Ethical sourcing policies could be increasing risks

Most companies have policies and procedures in place to recognise the risks of modern slavery and the need to protect worker human rights.

That’s for workers across their enterprise, including in supply chains.

But what if those published policies and procedures were increasing the risks to Business rather than reducing them?

In this post we refer to “Business” as being the company at the top of the supply chain whose ethical sourcing policies cover (amongst other things) how its suppliers might be treating their workers.

And the key point is that:

If your public statements make it clear that you intend for worker human rights to be observed across your Business and in your supply chains

and then you don’t implement effective processes to support that position,

your risk levels have probably gone up.

Why do public statements matter?

Public policies and statements can set out that Business is taking steps to mitigate the risk that worker human rights are abused in its supply chains, and that this is important.

These public policies and statements may be implicitly acknowledging that there is a duty of care owed by Business to such workers.

This is how ethical sourcing policies can end up generating increased risk for Business.

If there is a duty of care, this likely extends the scope of legal responsibilities well beyond those which are set out formally in laws (like the Modern Slavery Act 2015 in the UK or the CSDDD in the EU).

Whilst “duty of care” is an English law concept, most legal systems have similar concepts with similar results in the sense of “common law claims of unjust enrichment, negligent supervision, and intentional infliction of emotional distress” (eg: in the US Starbucks case mentioned further below).

Does this really mean ethical sourcing policies can increase risk?

Yes - if policy statements are not backed up by effective actions.

It means that workers who (1) allege that their worker human rights are breached, and (2) allege that Business has not done enough to mitigate the risks of this happening, can (3) bring claims directly against the Business via class actions based on the fact that the Business has benefited as a result.

The logic is that:

• Business has acknowledged a duty of care to workers in suppliers by its policies and statements but then failed to protect them adequately; and then

  
  

• Business has benefited via lower prices as a result of the breach of the worker human rights in the supplier.

  
  

Is this a new point?

Yes (relatively speaking).

Although supplier codes of conduct have been around for many years, most Businesses have only published more comprehensive statements and policies relating to modern slavery and the broader topic of “worker human rights” more recently (say over the last 10 years or so).

This increased focus has been driven by changes in legislation and a growing social awareness of the issues. And it takes time for the implications of such changes to work through the system and then to be tested in the courts.

See later in this post for a summary of two recent court cases and how arguments are being made based on ethical sourcing policies and their implementation.

Where might we be going wrong?

Most Businesses are successfully creating and publishing appropriate policies that cover both responsible sourcing and how suppliers should conduct their businesses. There are good templates available.

Communicating policies to suppliers and getting them responsively to sign up is also generally well-covered. This is often the substance covered in annual reports that include summaries of the supply chains involved and the work done by ethical sourcing teams.

It starts to unravel when we get to the important 4th and 5th steps in the process – which are monitoring and detecting when issues arise, and then responding appropriately.

These are areas which are more difficult. The court cases allege failings in both areas.

• Businesses that rely on supplier self-certification are missing the point. If there are going to be worker human rights abuses, likely the supplier is complicit in them and will sign up and then ignore the policy.

  
  

• Moreover, traditional tools like social audit and occasional surveys have been shown to be ineffective at detecting worker human rights abuses. Suppliers can often manipulate them.

  
  

• And then, if issues do arise, ethical sourcing teams can find themselves without the expertise or political authority to respond appropriately, especially if those issues are serious.

  
  

The UK government has recently published guidance to business as follows:

"Businesses must be vigilant to ensure they are not knowingly or unwittingly complicit in this abuse taking place in their operations and global supply chains. Modern slavery is so prevalent that if businesses are not identifying risks and cases, they are probably not looking hard enough."

What are the court cases – two examples?

In the Limbu v Dyson Technology Ltd case, migrant workers are bringing claims against Dyson in the UK relating to alleged forced labour in factories manufacturing Dyson components in Malaysia. 

• The workers from Nepal and Bangladesh allege they were trafficked and subjected to abusive conditions and that Dyson should have known (and maybe even did know) that this was going on.

  
  

• Part of the argument is based on the fact that Dyson published clear policies and statements that it aimed to prevent modern slavery and abuses of worker human rights in its supply chain, but then Dyson failed to take effective actions to detect and mitigate risks that it might be occurring in practice.

The Dyson case is reinforced by the allegation that the abuses were brought to its attention but it then did nothing. These are failures at both steps 4 and 5 in the process.

This case is yet to go to trial in the UK (the preliminary hearings have covered the issue of where the case can be heard which is now being appealed to the Supreme Court, rather than the substance of the case itself).

In the last week, there has been a new case brought in the US against Starbucks: John Does (1-8) vs Starbucks Corporation.

Brazilian coffee workers are bringing a class action against Starbucks in the US alleging that they have been trafficked and abused, alleging further that Starbucks should have discovered this, or may have discovered this and ignored it.

The court papers setting out the complaint state as follows (quoting directly from the complaint):

• “Defendant Starbucks Coffee Company (“Starbucks”) prominently assures the public on its website that “We Believe in the Pursuit of Doing Good. As it has been from the beginning, our purpose goes far beyond profit. We believe Starbucks can, and should, have a positive impact on the communities we serve.””

  
  

• “Starbucks continuously chooses to work with and certify its suppliers and cooperatives through its C.A.F.E. Practices program despite the continual and regular discoveries of human rights violations.”

  
  

• “Despite the aforementioned widely documented and continued use of forced labor and child labor on these farms, Starbucks continues to source a sizable portion of its coffee from Brazil and continues to allow its certification program, C.A.F.E. Practices, to “certify” farms known to commit such labor and human rights violations.”

  
  

By making public statements and putting policies in place (eg: the “C.A.F.E. Practices Program”) Starbucks is, de facto, admitting it has a duty to protect workers in its supply chains – and an important part of the case is that Starbucks, having accepted that duty, has failed to discharge it, thereby resulting in its unjust enrichment – leading to an obligation to compensate the workers involved.

Just as with Dyson, the allegation is that Starbucks has accepted that it has a responsibility towards workers in its supply chains via its public statements and policies. And then it has not only failed to implement proper processes to monitor and detect worker human rights abuses – it also did not respond appropriately when these abuses were brought to its attention.

So what should you (as a Business) do?

Take note that a link can be made between the public statements that your Business makes about worker human rights in supply chains and what you actually do.

If you publish a policy that requires suppliers to take care over worker human rights, and you implement procedures of your own aiming to mitigate these kinds of risks in supply chains – then be ready to show that your procedures are effective - and recognise that your potential liability likely goes beyond what published laws may state.

If you are not sure about whether that might be the case – do show this post to your internal legal counsel(!)

One of our next few posts will look at how to reinforce steps 4 and 5 in ethical sourcing policies by increasing their effectiveness - perhaps providing a defence against allegations that you have not discharged your responsibilities.

In the meantime, if you would like to discuss any of the matters raised in this post, please do get in touch with us:

• By email here.

• Or set up a short call here.

These are new and developing areas for Business and for us - we are very interested in feedback and discussion to learn more about how organisations are looking at policy and procedure here.