting purchases from suppliers using forced labour) mentioned above, Sears agreed with the Amalgamated Clothing and Textile Workers Union (ACTWA) to carry out surprise inspections of suppliers in the People’s Republic of China.Footnote 202
The 1993 Reebok Code of Conduct prohibiting forced labour also had three-tiered monitoring and an enforcement system that included auditing. At the level of supplier plants, personnel were responsible for assessing labour rights; second, auditors from Reebok’s international headquarters visited plant sites to evaluate conditions and recommend improvements where needed; and third, an independent accounting firm was hired for payroll audits, and interviews of workers that included questions about wages and working conditions.Footnote 203
In 1996, the US Department of Labor commented that corporate monitoring was the prevalent method of compliance with codes of conduct.Footnote 204 However, after substantial criticism about inconsistent corporate performance and a conclusion about the need for external review rather than leaving it to corporations to regulate their own conduct, corporations began to turn for advice to external organizations. In one early example, after its own internal monitoring failed to detect abusive working conditions, Gap required independent monitoring by NGOs.Footnote 205
As discussed above, beginning in 2000, the TVPA mandated annual assessments on whether countries were in compliance with the statute’s requirements, dividing countries into three tiers (one: compliance; two: progressing towards compliance; three: not in compliance and not making significant efforts towards compliance).Footnote 206 These assessments were publicized on an annual basis beginning in 2001. The 2003 amendments to the TVPRA added Tier Two Watch for countries attempting to comply but nonetheless where trafficking was increasing or at high levels. Trafficking in Persons (TIP) reports have been regarded as effective in changing government behaviour and in publicizing which countries had sub-standard conditions.Footnote 207 Factors in the assessments were whether governments prohibited and appropriately punished trafficking and whether they were undertaking vigorous investigations, whether victims were protected and encouraged to participate in investigations and prosecutions, whether preventative measures were taken, and whether migration was monitored for signs of trafficking.Footnote 208
Multiple UN bodies involving corporations also provided detailed guidance and training on monitoring and audits (focused on the factors identified above). A 2005 ILO Training Manual provided guidelines on ‘How to Monitor the Recruitment of Migrant Workers’.Footnote 209 Directed at labour inspectors and employer organizations among others, it focused on skills and techniques and policy changes to apply to curtail human trafficking. The 2008 ILO manual, Combating Forced Labour: A Handbook for Employers & Business included ‘A Checklist and Guidance for Assessing Compliance’ manual produced the same year also identified indicators of forced labour situations: physical violence, restriction of freedom of movement, threats, debt and other forms of bondage, and retention of identity documents. Investigation methods ‘of key importance’ identified were specific protections for victims.Footnote 210
In 2006, Disney and McDonalds worked with the Connecticut State Treasurer’s office and a coalition of NGOs to develop auditing systems for licensees and manufacturers to uphold codes of conduct prohibiting forced labour.Footnote 211 One example of audits with attached penalties were those by Apple and Verité since 2008 to address bonded labour and excessive recruitment fees in Apple’s supply chain. If audits discovered bonded labour by Apple suppliers, those suppliers were required to reimburse employees the amount of the recruitment fees regardless of whether the suppliers recruited the employees.Footnote 212
Since the 1990s, standards for audits to detect forced labour and trafficking in corporate supply chains were clear and numerous forms of assistance were available to put these policies into place.
F. Grievance Mechanisms
Grievance mechanisms are another source through which a corporation would know or should know about human rights violations in their supply chains. These include intergovernmental mechanisms linked to treaties, the ILO, regional human rights mechanisms, and international development finance institutions. Those linked specifically to the private sector include sectoral and multi-stakeholder grievance mechanisms and operational level grievance mechanisms.
