Another respected NZ brand brushes up against supply chain exploitation
With Sarah Baddeley / September 2019
This article was first published in the August / September issue of Boardroom — the bi-monthly magazine by the Institute of Directors New Zealand.
The latest case of migrant worker exploitation involving the popular Te Mata Estate is another example of how our regulator here, the Labour Inspectorate, is clearly not afraid to take both legal and moral action against major New Zealand brands.
The case involved a labour supply contracting firm’s exploitation of 12 Papua New Guinea citizens working at Te Mata’s vineyards in Hawke’s Bay, with the contracting firm being hit with $30,000 in penalties. Although the winery wasn’t itself before the courts, the Labour Inspectorate had no qualms about pointing out that the beloved wine producer had a moral responsibility for those working in its vineyards.
It’s a warning that successful brands face a real reputational risk here. 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. The fall-out from this case included a new government Migrant Workers Taskforce being set up in late 2016, as well as calls for labour standard breaches to be subject to criminal penalties.
New Zealand regulator takes forthright approach
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. We’ve yet to see consumer reaction to poor treatment of workers on the scale seen in Europe.
But our government institutions are taking the issue seriously. The Labour Inspectorate is increasingly calling on major New Zealand businesses to take a responsible supply-chain approach. Their reaction to the recent independent review of Chorus’s next generation network supply chain was that the review report should be a must-read by 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 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 legal team 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.
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 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.
Understanding your supply chain 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, but there are few overseas examples of companies operating nationally who are front-footing this with the sophistication 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.
And who can blame them — 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 the Immigration Act, the Employment Relations Act, the Minimum Wage Act, the Wages Protection Act, and the Holidays Act.
Addressing four layers of risk
At MartinJenkins, our recent work with New Zealand companies on this issue has highlighted for us the importance of not relying on traditional assurance methods.
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 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.
At its heart, exploitation stems from a power imbalance. The capacity of migrants to speak up against poor treatment is constrained by fear of losing their job and therefore potentially their visa. It’s an understandable fear, but it’s not always a well-informed or legitimate one. Immigration NZ and the Labour Inspectorate — both of them parts of MBIE — are co-located regulators who work together to protect the interests of those workers in these situations.
Right here, right now
While many companies are busy talking about the Future of Work, migrant exploitation is a 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 firms who can show they take their moral responsibilities here seriously rather than simply hiding behind clauses in contracts.
The direction of travel from the 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.
Woody Guthrie once sang an ode to the American migrant workers who headed west out of the US Dust Bowl in the 1930s looking for work in orchards, vineyards and fields — the ones who ‘dig the beets from your ground, cut the grapes from your vine, to set on your table your light sparkling wine’. Whether they’re cutting grapes or digging trenches, all the people who are involved in keeping New Zealand’s economic wheels turning deserve a serious response from our business community to the problem of supply chain exploitation.
About the author
Sarah Baddeley is a member of the New Zealand Institute of Directors and a recipient of the Australia Company Directors Diploma. She is also a Consulting Manager at MartinJenkins. Sarah co-led the Independent Review of Chorus’ Next Generation Connection Contracting Model, which addressed the issue of migrant exploitation.
Sarah is an experienced adviser to senior managers, chief executives, board members and government ministers in both New Zealand and Australia. Her breadth of sector experience makes her highly versatile, with expertise in economic policy, housing, employment and skills, transport, energy, and health and social services.