The legal frameworks surrounding international migration for work have been transformed in the last 10 years. The ‘long arm of the law’ has got both longer and smarter. What are the legal risks for companies and company directors of failing to prevent illegal, exploitative employment practices in their supply chains?
The legal matrix involved in this area is a complex, overlapping mix of ‘hard’ law with transnational applicability, such as the UK Bribery Act, various national laws, without transnational applicability, and soft laws or norms set down by international organisations.
In this short article, James Sinclair looks at the increasing use of transnational ‘hard’ law to bring to account companies and company directors who permit (or fail to prevent) illegal supply chain practices from occurring within their companies.
When considering the legal liabilities that could accrue to companies and their directors in relation to involvement in illegal and unethical labour exploitation, it is helpful to split the discussion into two forms of liability; criminal and civil. In broad terms, criminal liability can occur when an individual or company violates the penal code of a country, for which they could be punished with imprisonment or a fine. Civil liability tends to be restricted to law suits between people or companies, usually to recover financial damages.
Examples of criminal laws in this space include; the UK Bribery Act, the UK Modern Slavery Act, the French Duty of Vigilance Law, the US Federal Acquisition Regulations and Foreign and Corrupt Practices Act etc. Most criminal laws only apply within the territory of the country passing those laws. However, some are ‘transnational’ and this in an important feature of this article.
Examples of civil law liability tend to arise from case law precedent, often in the law of negligence (i.e. where one entity accuses the other of intentionally or recklessly causing loss or injury). The civil law is increasingly being used by human rights groups to challenge multinational companies in ‘global north’ courts for their activities in poorly governed spaces of the ‘global south’.
The UK Bribery Act 2010 is a good example of a criminal law statute, with transnational reach, which could impact on companies and company directors involved in labour exploitation. The various payments that change hands as bribes to obtain jobs are breaches of Sections 1 and 2 of the Act. Any bribes paid to public officials fall foul of Section 6 of the Act. If a company ‘fails to prevent’ such bribes from occurring within their company, they could be held liable under section 7. If directors actively connive in bribery offences, they could be subject to lengthy prison sentences for breaches of section 14. This is a law that contains very serious penalties, including unlimited fines for companies and directors, and prison sentences for directors.
In the civil law space, we have seen several examples of environmental groups bringing litigation against companies for causing environmental harms. Indeed, the group Client Earth specialises in bringing such cases. In the UK, there is currently a case before the courts involving allegations of environmental destruction said to have been caused in Zambia by KCM, a subsidiary of the giant mining and metals company Vedanta. The claim is founded on the legal precedent set in a 2012 Appeal Court case (Chandler v Cape) in which the court determined that there are circumstances where it is appropriate to ascribe liability to a parent company for the wrongdoing of its subsidiary. If the claimant succeeds in the Lungawe v Vedanta case, it would send a very clear warning shot across the bows of multinational companies operating in places where there are widespread environmental and (by obvious extension) labour abuses. To avoid liability for wrongdoing by subsidiaries (and in some instances sub-contractors) companies would need to invest much more intensively in supply chain due diligence. If they fail to do so, the consequences could be expensive and embarrassing.
This article is not the place for a detailed exposition of the law in this area. However, if you would like to know more, there are plenty of articles around on the subject of vicarious corporate accountability. These include an article I wrote for the Journal of Modern Slavery, which can be found here. Ekaterina Aristova from Cambridge University has also published useful articles on the subject, as has Dan Leader, the brilliant litigator at the lawyers Leigh Day, who represent Mr Lungawe in the Vedanta case.
The overall message is that the global reach of the law, whether it be ‘hard law’ ‘soft law’ or ‘norms’ is extending. The best way companies and their directors can avoid the unwelcome attentions of the lawyers is to invest in the people, processes and technologies that will, as far as possible, keep modern slavery out of their supply chains. At the FLA we are always happy to help companies who genuinely want to take the next steps on this journey towards better compliance.
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