Responsibility and Accountability for Breaches of Labour Rights in International Supply Chains

Can businesses be held legally (and morally) responsible for violations of human rights and basic labour rights that take place in other independent businesses in a foreign jurisdiction that form part of an integrated, closely managed, supply chain? Any answer to this question poses a dilemma. On the one hand, there is a basic legal and moral principle that one person or legal entity should not in general be held legally responsible for the breaches of legal duties by other persons or legal entities. On the other hand, some businesses such as major western retailers and manufacturing assembly plants appear to have the ability to control and manage what happens throughout their supply chain of independent businesses, so that they have the effective power to prevent such violations of human rights and basic labour rights (which together we be called here fundamental rights). If so, it can be argued that those businesses that possess such power should be held to be at least morally accountable, and perhaps even legally responsible, for such breaches of fundamental rights by the independent businesses that make up their supply chain. The attraction of holding the controllers of supply chains accountable or responsible for violations of fundamental rights by their suppliers is that it would introduce a strong incentive for those controllers to police the supply chains, to eliminate their suppliers’ bad employment practices involving violations of fundamental rights such as labour trafficking and child labour and to ameliorate the exploitative and dangerous conditions of sweatshops. For advocates of such measures, they would hope to produce a fairer world, reduce infringements of fundamental rights, and enable businesses to build and protect valuable reputations for ethical trading. For opponents of such measures, to hold controllers of supply chains responsible for everything that happens in the chain would constitute a fundamental breach of moral and legal principles. It would hold one business responsible for the wrongs of another independent business, and furthermore, this responsibility might be imposed in circumstances when the defendant had no knowledge that any violation was taking place. How should this dilemma be resolved?

On the 5 April 2017, the House of Lords, House of Commons Joint Committee on Human Rights issued a report on this question entitled: Human Rights and Business 2017: Promoting Responsibility and Ensuring Accountability (HL Paper 153; HC 443; Sixth Report of Session 2016-17). The Report discusses some of the legal background and provides some useful examples of human rights abuses in the garment and textiles sector. For example, the Committee draws on a BBC Panorama programme and the Committee’s own field trip to consider the plight of children and other trafficked workers employed illegally in sweatshops in the backstreets of Istanbul, who are almost certainly supplying garments to high street chains in the UK, though the actual working conditions in these factories seem to have been carefully concealed from the buyers for the high street chains. The Committee also notes systematic breaches in these sweatshops of the ILO’s declaration of fundamental rights and of article 11 of the European Convention of Human Rights. Alarmingly, the Committee reports on only marginally better conditions in garment factories in Leicester. 

The Joint Report commences with a summary of the UK Government’s National Action Plan 2013 Cm8695, which was developed in response to the UN Guiding Principles on Business and Human Rights. Two key aims of the National Action Plan are to ‘support, motivate and incentivise UK business to meet their responsibility to respect human rights throughout their operations’; and to ‘support access to effective remedy for victims of human rights abuse involving business enterprises within UK jurisdiction’. With respect to the question about legal responsibility posed here, these statements remain ambiguous. The first statement leaves open the question of whether the independent businesses within the supply chains that are subject to the effective control of UK companies could be described as ‘operations’ of the controlling company; and the second statement leaves open the question of what amounts to ‘involvement’, for that concept might mean actual participation in the oppression of victims or, much less restrictive, merely the capacity to intervene if the controller so chooses. What is the assessment of the Joint Report on how far these goals have been clarified and fulfilled by the UK government? Leaving aside the Committee’s pertinent critical comments on the failure of various ministries and agencies to take on board and push forward the agenda of the National Action Plan, we focus here on the treatment of the enacted legal measures that address the issue of human rights abuses in supply chains.

The Modern Slavery Act 2015 s.54 introduced a new duty placed on commercial organisations (with turnovers of more than £36m) to report on their websites about the due diligence they are undertaking with respect to slavery and human trafficking in their supply chains. The research indicates that most large companies are making a cautious statement of this kind and have avoided the legally permitted possibility of stating that the organisation has taken no such steps. The measure seems to have encouraged many companies to improve their due diligence measures by, for example, carrying out more frequent inspections or audits of suppliers. However, the Committee notes some glaring inadequacies of this legislation. First, the reporting requirement only applies to slavery and human trafficking and does not apply to breaches of other human rights by suppliers such as employment of child labour or the use of working conditions that are a serious threat to life. Second, the reporting requirement does not apply to basic labour rights and standards, such as the right to be a member of a trade union. Third, the requirement does not apply to public authorities (though separate procurement rules will apply to them). Universities such as Oxford seem to be making these statements on their websites, perhaps because now they are properly regarded as ‘commercial organisations’.   Fourth, though companies report that they carry out more audits of the companies in their supply chain, the Joint Committee is sceptical about whether this actually leads to improved standards.

Beyond this transparency requirement, the Modern Slavery Act 2015 fails to address the central question raised here of whether controllers of supply chains could be held accountable or responsible for breaches of human rights and fundamental labour standards committed by separate businesses in their supply chains. As well as dwelling on the problem that normally one commercial organisation will not be held responsible for the actions of another, the Joint Committee also points out difficulties facing any civil law claim brought in the UK. Assuming that the violation of human rights or basic labour standards took place abroad, it would normally be the foreign law of tort or contract that would govern any claim for damages even if a UK court accepted jurisdiction to hear the claim. That foreign law might not permit such claims or place low caps on the possible amounts of compensation. It follows that to hold UK companies legally responsible for breaches of human rights committed by their suppliers, two formidable legal obstacles would have to be overcome: first, the applicable law would have to be UK law even though the events took place entirely in another country; and second, the law would have to change the current rules under which a commercial organisation can be held responsible for the civil wrongs of another. 

