Hot Goods Part I: Rooting out Forced Labor in Supply Chains Using the “Hot Goods” Provisions of the FLSA

In June of 2019, the owner of a Utah pecan farm was ordered to pay $1 million in back wages to victims of exploitative child labor in violation of the Fair Labor Standards Act (FLSA). According to media reports, the children worked six-day weeks for a polygamous religious group, the Fundamentalist Church of Jesus Christ of Latter-Day Saints. “They complained of being cold, having limited access to bathrooms and being required to work to keep themselves and their families in good standing with the FLDS. Most importantly, they testified they were not paid for their labor.”

Forced and child labor is a global problem, and as the pecan case shows, even exists here in the US. Slavery is often hidden deep in the recesses of attenuated supply chains, making it very difficult to establish the liability of the perpetrator. This fact has stymied attempts at accountability, and ensured an ongoing market for forced and child labor-produced goods. As is clear in the cases of illicit drugs, child pornography and weapons trafficking, the existence of a market for such goods ensures there will be a supply.

This blog post is Part I of a two-part series exploring the viability of using the FLSA’s “Hot Goods” provision as a tool to increase accountability for egregious labor violations in supply chains (check out Part II here). Here at CAL, we focus on international supply chains primarily, but we start this post with an overview of how the “Hot Goods” provision has been applied within the US. Next, we look at the possibility of extraterritorial application to hold actors in international supply chains accountable. Generally, we find that domestic enforcement is possible in many cases, subject to political will, and enforcement for overseas FLSA violations is possible, but unlikely given its reliance on an extremely narrow set of facts. Part II of this post gets into more detail on the potential for extraterritorial application of other provisions of the FLSA.

“Hot Goods” are defined as goods produced in violation of the FLSA provisions governing minimum wage, overtime and child labor within the United States. Under FLSA provision 215(a)(1), a court order may be used to prevent the interstate shipment of any goods believed to be produced in violation of these provisions, and this order may apply not only to the producer of the goods, but anyone in possession of them. This liability extends to any distributor, transportation service, or retailer that handles, ships, or processes the goods.

How does it work?

Generally, if a private actor employs forced or child labor inside of the US and sells those goods in interstate commerce, they could be subject to a “Hot Goods” enforcement action, imposing serious financial and legal liability. Though the Utah case address only the direct liability of the company owner, the “Hot Goods” provision is likely applicable. These pecans would be “Hot Goods” under the rule, and after being shipped out of state, could be seized from other market players who took possession of them. Companies in possession of the pecans could then be liable for fines or be required via injunction to stop the activity until the initial FLSA violations with the producing company have been resolved.

From a legal standpoint, this is important: the goods themselves are illegal, not just the acts committed in their production, under this legal regime. This is an essential aspect of any strategy to root out forced labor, but is rare.

Here's where it gets more complicated

On its face, this provision looks like the perfect solution to stop corporations from benefiting from labor violations throughout obfuscated supply chains. However, upon a closer look, limitations on who can enforce the “Hot Goods” provision, as well as the “good faith purchaser” loophole discussed below, greatly reduce the law’s potential, even for exclusively domestic application.

The biggest impediment to usability is the lack of private right of action, so enforcement depends on the Department of Labor (DoL) choosing to bring “Hot Goods” enforcement actions in the public interest. While DoL has done so in a handful of cases, that enforcement has met pushback from the agriculture lobby.  For example, after the Obama Department of Labor blocked a shipment of blueberries produced in violation of the FLSA in 2014, Congress passed a farm bill that requires the “Agriculture Secretary to consult with the Secretary of Labor regarding the restraining of shipments ... or the confiscation of agricultural commodities.” This consultation requirement may constrain DoL’s enforcement of the “Hot Goods” provision, posing serious limitations for its ability to uphold human rights in supply chains.

Additionally, there is an important loophole in the law that may swallow the rule: Any “good faith purchaser,” which includes a common carrier, is protected. This may seem like a fair exception, but this sort of loophole is what encourages opaque supply chains. This exception incentivizes companies to put empty language, where one party promises their goods were not made in violation of labor codes, in their procurement contracts (for meaningful language to put in procurement contracts see CALS blog on third party beneficiaries). Despite precedent stating “[a] corporation cannot take an ‘ostrich-like attitude’ and still be in good faith under the [FLSA],” imputing a “could and should have known” standard, companies have largely gotten away with using empty language as legal cover to benefit from labor violations in their supply chains. At CAL, we believe the gold standard for any statute addressing forced and child labor is to view the goods themselves as tainted by the labor violations, regardless of who has them or how they were obtained. This shifts the burden to the buyer or possessor to ensure goods were produced legally, shutting down the market for goods of unknown or unprovable origin. The “good faith purchaser” loophole does just the opposite, but still leaves room enforcement where there is knowing or negligent participation in these supply chains.

This leads us to our next question: can “Hot Goods” claims be brought against actors in international supply chains?

“Hot Goods” Claims for International Supply Chains

Congress addressed the extraterritoriality of the FLSA in the 1950’s when it passed the Foreign Workplace Exemption amendment. In this amendment, the provisions of the FLSA that promote certain wage, hour, and age standards in employment have been explicitly precluded from being applied abroad. Congress passed this amendment to the FLSA in direct response to the Vermilya-Brown case, where the US Supreme Court applied FLSA labor standards to a US military base in Bermuda. Since this amendment was passed, all wage, labor, and age standards are unenforceable when the work occurs entirely outside the United States.

However, the Supreme Court recognizes Congress does have the power to extend federal law extraterritorially, and courts apply US law overseas when there is express and direct intent from Congress. This could include government “Hot Goods” enforcement actions against one of the most unaccountable areas of international supply chains--international distributors. Where the labor violations occurred domestically, resulting in “tainted” goods coming out from the United States, we don’t see any argument against the “Hot Goods” provision being used to justify a DoL enforcement action. Because the “Hot Goods” provision of the FLSA was not expressly included in the Foreign Workplace Exception, DoL enforcement actions against foreign and international distributors shipping “Hot Goods” from the United States around the world could be permissible. (For more information about other FLSA provisions that could be applied abroad, see this blog)

For example, after the Pecans were produced in Utah in violation of FLSA labor standards, they were sold to a distributor in Texas. From there, they may have been sold abroad. DoL could bring an enforcement action against any company involved in the distribution, transport, or handling of the pecans as they were transported abroad. While DoL may not be able to seize goods after they have left the United States, it may still be able to fine companies that participated in the export of the goods or benefitted from it.

In the end, we do think “Hot Goods” enforcement actions can be a powerful tool to root out forced and child labor in some circumstances, including where corporations intentionally obfuscate supply chains to avoid accountability. However, like most of the powerful tools in this field, it rests entirely in the hands of government. As advocates, we can provide information to the DoL to encourage enforcement, and to encourage DoL to seize the goods in question. And we can advocate for legislation that takes a stronger strategic position here. Until goods produced with forced and child labor are viewed as illegal in and of themselves, the market will continue to encourage the practice and children and adults will continue to be at risk.  

Mallory Miller is a third year law student at the University of Denver. Charity Ryerson is the Legal Director at Corporate Accountability Lab.

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