6 Questions With ... Tom Plotkin

Environmental, social and governance (ESG) has gained prominence in supply chains in recent years, as companies seek to comply with regulations and address workforce concerns.

Tom Plotkin is a special counsel at Covington, advising global companies on supply chain due diligence related to, among other things, ESG, forced labor, and responsible sourcing. He is a leading expert on UFLPA.

Plotkin joins us this month for our 6 Questions With … feature.

(Answers have been edited for clarity and length).

SCMR. We have heard a lot about ethical and responsible sourcing. But, given the vast networks that make up supply chains, what do you see as the biggest obstacles to achieving this, and how should those obstacles be addressed?

PLOTKIN: I think the question hints at the answer: the biggest obstacle is scaling responsible sourcing efforts to meet the size of the issue. Not only are supply chain networks vast, but so too are the considerations relevant to the concept of “ethical” or “responsible” sourcing. When we think of responsible sourcing, we tend to think of the most critical human rights issues like forced and child labor, but there are myriad other considerations, like broader labor rights, safe and fair working conditions, and impacts on communities. There are also environmental considerations, ethical and governance considerations, and questions about the social impacts more generally. Taking all of these concepts into account and considering how varied and complex they can be when layered onto large global supply chains, scaling becomes the biggest challenge.

Addressing this challenge will be different for each company, with the answer turning on the company's structure, supply chains, and approach to compliance. As we move from voluntary commitments to mandatory legal obligations, I do think that we will see more robust development of technologies, services, and frameworks that companies can draw on to supplement their existing responsible sourcing programs. But if progress comes through shared approaches and services, it will also come from experimentation and systems developed to meet the needs of each unique institution.

SCMR: What is the legal exposure for American companies that utilize forced labor, either knowingly or unknowingly, in their supply chains?

PLOTKIN: Companies with forced labor in their supply chains can face a range of possible legal consequences. Most prominent at the moment are U.S. customs laws that prohibit the importation of goods made with forced labor at any level in the production process. U.S. Customs and Border Protection (CBP) can stop goods at the border if it believes that the goods were made using forced labor, and the burden shifts to the importer to demonstrate admissibility. This process can be complex and costly with no guarantee of success. Forced labor import prohibitions also allow for civil penalties, but the operational disruption associated with forced labor-related detentions has been the most significant risk for the business community.

There is also the possibility of criminal enforcement under the Trafficking Victims Protection Reauthorization Act (TVPRA), which creates criminal liability for companies that financially benefit from participation in a venture that knowingly or recklessly uses forced labor. There have been no public criminal TVPRA cases related to forced labor in a company's supply chain, but various government publications on forced labor enforcement suggest that it may be an option in the future.

Companies can also face civil litigation under both the TVPRA and other legal regimes. Civil litigants have brought a variety of claims against companies over the years alleging harm related to forced labor in a company's supply chains. While many of those claims have not been successful, they can still be disruptive for the companies challenged and create negative reputational impacts.

U.S. companies may also face disclosure obligations under mandatory modern slavery and human rights reporting laws in both the U.S. and abroad. Additionally, U.S. government contractors have certain anti-trafficking obligations, and their business relationship with the government can be impacted if there is forced labor in their supply chains.

SCMR: There are many regulations regarding forced labor, from local to national and global rules. For global companies, these create a maze of laws to follow. What advice would you give a company on its due diligence to ensure compliance with this patchwork of rules?

PLOTKIN: It's accurate to describe the ecosystem of global forced labor laws as a maze, particularly if you are looking at the unique requirements of each law. If you zoom out, however, there are some international principles that cut across legal regimes and can help create a framework for a global compliance strategy, namely: (1) the United Nations Guiding Principles on Business and Human Rights (UNGPs); and (2) the Organisation for Economic Co-operation and Development's Guidelines for Multinational Enterprises, including its related Due Diligence Guidance for Responsible Business Conduct (collectively the OECD Guidelines). The UNGPs and the OECD Guidelines both outline the core features of a comprehensive forced labor due diligence program, and most supply chain forced labor laws, regulations, and compliance guidelines refer to these international principles in one way or another.

To be clear, these international principles are not simply a plug-and-play set of guidelines. They describe effective human rights due diligence on a conceptual level, and it is then up to the company to develop its own approach to executing on those concepts. When I work with clients to build forced labor due diligence programs, we use these international principles as a starting point to define the pillars and sequence of what due diligence will look like. From there, we work together to understand how the various legal regimes approach these concepts, and we build on them accordingly, taking into account the company's own approach to compliance in other areas of law. This exercise will look different for every company, but the overall approach can be an effective way to navigate various legal requirements while hewing to internationally recognized best practices.

