Employees are the backbone of any supply chain operator. As such, upholding fundamental labor standards and protecting worker rights is a complex undertaking. Further, COVID-19 has introduced additional complexities regarding employee safety and remote work. The following are some considerations to help employers navigate the global framework of ever-evolving laws that touch the supply chain.

Modern Slavery

One of the major priorities for an employer in the supply chain industry is to avoid and prevent forced labor. Globally, millions are thought to be in trapped in forced labor. Many of these victims are linked to the supply chains of the international businesses supplying our goods and services. According to the Walk Free Foundation’s Global Slavery Index, published with input from the United Nations’ International Labor Organization and the International Organization for Migration (IOM), as of 2016, about 40.3 million men, women and children were trapped in modern slavery, including 24.9 million people who were victims of forced labor in global supply chains. Slavery can exist in all stages of the supply chain, from the picking of raw materials such as cocoa or cotton, to manufacturing goods such as mobile phones or garments, and at later stages of shipping and delivery to consumers.

To combat this human rights issue, several governments, on the global and U.S. federal and state levels, have passed laws to prevent human trafficking and require companies to ensure that they are not using forced labor:

  • In the United States, the Trafficking Victims Protection Act makes human trafficking a federal crime, allows victims to sue traffickers; expands the Racketeering Influenced Corrupt Organization (RICO) Act’s list of crimes to include human trafficking, provides deportation protections for victims and their families, requires annual reports to Congress on efforts to prevent human trafficking, requires the government to notify all applicants for work and education visas about workers’ rights in the US and screen all unaccompanied immigrant children. Section 307 of the Tariff Act of 1930 prohibits the importation of goods mined, produced or manufactured, wholly or in part, in any foreign country by forced labor, including convict labor, forced child labor and indentured labor. Regulations promulgated by Customs and Border Protection (CBP) allow for issuing withhold release orders, requiring detention of goods at ports of entry when CBP agents reasonably believe that an importer is attempting to enter goods made with forced labor.
  • Further, California enacted the California Transparency in Supply Chains Act of 2010, under which companies with over $100 million in gross sales who do business in California must disclose on their websites any efforts taken to eradicate human trafficking from their supply chains.

  • Globally, the U.K. enacted the U.K. Modern Slavery Act in 2015, which is modeled on the
    California law. The Modern Slavery Act requires certain large companies doing business in the U.K. to release reports on the steps they have taken to consider the risks associated with suspected human trafficking or forced labor in their businesses and throughout their supply chains.
  • Australia passed a similar Modern Slavery Act, which requires entities that are Australian entities or carry on business in Australia with a minimum annual consolidated revenue of $100 million, to publish an annual statement about the slavery risks in their operations and what they are doing to assess and reduce those risks. This statement also needs to include a similar assessment of their supply chain.
  • France also enacted what has been called the “Vigilance Law” in 2017, which requires large French companies to establish an annual “vigilance plan,” including measures intended to prevent violations of human rights in their own activities and in those of their subsidiaries and throughout their supply chains. Under the Vigilance Law, companies that fail to publish or fail to follow their plans may have to compensate those who have suffered because of a company’s noncompliance.
  • More recently, on May 14, 2019, the Dutch Senate enacted a Child Labor Due Diligence Law, that imposes obligations on companies selling goods or services to Dutch consumers and companies otherwise doing business in the Netherlands to take certain steps to prevent child labor in their supply chains. The Dutch law requires companies doing business in the Netherlands or those who provide goods or services to Dutch consumers—including only through online means, if there is explicit targeting of the Dutch market—to assess their supply chains to identify any child labor risks and then develop diligence and action plans to address and mitigate any such risks they find. Companies subject to the Dutch law must submit declarations regarding their plans and efforts, which will be publicly posted. Noncompliant companies are subject to administrative fines if a complaint is lodged against them for failure to report or adhere to their own plans.