Grievance mechanisms for supply chains can be created using existing internal ‘ecosystem’ policies and processes which can increase internal comfort, decrease identity gaps, learn from existing processes, and ensure connectivity within the corporation. Such mechanisms might include whistle-blower procedures, ethics hotlines, human resources, ombudspersons, speak up policies, unions, contract clauses, consumer complaints, community facing grievance mechanisms, business to business, code of conduct requirements for supplier mechanisms, audit mechanisms, supply chain hotlines, and stakeholder engagement.Footnote 213 Companies used this range of grievance mechanisms between 1990 and 2008.Footnote 214
The 2008 Report of the Special Representative of the Secretary-General on the issue of human rights and transnational corporations included the six criteria for effective non-judicial grievance mechanisms: legitimacy, accessibility, predictability, equitability, rights-compatibility and transparency.Footnote 215 In addition to mechanisms at a corporation’s operational level, the Special Representative added the principle that operational level grievance mechanisms should use direct or mediated dialogue rather than unilateral decisions by the company alone.Footnote 216 Verité, a well-regarded organization engaged in early consultation with businesses articulated more specific elements to illustrate these general concepts: easily understandable procedures that are communicated to workers with a transparent procedure and a right of appeal, protections for confidentiality and against reprisals, impartial review and access to advocacy assistance including interpreters and counsellors.Footnote 217
Early analyses found that ‘a transparent, accessible, properly resourced and effective grievance mechanism is an invaluable part of a human rights risk management system’.Footnote 218 A 2009 report noted that companies found ‘their grievance mechanisms useful in detecting problems early and identifying mitigations quickly’, ‘integrating a remedy mechanism into the human rights risk management system as a form of prevention’.Footnote 219
IV. Avoiding Perverse Incentives: the Importance of Legal Enforcement
Businesses have long been on notice about the legal standards and means to address forced labour and trafficking. The norm against forced labour has existed for over a century, and policies setting forth the means for corporations to comply with these norms have been clear for decades. The Palermo Human Trafficking Protocol and the enactment of the Trafficking Victim Protection Act in 2000 provided specific codification of the norm against human trafficking. Reporting requirements such as the TVPRA’s Trafficking in Persons reports were an important means for a corporation to detect trafficked labour in their supply chains. Other means to address these human rights violations included traditional corporate risk assessments, codes of conduct, contractual provisions to protect against forced labour and trafficking, due diligence to identify non-compliance, audits and grievance mechanisms. Businesses themselves, international agencies and organizations such as the ILO, multi-stakeholder initiatives, and highly respected non-profit organizations have developed guidelines, training and advisory panels.
2008 was a pivotal year with the amendment of the TVPRA to include financial benefit from a venture engaged in trafficked labour as a form of liability and including liability based on the ‘knew or should have known’ standard and the publication of a UN framework on human rights due diligence by the UN Special Representative for Business and Human Rights. These developments solidified the earlier multi-pronged framework for the prevention, detection and legal liability for the use of trafficked labour in corporate supply chains. By the end of the first decade of this century, there was really no argument that a corporation did not have means at its disposal to know about trafficking and forced labour in their supply chains.
As is demonstrated throughout this article, the problem is not the lack of clear legal standards or the means to prevent, detect and provide redress for trafficking and forced labour in corporate supply chains. Instead, a lack of consistent enforcement is a major reason for inconsistent corporate behaviour. When existing standards are enforced, including by courts, this increases the incentives for effective voluntary measures that reinforce the moral and economic reasons for compliance. A common refrain in analyses of the legal framework and tools for implementation is that they are only as strong as their actual enforcement.
The Ratha case addressed throughout this article illustrates the problem of corporate claims of compliance when actions fall short of international and industry standards and the importance of courts giving a careful eye to whether corporations are taking substantive rather than merely symbolic actions to prevent and provide for redress to victims of forced labour and trafficking.
