INSIGHT

Recent developments set to shake up modern slavery landscape for Australian businesses

By Rachel Nicolson, Dora Banyasz, Emily Turnbull, Alexander Batsis
Environment, Social, Governance Human rights obligations International Business Obligations Risk & Compliance

Deepening an ongoing compliance obligation 10 min read

Recent developments signal the continuing focus on modern slavery compliance risk for Australian businesses.

In Australia, a recent Senate report will, if implemented, significantly strengthen the Australian modern slavery regime. Overseas, Germany has passed a Supply Chain Due Diligence Act, which will create new obligations for in-scope companies to assess human (and environmental) impacts in their operations and supply chains, and a recent decision by the Supreme Court of the United States may contribute to the ongoing trend in complainants seeking recourse through non-judicial dispute mechanisms such as the OECD National Contact Points, including for allegations relating to slavery and forced labour.

We consider the significance of these recent developments and outline the key actions for Australian companies to consider.

Key takeaways

Recent developments in relation to potential Australian modern slavery reform, US forced labour litigation and German human rights due diligence legislation may have an impact on Australian businesses. In summary, these developments are:

  1. A recent report from the Senate Foreign Affairs, Defence and Trade Legislation Committee's inquiry into the Customs Amendment (Banning Goods Produced by Uyghur Forced Labour) Bill 2020 (which proposed various reforms to strengthen Australia's modern slavery regime and customs laws) may have a significant impact on Australian businesses. If the proposed reforms are implemented, Australian businesses—in particular those that procure, directly or indirectly, from the Asia-Pacific region—should prepare to uplift their modern slavery related controls, including due diligence, monitoring and reporting.
  2. A decision by the Supreme Court of the United States held that plaintiffs alleging they were subject to slavery and forced labour in Mali lacked standing under the US Alien Tort Statute to bring proceedings against US-based Nestle for sourcing goods produced by them in cocoa plantations in the Ivory Coast. Though the plaintiffs were not successful in bringing a claim under the ATS in a domestic forum, Australian companies should be aware that this decision and these types of cases, generally, may entice plaintiffs to purse claims through non-judicial dispute resolution forums—such as the OECD National Contact Points—where issues such as standing and jurisdiction are far less stringent. We have observed a rapid increase in human rights-related complaints filed with non-judicial dispute resolution forums such as the OECD National Contact Points.
  3. The ongoing global trend towards countries legislating human rights due diligence requirements continues, with Germany now being the most recent state to introduce a mandatory Supply Chain Due Diligence Act. With the increasing trend in countries legislating mandatory human rights due diligence, Australian businesses should ensure that, at a minimum, they review their due diligence practices and human rights policies and procedures, and where appropriate ensure such processes, policies and procedures are uplifted to minimise potential risk in their operations and supply chains. We have reported on this trend here and here.

Senate recommends strengthening modern slavery diligence and reporting requirements for Australian companies

Background

On 8 December 2020, the Customs Amendment (Banning Goods Produced by Uyghur Forced Labour) Bill 2020, a private senator's bill sponsored by Senator Rex Patrick, was introduced into the Senate (Bill). The Bill seeks to amend the Customs Act 1901 (Cth) to ban the importation of goods from Xinjiang in China, as well as goods from other parts of China that are produced in whole or part by forced labour.1

On 10 December 2020, the Bill was referred to the Senate Foreign Affairs, Defence and Trade Legislation Committee (Committee). On 17 June 2021, the Committee published its report, which made various recommendations which, if legislated, may have a significant impact on Australia's modern slavery regime and customs laws.

Recommendations

In its report, the Committee recommended that the Federal Government:

  • amend the Customs Act 1901 (Cth) (or other relevant legislation) to prohibit the import of any goods made wholly or in part with forced labour — regardless of geographic origin (Recommendation 1);
  • explore introducing guidelines to assist Australian businesses to avoid sourcing products from forced labour (Recommendation 14);
  • bring forward the review of the Modern Slavery Act 2018 (Cth) (Modern Slavery Act) as soon as possible following the conclusion of the first reporting cycle on 30 June 2021 (Recommendation 11). That review should consider provisions for strengthening and broadening the Modern Slavery Act — together with the establishment of an independent body to oversee and enforce its implementation (Recommendation 12);
  • consider amending the Commonwealth Procurement Rules to include a requirement on due diligence relating to forced labour. The Committee also recommended that the Federal Government encourage state, territory and local governments and their various business enterprises to do the same (Recommendation 3);
  • consider adequate resourcing for the Australia Border Force to conduct investigations relating to (if enacted) the prohibition on importing goods produced by forced labour (Recommendation 4);
  • consider that the Home Affairs portfolio establish a working group to examine the role emerging technologies can play in tracing the geographical origin of products and raw materials (Recommendation 5);
  • establish and maintain a list of products or companies considered to be at high risk of being produced by forced labour (Recommendation 6); and
  • coordinate (with relevant government departments) closely with counterparts in likeminded countries — in particular Canada, the United Kingdom and the United States — both to ensure policy consistency and to ensure Australia can benefit from the practical implementation lessons learned by those countries (Recommendation 8).

The Committee also noted that it supports the work and recommendations of the Joint Standing Committee on Foreign Affairs, Defence and Trade, Human Rights Sub-committee on the use of targeted sanctions to address gross human rights abuses. The Committee echoed its recommendation that the Government 'enact standalone targeted sanctions legislation to address human rights violations and corruption similar to the United States' Magnitsky Act 2012'. We have previously reported on Magnitsky sanctions here.

