Costco Wholesale Corp is being sued in California over allegations that Costco knowingly sold prawns from a supplier using slave labour.
The remedy sought is an injunction preventing Costco from selling products which have come to market via slave labour as well as requiring Costco to disclose which products in its supply chain have been contaminated by slave labour.
The class action has been brought under the Californian Transparency in Supply Chains Act. It is believed to be the first of its kind filed in California (Sud v Costco Wholesale Corp; 15-cv-03783, US District Court, Northern District of California (San Francisco)). The complaint is that Costco bought prawns from Thailand which is reputed to be notorious for using unpaid, forced labour on its fishing boats. The prawns were then sold to Californian consumers at a profit.
The Californian legislation is aimed at retailers and manufacturers with a worldwide turnover of $100m or more which have their headquarters in California or which carry on business in the state. If caught, companies are required to make a statement on their website stating the steps it is taking to ensure their supply chain is free of slavery and human trafficking.
What does it mean for UK Businesses?
The UK Modern Slavery Act 2015 (MSA) introduces a new area of compliance for commercial organisations. Under Section 54 of the Act organisations, supplying goods or services, with a turnover of £36 million or above will have to publish an annual statement setting out what they are doing to ensure that there is no modern slavery in any of their supply chains or their own organisation.
This is known as the 'transparency in the supply chain' provision and will come into force in autumn 2015.
The turnover calculation includes those organisations that are only carrying out part of their business in the UK, as well as including the turnover of foreign subsidiaries, so supply chains can be complex. It is not necessary for all £36m to be generated within the UK.
The remedies under Californian legislation are the similar to those in the UK Act i.e. an injunction rather than a criminal penalty, but the pressure and consequential damage to brand is the same.
Despite only civil remedies being available, the Costco case is proceeding by way of a class action. Class actions are becoming increasingly widespread in the UK. Earlier this year Schedule 8 of the Consumer Rights Act 2015 entitled "Private Actions in Competition Law" introduced the ability of bringing collective (or class) actions in the UK. This is the first time class actions have been permitted in the UK.
Class actions could be a sign of things to come for Modern Slavery. If class actions under the Californian legislation become the usual way to proceed, it may be that the UK government follows suit and amends the MSA to allow collective actions for supply chain injunctions in this jurisdiction. In the US, class actions of consumers against companies are notorious for attracting media attention. The resulting damage to brand is unquantifiable.
Share price drop
Part of the reason for the enactment of the supply provisions of the MSA in the UK is to increase corporate transparency for consumers and investors alike. When the Costco case was filed in California, it was reported that the Costco share price fell by 0.3 percent after a falling 1.4 percent on Nasdaq. Those who fall foul of the UK MSA should beware, a similar fate could be waiting if you don't comply with the provisions.
The UK has followed California's lead by implementing a Modern Slavery Act. The UK Act, however, goes further because it is not limited to retail and manufacturers but includes all organisations who do business in the UK who are caught by the threshold.
The Californian legislation is still developing since its implementation in January 2012. It is likely that the UK MSA will develop in the same way with resulting class actions and stock market interest.
We have previously published a briefing on steps for businesses to take with a downloadable checklist containing an action plan. If you are in any doubt about what to do or would like to attend a training course, please contact Ron Reid on 03700 868471 or Jocelyn Kirkwood on 03700 868347.
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.