The correct standard for civil liability under the TVPRA was whether the corporate defendants ‘knew or should have known’ about human trafficking and forced labour in the supply chain. Comparing the Ratha defendants’ actions and inaction to the range of available options before dates of the allegations of the complaint to assess the risk, perform due diligence and prevent and punish trafficking and forced labour shows that these defendants were woefully short of the well-publicized industry standards. On summary judgementFootnote 220 and on appeal to the US Court of Appeals for the Ninth Circuit, plaintiffs and experts provided detailed information on existing standards, information about human rights violations, and the claims that defendants’ audit was inadequate according to existing standards to investigate and address forced labour and trafficking in their supply chains.Footnote 221 There was no code of conduct on forced labour, the audits conducted did not include an assessment of due diligence or even any questions on forced labour or trafficking or any of the well-known indicators for those violations, defendants ignored Trafficking in Persons reports, and there was no mention by the court of any grievance procedure, although evidence was presented of plaintiffs complaining to supervisors.Footnote 222
The District Court’s misinterpretation of the standards has led at least one law firm to identify the Rubicon and Wales audits as a positive example of a compliance policy. Citing the District Court ruling that the companies were relying on ‘industry and government audits and certifications regarding worker safety and welfare’ and defendants’ version of their responsiveness to complaints, the firm suggested that the ‘compliance takeaways’ were that the ‘emerging forms’ of litigation risk ‘should shape the way that companies design, implement and report on their human rights policies and procedures’, continuing that consideration of these risks could ‘prevent human rights violations linked to companies’ operations occurring in the first place, and as Ratha indicates, it also provides a substantive defense to TVPRA claims’.Footnote 223 The reliance of law firms and corporate compliance departments on the rulings in the Ratha case underscore the importance of a correction by the US Court of Appeals for the Ninth Circuit on the standards corporate supply chains should use to detect and prevent human rights violations they knew or should have known about.
The Ratha case also included testimony by US family shrimp businesses who testified about a competitive disadvantage they face from companies that use trafficked forced labour: in its Activities Report for 2008, the Southern Shrimp Alliance stated, ‘forced labor is a serious problem in some shrimp exporting countries. The use of such labor is not only morally repugnant but also has a direct trade impact in that it provides an unfair cost advantage to producers who exploit such workers’.Footnote 224
A lack of enforcement increases the risk that corporations adhering to higher standards could be punished if market forces are left to function without legal regulation. In one case charging the Firestone corporation with responsibility for child labour, Judge Richard Posner concluded that one of the policy reasons for allowing for the possibility of corporate liability under the Alien Tort Statue was to level the playing field for businesses complying with human rights standards: ‘Businesses in countries that have and enforce laws against child labor are hurt by competition from businesses that employ child labor in countries in which employing children is condoned’.Footnote 225 Along the same lines, scholars have found that corporations could have a disincentive to implement responsible policies against forced labour and trafficking and draw attention to themselves, while other corporations hang back and wait to see what the minimal strategy might be: discussed as a ‘free-rider’ problem or ‘race to the bottom’.Footnote 226 A race to the bottom in deregulated labour markets can lead to global stagnation rather than growthFootnote 227 and eviscerate protections for workers.
The repercussions of enforcement challenges continue. For example, a 2016 study found that 17 of 20 companies had policies against human trafficking but only five responded that they communicated these policies to vulnerable workers.Footnote 228 A 2019 study by the Business and Human Rights Resource Centre reported that 20 of 20 companies surveyed in a canned tuna supply chain had policies that included addressing modern slavery, but ‘only a small, but welcome, cluster of leading companies are translating policies into practice and taking practical steps to address these risks’.Footnote 229 In a recent statement in support of laws mandating human rights due diligence practices, one prominent investor noted, ‘a purely voluntary approach has clearly failed, creating risks for individuals, companies, and investors and harming the long term societal mandate of markets … Without compulsion, it is clear that corporate laggards will continue to free-ride on the rights of others’.Footnote 230
In the Ratha case, that enforcement measure is to hold defendants accountable for falling short of existing standards. The recognition of the need for mandatory measures rather than relying solely on voluntary measures can also be seen in the international trend towards laws mandating due diligence.Footnote 231
Norms without enforcement are limited in their effectiveness. Legal enforcement – through criminal prosecutions, civil litigation and regulatory enforcement – provide the stick that reinforces the carrot markets provideFootnote 232 and building voluntary compliance will also be undercut if courts do not enforce available standards and reward those companies that do take measures to address severe human rights violations in their supply chains. The trend is towards the recognition of the importance of enforcement of standards rather than relying solely on voluntary measures. Where people are victims of forced labour and human trafficking, redress must include the ability to obtain judicial accountability for harm caused by corporate behaviour. Court-enforced accountability will provide necessary deterrence and punish those who seek to profit from these human rights violations and help level the playing field for those who do not use human trafficking and forced labour as a means of financial gain.
APPENDIX: TIMELINE
