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The US Supreme Court has blocked a lawsuit against Nestlé and Cargill over the use of child slavery on cocoa farms in their supply chains, ruling that US legislation cannot be applied to offences that occurred overseas.

The long-running case against the two food behemoths had been filed by six Malian individuals who said they were trafficked into Côte d’Ivoire as children and forced to work producing cocoa.

Nestlé and Cargill purchased produce from those farms, the ruling says, as well as providing financial and technical resources such as tools, fertiliser, training and cash. In exchange, the two companies would receive exclusive purchasing rights from those farms.

The complainants had argued that Nestlé and Cargill knew, or should have known, that the farms “were exploiting enslaved children yet continued to provide those farms with resources”.

“They further contend that petitioners had economic leverage over the farms but failed to exercise it to eliminate child slavery,” the ruling says.

“And although the resource distribution and respondents’ injuries occurred outside the United States, respondents contend that they can sue in federal court because petitioners allegedly made all major operational decisions from within the United States.”

However, Justice Clarence Thomas ruled last week that the lawsuit could not be brought under the Alien Tort Statute (ATS) – a piece of US legislation that allows federal courts to hear claims brought by non-US parties.

The ATS does not apply to activities that took place outside the country, Thomas ruled. In this instance, “nearly all” the conduct that allegedly supported forced labour occurred in Côte d’Ivoire.

The Malian individuals bringing the lawsuit had argued that the “general corporate activity” that underpinned the use of child slaves had occurred at the food companies’ US headquarters, but Thomas said that argument “does not draw a sufficient connection” between the companies’ domestic conduct and the action taken.

The ruling marks a major development in the case, which was first filed by International Rights Advocates in 2005. Though the case was initially dismissed, a 2014 appeals court ruling revived it on the basis that relevant operational decisions were in fact made in the US.

A spokesperson for Nestlé says the company “never engaged in the egregious child labour alleged in this suit, and we remain unwavering in our dedication to combating child labour in the cocoa industry and to our ongoing work with partners in government, NGOs and industry to tackle this complex, global issue”.

A Cargill spokesperson adds that its “work to keep child labour out of the supply chain is unwavering”, and that the company will “continue to focus on the root causes, including poverty and lack of education access”.

The ruling has sparked concern among campaign groups, however. Marco Simons, general counsel at EarthRights International, claims the decision is “an abdication of the federal government’s obligation to enforce international law for its own corporations”.

“If the ruling implies that US corporations whose executives decide, from comfortable American boardrooms, to profit from murder, torture, and slavery abroad cannot be sued in US federal courts for violating international law, it has disturbing implications for future victims of human rights abuses seeking justice against businesses in US courts,” he says.

“This ruling also sets a dangerous precedent, giving corporations impunity for profiting from human rights abuses.”

Terry Collingsworth, executive director at International Rights Advocates, adds that children “continue to suffer the horrors of trafficking and slavery”.

“We do hope that rather than fight this for several more years and spend additional millions of dollars on lawyers, lobbyists and public relations firms, Nestlé and Cargill decide to use their power and resources to finally stop relying on child labour,” he says.

The ruling also has implications for other US companies that have potentially high-risk supply chains in other countries, reducing the likelihood they will face legal action on the basis that decisions are made in the US that affect activity elsewhere.

Kelly Bonner and Ryan Eletto, associates at US law firm Duane Morris, say in an analysis of the case that the decision “has significantly limited the scope of ATS jurisdiction for corporate conduct overseas”.

“Extraterritorial conduct such as providing training or financing to overseas suppliers will not give rise to federal jurisdiction under the ATS,” they say.

That said, US enforcement authorities have shown an increasing interest in blocking shipments believed to contain goods made using forced labour.

According to letters from the US Customs and Border Protection (CBP) agency to clothing retailer Uniqlo – since removed from the agency’s website – two shipments of cotton shirts were seized upon arrival at Los Angeles and Long Beach in January this year.

The CBP rejected Uniqlo’s attempts to have shipments released, stating that it had not provided sufficient evidence that China-based producers and manufacturers in its supply chain had not used forced labour.

Aleesha Fowler, an associate at Baker McKenzie, says in a legal blog that despite the failure of the lawsuit against Nestlé and Cargill, the ruling does not prevent action being taken against other companies with global supply chains that may be vulnerable to human rights abuses.

Such companies “should therefore continue to monitor and oversee compliance with applicable laws and regulations, including those which prohibit human rights abuses”.

“This is especially true in light of the increasing litigation brought by activist groups against large corporations, and recent congressional bills that broadly require companies to disclose certain environmental, social and governance (ESG) metrics – two developments that signal a push to hold companies accountable for labour abuses and other violations of law committed by their supply chain partners,” she says.