5 Business and Human Rights Sleeper Issues

Business and human rights is continuing its steady march toward becoming a business imperative.  There are sweeping new or proposed laws focused on human rights, such as the EU’s Proposal for a Directive on Corporate Sustainability Due Diligence and Annex, the draft amendments to the UK Modern Slavery Act, or the German Supply Chain Act.  There also is increasing integration of human rights issues into other international regulatory frameworks, such as export controls, sanctions, and anti-money laundering.  Many of these laws and regulations, as well as their implications, are well-known and understood.  Other laws or their implications, or larger business and human rights legal trends and what they may foreshadow, may be somewhat less familiar.  In honor of the approaching summer in the North America and Europe, when teenagers from coast to coast will slumber until noon on a good day, we offer our musings on 5 business and human rights “sleeper” issues.

1. Contract Workers

   Across the world, we are seeing a reconsideration of the concept of a “worker.”  Driven by the growing gig economy, countries are evaluating the rules and requirements for minimum wages and benefits – such as sick leave, vacation pay, health benefits, and social security - for temporary or contract workers.  These countries, which range from Portugal to Belgium to the UK, are increasingly requiring companies to treat contract workers as full-time employees through laws and judicial decisions.  Other countries, such as the U.S. through the National Labor Relations Board, are in the process of evaluating or making changes to the definition of independent contractors.

   While this shift has received great attention, its implications may not be fully recognized.  It is easy to dismiss the movement as limited to delivery services or rideshares.  The legal issues at play are much broader, however, encompassing definitions of contract workers more generally.  Traditionally, employers have not been required to provide contract workers or independent contractors the same benefits as full-time workers, resulting in profound cost savings.  Employers also may not face the same legal liabilities as a result of contract or temporary worker actions.  As the definitions of workers evolves, the impacts on companies may be substantial, which in turn will impact consumers and markets as company costs are passed through.

2. Privacy

   The right to privacy is no longer a sleeper issue.  The European Union has adopted the General Data Protection Regulation (“GDPR”)^[1] and many other countries around the world have adopted similar legislation (such as the U.K.’s General Data Protection Regulation), transposing the right into national laws.  Companies are receiving substantial fines for such activities as collecting images for global online databases that can be used for data recognition, or the sale of user data. Businesses have had to adjust, adopting detailed processes protecting the personal data of employees, though the specific rules and requirements can be tricky.

   While these types of issues are well-known, particularly regarding employees and for consumer-facing companies, their scope is often not fully understood.  Companies collect individual data for scores of reasons.  These could include extractive companies investigating or collecting data for individuals who may pose security threats or for resettlement purposes, to sales and customer relations databases around the world, to virtually every company’s operational level grievance mechanism under UN Guiding Principle 31. That personal data may be collected and retained by line personnel not familiar with or even subject to the typical data protection processes companies may develop.  Given the legal and regulatory risks, companies are wise to evaluate the full scope of where and how personal data is collected, including less obvious places.

3. Public Procurement

   Last week in the U.K., the House of Lords debated a government procurement bill in a second reading.  Among the main issues discussed, where amendments were seen as necessary, was “eradicating forced labor and modern slavery from supply chains.”  Indeed, Schedule 7 Part 1 of the draft procurement bill includes as discretionary exclusion grounds suppliers connected to Modern Slavery.  This follows amendments to the Health and Social Care Bill that ban the National Health System, the biggest public procurer in the country, from purchasing goods where there is a “serious risk of genocide in the sourcing region,” or that may be tainted by modern slavery.  Similarly, Canada is actively considering how to strengthen its public procurement laws and updated its Code of Conduct for Procurement, which includes provisions setting forth the government’s expectations for suppliers related to modern slavery and other human rights issues.  The U.S. Federal Acquisition Regulations have included trafficking provisions for several years, Sweden has taken a variety of measures to make sure their supply chains do not include modern slavery abuses, and similar strategies exist – and are growing - elsewhere.

   As these public procurement laws and regulations expand, they will have substantial impacts on companies and markets.  Governments are often the single largest purchasers of goods and services in any given economy.  National, state or provincial, and local governments buy everything from ice cream or candy bars in cafeterias, to light bulbs, pens and supplies for offices, to uniforms and vehicles for workers, to medical supplies and equipment for public hospitals and health clinics, to weapons and munitions for public security personnel.  As public procurement regulations increasingly cover suppliers and their value chains, public procurement bans will impact every company involved in the chain of producing goods or provision of services – including sourcing raw materials, creating component parts, assembly of final products, and sales. 

