The U.S. Supreme Court, in a June 17, 2021 decision, ruled 8 to 1 in favor of U.S.-based Nestlé USA, Inc. and Cargill, Inc. in a lawsuit brought by individuals from Mali who allege they were trafficked to the Ivory Coast as child slaves to harvest cocoa on farms that supplied to the chocolate producers. Nestlé and Cargill do not own or operate cocoa farms in the Ivory Coast but they purchase cocoa from farms located there and provide technical and financial resources to those farms. The alleged former child slaves claimed that these actions amounted to aiding and abetting child slavery from the United States.
This lawsuit, which has dragged on for many years, was brought under the Alien Tort Statute (“ATS”), a law that provides federal courts jurisdiction to hear claims brought “by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States.” The Supreme Court had previously held in a 2013 case that the ATS does not apply extraterritorially. The Ninth Circuit, in the decision just reversed by the Supreme Court, determined that the alleged former child slaves had pleaded a domestic application of the ATS because the financing decisions by Nestlé and Cargill originated in the United States. In reversing the Ninth Circuit, the Supreme Court stated “allegations of general corporate activity – like decisionmaking – cannot alone establish domestic application of the ATS.”
In addition, the Supreme Court held that it cannot create a cause of action that would allow the alleged former child slaves to sue Nestlé and Cargill because, under the principle of separation of powers, that responsibility belongs to Congress not the Federal Judiciary. One of the reasons the Court gave in reaching this conclusion is that judicial creation of a cause of action under the ATS inherently raises foreign policy concerns. The plaintiffs in this case alleged that the participation of Nestlé and Cargill in intergovernmental efforts among the U.S. Department of Labor, the Government of Ivory Coast, and Nestlé and Cargill made Nestlé and Cargill liable for violations of international law. Under this intergovernmental program, material resources and training were provided to cocoa farmers in Ivory Coast. The Court noted that “[c]ompanies or individuals may be less likely to engage in intergovernmental efforts if they fear those activities will subject them to private suits.”
The fact that the Supreme Court ruled for Nestlé and Cargill in this case should not cause companies with U.S. operations to let their guard down when it comes to efforts to rid their supply chains of forced labor, including child labor. Several U.S. statutes and regulations already impose supply chain due diligence obligations including:
- U.S. Customs laws and regulations prohibiting the importation into the U.S. of merchandise mined, produced or manufactured wholly or in part by forced labor. Business competitors, non-profits and others are invited by U.S. Customs and Border Protection (“CBP”) to file eAllegations on the CBP website. Merchandise thought to be made with forced labor can be subject to Withhold Release Orders (“WROs”) by CBP and other penalties are also available.
- U.S. sanctions laws and regulations of the Office of Foreign Assets Control (“OFAC”) prohibit purchases from, sales to, and other dealings with entities that have been sanctioned for their involvement in forced labor and other human rights abuses. The North Korean regime’s practice of exporting its own people to work as forced laborers in benefit of the regime and its weapons development program poses a supply chain risk for U.S. companies when sourcing from China, Russia and other countries to which North Korea is known to export its people. Importations of goods made by North Koreans working under forced labor conditions anywhere in the world can lead to violations of and penalties under U.S. sanctions laws.
- U.S. export control laws prohibit sales to and certain other types of dealings with entities listed on the Entity List for their involvement in human rights violations. Such sanctioned entities include companies located in China and elsewhere listed for their involvement in or support of the repression of the Uyghur minority population by the Chinese government, including subjecting the Uyghurs to forced labor.
- The Trafficking Victims Protection Act of 2003 (“TVPRA”), which imposes liability for offenses related to human trafficking, has also been amended and expanded numerous times to allow for additional causes of action, and corporations need to be prepared for additional U.S. statutory requirements and prohibitions in the future.
The June 17th decision provides some assurances for U.S. corporations that general corporate activity in the U.S., such as approval of participation in intergovernmental programs and support payments under those programs, will likely be insufficient to subject them to liability under the ATS for human rights violations committed in their overseas supply chains. This case merely forecloses use of the ATS to hold U.S. corporations accountable for forced labor in their supply chains under certain circumstances. There are several other U.S. statutes and regulations, however, that impose supply chain due diligence requirements on U.S. corporations and foreign corporations with a U.S. presence, and new laws are being passed in the U.S. and in other countries at a fairly rapid pace. Companies with multinational operations and companies that source products internationally should therefore prioritize updating their international compliance programs to include compliance with applicable modern slavery, forced labor, child labor, and human trafficking laws.