Image: Nike

One of the biggest threats to a retailer’s reputation is an allegation of involvement in slavery, human trafficking, or child labor. Ask Nike. In the 1990s, the Portland-based sportswear giant was plagued with damning reports that its global supply chain was being supported by child labor in places like Cambodia and Pakistan, with minors stitching soccer balls and other products as many as seven days a week for up to 16 hours a day. All the while, sweatshop conditions were running rampant in factories Nike maintained contracts with, and minimum wage and overtime laws were being flouted with regularity.

The backlash against Nike was so striking that it served to tarnish the then-30 year old company’s image and negatively affect its bottom line. “Sales were dropping and Nike was being portrayed in the media as a company that was willing to exploit workers and deprive them of the basic wage needed to sustain themselves in an effort to expand profits,” according to Stanford University research.

That was not the case according to Nike’s chairman and chief executive at the time Phil Knight, who told the New York Times in 1998 that he “truthfully [did not] think that there has been a material impact on Nike sales by the human rights attacks,” and pointed instead, to “the financial crisis in Asia, where the company had been expanding sales aggressively, and its failure to recognize a shifting consumer preference for hiking shoes.”

Yet, the company was, nonetheless, forced to spend the next decade cleaning up its act in order to hold on to – and in some cases, win back – consumers, from overhauling its supply chain oversight efforts to include independent monitoring and audits to releasing public-facing vows to “root out underage workers and require overseas manufacturers of its wares to meet strict United States health and safety standards.”

It is critical to note that Nike took hits for its nefarious labor practices long before consumers were readily learning about and connecting with brands on social media, and during a time when retailers’ supply chains were generally less expansive than they are today. Fast forward to 2019 and with the rise of digital media and social media, and the larger trend towards cause-oriented consumerism, paired with the increasingly complicated and multi-national nature of corporate entities’ supply chains, the stakes are significantly higher than they were in the 1990s.

The demands and the level of risk at play is exacerbated by the fact that shoppers, particularly of the millennial type, are actively calling on fashion brands and retailers to be transparent in terms of how and where their products are made. But even more than consumer-driven calls for clarity and principled activity, in many jurisdictions, the law requires it. For instance, in the United Kingdom, the Modern Slavery Act of 2015 requires commercial entities that have a global turnover above £36 million ($43.5 million) to publicly file an annual slavery and trafficking statement, highlighting what steps –  if any –  they are taking to combat trafficking and slavery in their operations and supply chains.

Meanwhile, in the U.S., California passed the Transparency in Supply Chains Act in January 2012, thereby requiring retailers and manufacturers with global revenues that exceed $100 million and which do business in California (a low bar given the sheer size of California’s economy and the sweeping business ties that come about as a result of e-commerce operations) to publicly disclose the degree to which they are addressing forced labor and human trafficking in their global manufacturing networks.

Two years later, the Federal Business Supply Chain Transparency on Trafficking and Slavery Bill was introduced to the House of Representatives. The bill proposed required all companies with worldwide annual sales exceeding $100 million, and which are currently required to file annual reports with the Securities and Exchange Commission, are to disclose what measures, if any, they have taken to identify and address conditions of forced labor, slavery, human trafficking and child labor within their supply chains, either in the U.S. or abroad.

Although not ultimately enacted, the bill “demonstrates the continued attention that the issues of forced labor, slavery, human trafficking, and child labor in manufacturers’ supply chains is receiving in the U.S. and around the world,” according to Pittsburg-headquartered law firm K&L Gates.

Still yet, since then, the Trafficking Victims Protection Reauthorization Act (“TVPA”) has come into effect. As the first comprehensive federal law to address modern slavery, the TVPA creates a private right of action for victims of forced labor against third parties, such as fashion brands and retailers, that benefit from participating in a venture if they knew or “should have known” that the venture engaged in modern slavery.  In other words, the TVPA imposes civil liability for corporate negligence.

Looking beyond the fact that supply chain oversight and accountability is a legal issue in many jurisdictions, it is worth noting that avoiding supply chain scandals, and in fact, being able to point to efforts aimed at transparency, is just good business. Given consumers’ increasing interest in the supply chains of their favorite brands and with the potential damage that could come about – potentially, virally – as a result of ties to slavery, human trafficking, and/or child labor, companies are being advised to consistently assess and identify potential instances of slavery and trafficking risks in their operations and supply chains, and prioritize those risks for further investigation and/or action.

In furtherance of such efforts, retailers and fashion brands are encouraged to exercise due diligence before entering into a supply agreement or contract, including requiring the supplier to provide information necessary to establish whether or not it – or any of its sub-contractors and sub-suppliers – are involved in misconduct.

Contractually speaking, brands should establish and require that their the suppliers, in performing their obligations under the agreement, comply with an anti-slavery policy and with all applicable anti-slavery and human trafficking laws, statutes, regulations and codes in force, and also require the supplier to include similar provisions in its own contracts with its sub-contractors and sub-suppliers.

Ideally, a brand’s contract with a supplier should  include terms to prevent the supplier from sub-contracting or sub-supplying without its written consent, thereby giving the retailer the opportunity to vet the third party and veto the engagement if necessary; and it should require the supplier to maintain documentary evidence of the age of each of its employees to ensure that minimum legal age requirements are being met.

However, in many cases, this has proven futile from a practical perspective even with dedicated oversight, as contracting and sub-contracting runs rampant in many manufacturing centers, such as Bangladesh, particularly when there are “tight deadlines to meet and/or unanticipated orders” at play, according to the not-for-profit Centre for Research on Multinational Corporations. In these instances, “manufacturers subcontract certain production processes to other factories and workplaces, without informing the buyer.

Because brands and retailers may inadvertently become involved if malpractice claims are risen in connection with their supply chains, turning a blind eye or failing to take active steps to prevent slavery will not be sufficient in the eyes of the law or consumers.

Nicola Conway is a Trainee Solicitor at Bryan Cave in London. Edits/additions courtesy of TFL.