Doing Business Right Blog

Editors’ note: Maisie Biggs graduated with a MSc in Global Crime, Justice and Security from the University of Edinburgh and holds a LLB from University College London. She is currently working with the Asser Institute in The Hague. She has worked for International Justice Mission in South Asia and the Centre for Research on Multinational Corporations (SOMO) in Amsterdam.

The Nuremberg Trials were a defining and foundational moment for international criminal law, and the first instance in which the question of international legal responsibility of corporate actors, including natural persons and corporations, was first broached. The Tribunals elected to only prosecute natural persons, however a brief analysis of the reasoning indicates it was political rather than legal considerations that led to this distinction. International law and corporate actors have a storied history that merits drawing the timeline back earlier than Nuremberg. This is the first in a series of blog posts exploring the intersection between corporations and international criminal law (ICL).

As is well known, corporations are not subjected to the Rome Statute and do not fall under the jurisdiction of the International Criminal Court (ICC). Yet, as we will show there have been interesting recent developments at the intersection between ICL and the activities of corporations. In 2014, the Special Tribunal for Lebanon (Al Jadeed S.A.L. & Ms Khayat (STL-14-05)) acknowledged the development of domestic corporate accountability, and determined that ICL has likewise progressed. Meanwhile, cases against individuals (such as the ongoing Lundin case in Sweden) or corporations (such as the Lafarge case in France) involving the activities of corporations abroad have been initiated by national prosecutors on the basis of ICL.

These cases and potential implications will be discussed in more depth in later posts, however it is interesting that while some academics and judges are tracking the ostensibly ‘new’ legal movements to subject corporate activities to greater regulation,^{^[1]} the history of international law itself shows that harmful transnational commerce has been an issue for a long time, and this is not the first time international law has been used as a tool against jurisdiction-hopping corporate crime.More...

Editor’s note: Shamistha Selvaratnam is a LLM Candidate of the Advanced Masters of European and International Human Rights Law at Leiden University in the Netherlands and a contributor to the Doing Business Right project of the Asser Institute. Prior to commencing the LLM, she worked as a business and human rights solicitor in Australia where she specialised in promoting business respect for human rights through engagement with policy, law and practice.

The introduction of the UK, Australian and NSW Modern Slavery Acts are part of the international trend towards greater regulation and transparency of modern slavery in corporate supply chains and operations. For example, Canada has recently introduced a modern slavery bill and Brazil introduced a ‘dirty list’ to name and shame companies that engage in slave labour back in 2004. This last blog of a series of articles dedicated to the global modern slavery developments focuses on the modern slavery developments in jurisdictions other than the UK and Australia. More...

Editor’s note: Shamistha Selvaratnam is a LLM Candidate of the Advanced Masters of European and International Human Rights Law at Leiden University in the Netherlands and a contributor to the Doing Business Right project of the Asser Institute. Prior to commencing the LLM, she worked as a business and human rights solicitor in Australia where she specialised in promoting business respect for human rights through engagement with policy, law and practice.

Soon after the introduction of the UK Modern Slavery Act (UK Act) in 2015, discussions about establishing similar legislation in Australia commenced. In February 2017, the Attorney-General asked the Joint Standing Committee on Foreign Affairs, Defence and Trade (Committee) to commence an inquiry into establishing a Modern Slavery Act in Australia. The terms of reference of the inquiry included, inter alia, considering the ‘prevalence of modern slavery in the domestic and global supply chains of companies, businesses and organisations operating in Australia’ and whether a Modern Slavery Act comparable to the UK Act should be introduced in Australia. The Committee released an interim report in August 2017 and then a final report in December 2017 – both reports supported the idea of developing a Modern Slavery Act in Australia and set out the Committee’s recommendations with respect to the parameters of a corporate reporting requirement. In the meantime, the Australian Government also published a consultation paper and regulation impact statement outlining its proposed reporting requirement for an Australian Modern Slavery Act.

In June this year, the first draft of the Modern Slavery Bill 2018 (Cth) (the Federal Bill) was introduced into the Australian Parliament. It set out a reporting requirement for large Australian entities to submit a statement on risks of modern slavery in their operations and supply chains. The Explanatory Memorandum to the Federal Bill stated that it supports ‘large businesses to identify and address modern slavery risks and to develop and maintain responsible and transparent supply chains. It will drive a ‘race to the top’ as reporting entities compete for market funding and investor and consumer support.’ On 29 November 2018 the Federal Bill passed both houses of the Australian Parliament incorporating amendments made by the Upper House of Parliament. The amendments resulted in the inclusion of a provision giving the Minister power to request explanations from entities that fail to comply with the reporting requirement (discussed in further detail below) and gives the Minister the power to cause an annual report to be prepared providing an overview of compliance by entities and identifying best practice modern slavery reporting.

