In a sign that Congress continues to pursue bipartisan efforts to combat the use of forced labor in supply chains, Senators Josh Hawley (R-MO) and Kirsten Gillibrand (D-NY) have reintroduced the Slave-Free Business Certification Act of 2022 (“the Act”). The Act is substantively similar to a July 2020 bill, which we have previously discussed on our blog. The Act would impose significant new compliance and disclosure requirements for many companies, requiring businesses with annual, worldwide gross receipts exceeding $500 million to conduct annual audits of their supply chains to detect any use of forced labor, report findings to the U.S. Government, and face potentially significant fines and penalties for violations.
Curtailing the use of forced labor continues to be an ongoing priority for Congress, regardless of party affiliation. This legislation comes shortly after the bipartisan passage of the Uyghur Forced Labor Prevention Act (P.L. 117-78), signed by President Biden in December 2021. Corporations are advised to take note and begin to implement appropriate, risk-based responsible sourcing programs and due diligence processes in their supply chains.
The Act would require any covered business entity – defined as any company that has annual, worldwide receipts in excess of $500 million and is involved in the mining, production, or manufacture of goods for sale – to conduct an audit of their supply chains.
Annual Audit Requirement: The Act would require each covered entity to conduct an annual audit of its supply chains to investigate the presence or use of forced labor by the entity as well as its suppliers, including its direct suppliers, secondary suppliers, and on-site service providers. The Act would require these audits to include interviews with a diverse cross-section of the workforce and the review of relevant documents including, but not limited to, pay stubs, age verification procedures, recruitment procedures, worker contracts, any labor broker contracts, and time records.
Reporting Requirements: At the conclusion of each annual audit, companies would be required to submit a report to the U.S. Department of Labor (“DOL”), disclosing the audit findings and policies to prevent the use of forced labor. The annual report must include, at a minimum:
- A disclosure of the company’s policies to prevent the use of forced labor in its supply chain.
- A disclosure of the policies and procedures the company uses in order to: (i) evaluate the risk of forced labor in its supply chain; (ii) ensure that the products being produced in its supply chain have been properly certified as compliant by suppliers and third-party business partners; (iii) maintain internal accountability standards for those employees or contractors failing to meet the requirements; and (iv) provide training to all employees to recognize and prevent forced labor.
- A description of the findings of each audit, including the details of any instances of forced labor.
- A written verification, signed by the company’s CEO, that the company has complied with the Act, exercised due diligence, and that to the best of the CEO’s knowledge, the company has found no instances of forced labor or has disclosed every known instance of forced labor.
Report of Violations to Congress: The Secretary of Labor must prepare and submit an annual report to Congress notifying Congress of which companies failed to conduct audits per the Act as well as the companies that found the use of forced labor in their supply chain.
Enforcement:For violations of the Act, companies could face civil damages of up to $100 million and an additional $500 million in punitive damages.
The bill has been referred to the Senate Committee on Health, Education, Labor, and Pensions. As of this date, neither a committee hearing, nor a markup of the bill, has been scheduled.
Key Takeaways While passage of the current bill is uncertain at this time, it is part of a growing list of legislative and regulatory proposals both in the EU and the US directed at supply chains that companies should continue to monitor. Combatting forced labor remains a top priority for lawmakers and executive branch policymakers, and one of the few bipartisan goals in the U.S. Congress. Companies should be developing or assessing existing responsible sourcing compliance programs, and assessing operations and supply chains for risk of forced labor, to ensure they are in a position to comply with upcoming EU and US legal obligations and avoid both penalties for noncompliance as well as potential legal action by shareholders or other stakeholders for failure to implement mandated procedures.