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Poverty, Working Conditions and Wages: Legal and Reputational Risks in a Globalised World

October 29, 2019

[Deeksha Malik is the Founder-Editor at IRCCL.]

 

On January 16, 2018, China Labour Watch released a report titled Apple’s Failed CSR Audit: A Report on Catcher Technology Polluting the Environment and Harming the Health of Workers pursuant to its investigation conducted at the premises of Catcher Technology (Suqian) Co. Ltd., which specialises in light metal technology and manufactures products for leading multi-national companies such as Apple and Dell. The report made serious revelations in relation to the working conditions at the company’s site. The workers were not aware of the toxic substances they would come in contact with, nor were they provided with adequate safety training and protective devices. Excessive pollution at the site caused severe health issues, and in the absence of insurance, workers were forced to pay out of their pocket for medical examination. Wages, including overtime pay, were often not paid as per the applicable labour law. The report created a ripple effect, causing several other publications to investigate and report on the gross violations allegedly committed by the company and the failure of Apple Inc. to take stock of the situation. This was, however, not the first time that Apple came under scanner for the health and safety violations committed at various sites in its supply chain. Such repeated claims have not only dragged the mega corporation to courts by way of class action suits by employees, but have also caused some reputational damage in recent past.

 

Poor labour practices have the potential to make corporations prone to significant legal and reputational risks. As workers are increasingly becoming aware of their entitlements, such corporations may find it hard to ignore instances of mismanagement and violations.

 

The responsible employer and the risks of non-compliance

 

Labour laws around the world create a protective framework for employees, covering a range of issues from fair compensation and safe workplace to prohibition of discrimination and social security post retirement. Such laws impose several responsibilities on the employer, failure of which entails both civil and criminal consequences. In India, for example, there are close to hundred labour laws at the central and the state levels which deal with issues such as health, safety, working hours, leaves, minimum wages, payment of wages, overtime, settlement of industrial disputes, collective bargaining through trade unions, equal remuneration, insurance, pension, gratuity etc. The applicable laws generally impose penalty in the form of punishment and / or fine on the company and every person who, at the time the violation occurred, was in charge of the business of the company. Therefore, labour laws envisage the concept of responsible employer, who is enjoined to maintain certain standards at the workplace for the welfare of the workers.

 

Aside from the legal risks of non-compliance with the labour laws in a certain jurisdiction, it is now becoming increasingly evident that the performance of a company on this front is an important dimension of its reputation. Poor practices in this regard may cause disruption of work on account of strikes, lock-outs or other kinds of work stoppages by employees, especially those affiliated to trade unions. This may not only result in financial losses but also tarnish its reputation, at least at the local level. It is also significant to note that most of these breaches (for instance, inhumane working conditions) are intricately connected with human rights violations, thus increasing the likelihood of the defaulting company facing challenge from local activists and making itself vulnerable to reputational harm. The example of Nike is noteworthy in this regard. When the news of the Nike workers working under extreme pressure and for excessively long hours broke out, its stores were boycotted, and anti-Nike slogans marred the company’s reputation to the extent that its share price fell by 15% in a year. Needless to say, when a company is accused of violations concerning the lives and livelihood of workers, the stakes are high; the company may have a lot to lose, more so when it is large sized and has a global presence.

 

Globalisation and the problematic supplier

 

While globalisation has opened a plethora of opportunities for companies, it has also made them vulnerable to increased risks in relation to performance on the environmental, social and governance front. It is not uncommon for multi-national corporations to outsource production to other companies which may have ‘cheap labour’ at their disposal that is subjected to abysmally low labour standards. What happened in the case of Apple is, unfortunately, not unusual. Companies falling in the extended supply chain often subject workers to painfully long hours of work. The wages paid to workers are so low that they are often compelled to work for longer hours to sustain their families. It is also reported that ‘labour brokers’ exploit migrant workers by charging excessive fees for recruitment, an amount which such workers, who are already in distress, are unable to pay. In such conditions, workers are forced to work in poor conditions to discharge the debt they fell into in order to get employment.   

 

The abusive poor practices adopted by suppliers have often caused reputational damage to multi-national corporations, which may or may not be aware of the violations. The tragic Rana Plaza incident that occurred in 2013 offers a good example. This is the story of an eight-storey building outside Dhaka which collapsed and resultantly killed more than 1,000 workers on account of the management forcing workers to report to work despite noticing deep cracks the day before. Soon, several fashion giants such as Primark which had been sourcing its products from the suppliers based in Rana Plaza came under scanner. Several protesters in Bangladesh demanded compensation from such corporations to make good the loss caused to the dependents of the deceased workers.[1] Primark had to pay millions of dollars in compensation to the victims of the disaster. Post the incident, the corporation reportedly built a team of experts to ensure sustainable and ethical practices to be adopted at the factories it sourced its garments from.