This second blog of a series of articles dedicated to the global modern slavery developments provides an overview of the main elements of the Federal Bill and how it compares to the UK Act. It also discusses the Modern Slavery Act 2018 (NSW) (NSW Act), which was introduced by New South Wales (NSW), a State in Australia. The introduction of NSW Act was relatively unexpected given the movement at the Federal level to introduce national legislation addressing modern slavery in the corporate context. Therefore, this blog will discuss the NSW Act’s interplay with the Federal Bill. It will be followed by a final piece on the modern slavery developments in other jurisdictions in the corporate context. More...

Editor’s note: Shamistha Selvaratnam is a LLM Candidate of the Advanced Masters of European and International Human Rights Law at Leiden University in the Netherlands and an intern with the Doing Business Right project. Prior to commencing the LLM, she worked as a business and human rights solicitor in Australia where she specialised in promoting business respect for human rights through engagement with policy, law and practice.

Introduction

This report compiles all relevant news, events and materials on Doing Business Right based on the coverage provided on our twitter feed @DoinBizRight and on various websites. You are invited to contribute to this compilation via the comments section below, feel free to add links to important cases, documents and articles we may have overlooked.

The Headlines

CHRB

On 12 November 2018, the Corporate Human Rights Benchmark released the results of its 2018 ranking of 101 companies operating in the apparel, agricultural products and extractives industries. The results show that implementation of the UN Guiding Principles on Business and Human Rights in these sectors is still weak (following the 2017 results) with the average overall score for 2018 being 27% (an increase of 9 percentage points from last year), demonstrating a lack of respect for human rights. The Report identifies that due diligence is a key weakness of the companies that were reviewed, with 40% of companies scoring no points with respect to the due diligence indicator. Other issues identified were the lack of a strong commitment to ensuring that there are ‘living wages’ paid to those working in company operations and supply chains and the failure to meet expectations with respect to preventing child labour in supply chains. Read the 2018 Key Findings Report here.

Australian MSA passes both houses of Parliament

On 29 November 2018, the Modern Slavery Bill 2018 (Cth) passed both houses of the Australian Parliament. Once enacted, the Act will require Australian entities and entities carrying on a business in Australia that have a consolidated revenue of at least $100 million to prepare a Modern Slavery Statement covering mandatory criteria. Criteria that such entities will have to report on include the risks of modern slavery practices in their operations and supply chains and the actions they take to assess and address those risks, including due diligence and remediation processes. It is likely that the Act will come into effect on 1 January 2019 and accordingly the first Modern Slavery Statements will be due by 1 January 2021. More...

Editor’s note: Shamistha Selvaratnam is a LLM Candidate of the Advanced Masters of European and International Human Rights Law at Leiden University in the Netherlands and a contributor to the Doing Business Right project of the Asser Institute. Prior to commencing the LLM, she worked as a business and human rights solicitor in Australia where she specialised in promoting business respect for human rights through engagement with policy, law and practice.

Over the past couple of years, there has been an international trend towards greater regulation and transparency with respect to modern slavery in corporate supply chains as reports of gross human rights violations in corporate supply chains have entered the public spotlight. For example, over the past couple of years there has been extensive media attention in relation to the use of slaves trafficked from Cambodia, Laos, Bangladesh and Myanmar to work on Thai fishing boats to catch fish to be sold around the globe, with the boats considered to be ‘floating labor camps’. As a result of events such as this, there has been increased pressure on businesses to take steps to address modern slavery in their supply chains through processes such as through conducting risk assessments and due diligence.

As the Ethical Trading Initiative notes, key risks facing companies in their supply chains include the use of migrant workers; the use of child labour; recruitment fees and debt bondage; the use of agency workers and temporary labour; working hours and wages; and the use of subcontractors. In 2016 the Global Slavery Index reported that 40.3 million people are living in modern slavery across 167 countries, and in 2014 the ILO estimated that forced labour in the private economy generates US$150 billion in illegal profits per year.

In March 2015, the UK Government passed the UK Modern Slavery Act 2015 (the Act), game-changing legislation that targets, inter alia, slavery and trafficking in corporate supply chains. The UK Government also published guidance explaining how businesses should comply with the Act.

This first blog of a series of articles dedicated to the global modern slavery developments provides an overview of the main elements of the Act and how businesses have responded to it. It will be followed by a review of the proposed Australian MSA, and a final piece on the developments in other jurisdictions that are considering introducing legislation regulating modern slavery in the corporate context. More...

