The use of forced labor, child labor, or modern slavery practices (collectively "forced labor") in supply chains is not a new problem in the international trade world; however, many companies remain unaware of forced labor risks in their supply chains and how this lack of awareness can lead to legal violations in various jurisdictions. While many countries have long banned the use of forced labor within their borders, in recent years there has been a renewed focus on the responsibility of companies to mitigate forced labor risks by conducting due diligence into their supply chains. There are now a growing number of countries with laws that require businesses to not only implement forced labor due diligence procedures but also to provide public reports of due diligence policies, efforts, and improvements on an annual basis.
As these laws develop, companies will need to evaluate whether their forced labor policies and procedures are adequate and determine if their operations within a certain jurisdiction may trigger reporting requirements. This article will provide an overview of the global legal landscape for forced labor due diligence, highlight jurisdictions with forced labor due diligence and reporting requirements, and examine the kinds of steps companies should be taking to address forced labor risks in their supply chains and comply with relevant laws.
Overview of Forced Labor Laws
Most domestic laws related to the prevention and eradication of forced labor include prohibitions on the use of forced labor within the country's borders or prohibit the importation of goods that are the products of forced labor practices. The Uyghur Forced Labor Prevention Act ("UFLPA") in the United States is one such law that requires importers to conduct due diligence into their supply chains to ensure the absence of forced labor.1 Under the UFLPA, products imported from certain parties or locations within China are presumed to be products of forced labor and the burden is then placed on the importer to show otherwise. Importers that do not have adequate forced labor due diligence mechanisms in place may find that their products are detained when entering the U.S. and suffer delays in the Customs clearance process.2 While the UFLPA serves as an incentive for importers in the U.S. to ensure their forced labor due diligence measures are adequately implemented, other companies not involved in the importation of goods may not generally be concerned with UFLPA compliance or forced labor due diligence.
Conversely, the development of forced labor due diligence laws and reporting provisions in other countries differ from the U.S. UFLPA model in that these laws tend to target a wider swath of companies and require proactive showings of forced labor due diligence outside the context of import activity. The forced labor due diligence reporting requirements in countries like the UK and Canada present compliance risks for global companies that may be caught under the scope of such laws, especially those based in the U.S. that may not be aware of forced labor due diligence requirements outside of the context of imports.
The Canadian Fighting Against Forced Labor and Child Labor Supply Chain Act ("Supply Chain Act") came into force on January 1, 2024, and is one of the most recent examples of forced labor laws that require companies to implement due diligence procedures and disclose these efforts on an annual basis. Under the Supply Chain Act, entities that fall under the specified scope of the law are required to submit an annual report to the Minister of Public Safety by May 31 of each year detailing the steps taken over the course of the previous year to address forced labor risks in the company's supply chains. These reporting requirements extend to entities that are listed on a stock exchange in Canada, have a place of business in Canada, or do business or have assets in Canada that also meet two of the following three requirements:
- Have $20 million or more in assets
- Have $40 million or more in revenue
- Have an average of 250 or more employees
The contents of an annual report under the Supply Chain Act may vary depending on a company's size, business activities, and actions taken over the past year. Guidance issued by the Ministry of Public Safety states that the Canadian government recognizes that there are a variety of actions companies may take to address forced labor risks. However, all annual reports should include information on common topics such as the company's structure, supply chain setups, and specific processes the company has implemented to prevent, identify, and remediate forced labor within its supply chains.3
In addition to submission to the Canadian Minister of Public Safety, the annual report must be published to the company's website to be available for public access. Importantly, failure to file an annual report as required under the Supply Chain Act can result in a fine of up to $250,000 CAD (roughly $182,000 USD) imposed on the Company. Thus, it will become increasingly important for companies to engage in and report on their forced labor due diligence not only to satisfy legal requirements, but to also maintain a good reputation among a growing population of companies that now publicly share their human rights and forced labor policies and due diligence efforts.
The United Kingdom Modern Slavery Act ("Modern Slavery Act") of 2015 is another, albeit older, example of a forced labor law that requires companies to engage in proactive due diligence and report on their efforts annually. Companies based in the UK or that have a demonstrable business presence in the UK (i.e., those that supply goods and services in the UK) with a total annual turnover of £36 million or more must publish a yearly report on the company's forced labor due diligence efforts within six months of the company's financial year end. Like Canada's Supply Chain Act, the Modern Slavery Act requires companies to supply information related to the company's structure, supply chains, policies related to forced labor, and due diligence efforts in their annual reports. UK government guidance on the Modern Slavery Act suggests that the government expects annual reports of due diligence efforts to be built upon each year so that companies show continual effort to improve upon their due diligence practices.4
Currently, there are no criminal penalties for failure to comply with the Modern Slavery Act annual reporting requirements. However, legislative efforts since the Modern Slavery Act's start suggest that imposing financial penalties on companies that fail to comply may be possible in the future.5 In addition, the Secretary of State also retains the power to apply to the High Court for an injunction to require certain companies that have failed to publish a report to do so in accordance with the Modern Slavery Act. Although there has not been significant enforcement of the forced labor reporting requirements under the Modern Slavery Act, companies should still ensure they are reviewing whether they are caught under the scope of the law and supplying annual reports as necessary. As with the Canadian Supply Chain Act, the Modern Slavery Act forces companies to publicize their forced labor due diligence efforts. As a result, global companies that are not prioritizing forced labor and other human rights due diligence can suffer reputational harm from not keeping up with the standards set by the growing number of companies publishing annual reports.
