More respected NZ retail brands brush up against migrant worker exploitation

By Sarah Baddeley, MartinJenkins

A growing number of major retail brands in Aotearoa have been rubbing up against the wrong side of our labour market regulator, the Labour Inspectorate, because of connections with worker exploitation in their supply chain, particularly of migrant workers.

Last year the popular Te Mata Estate was caught in the cross-fire of a labour supply company’s exploitation of 12 Papua New Guinea citizens working in Te Mata vineyards in Hawke’s Bay. From the same region there’s now another case before the courts involving charges of slavery relating to treatment of workers in the horticultural sector. In cases like this, the produce is ultimately sold in retail stores, further illustrating that retailers need to think about addressing risk on the ‘people’ side of sustainability issues.

But a quick scroll through the cases brought to the courts by our Labour Inspectorate shows that no sector or geographical area is immune from the risk of this kind of exploitation, reflecting the dependence of New Zealand businesses on valuable migrant workers. From horticulture to hospitality, recently there have also been multiple cases of retail franchise owners flouting rules for the treatment of workers – so much so that DB Breweries has announced they support establishing worker exploitation as a ground for terminating both franchise agreements and local authority liquor licences. This follows on from the challenges within the Super Liquor Holdings franchise community involving exploitation of retail workers by franchise holders.

Global brands like Starbucks and Nestlé’s Nespresso are currently facing organised consumer activism and very unwelcome headlines about the treatment of workers in their supply chains. Across the Tasman, the franchised convenience store 7-Eleven has since 2015 been facing a sustained branding and financial disaster following revelations of terrible treatment of workers at its stores – some getting as little as 47 cents an hour. In response, a Government Taskforce was set up in late 2016, along with calls for criminal penalties for labour standard breaches. The passing of Australia’s Modern Slavery Act 2018 is also seeing a surge of awareness and advocacy across the ditch.

New Zealand regulator takes forthright approach to supply chain exploitation

Major New Zealand companies have so far been largely immune to the effects of brand retaliation against the use of exploited labour in supply chains, but this is starting to change. The increasing awareness of these issues in our society generally is being matched by significant regulatory actions and policy initiatives by Government officials.

Our regulatory institutions are clearly taking the issues seriously. The Labour Inspectorate has had no qualms about pointing out that some of our major brands have a moral responsibility for those working in their supply chains. Their reaction to last year’s independent review of migrant exploitation in Chorus’s next generation network supply chain was to promote the report as a must-read for all company directors and CEOs.

The Government is also putting its own money where its mouth is. Its new Supplier Code of Conduct requires anyone wanting a share of the $41 billion annual spend in identified sectors to show not only that they comply with New Zealand standards for their own employees, but also that they ‘monitor and address’ compliance with international human rights standards within their supply chain.

Doing more than shifting risk along the chain

Your lawyers may be able to give you some confidence that the risk of labour exploitation is passed along your supply chain through contracts, but this mechanism is increasingly seen as insufficient.

Some sectors are trying to get ahead of the issues and the potential impact on brands. In the wine industry, standards developed by Sustainable Winegrowing New Zealand are an attempt to go beyond the legal compliance defence and give confidence to consumers. Their standards require members to ensure that contracting firms can provide evidence of compliance, as an action to promote ethical and socially responsible practices in their supply chain.

The legal compliance defence is in any case an uncertain one. The courts have been taking an increasingly dim view of supply chain exploitation and of businesses’ attempts to shift employment obligations along the chain. There has been some fascinating case-law about ‘deemed employment arrangements’, whereby the use of contracted labour is not enough to ‘de-risk’ a business when it comes to supply chain exploitation. The legal penalties faced by companies can be heavy – and none yet quite as pointy as the obligations for Directors under the Health and Safety at Work Act 2015.

There is also the prospect of new legislation. In policy proposals consulted on last year, the Government has been looking at the potential to introduce ‘liability for parties with significant control or influence over an employer that breaches employment standards’. In a series of consultations they also looked at casual and contract worker relationships, and their proposed changes to the legal status and rights of ‘dependent contractors’ could, if implemented, have a significant impact on some business models and on costs. Franchise companies and retailers with large contracted distribution networks should be paying attention to these potential regulatory changes.

Understanding your risks

There are very few international examples of good practice that are directly relevant to New Zealand. Major brands like Adidas have taken steps to ensure their transnational production facilities meet local labour standards. However, there are few overseas examples of companies operating nationally who are front-footing this with the diligence that the local regulator is calling for.

Supply chain risk is an established area of corporate risk management practice. Yet there is little indication that New Zealand companies are heeding the Labour Inspectorate’s calls and turning their minds to labour risk in their supply chain.

To be fair though, they face some real barriers here – understanding how to detect and prevent migrant exploitation in your supply chain can be very complex. At a minimum it requires an understanding of the practical operating impact of a complex set of legal obligations, including under the Immigration Act, the Employment Relations Act, the Minimum Wage Act, the Wages Protection Act, and the Holidays Act. But that is not enough.

Addressing four layers of risk

At MartinJenkins, our recent work with New Zealand companies on this issue has highlighted for us the need to go beyond traditional assurance methods. These methods apply to retail businesses too.

We’ve found that it helps to consider four different layers of risk when you’re looking at your supply chain arrangements – you need to look at workers’ personal situations, at legal and institutional frameworks, at risks created by employers, and at risks relating to the particular workplace.

This model emphasises that to manage these risks, you need a good understanding of the workers in your supply chain, their specific contractual arrangements, and the kinds of exploitation risks they may face. Taking a good long look at these labour issues can be a real education for any executive or director coming from a position of privilege.

Common forms of exploitation stretch beyond the ‘usual’ Minimum Wage Act breaches to include volunteerism, cashback scams, and exploitative arrangements around housing, transport and food. Running two sets of books is also not uncommon for unscrupulous suppliers exploiting people who may be desperate, vulnerable and out of their depth.

Right here, right now

While many companies are busy talking about the Future of Work, migrant exploitation is a serious workforce issue that’s right here, right now. Some New Zealand businesses are responding – for example some of our high-end fashion labels have been marking their own way and promoting ethical standards in the garment industry.

As the Australian 7-Eleven saga shows, the reputational damage to businesses around this issue can be immense. But flipping the coin, there’s potentially also a competitive advantage for businesses who can show they take their moral responsibilities here seriously, rather than simply hiding behind clauses in contracts.

For those businesses who aren’t taking this issue seriously, the direction of travel from our regulator is clear. Under-resourced for the scale of the current task the Labour Inspectorate is increasingly taking a tactical approach with its prosecutions, sending signals to New Zealand companies that they have a responsibility to ensure migrant workers in their supply chain aren’t being exploited.

Sarah Baddeley is also a consulting manager at MartinJenkins. Sarah frequently works with New Zealand companies helping them detect and prevent migrant exploitation. She co-led the Independent Review of Chorus’s Next Generation Connection Contracting Model, which addressed the issue of worker welfare.

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