Editor’s note: Imke B.L.H. van Gardingen (LLM Int. and EU labour law, MA Korean Studies) is a policy advisor on labour migration at the Dutch Federation of Trade Unions (FNV) and a researcher on DPRK overseas labour.

On November 8, 2018 a North Korean overseas worker who had worked in slave like conditions for a Polish shipyard, a supplier of a Dutch shipbuilding company, has filed a criminal complaint against the Dutch firm. The Dutch Penal Code, article 273f(6), includes a provision criminalizing the act of ‘profiting’ from labour exploitation, targeting not the direct perpetrators in the labour exploitation, but the ones profiting from this exploitation. This is a unique case that aims to hold the company at the top of the chain accountable for modern slavery in its supply chain. A chain that in the case of shipbuilding is rather short; the buyer subcontracts the core business of building the complete hull under detailed instructions cheaply abroad. More...

Editor's note: Sara Martinetto is a research intern at the T.M.C. Asser Institute. She has recently completed her LLM in Public International Law at the University of Amsterdam. She holds interests in Migration Law, Criminal Law, Human Rights and European Law, with a special focus on their transnational dimension.

In my previous blog, I explained how the negotiations on a prospective Treaty on Business and Human Rights are going hand-in-hand with the implementation of the United Nations Guiding Principles on Business and Human Rights (UNGPs). The Principles – developed by Professor John Ruggie, and approved by the UN Human Rights Council in 2011 – have attracted widespread consensus among both States and corporations.[1] Nowadays, the UNGPs are regarded as crucial to hold corporations accountable for human rights abuses connected to their activities. However, the UNGPs are not binding, and they need to be operationalized in national law, as reaffirmed in Human Right Council Resolution 26/22. To date, National Action Plans[2] appear as the preferred tool to transpose the Principles into national law. Nevertheless, their provisions are often of a descriptive nature, resembling more a declaration of intent rather than an effective implementation of the UNGPs.[3] Only recently, some States have actually adopted hard law instruments on Business and Human Rights, and the UK Modern Slavery Act (2015) is one of them. The Act, aimed at tackling modern slavery and human trafficking, was sponsored by Theresa May and Lord Bates in 2014 and came into force on 29 October 2015.

Almost two years from the entry into force of the Act, this post aims at giving a brief account of what the Modern Slavery Act is and how it has been applied so far. The main focus will be on Section 54 of the Act (‘Transparency in the supply chain’), which prescribes a reporting obligation for corporations. More...

Editor’s note: Mercedes is a recent graduate of the LL.B. dual-degree programme English and German Law, which is taught jointly by University College London (UCL) and the University of Cologne. She will sit the German state exam in early 2022. In September 2020 she joined the Asser Institute as a research intern for the Doing Business Right project.

My previous blog post depicted how economic asymmetry of power translates into imbalanced contractual relationships. At the moment, supply chain contracts ensure that value is extracted while precarity is outsourced. In other words, supply chains can be described as ‘global poverty chains’. In this blog post, I will present and assess four potential way to alleviate this asymmetry and to better protect the right of the poorest garment workers in the context of the Covid-19 the pandemic.

Solution 1: Voluntary commitments

The first option is a well-travelled one, brands could voluntarily decide not to use their unilateral contractual powers. This approach was adopted by the UK Government in May 2020, when it urged British companies to sit still and employ ‘fair and reasonable’ business behaviour. In s. 14 of the Government’s Guidance paper it says:

“Responsible and fair behaviour is strongly encouraged in performing and enforcing contracts where there has been a material impact from Covid-19. This includes being reasonable and proportionate in responding to performance issues and enforcing contracts (including dealing with any disputes), acting in a spirit of co-operation and aiming to achieve practical, just and equitable contractual outcomes having regard to the impact on the other party (or parties), the availability of financial resources, the protection of public health and the national interest. […] In particular, responsible and fair behaviour is strongly encouraged in relation to the following: […] (c) making, and responding to, force majeure, frustration, change in law, relief event, delay event, compensation event and excusing cause claims; […]”

Many brands, such as Adidas, H&M, Nike, PVH, Inditex and the VF Corporation promised to honour their contractual obligations and to refrain from modifying the payment terms.

H&M stands out, as it took action to mitigate the workers’ plight and promised to accept delivery of already produced garments, to pay for goods in production, and to do so in accordance with previously negotiated payment terms – without taking discounts, and without prolonging payment date. It is not only goodwill that incentivizes brands to act like this. By deciding not to interfere with the contract, brands strengthen their business relationship and ensure the financial stability of a trustworthy business partner. Moreover, brands buttress their reputation and count on the fact that consumers will reward them for supporting their suppliers during times of hardship.

