The European Commission and the European External Action Service issued Guidance on Due Diligence for EU Businesses to Address the Risk of Forced Labour in Their Operations and Supply Chains (Guidance) on 12 July as a guide for European companies to implement effective human rights due diligence practices.
Combatting forced labour is a priority for the European Union, which sees “responsible business conduct by European countries” as playing a crucial role in ensuring that EU policies on human rights are effectively implemented. Please see our previous LawFlash, Incoming Changes For Corporate ESG Accountability in European Union.
The Guidance is intended to provide European companies with practical guidance to implement effective human rights due diligence practices to identify and address the risk of forced labour in their supply chains. It encourages businesses to assess the potential exposure of their supply chains to activities causing or contributing to human rights abuses or violations, and to implement appropriate due diligence policies to ensure compliance with international due diligence and labour standards on forced labour.
It refers to the Organisation for Economic Co-operation and Development (OECD) due diligence framework as a reference, outlining a six-step framework for effective due diligence:
- Embed responsible business conduct into the company’s policies and management systems
- Identify and assess actual or potential adverse impacts in the company’s operations, supply chains, and business relationships
- Cease, prevent, and mitigate adverse impacts
- Track implementation and results
- Communicate how impacts are addressed
- Provide for or cooperate in remediation when appropriate
The Guidance states that business policies and management systems should be tailored to the risk of forced labour. This includes the following:
- Stipulating a “zero-tolerance policy” for forced labour, accompanied with other policies relevant to how forced labour may arise in the supply chain of the company, e.g., in relation to recruitment and retention practices, subcontracting, use of recruitment agencies, or state-sponsored forced labour.
- Policy and management systems clarifying that suppliers and staff will not face reprisals for reporting risk or instances of forced labour. The company must not discourage suppliers or staff from reporting risk or instances of forced labour, and instead provide a clear procedure of how any reported risks will be addressed and, if needed, escalated.
- Building awareness with key company staff (such as buyers or procurement officers) and suppliers on what constitutes forced labour (e.g., their common forms, types of vulnerable workers and supply chains, and the expectations of suppliers especially those operating in higher-risk contexts). Internal company awareness of how its own activities, such as its purchasing practices, may increase the risk of unauthorised subcontracting and other forced labour risk factors will be particularly important.
The Guidance outlines certain “red flags” which are indicators or risk factors for forced labour, to be considered by businesses when scoping supply and value chains as part of due diligence. These include the following:
- Country risk factors (for example, countries that have not ratified the International Labour Organisation fundamental conventions, state-orchestrated programmes for labour targeted at minorities, legal regimes outlawing peaceful strike action, and countries with prison labour policies and programmes, or the inability to conduct in-depth risk assessments through threats of enforced presence of government/employers).
- Risk factors linked to migration and informality (for example, the employment of irregular migrant workers, workers recruited via third parties including government recruiters, workers in on-site accommodation, the presence of informally employed workers, the absence of written employment contracts, or the presence of children in the workplace).
- Risks linked to the presence of debt risk factors (such as the existence of credit arrangements and debt schemes for workers, restrictions on the ability of workers to freely dispose of their wages, the restriction of access by workers to their own identity and residency documents, or the incidence of physical or psychological abuse, violence, or harassment).
The Guidance also outlines considerations for businesses when they are carrying out in-depth risk assessments of specific high-risk suppliers or supply chain segments:
- Strengthening checks where the risk is higher; for example, by carrying out in-depth assessments of recruitment agencies used by suppliers, or “choke points,” such as commodity traders, that source raw materials or operate upstream in high-risk areas.
- Carrying out extensive stakeholder engagement in areas with heightened risk; for example, with trade unions, civil societies, or other experts.
- Enhancing training for staff and suppliers in high-risk areas and establishing stronger prequalification processes for suppliers.
- Ensuring independent and unannounced access to worksite and workers to collect information and carry out workplace assessments.
- Interviewing workers in a secure environment, without the presence of their managers, with the assistance of an interpreter if necessary (e.g., in the case of migrant workers or workers belonging to national minorities).
The Guidance also includes considerations for remediation:
- When an enterprise identifies that it has caused or contributed to actual adverse impacts, it should address such impacts by providing for or cooperating in their remediation.
- Seek to restore the affected person or persons to the situation they would be in had the adverse impact not occurred (where possible) and enable remediation that is proportionate to the significance and scale of the adverse impact.
- Consult and engage with impacted rights holders and their representatives in the determination of the appropriate remedy.
- Forced labour is a crime. Companies should put in place a system to report crimes to local authorities. Where they have caused or contributed to forced labour, companies should cooperate with local authorities to help provide appropriate forms of remedy.
The Guidance provides links to many sources of information for businesses on this subject, including the International Labour Organisation, the OECD, and the United Nations Guiding Principles on Business and Human Rights.
It also recommends business networks on decent work in global supply chains which provide businesses with peer-to-peer information and offer possibilities to take joint action and to make auditing more efficient, such as:
While the framework set out in the Guidance is not compulsory, it mentions that the European Commission is currently preparing a legislative proposal on sustainable corporate governance to foster long-term sustainable and responsible corporate behaviour. The future proposal will introduce mandatory human rights and environmental due diligence, including on risks linked to forced labour.
The Guidance for EU businesses shows the priority that the EU places on combatting forced labour. Companies can use the Guidance to review their global environmental, social, and corporate governance (ESG) initiatives and policies, particularly as they relate to human rights and the risk of forced labour.
Morgan Lewis can advise on the preparation and implementation of proactive strategies to align with the Guidance, including having a robust and effective due diligence process and policies and procedures in place. Our goal is to help clients make sure their supply chain is, and remains, free of forced labour.
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If you have any questions or would like more information on the guidance discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers: