February 22, 2022
Staying alert to ESG risks and opportunities in global supply chain: Dyson case study https://www.jdsupra.com/legalnews/staying-alert-to-esg-risks-and-7948744/
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Leigh Day & Co, a high-profile UK claimant law firm, publicised on its website last week that it had served a letter before action on Dyson in relation to forced labour practices at a former third party manufacturing facility in Malaysia. This is enforcement in action of the UK Modern Slavery Act as envisaged by the UK government. In the absence of regulatory powers in the 2015 legislation, the Statutory Guidance states that civil society will hold companies to account. In truth, the efforts of Leigh Day and its clients will never be able to perform the role of a regulator. However, businesses should not ignore the lessons that Dyson’s predicament teaches. Rather than viewing this development as some remote success of light-touch regulation, it should be understood in the context of evolving ESG legal risk, indicating we are a step closer to a fulsome supply chain due diligence regime that will be backed with criminal liability.
How have Dyson allegedly fallen below society’s expectations?
Leigh Day reports that the ATA Industrial factory in Malaysia exploited workers who had been transported from Nepal and Bangladesh, had their passports seized, were housed in appalling living conditions, forced to work up to 18-hour days and paid way below the living wage. These conditions, if proven, would constitute forced labour under the principles of International Labour Organisation established norms and the definition in the UK Modern Slavery Act. Importantly, states Leigh Day, at the time of the alleged activity, this factory was producing goods almost exclusively for Dyson. Dyson, given their public positioning on supply chain transparency and commitment to tackle modern slavery, had assumed a duty of care to these workers.
Is there a cause of action against Dyson in English courts?
For a claim to lie against Dyson, a UK-registered entity must have breached a duty of care to the claimants. Dyson did not own the factory. Presumably, the contractual nexus between ATA and Dyson was an arm’s length third party supply contract. So the principle that Leigh Day is asserting is that, through their actions, certain UK-based Dyson companies (Dyson James Group Limited, Dyson Technology Limited, Dyson Limited and Dyson International Limited) “assumed” a duty of care to these workers. This principle was acknowledged by the Supreme Court in the Vedanta case, in which Zambia-based claimants leveraged a settlement against the UK parent of a Zambian mining subsidiary that had caused severe environmental damage, see article here. In that case, as in this, the question is whether the company committed to a standard of care that it then fell well below.
The case then illustrates two core pillars of ESG legal risk. The first, and present risk for Dyson and all companies that are publicising their commitments to standards of environmental and social performance, is that civil society can use negligence to hold them to account, see previous article here. The second, that companies should be preparing for now, is that regulatory regimes will soon evolve to provide an even playing field and clear compliance structure to cover modern slavery in supply chains. The UK Modern Slavery Act is under review, new laws are evolving in the US, Canada, Germany, the Netherlands, Switzerland and more broadly at EU level.
What is the lesson of Dyson’s predicament?
Responsible business is just that; it is not a tick box exercise. To eradicate modern slavery from the supply chain, companies must assess risk. Based on this risk assessment, new suppliers can be effectively vetted and higher risk counterparties managed through enhanced contractual provisions. These provisions should be utilised, with audits followed up and spot checks undertaken. And, above all, where modern slavery is detected, parties should work together to address the issue, ensuring a socially balanced response to performance that falls below the acceptable standards of international norms. If a company says it is committed to transparency in the supply chain, to manage ESG legal risk, these actions should be taken today.