However, there are also many examples showing that these considerations might often not outweigh the economic interest the brand has in terminating the contract. Brands such as Kohl’s Inc. and C&A still decided (see here and here) to trigger force majeure clauses.

This is even more problematic considering the fact that C&A is a member of the UK-based Ethical Trading Initiative and the German Textilbündnis. Thus, by triggering force majeure clauses without prior consultation, the company seem to contravene the guidelines issued by these stakeholders initiatives. Months into the pandemic, the Workers’ Rights Consortium and Penn State Center for Global Workers' Rights exposed such behaviour. C&A responded by promising to honour their obligations – but only with a delay of one year. It is only after immense public pressure in the form of the “#PayUp”-campaign that C&A gave in and decided to pay their suppliers in full and on time.

Other companies, such as Kohl’s, Urban Outfitters, The Children’s Place and many others are still refusing to honour their pre-pandemic obligations. As the new wave of lockdowns rises, Hema, a Dutch company effectively cancelled all orders on 11 January. For goods already delivered to Hema, it promised to pay – but only with a delay of 30 days. In this context, as in others, voluntary demand-based incentive models have shown to be of limited impact.[1] For example, Urban Outfitters stated: “Unfortunately, like any business, we are doing our best to navigate these unprecedented circumstances. With our stores closed, we simply don’t have the capacity to accommodate all the stock on order.”

The financial health of a business remains more often than not the only concern of any corporate decision-maker. Yet, because European governments provide millions of euros worth of support to their businesses, European companies are not at particular risk. Thus, NGOs were quick to criticise Kohl’s Inc.’s decision to pay their shareholders an USD 109 million dividend in April.

Solution 2: State initiatives

(Foreign) state initiatives, through the releasing of specific development funding, might help to improve the workers’ welfare. Germany and the UK, for example, have set up an US-$ 6.5 million fund in collaboration with the Ethiopian government. The money is intended to support Ethiopian businesses and workers, which suffered as a result of large-scale order cancellation. Relying on such initiatives seems problematic for a number of reasons. In times were most European economies are facing difficulties, and the European Union struggles to raise enough fund to support the local economy, helping far away business partners is not a political priority. Hence, such foreign aid remains relatively limited in scope and insufficient to cover the cost of the pandemic. US-$6.5 million is merely a drop in the bucket bearing in mind the extent to which Ethipoian factories are affected and that the US-American Children’s Palace cancelled millions of dollars worth of clothing orders alone.

Furthermore, by relying on the support of foreign governments, the external costs of doing business are being socialized. The brands are effectively shifting their economic risk to the German or British taxpayers instead of the Ethiopian workers, while shielding their profits and shareholders.

Solution 3: Due diligence instruments

Human rights due diligence regulation could also provide an avenue to prevent parties from unilaterally exercising contractual rights. The UNGPs and OECD guidelines both stipulate that companies must consult with stakeholders and take into account human rights impacts when exercising their contractual rights. Even though they are not legally binding, these guidelines have been internationally acknowledged and endorsed by states and international organisations. Many companies adopted principles similar or with reference to these guidelines in their internal codes of conduct. As long as they are not legally binding, however, brands can simply choose to ignore these standards.

Compliance on the business side is far behind what the UNGPs and OECD guidelines envisage. This is why recently, European-wide debate on binding due diligence instruments broke out. France has already adopted the loi de vigilance in 2017. Switzerland has just voted against adopting a binding due diligence law. The debate in Germany is still ongoing. In parallel, the European Commission has also begun the process of drafting EU-wide mandatory due diligence legislation. If mandatory human rights due diligence instruments are adopted at the EU level, this will have a number of consequences for businesses. For example, companies will have to take into account adverse human rights impacts of their decisions before abruptly terminating a contract. Businesses will be pushed to engage with relevant stakeholders – and held accountable if they fail to do so. This could lead to a situation in which the interests of the supplier, the workers and the apparel brand are better balanced.

Solution 4: Towards a relational interpretation of force majeure

Finally, courts could move towards a ‘relational’ interpretation of contractual obligations and force majeure. Orthodox contract law, with party autonomy at its heart, could be re-interpreted in light of the political economy in which global supply chain contracts are embedded. The emphasis on contractual autonomy, especially when it enables such one-sided clauses, is fuelling the economic domination of brands from the Global North in the apparel sector to the detriment of the companies (and workers) of the Global South that produce their clothes. It does not, however, account for the real power relationships and responsibilities in global supply chains.[2]

The consequence would be to move away from a blind deference to force majeure clauses and unilateral cancelling powers. Instead, the parties to the contract should be constrained to bear a fair share of the losses caused by the pandemic, based on their resources and with the objective of mitigating the human rights risks triggered by the cancellation of orders.