4. Forced Labor Import Bans

   The same kind of sleeper risk arises in the context of forced labor import bans.  Under these laws, governments prohibit the importation of goods reasonably believed to have been produced with forced labor.  These include the Section 307 of the U.S. Tariff Act of 1930 and Canada’s Customs Tariff Act.  They also include a contemplated ban in the EU, which has called for evidence on its version, and proposals elsewhere.  The U.S. Uyghur Forced Labor Prevention Act (“UFLPA”), creating a rebuttable presumption that goods produced “wholly or in part” in the Xinjiang Uyghur Autonomous Region of China, or in connection with certain government employment programs in China, will start to be enforced in a few weeks.

   While many of these developments have been well-publicized, the full scope of their impacts may be less evident.  As with public procurement bans, forced labor import bans can have profound ripple down effects.  Most obviously, the impacts will be felt by every entity involved in the creation of imported goods where any aspect those goods comes from a region where forced labor risks are high, as their goods may not be sold in certain markets and they will face the due diligence of downstream actors.  They also will be felt by every entity purchasing or importing goods created “wholly or in part” from such regions, who will be conducting that diligence.  However, as the U.S. Department of Homeland Security also has noted, the enforcement of these growing laws also will have profound additional implications.  Regarding the UFLPA specifically, Homeland Security has warned, “Supply chain disruptions will not be limited to imports from the XUAR.”  Although CBP is seeking to add 300 new positions, the implementation of petitions under the UFLPA’s presumption is anticipated to reach over 20,000 annually – up from around 300 – which “likely will exacerbate current supply chain disruptions” since [a]ll imports … will be subject to delays in processing time” as a closer scrutiny and detentions and seizures will “affect ports across the country.”  To support this increased enforcement posture, CBP in its FY2023 budget asked for $70.3 million, a request that supports hiring 300 additional positions including 50 Customs and Border Protection officers. In other words, while it may be understood that forced labor import bans will impact companies involved in the production, shipment and importation of goods created in whole or part in perceived higher risk jurisdictions, the supply chain impacts will have ramifications for a much broader set of companies and economies.    

5. Free Trade Agreements

   Free trade agreements and trade preference programs integrating human rights concerns are prevalent and potentially impactful, yet not the focus of substantial attention.  For decades, the EU, U.S. and other countries began to incorporate loose and non-binding human rights language into preferential trade agreements.  Free trade agreements offer lower import duties, making it easier and cheaper to export products or services.  In 1993, the North American Free Trade Agreement included labor rights in a side agreement; its successor, the United States-Mexico-Canada Agreement, specifically includes forced labor import bans, which both the U.S. and Canada actively enforce.  Today, one scholar estimates that over 75% of governments participate in preferential trade agreements that contain human rights provisions, including the world’s most substantial trading nations and blocs.  Human rights provisions may be included in various ways, including through references to international standards or conventions, domestic human rights laws, specific areas such as labor rights, or more generally.  But human rights provisions have become both more frequent and more frequently binding, not just mere rhetoric.  And at least the U.S., EU and UK them seriously.  In 2022, the U.S. terminated trade preferences for Ethiopia, in 2020 the EU Commission partially terminated preferences for products from Cambodia, in 2019 the U.S. terminated Cameroon’s preferential trade status, and in 2018 the U.S. terminated trade preferences for Mauritania - all citing human rights abuses.  In fact, earlier this year the US Trade Representative announced the development of a focused trade strategy to combat forced labor, which includes a review of trade policies and tools to combat forced labor.  Late last year, the G7 likewise issued a joint statement as part of the Trade Track on Forced Labor, recognizing the important role of trade agreements in preventing forced labor in global supply chains and governments in in taking concrete steps.

   As these agreements are designed to incentivize governmental behavior in their own activities and local regulation, they can have substantial direct and indirect impacts on companies.  Some free trade agreements include binding legal requirements, with which companies must comply.  Government regulation can lead to closer domestic scrutiny of a vast array of local market activities that have human rights implications, from wages and worker rights, to access to land, to health and safety protocols, to environmental, biodiversity and climate impacts, to public health.  Many also include dispute resolution clauses that protect foreign investors, and human rights issues increasingly are being injected into claims of expropriation and breaches of fair and equitable treatment provisions.  As including human rights in free trade agreements is becoming a common policy priority for major global trading nations and blocs, the impacts on companies may be substantial.