Employers Liable When Contractors Exploit Child Labor, DOL Warns

A new child labor enforcement initiative from the Biden administration is putting pressure on employers to reconsider their contract relationships, with the US Department of Labor vowing to go after all companies benefiting from child exploitation.

The practice of subcontracting out specific jobs or projects is often seen in the business community as a way to limit a company’s legal liabilities. But subcontracting firms caught violating child labor laws have put large US companies in legal and reputational trouble as they get caught up in a new crackdown from the US Departments of Labor and Health and Human Services.

Last month, those agencies announced an enforcement initiative to reverse an alarming uptick in exploitative child labor practices, as well as the formation of an inter-agency taskforce to help coordinate their work on the issue.

Management-side attorneys and one former DOL official caution that companies can’t claim ignorance that their contractor was violating federal labor laws as a defense against a federal probe into their hiring practices, and that the Biden administration’s new enforcement focus suggests the hiring company could be on the hook for their contractor’s violations, too.

“Under the initiative, employers may not defend against the DOL investigation by simply disclaiming direct knowledge of the use of illegal child labor,” said Catherine Barbieri, co-chair of the Labor & Employment Department at Fox Rothschild LLP in Philadelphia.

Senior Biden administration officials put employers on notice when the child labor enforcement effort was announced. The DOL would be “applying further scrutiny to companies who conduct business with employers and staffing agencies that use illegal child labor” and companies “who maybe benefit directly from the exploitation of child labor,” they said. The agency said it’s investigating over 600 child labor cases.

Companies “have to be” reevaluating their contract relationships in wake of the announcement, said Kenya Davis, a former Assistant US Attorney, now with Boies Schiller Flexner. “A company has to be diligent.”

Broad Enforcement

Paul DeCamp, a Wage and Hour administrator during the George W. Bush administration, agreed that the crackdown on child labor could affect other companies in the supply chain.

Biden officials have said they would “aggressively use all litigation tools at its disposal,” including invoking the “hot goods” provision under the Fair Labor Standards Act to halt the movement of any goods made with child labor.

Including that provision further proves that it isn’t “just the business that deals directly with the younger workers that could find itself having to deal with DOL, but it could be other businesses further down the chain,” said DeCamp, now a management-side attorney with Epstein Becker & Green PC.

DeCamp explained that if a manufacturer creates goods in violation of the FLSA, a purchaser of those goods, like a retail store for example, could find itself facing a hot goods injunction that prevents it from moving its product.

Debbie Berkowitz, a former adviser at the Occupational Safety and Health Administration, said she also took the announcement from the DOL last month as a signal that the agency is going to “find a way to hold not only the labor contractor or the subcontractor in violation, but also the other companies in the supply chain.”

“These subcontractors do the same work but for a lot less money, and the way they do that is by paying less, hiring vulnerable workers that aren’t going to complain about safety conditions, and just clearly flouting labor laws,” said Berkowitz, now a fellow at the Kalmanovitz Initiative for Labor and the Working Poor at Georgetown University, said in a phone interview.

In cases that involve labor trafficking of minors, companies also could face civil liabilities under other laws.

Davis of Boies Schiller Flexner said that while not all labor violations are considered trafficking under the Trafficking Victims Protection Act—force, fraud, or coercion must be involved—companies who are found financially benefiting from labor trafficking also risk civil liabilities under that law. “It doesn’t stop at the subcontractor. It’s gonna flow to that parent company,” she said.

Avoiding violations

One solution to avoid running afoul of federal rules that prohibit kids from working in certain dangerous operations, using certain equipment, or past certain hours, is to not employ minors at all.

“The cleanest, safest way to stay out of child labor trouble with DOL is simply not to employ children. That’s not really the policy underlying the FLSA, Congress has never gone that far, but that is a prophylactic measure,” said DeCamp. “And frankly, a lot of companies choose to hire people 18 and over only as a way of steering clear of this issue.”

Another way to prevent potential legal liability is to ensure that companies have visibility into the documentation used by the staffing agencies and subcontractors they work with to ensure they are complying with state and federal child labor laws, according to Barbieri.

“It should be a contractual requirement, but also something that companies investigate on their own internally,” Barbieri said. “Those companies should have the ability and practice to review documentation of age, of the hours worked, and define job duties for all workers.”

Excluding such provisions in contracts could expose a company to serious legal trouble, as well as reputational damage, added Davis. “It’s not just a humanitarian issue. It’s a risk management issue, because you’re going to have some exposure.”