The new U.S. law will require mandatory labor audits

On February 3, Senators Josh Howley (R-MO) and Kirsten Gillibrand (D-NY) introduced the Slave-Free Business Certification Act of 2022. The law is intended to further reassure U.S. policymakers that companies are taking strong action to eliminate coercion. Labor where their supply chain directly involves the input of workers, but will significantly increase their proper labor burden. By law, covered business enterprises must conduct an independent audit of their “direct” supply chain to determine if they are involved in forced labor.

By requiring such an audit of any business as defined by the U.S. Securities and Exchange Commission, the law would add existing provisions recently codified in U.S. law that are exclusive to China’s Xinjiang region, which: (1) annual, global total receipts exceed $ 500 million; And (2) the manufacture, production, or production of goods for sale.

The law would require an audit to include interviews with different categories of workers, including men, women, migrants and local workers, workers in different shifts and workers performing different jobs. To assess a company’s compliance with local compulsory labor laws, these audits must include a review of company documents, such as employee contracts and employment contracts, and age verification procedures. Further, the bill protects employees from retaliating for interviews that may be critical of company policy and practice.

Following the audit, the covered companies must submit a publicly available annual report to the Secretary of Labor containing the following information:

  • A Disclosure of Business Entity Policies Covered to Prevent the Use of Forced Labor by Owners, Its Providers and On-Site Service Providers
  • An expression of the policies / procedures applicable to the entity’s verification of respect for labor rights in its supply chain and its assessment and resolution of any risks that may involve forced labor.
  • A manifestation of the steps taken by the entity to abolish forced labor in its supply chain.
  • A written certificate, signed by the CEO, confirms the entity’s compliance with these requirements.

Each year the Secretary of Labor will produce a report stating that companies have failed to conduct a supply chain audit and that companies have been found to have compulsory labor in their supply chain. The bill empowers the secretary to impose $ 100 million in civil damages and $ 500 million in punitive damages for companies that violate the law.

It is unclear whether the 2022 Slave-Free Business Certification Act will become law. Large corporations have refrained from commenting on the proposed legislation. But given the stringent financial penalties on the bill and the need for increased due diligence, there is likely to be considerable pushback from the industry if the measure goes further.

In addition to Howley and Gillibrand’s press releases, lawmakers in Washington have remained silent on the proposed legislation, and there are no additional co-sponsors of the measure. In the summer of 2020, Senator Howley introduced an almost identical proposal that never came to the Senate floor for a vote.

Last December, Congress passed the Landmark Uyghur Forced Labor Prevention Act, and federal agencies are already working on an enforcement plan that would include detailed instructions to importers on the proper work of the supply chain required to comply with the law. That law was passed with overwhelming bipartisan support. Although the passage of the law created a rare moment of political compromise, some analysts have speculated that a broad set of lawmakers would be reluctant to spend a comparative amount of political capital to see the slave-free business certification law in the last line.

Also, the Uyghur Forced Labor Prevention Act has created a lot of work for both regulators and companies, as they seek to create the appropriate labor structure for an exclusive supply chain for a region of a country in the coming months. That is why there are many aspects of the perseverance process that are currently undecided, it would not be at all surprising if companies have questions about the proper quality of work called for by the Slave-Free Business Certification Act.

Like the Uyghur Forced Labor Prevention Act, the Slave-Free Business Certification Act will probably provide detailed guidelines for designing forced labor audits. But the latter law differs in that it focuses directly on the supply chain segments, where the former can include many layers below it. The Slave-Free Business Certification Act requires rules to be made 180 days after the law goes into effect (which will probably include a wider public comment period). The rule-making process will ideally provide clarity about the differences between direct and indirect supply chain components.

The Slave-Free Business Certification Act follows growing efforts by federal and state legislators to establish a standard of perseverance due to mandatory human rights, as well as EU landmark law setting a strict environmental and human rights standard for companies operating there.

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