SCMR: Given the current environment on forced labor, what types of considerations should companies have when it comes to writing contracts for suppliers?

PLOTKIN: The particular requirements of any one supplier contract can vary, but when considering forced labor risks, I often work with clients to develop provisions on compliance, audits, corrective action, and termination.

In terms of compliance, it is helpful to have at least foundational agreement that the supplier will comply with all applicable laws and regulations in the performance of the contract. If it is possible to be more specific, however, that can add important insulation to the relationship. For example, it is better if the supplier agrees to comply specifically with forced labor laws, broader laws on labor and working conditions, and other legal regimes that have become relevant to forced labor regulation, such as international trade laws and disclosure obligations. Many companies are also incorporating contractual provisions into supplier contracts that go beyond legal compliance, such as explicit agreements to abide by a company's code of conduct, or agreement to conduct business in line with international principles like the UNGPs and the OECD Guidelines.

With respect to audits, it is helpful to have agreement from the supplier that it will comply with various requests to monitor for compliance with forced labor-related commitments. Potential forms of audit can range from information and document requests to announced and unannounced onsite inspections. Increasingly, companies are also reserving the right to request supply chain documentation in the event of a detention at the U.S. border. Related to audits, it is also helpful to reserve the right to require corrective action and remediation in the event of non-compliance.

Termination rights are important too, although I would flag that this is a complex area of law, and one where we see some important divergence between the international principles and various forced labor laws. Generally speaking, the international principles describe termination as a last resort—something a company should only deploy if the supplier is unwilling or unable to correct non-compliance. Legal regimes may be less flexible, however, so this is one area where it is important to work with counsel to find the right approach.

SCMR: What other strategies are companies using to manage forced labor risks in supply chains?

PLOTKIN: We are in an interesting moment where companies are investing more than ever in efforts to manage supply chain forced labor risks. I don't know that any two companies are doing precisely the same thing, but there are definitely commonalities among approaches. Generally speaking, efforts tend to focus on papering the process, developing effective risk identification strategies, and responding to issues when they are identified.

When I say “papering the process,” I mean defining commitments, procedures, and roles. Forced labor commitments are often spelled out in one or more policy statements and incorporated into things like company principles, codes of conduct, and supplier expectations. Procedures are also important as they set forth a consistent process for how the company will approach forced labor risk. Similarly, defining the roles in that process and taking steps to ensure responsible employees are fully trained is another method of reinforcing commitments.

Risk identification generally involves putting procedures in place to vet new suppliers and monitor existing suppliers for forced labor risk. This can come through questionnaires and records review, in-person audits, or other third-party screening tools. There are many new tools on the market at the moment, including supply chain mapping technologies, auditing services, and other entity-based research and assessment vendors. This is one area where I expect we will continue to see significant development.

Finally, there is a growing focus on corrective action and remediation in the supply chain forced labor context. Companies are looking for ways to correct problematic practices rather than simply leaving a supplier. There is also a push for companies to remediate harms, for example by repaying recruitment fees unfairly born by workers. I predict a continued focus on corrective action and remediation as core components of corporate forced labor risk management strategies moving forward.

SCMR: What do you see as the greatest legal exposure for companies related to supply chain forced labor risks today in 2024?

PLOTKIN: Currently, I would say that forced labor import restrictions present the highest level of risk from a legal exposure perspective. These laws have undeniably been the most significant driver of compliance activity in the human rights space. Legal enforcement continues to evolve, however, and it may be that TVPRA, civil litigation, or regulatory enforcement in the EU become the predominant form of legal exposure in the coming months and years.

At a more general level, I think that the current state of information on supply chain forced labor risks creates potentially significant legal exposure for companies. Simply put, there is a lot of information coming out about forced labor in supply chains. Information can come from any number of sources, including academic studies, NGO reports, media investigations, government publications, and emerging supply chain sustainability technologies. It can be difficult for companies to keep pace with this emerging information, assess its accuracy, and understand whether and to what extent it impacts the company's own supply chains. Critically, we know that regulators are using this information to make decisions about enforcement, but we don't understand exactly how that process works. Taken cumulatively, this puts companies in a difficult position and requires real investment in due diligence and risk management efforts. Despite those difficulties, however, thoughtful and robust compliance programs continue to be the best way for companies to get a handle on risk and combat forced labor in their supply chains.

SCMR: Thank you for your time.

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