Workplace Safety

Top of mind for employers is keeping employees safe in the wake of COVID-19. To further that goal, on June 10, 2020, OSHA released new guidance, in the form of frequently asked questions and answers, regarding the use of masks in the workplace. The new guidance outlines the differences between cloth face coverings, surgical masks and respirators. It further reminds employers not to use surgical masks or cloth face coverings when respirators are needed. In addition, the guidance notes the need for social distancing measures, even when workers are wearing cloth face coverings, and recommends following the Centers for Disease Control and Prevention’s guidance on washing face coverings. OSHA has since provided updated guidance covering topics such as best practices to prevent the spread of COVID-19 infection in the workplace, workplace testing, and worker training. The new guidance is not a standard or regulation, and it creates no new legal obligations. It contains recommendations and descriptions of mandatory safety and health standards. OSHA states that the “recommendations are advisory in nature, informational in content, and are intended to assist employers in providing a safe and healthful workplace.”

To keep employees safe during the pandemic, there has been an increase in employers asking their employees to work from home on a more permanent basis. One major consideration when requiring employees to work from home is the reimbursement of expenses associated with working from home. In the U.S., there is no federal requirement to reimburse employees for business-related expenses. However, several states (including California, the District of Columbia, Illinois, Iowa, Massachusetts, Montana and New York) have legislation requiring reimbursement for necessary businesses expenses. Typically, employers either reimburse employees for actual costs incurred for business purposes, which requires employees to submit expense reports itemizing homeworking costs incurred for work purposes along with evidence of the costs (this is a time intensive process for employees) or provide a flat amount of reimbursement, in which case employees should be allowed to seek reimbursement for any additional costs incurred over the percentage or flat amount if the actual costs of business use exceed those amounts.

The rules regarding transitioning employees to remote work outside of the U.S. differ by jurisdiction. The general rule outside of the US is that if an employer directs employees to work remotely, or if the government has mandated remote working, employees cannot be required to pay “out of pocket” expenses for such home working arrangements. Most jurisdictions do not have specific statutory requirements for additional payments or stipends to employees who work from home. Instead, employers are usually required to reimburse employees for “business expenses” incurred while working from home. These expenses include, for instance, home office equipment, cell phone fees, and internet costs.

Employee Misclassification

Employee misclassification remains a hot topic around the world, particularly as employment structures adapt to the “gig economy.”

In the U.S., California led the way by passing AB5, which became effective on January 1, 2020 and codified the California Supreme Court’s April 2018 ruling in Dynamex Operations West Inc. v. The Superior Court of Los Angeles County. The Dynamex ruling was an unprecedented shift that replaced the nearly 30-year flexible multi-factor Borello test with the rigid ABC Test to determine whether an employer properly classified a worker as an independent contractor for purposes of California’s wage orders. Under the ABC test, a worker is presumed to be an employee, and not an independent contractor. To rebut the presumption, the company must show that the worker is:

  1. Free from the company’s direction and control; and
  2. Performs work that is outside the company’s usual course of business; and
  3. Is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the company

Misclassified workers will be eligible for minimum wage, overtime, meal and rest breaks, reimbursement of business expenses, workers’ compensation coverage, unemployment insurance, paid sick leave and state family leave. As an example, on August 5, 2020, the California Labor Commissioner sued Uber and Lyft alleging wage theft. The suit argues that both companies are misclassifying their drivers as independent contractors and aims to enforce the labor practices set forth by AB5.

Other U.S. states including Illinois, New Jersey, New York, Oregon, and Washington have passed or are considering legislation similar to AB5.

Outside the U.S., employers should note these updates:

  • Taiwan: The Labor Standards Act has been amended to regulate “labor dispatch” arrangements (i.e., third party agency engagements), as follows: (1) dispatched contingent workers cannot be engaged on fixed-term contracts to make them easier to terminate, (2) the end user of such contingent workers can be jointly liable for the agency’s failure to pay wages and occupational injuries, and (3) the end user cannot interview or hand select dispatched contingent workers.
  • UK – Changes to Taxation of Personal Services Companies (“PSCs”): Currently, an independent contractor’s PSC is responsible for tax / social security obligations if the independent contractor would be an employee if directly engaged by the client company. As of April 6, 2020, the client company is liable for such obligations.
  • Mexico: The Mexican legislature is considering a draft bill that would limit subcontracting to services that are not related to the company’s primary business activity and establish certain “sham” subcontracting arrangements subject to potential criminal liability (e.g., primary business activities). Depending on how the bill develops, companies with a dual corporate structure and/or third party agency workers may need to make significant changes.

Contact your Baker McKenzie employment attorney for assistance with this and other employment questions.