In order to achieve such a ‘relational’ interpretation of contractual obligations, party autonomy would have to be interpreted in a way that reflects the imbalance of economic power between the parties to supply chain contracts. While it is true in principle that these cases concern B2B transactions, in practice contracts between global brands and suppliers in the Global South are much more similar to other contractual situations in which the power imbalance calls for special treatment of one of the parties (such as in labour or consumer contracts).

Effectively, the courts could apply a proportionality analysis: Does the economic interest of the apparel brand outweigh the consequences which triggering a force majeure clause could have?

Such a ‘proportionality’ analysis is not alien to the interpretation of force majeure clauses. According to Berger and Behn, where events are so exceptional and extraneous to the contract that, absent a specific risk assumption in the contract, neither party shall bear the full risk emanating from such crisis; instead, the risk should be shared by the parties. Berger and Behn argue that while under “normal circumstances”, a strict application of force majeure reflects the parties’ autonomy, this notion of self-determination loses its justification in the context of a global pandemic.

Such a re-interpretation of force majeure clauses would serve to ensure that the rights of thousands of garment workers in Bangladesh or elsewhere are duly considered in the economic decision-making of brands. This would go some way to publicizing supply chain contracts by disconnecting them from a simple economic calculus to embed them in their diverse social contexts.[3] Accordingly, a relational, co-operative approach to supply chain contracts would better reflects the collective impact of the pandemic on all interests involved.

Conclusion

The large-scale cancellation of orders has had a devastating effect on suppliers and their workers. Instead of bearing a fair share of the cost of the pandemic, brands managed to shift most of the economic risk to the bottom of the supply chain by invoking discretionary clauses enshrined in unilaterally negotiated contracts.

While some companies have voluntarily committed to supporting their suppliers by refraining from exercising their contractual rights. Many others did not – despite public outcry and government guidance. Thus, voluntary commitments seem insufficient, be it in the form of internal codes of conduct, or in the form of internationally approved non-binding guidelines. Two other options would be available to shift risks onto the brands inside garment supply chains. On the one hand, mandatory human rights due diligence, with the threat of civil liability in case of failure to comply, would force companies to show greater care for the negative impacts of their decisions on their business partners (and their workers). On the other hand, courts could decide to interpret contract law in such a way that would reflect the imbalance of power between parties in supply chain contracts. Thus, moving away from pure party autonomy to a ‘relational’ interpretation of contractual clauses. Consequently, a business would not be allowed to exercise a contractual right at all cost for the weaker party to the supply chain contract.

[1] Locke, Richard and Amengual, Matthew and Mangla, Akshay, Virtue Out of Necessity?: Compliance, Commitment and the Improvement of Labor Conditions in Global Supply Chains (October 3, 2008). MIT Sloan Research Paper No. 4719-08, Available at SSRN: https://ssrn.com/abstract=1286142 or http://dx.doi.org/10.2139/ssrn.1286142.

[2] Cf. A. Claire Cutler and Thomas Dietz, The Politics of Private Transnational Governance by Contract: Introduction and Analytical Framework, in: A. Claire Cutler & Thomas Dietz (eds.), ‘The politics of private transnational governance by contract’, p. 80.

[3] A. Claire Cutler and Thomas Dietz, The Politics of Private Transnational Governance by Contract: Introduction and Analytical Framework, in: A. Claire Cutler & Thomas Dietz (eds.), ‘The politics of private transnational governance by contract’, p. 5.

International Criminal Law and Corporate Actors - Part 1: From Slave Trade Tribunals to Nuremberg - By Maisie Biggs

Global Modern Slavery Developments (Part III): Other Modern Slavery Developments - By Shamistha Selvaratnam

Global Modern Slavery Developments (Part II): A Review of the New Australian Modern Slavery Act – By Shamistha Selvaratnam

Doing Business Right – Monthly Report – November 2018 - By Shamistha Selvaratnam

Global Modern Slavery Developments (Part I): A Critical Review of the UK Modern Slavery Act - By Shamistha Selvaratnam

Accountability for the exploitation of North Korean workers in the Shipbuilding Industry through Dutch Criminal Law – By Imke B.L.H. van Gardingen

The UK Modern Slavery Act Two Years After: Where do we stand? - By Sara Martinetto

Doing Business Right Blog

The unequal impact of COVID-19 in the global apparel industry - Part. II: Strategies of rebalancing – By Mercedes Hering

Related posts