Class action charges misrepresentation in policies and disclosures regarding slave labor in supply chain

by Cydney Posner

As discussed in this Bloomberg article, Costco and some of its suppliers are facing class action litigation alleging that Costco misled consumers about the use of slave labor and human trafficking in its supply chain for the frozen shrimp it sells.  Concerns regarding human trafficking and slave labor have received significant media attention recently, and the complaint makes extensive use, including graphic images, of documentary exposes produced by The Guardian and the AP.  (See also this article that was on the front page of the NYT, and this post.) The article suggests that this  “may be the first such lawsuit.”

The complaint alleges that Costco was aware that the supply chain for the farmed prawns it purchased from Thai suppliers and then resold to California consumers “depends upon documented slavery, human trafficking and other illegal labor abuses,” and that many consumers would not have purchased those products from Costco had they known about those problems in the supply chain. In addition, the complaint alleges that Costco has publicly stated that it has a Supplier Code of Conduct requiring  “suppliers to comply with local laws “regarding workers’ minimum age, rest days and overtime wages,” and that, to ensure that all suppliers and sub-suppliers conform to the Code, Costco conducts supplier audits.  Nevertheless, the complaint alleges, Costco knew that its suppliers did not comply with its Code and that the shrimp it sells to consumers were farmed using slave labor. In addition, the complaint charges, the California Transparency in Supply Chains Act of 2010 requires businesses with an annual gross of over $100 million to “disclose their efforts to eradicate slavery and human trafficking from their direct supply chains.” However, the complaint alleges, as “far as the market for farmed prawns is concerned, any representation by Costco that slavery in the supply chain is not allowed is simply false.” Costco’s  “conduct in representing that it enforces policies against the use of slave labor in the farming of the prawns it sells is a violation of the [California Transparency in Supply Chains Act]. Not only are the defendants’ practices unlawful, argue the plaintiffs, under various federal and state statutes, but “Costco’s practices are fraudulent in that Defendant Costco affirmatively represents that it enforces its standards to prohibit the use of slave labor and it fails to identify the fact that the frozen Thai prawns it is selling [are] produced using slave labor.”

Whether or not there is any merit to the plaintiff’s charges and inferences – and that remains to be seen — the case is a reminder that plaintiffs and plaintiff’s counsel may see ESG (environment, social and governance) policies and disclosures as a fertile field and that companies should construct and review their policies and disclosure statements accordingly.

Leave a comment

Filed under Corporate Governance, Litigation, Securities

Comments are closed.