Corporate social responsibility is a big issue for businesses. Consumers are actively seeking out businesses that have integrity, decent values, and give back. It’s not enough to just ‘say it’, but businesses have to live by it too. This means upholding ethical values throughout the supply chain, not just at the point of sale. In the UK, businesses that don’t ensure their suppliers uphold ethical values are now at risk of fines and a potential 2-year prison sentence.
The Current Situation
At the moment, UK businesses are governed by UK law, and by EU law. Therefore, as things stand, a business can’t, straightforwardly, be held responsible (other than in terms of their reputation) for affairs outside of their own business dealings. This means, whilst a certain practice lower down the supply chain may make it unethical to utilise that supplier within the supply chain, it wasn’t, until recently, illegal. Companies couldn’t be held responsible for labour abuses for example, even if they have knowingly chosen to use these suppliers.
In November of last year however, labour market enforcement undertakings and orders came into force which brought with them a maximum 2-year prison sentence for either serious or repeat offences.
The proposal to hold UK businesses liable for fines if there is mistreatment or abuse of employees lower down the supply chain, comes on the back of these changes, from Sir David Metcalf, who was announced as the first ever Director of Labour Market Enforcement back in January. He has been charged with eliminating exploitation in the labour market. Whilst his remit largely covers issues such as minimum wage violations, and other UK-present exploitation, he’s determined to go further. He is, for example, also working with the Independent Anti-Slavery Commissioner, to deal with exploitation and slavery in the labour market on a wider basis.
On 25th July 2017, Metcalf released his introductory report, which warns that “rogue employers” will be at risk of jail or fines, forcing companies to take more responsibility for the action (or inaction) of their contractors and suppliers. He has explained this within the framework of how other countries, such as Australia and Belgium, use ‘joint liability’. In these instances, the ‘big name’ at the end of the supply chain (usually the retailer) is jointly liable for any non-compliance with labour laws further down the supply chain. In most instances this would be met with a fine, but could also include prison terms for the worst offenders.
What Joint Liability Looks Like in Practice
This seems scary. How can you have your finger on the pulse of every facet of a supplier or contractor’s business? In reality, it will be more straightforward for the ‘big names’ than this.
At the moment, the proposal is that an agency, such as HMRC, would be responsible for identifying and tracking abuses being carried out by suppliers and contractors. They would then submit this information to the retailers, or ‘big names’, who are then able to wield their power to entice the supplier or contractor to improve their labour practice. If they do, all is well. If they don’t, then the ‘big name’ will need to choose between getting rid of a supplier or contractor, or facing a fine along with the supplier/contractor themselves.
Metcalf doesn’t stop there. He’s also suggesting that companies holding public sector contracts could lose this revenue stream if their entire supply chain isn’t enforcing labour market rules.
In effect, these two methods are using the power that big names have, in order to effect change elsewhere in the labour market. After all, most labour abuses take place in an effort to reduce costs and improve profits, so if you threaten either of these avenues, then abuses are less attractive as a practice.
Why Are The Changes Needed?
The changes are needed because, unfortunately, minimum wage violations, and other labour abuses, pose a significant problem in the UK economy. It’s a human, and economic, problem. Some estimate that minimum wage violations, and the failure to make holiday pay entitlements, are responsible for £2.7billion in lost earnings in the UK per year.
The problems typically occur within certain industries. Those industries which are most renowned for these violations include care provision, cleaning, construction, and garment-making. As the National Living Wage increases, the violations become more apparent.
What Do Businesses Think?
Generally, businesses understand the importance and benefits of corporate social responsibility, and therefore are broadly in favour of the proposals. However, there are some reservations about how it will work in practice. For example, Seamus Nevin from the Institute of Directors, has stated: “As long as companies are being given information about where the problems with their contractors are, that would be something that most legitimate businesses would support… The only problem would be if businesses were having to find out what was going on in their supply chains [by themselves], because while that’s possible for larger companies it’s much harder for smaller businesses to do.”
What’s Next for Supply Chains and Labour Laws?
The report released on 25th July is merely the Introductory Report. It highlights the biggest problems, and demonstrates the main problems that will be tackled. However, it isn’t the end point, and it’s not overly prescriptive.
From here, Sir David Metcalf will be consulting with various different parties, including businesses both at the end of the supply chain and further down, as well as worker representatives, before he publishes the first full Labour Market Enforcement Strategy, which is expected later in 2017.
However, labour market abuses are clearly high on the agenda, not only for the report, but also for the government as a whole. It has pledged both in words, and in financial commitment, to tackle the labour exploitation seen within specific industries. The result will be that unscrupulous businesses, and those working knowingly with them, can expect to feel the full weight of the law.