The California legislation TISCA has finally had an opportunity to flex its muscles as one of the first kind in this class action is brought. Unfortunately, we will have to wait even longer to see the Act in full swing. On the 15th January 2016 the United States District Court Northern District of California issued an order granting Costco’s motion to dismiss the case for lack of Article III standing. District Judge Jeffrey S. White stated that Monica Sud failed to provide sufficient evidence to overcome Costco’s factual challenge to Article III standing. However the Californian court also granted the complainant leave to amend her complaint and has until 19th February to issue her amended complaint. Either way this case leads the charge in a potential long-line of future legal action.
California’s Transparency in Supply Chain Act highlights the caution that companies must take when disclosing (as the act requires them to) what means, if any ,they have taken to ensure that their products and supply chains do not involve the use of forced labour. The power of CA-TISCA does not lie in its ability to force companies not to use slave labour or even punish them for doing so but more in its ability to force companies to disclose information allowing consumers the choice as to who they purchase their goods from.
According to the complainant “Costco publicly represents that it does not tolerate human trafficking and slavery in its supply chain”, yet it continues to purchase the tainted prawns from the defendant. The defendant, Costco, stands shoulder to shoulder with the American based company CP Food Products Inc who along with their parent Thai based company Charoen Pokphand Foods PCL are accused of using forced labour in the sourcing of their prawns. Costco face a potential injunction meaning they can no longer purchase products from CP Food Products.
Whether or not this case succeeds to a full hearing is yet to be seen. However, regardless of the outcome there are lessons to be learnt by all companies that fall within the $100million plus threshold to ensure that they do not fall foul of the Transparency Act.
Compliance seems like the first and obvious step but practically speaking what can companies do to ensure they meet the disclosure requirements?
- A high level of accurate disclosure is needed. This can only be achieved through a responsibility-taking exercise. Businesses need to acknowledge that geographical distance does not negate complicity. Full knowledge of what is happening in their own supply chains is needed. You cannot disclose what you do not know and equally can no longer not disclose what you do know.
- Due Diligence Checklists; managing a legal compliance program effectively can reduce many risks for a company. Failure to do so could effectively lead to increased liabilities, fines and added costs. See http://clt-envirolaw.com/legal-compliance/.
- Training can be brought in to educate and ground staff in the principles that support full accurate disclosure. A full understanding of consequences can assist in knowing what needs to be disclosed, why and what happens if this does not happen.1
- An overhaul in thinking is needed at every level within businesses. Zero tolerance on human slavery rather than simply a reluctant willingness to disclose the use of forced labour is required. If the mind-set is changed in seeing slavery as the grotesque trade that it is rather than a cheap necessity then a cleansing of the supply chain can follow.
- Communication between businesses at every level is essential especially throughout a supply chain.
- An open reporting system for those throughout the supply chain to able to register what goes on. Transparency for reporting and failing to report needs to be addressed so that gaps are closed. Internal sanctions and disciplinary procedures can be implemented for those who fail to comply.
- Unannounced visits to links in the chain could perhaps create an environment of non-risk taking in using forced labour.
- External as well as internal auditing of the supply chain and the reporting system may help assist in ensuring no stone is left unturned
- Ensure those brought on board to report and audit are independent and whose interest do not lay in profit margins.
- Understand that your business reputation is on the line. As the modern anti-slavery movement gathers momentum companies must recognise more than just the legal ramifications. TISCA essentially places the power in the hands of the consumers allowing them to decide whether or not to use a company if they either use slavery in their supply chain and/or do nothing to actively stop it. The more the consumer is able to choose the less choice we give businesses in whether or not they choose to use forced labour.
- Reputation is not only on the line with consumers but also other businesses. Those getting on board may choose to distance themselves from those who do not disclose or disclose the fact they use slaves. Businesses could find themselves left out in the cold if they drag their feet with disclosure as the stench of slavery is ever increasingly becoming hard to ignore, and rightly so.