Having recognised these problems confronting any attempt to hold controllers of supply chains responsible or accountable for violations of human rights and labour standards committed by its suppliers, the Joint Committee moves on to another topic without making any recommendation about civil responsibility beyond saying that a civil remedy might be useful. Instead, Joint Committee proposes that companies should be placed under a duty of due diligence to try to remove violations of human rights in their supply chains, with a criminal fine as a sanction for failure to carry out due diligence. This could well prove to be a useful and commendable addition to the existing transparency requirement, but it would not assist at all in securing a remedy for the victims of abuses of human rights. 

In a puzzling concluding paragraph 193, the committee adds to its recommendation of a new criminal offence of a lack of due diligence with respect to human rights abuses that ‘The legislation should enable remedies against the parent company and other companies when abuses do occur, so civil remedies (as well as criminal remedies) must be provided.’ This statement is puzzling because it does not explain why civil remedies are needed or even relevant. The whole point of the proposed criminal offence is to require the controlling commercial organisation of the supply chain to engage in a process of due diligence auditing. Because the proposed duty is placed on the controlling organisation from the outset, there is no need to address the problem of holding one organisation responsible for the wrongs of another. Furthermore, even if there was a problem in holding the controlling organisation responsible for breach of the criminal duty, it does not seem possible that civil law rules about vicarious liability could solve the problem. It is possible that the Joint Committee had in mind that somehow the proposed criminal law duty should also simultaneously be a civil law duty, in order to permit claims by victims of abuses of human rights for compensation. That aim could be achieved simply by permitting the criminal law court to make an order for reparation, as is provided in section 8 of the Modern Slavery Act 2015, without the need to address the problem of vicariously liability in civil law. In my view, therefore, the Joint Committee has not clearly explained what it has in mind regarding civil law remedies. In so far as its ideas are linked to the useful proposal of a new criminal law duty of due diligence, further mention of civil law problems appears to be unnecessary. If that interpretation of its recommendation is correct, the Joint Committee has not really addressed the issue posed at the outset of this discussion, namely whether it could be possible to develop the law to hold commercial organisations legally responsible in civil law for breaches of human rights or fundamental rights. To achieve such a civil law mechanism for holding the supply chain controller responsible for human rights violations throughout the chain, the law would have to overcome the two problems mentioned above. 

The first problem, it will be recalled, concerns the law applicable to the breach of fundamental rights by an employer in a foreign jurisdiction. To overcome obstacles to effective civil law claims based on that foreign law, it would be necessary for the UK to enact some extra-territorial standards applicable to the working conditions in the factories, mines, and fields of the suppliers. These minimum standards could be based on standards that have been held to be universally applicable, such as the ILO Declaration on Fundamental Principles and Rights at Work and its Follow-up (Adopted by the International Labour Conference at its Eighty-sixth Session, Geneva, 18 June 1998 (Annex revised 15 June 2010)). This Declaration covers the basic rights concerning slavery, forced labour, trafficking, child labour, freedom of association, and freedom from discrimination. This standard is already supposed to be applicable to all member states of the United Nations who are members of the ILO, so it could not be fairly criticised as exporting our western standards to other countries.

The second problem mentioned above concerns the issue of holding one commercial organisation legally responsible for the misconduct of another. Any solution in civil law needs a loosening of the current rules under which one company may be held responsible for the actions of another. One way that responsibility can be attributed is by virtue of ownership: in some instances a parent company can be held responsible for the actions of its subsidiary. UK courts have been very reluctant to acknowledge this possibility except in special cases or where it is required by statute, as in the concept of ‘associated employer’ in the Employment Rights Act 1996. A second way that responsibility can be attributed is by virtue of contractual arrangements. The controller of the supply chain could be required or deemed to have entered into a contract with all its suppliers under which the parties agree that they will conform to the minimum standards.  In practice, many companies make such provisions in their contracts already. What would be required in addition in order to overcome the normal rule of privity of contract is that the contract should make it expressly clear that worker victims should, as third parties to such contracts, be entitled to bring a claim for compensation for breach of contract against both the controller of the supply chain and its supplier in breach of the standards. A third route to holding the controller responsible for the actions of the supplier is to insist that in appropriate cases the degree of control exercised by the controlling entity is such that it should be held responsible for those breaches of minimum standards by its supplier, because the supplier was in effect acting as its agent rather than as an independent contractor. Although these solutions might be all made available, the second and third are most relevant because rarely are members of the supply chain subsidiary companies of the controlling organisation. 

The Joint Committee’s report provides a welcome and timely assessment of the inadequacies of the UK’s current approach to the issues about business and human rights. One can only agree with the Committee that what is needed is rather more effective tools for the protection of human rights. The Modern Slavery Act’s approach to the problems arising in supply chains seems to me to be the most timid imaginable and seems hardly worth the cost that it imposes on large organisations. The Committee’s proposal to strengthen the Act by the introduction of a criminal offence of breach of a duty of due diligence in routing out human rights abuses in supply chains is clearly the right next step to take. It is suggested here, however, that the Joint Committee’s report never gets to grips with the problems of constructing a regime of civil liability and that therefore that topic needs to be examined again. I have suggested about a framework for the issues that need to be addressed and how they might be solved more or less within the existing framework of civil law in the United Kingdom.