In addition to the Canadian and UK laws, various other jurisdictions have similar due diligence laws in place aimed at combatting forced labor and other human rights abuses. Some, like the French Duty of Vigilance Law, impose broader standards requiring companies to implement due diligence efforts to address all types of human rights risks and environmental risks related to their business activities. Most recently, the European Union ("EU") Parliament approved a new due diligence directive in April of this year that will require certain companies operating in member states to integrate human rights due diligence procedures into their internal policies and adopt transition plans to ensure their business models are made compatible with the Paris Agreement global warming limit of 1.5 degrees Celsius. As the EU directive is phased in based on company size over the next few years, more and more companies will become legally required to implement and publicize their human rights due diligence efforts and policies.
It should also be noted that while the U.S. does not have a federal law requiring forced labor due diligence reporting, it is possible for individual states to develop such laws to cover companies doing business within their borders. A notable example of this is California's Transparency in Supply Chains Act ("TSCA") that requires retail sellers or manufacturers doing business in California that have annual worldwide goss receipts in excess of $100,000,000 to disclose their efforts to address forced labor risks in their supply chains. The disclosure must be publicly available on the company's website and include information on whether the company engages in supply chain due diligence with respect to forced labor concerns, conducts audits of its suppliers, and whether the company requires suppliers to certify that their products were not made with forced labor. In addition, a disclosure under the TSCA should include descriptions of the company's internal standards and procedures related to ensuring employees and contractors follow company policies related to forced labor and the provision of training on how to mitigate forced labor risks in supply chains.
Compliance Considerations for Companies
While the forced labor due diligence laws in different jurisdictions may vary, they all require companies included under their scope to implement due diligence policies and procedures. Forced labor due diligence can take a variety of forms but should generally be carried out in accordance with requirements of relevant local laws as well as international standards set out in the OECD Guidelines for Multinational Enterprises ("OECD Guidelines"), the United National Guiding Principles on Human Rights ("UNGPs"), and the International Labor Organization's ("ILO") core labor rights conventions. Each of these standards provide helpful insights and guidance on the concepts and principles companies should keep in mind when drafting forced labor or other human rights due diligence procedures.
A common theme between guidance published by government agencies and the standards set out in the international documents listed above paragraph is the idea that companies should engage in "risk-based" due diligence. Risk-based due diligence includes the implementation of steps to identify and prioritize certain risks based on a review of the company's business activities, third-party partners, locations of operation, and other factors that may generate forced labor and human rights concerns. Based on an assessment of high-priority risks, companies can tailor and align their due diligence procedures to properly address these risks and ensure company employees and agents are aware of high-risk areas that may require extra attention or review. Identification and review of areas of concern is a significant part of any forced labor due diligence plan; however, it is also important to implement ongoing monitoring procedures as well to ensure a due diligence plan is being properly carried out by company personnel and remains effective.
Importantly, the various laws mandating forced labor and other human rights due diligence reporting require companies to show their work when it comes to their due diligence efforts. Simply issuing a high-level policy statement on forced labor without developing specific and tailored procedures for addressing forced labor risks is not enough to satisfy reporting requirements under most due diligence laws.
The development of due diligence methodology and the roll out of new internal procedures can take months to accomplish depending on the size of a company as it requires collaboration between management implementing the procedures and personnel that will carry out the due diligence efforts on a day-to-day basis. Input from third parties such as due diligence service providers or legal counsel may also be necessary. Thus, as more forced labor due diligence laws arise, companies should begin reviewing and updating their internal policies now. Doing so will not only ensure compliance with applicable forced labor laws, but also help ensure that the company is keeping up with emerging due diligence standards based on the requirements of various forced labor and human rights due diligence laws.
Footnotes
1. Note that 19 U.S.C. § 1307 prohibits the importation of any product that was mined, produced, or manufactured wholly or in part by forced labor. The UFLPA supports enforcement of § 1307 and provides more specific enforcement priorities with respect to products imported from specific regions or parties.
2. See 19 C.F.R. Part 171.
3. Prepare a Report-Entities, Public Safety Canada, https://www.publicsafety.gc.ca/cnt/cntrng-crm/frcd-lbr-cndn-spply-chns/prpr-rprt-en.aspx#a2 (last updated Mar. 20, 2024).
4. Transparency in Supply Chains a Practical Guide, UK Home Office (2017), https://assets.publishing.service.gov.uk/media/61b7401d8fa8f5037778c389/Transparency_in_Supply_Chains_A_Practical_Guide_2017_final.pdf.
5. See Home Office Modern Slavery Statement 2020 to 2021, UK Home Office (Nov. 25, 2021), https://www.gov.uk/government/publications/home-office-modern-slavery-statement-2020-to-2021/home-office-modern-slavery-statement-2020-to-2021-accessible-version.
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