 

In view of the above, one may conclude that multi-national brands are vulnerable to a great degree of legal and reputational risks if anything goes wrong in the supply chain and may, therefore, have to take up the mantle of responsibility to ensure that the suppliers are bound by certain minimum standards of ethical practices at their respective workplaces. Such corporations can no longer claim ignorance about the glaring omissions and commissions on the part of their suppliers. The suppliers are, more often than not, the lesser known entities in the business chain, and in case of any untoward occurrence in their establishments, the public is likely to hold the concerned multi-national corporation accountable to the workers who contribute to the creation of the end product. It may not be incorrect to say that one of the most significant threats faced by global companies is the lack of information about and regulation of the labour practices resorted to by their suppliers, which may invite serious ramifications such as damage to goodwill, severe consumer criticism and withdrawal of investment by cautious investors.

 

In this regard, one cannot lose sight of the ever-increasing impact of social media that has the power to mobilise consumers, employees and other relevant stakeholders to demand a better work culture from the concerned corporation. In 2014, a group known as Amazon Anonymous started an online campaign to demand ‘living wages’ from Amazon. The group highlighted a number of poor labour practices on the part of the corporation, including excessive work hours and compulsory overtime. The petition, which is now closed, had 1,96,735 supporters.

 

A good risk management system should be able to foresee the potential risks for the purpose of mitigating the exposure of the firm to such risks. In the age of social media, multi-national corporations must have a well-developed strategy in place taking into account the risk of non-compliance with applicable labour laws by themselves and those part of their supply chain.

 

Monitoring risks at the global level

 

As more companies are creating a global footprint, it is imperative that such companies have a well-thought-out mechanism to monitor the risks highlighted above. In this regard, one may refer to the Guiding Principles on Business and Human Rights issued by the United Nations. The said guidelines recognise the potential impact of violations committed by business partners on a corporation and accordingly advises corporations to undertake a due diligence process to identify risks and mitigate the same. A continuous system of tracking and reporting should be developed. This may involve corporations to undertake surveys, audits and reviews wherein workers are encouraged to share their grievances, if any. A good example of this is a process of technology-supported worker engagement, whereby workers can use mobile technology to directly engage with the management to voice their concerns in relation to wages and working conditions prevailing at the relevant premises. Companies such as Marks and Spencer have already integrated such technology into their operational framework. On receipt of complaints, companies may engage local legal experts who are specialised in terms of dealing with complex labour issues to undertake inspection at the premises and report the findings. Of course, the success of the inspection would depend largely on the cooperation extended by the concerned factory owner / manager. Companies may, to some extent, ensure cooperation by building trust with such factory owner / manager and involving them in the process. It may be highlighted to the factory team that the purpose of the inspection is not to cause any provocation at the site but rather to identify gaps in compliance and counsel the team to ensure compliance with the applicable labour laws.

 

It is also recommended that corporations formulate a policy statement on ethical business practices and ensure that the same is communicated internally and externally to employees, business partners and other relevant stakeholders. The aforesaid measures assume significance when there are allegations of complicity of the corporation with its business partner in relation to a human rights violation.

 

Conclusion

 

Companies can no longer ignore the possible impact of poor working conditions, modern slavery, forced labour, high-pressure working environment and inadequate wages. In addition to legal implications in the form of civil action and / or criminal complaint possibly leading to an order of compensation or imposition of fine / imprisonment, such ignorance may prove to be onerous to companies and create tension with local communities. Workers’ discontent could generate a movement against the management and drag those responsible to courts. This is particularly relevant in recent times when social media could be employed by the aggrieved workers to generate support and create pressure on big corporate houses.

 

As indicated earlier, with continuous growth in the size of corporation, its exposure to legal and reputational risks increases. This is so because more entities add up in the business chain. There have been a number of cases where corporations have faced difficulty in identifying risks of non-compliance with the relevant labour standards as regards distant entities in their supply chain. Indeed, traceability is a major risk in itself. While such difficulties cannot be averted, it is suggested that companies know reasonably well who they are contracting with. In addition to conducting regular audits, companies should develop a system of relationship-building with workers engaged by suppliers through which workers report violations on a real-time basis. Technology can play a significant role in this regard.

 

 

[1]Primark Targeted by Protestors after Bangladesh Building Collapse, The Huffington Post (April 27, 2013).

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