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Lawsuits giving some ‘bite’ to mandatory reporting on slavery in supply chains

September 15, 2015

One of the common complaints against transparency in supply chains (TISC) legislation in California and the UK is that it lacks ‘teeth’. In both California and the UK the law requires that large companies to simply report on their activity, or lack of activity, to eradicate slavery in supply chains through publicly available statements, usually published on the company’s website. There are no penalties under the law for failing to report or for reporting inaccurately or insufficiently. The only enforcement mechanism provided in the law is an order requiring a company to comply with the obligation to report, which can only be brought by the Attorney General in California, and the Secretary of State in the UK.

But recent developments have shown that the law may have some bite after all.  In the last few weeks, two separate but similar lawsuits have been filed based on the contents of company’s disclosures under the California TISC Act.  In the first case, a class action against Costco, a group of consumers allege that Costco has defrauded consumers by making misleading reports under the Act.  In particular they say that – despite Costo’s public statement that it prohibits human rights abuses in its supply chain, and that it conducts audits to ensure suppliers comply with its Supplier Code of Conduct – the company knew that that the shrimp supplied to Costco and sold in its stores was farmed using slave labour.  The consumers therefore argue Costco’s statement that it enforces policies against the use of slave labour in the farming of prawns is false and is a violation of the TISC Act.

In the second case, a group of pet food purchasers filed a lawsuit against Nestlé, alleging that the company knew that its Fancy Feast cat food contains fish from a Thai supplier that uses slave labour.  The consumers argue that they were misled by Nestlé’s failure to disclose the use of slave labour in its supply chain, and would not have purchased the pet food had they known the truth.

In the UK, the reporting requirements under the Modern Slavery Act are yet to come into force.  When they do come into force in October, it will remain to be seen whether false or inaccurate disclosures under the Act could be the basis lawsuit in the UK courts in the same way as it has done in the US.  What is hoped is that at the very least these legal actions cause companies to pay serious attention to the content of their disclosures, and to ensure that they really are doing all they can to eradicate slavery from their supply chains.