Steps for Australian companies to take  

It may take some time before the Federal Government considers implementing the Committee's recommendations, or commences a review of the Modern Slavery Act.

That said, if enacted, in whole or in part, the Committee's recommendations would have a significant impact on the diligence and reporting requirements for Australian businesses—especially those with supply chains in the Asia Pacific (or other high-risk jurisdictions where forced labour is prevalent). Even if all the recommendations are not legislated, there is an ongoing trend that has been observed in other jurisdictions (such as the United Kingdom where the UK Government is considering the introduction of financial penalties for non-compliance under the UK Modern Slavery Act) toward a gradual strengthening of modern slavery regulatory regimes, which inevitably increases the compliance burden for companies.

Businesses should:

  • conduct or review modern slavery risk assessments for their operations and supply chain;
  • uplift modern slavery compliance and reporting functions to ensure they are operating efficiently and accurately; and
  • review and strengthen due diligence processes, polices and controls to ensure the business has a strong understanding of the risks present in its supply chain and work towards ensuring all goods and services sourced overseas are free from forced labour.

We will keep you updated on the progress of the Committee's recommendations.

Human rights due diligence legislation on the rise

We have previously reported on the increasing trend of countries legislating mandatory human rights due diligence regimes which apply to the supply chains of companies. Germany is the latest country to pass its own regime, through the Supply Chain Due Diligence Act (Act), which will come into force on 1 January 2023.

The Act applies to companies from all sectors having their head office, principal place of business, administrative headquarters or registered office in Germany and employing a minimum of 3,000 employees (from 2024 onwards, companies with 1,000 employees will be in scope). In relation to human rights due diligence, the Act imposes obligations on these companies to:

  • assess whether violations of certain human rights occur in their supply chains;
  • take respective prevention and mitigation measures;
  • adopt a policy statement on human rights protection in their supply chains;
  • implement grievance procedures to allow for the reporting of human rights violations and ensure appropriate follow-up measures; and
  • document their compliance with the due diligence obligations.

The Act also empowers the German Federal Office for Economic Affairs and Export Control as the primary enforcement authority responsible for enforcing the new obligations by way of information and discovery requests, remediation orders as well as financial penalties and exclusion from public procurement.

While not directly applicable to Australian companies (unless an Australian company has its head office, principal place of business or administrative headquarters in Germany), this latest development demonstrates the growing number of obligations being imposed on companies to conduct human rights-related due diligence on their supply chains and adopt measures to manage any human rights risks. It also reflects the broader trend of the hardening of soft law instruments, such as the United Nations Global Compact Principles and the United Nations Guiding Principles on Business and Human Rights. We have reported on this trend here and here. Together, these trends mean the expectation on Australian companies around human rights risk assessment and due diligence will only continue to grow.

Slave-labour litigation against companies

In some jurisdictions, plaintiffs are commencing supply chain and slave-labour-related litigation in domestic courts against companies operating or sourcing goods in foreign jurisdictions. In some instances, plaintiffs are making progress towards holding companies to account under domestic law for harms occurred in foreign jurisdictions. We have previously addressed this trend and other slave-labour-related cases here. For example, in Nevsun Resources Ltd v Araya, the Canadian Supreme Court held that mining company Nevsun was able to be sued by miners under customary international law for alleged human rights abuses that occurred at a mine owned by Nevsun in Eritrea. However, in a recent case from the Supreme Court of the United States in Nestle USA Inc v Doe, 593 US __ (2021) (Nestle), aggrieved children plaintiffs subject to alleged slavery in Mali were unsuccessful in holding Nestle liable through the Alien Tort Statute (ATS). We anticipate that supply chain and slave-labour-related claims will increase in some jurisdictions, however given the inconsistent outcomes across jurisdictions (which at this point is primarily due to plaintiffs lacking the requisite standing under domestic law), aggrieved plaintiffs may pursue non-judicial dispute mechanisms to seek a remedy.

In the Nestle case, the Malian plaintiffs alleged they were trafficked into Cote d'Ivoire as child slaves to produce cocoa which Nestle later purchased. The plurality decision held that the Malian plaintiffs improperly sought extraterritorial application of the ATS. Justice Thomas (who wrote the plurality decision) stated that, 'mere corporate presence' in Mali is not a 'sufficient connection' to the domestic conduct of a company in the US to ground a claim under the ATS. The court noted that plaintiffs must plead more than 'general corporate activity common to most corporations', and that generic allegations related to operational decisions are not enough to draw a 'sufficient connection' in order to accrue liability under the ATS.

We note that in the United States there are other supply chain and slave-labour-related cases afoot that are being brought on a different basis to the Nestle case, including against certain technology companies in connection with slavery in the cobalt mining sector, and against certain food manufacturers and agri-business companies in connection with the procurement of cocoa from Cote d'Ivoire. These cases are claims under the United States' Trafficking Victims Protection Reauthorization Act.

While the Nestle decision represents a setback for potential plaintiffs wanting to litigate under the ATS, an implication of the decision is that it may incentivise complainants to have recourse to non-judicial dispute mechanisms—such as OECD National Contact Points—where the absence of jurisdictional and standing issues means they can be available to claimant groups where domestic remedies may have been denied. In this way, the NCPs can overcome obstacles for claimants that may arise due to the complexities of modern international business and corporate structures. We are observing this trend in Australia, and have reported on it here.

Footnotes

  1. Explanatory Memorandum, Customs Amendment (Banning Goods Produced by Uyghur Forced Labour) Bill 2020, p.1.