International Criminal Law and Corporate Actors - Part 2: The Rome Statute and its Aftermath - By Maisie Biggs

Editor’s 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 Rome Statute is a central pillar of international criminal law (ICL), and so any discussion concerning the subjection of legal persons requires a revisit of the negotiations surrounding its drafting. However in the time since its implementation, there appears to have been a shift in ICL regarding corporate liability. Developing customary international law, treaty law and now most domestic legal systems have some established mechanisms for prosecuting legal persons for violations of ICL.


The Rome Statute

A lot has been written on the negotiations surrounding the drafting of the Rome Statute of the International Criminal Court (Rome Statute). This document established the International Criminal Court (ICC), its rules and jurisdiction, and codified the core crimes of ICL and surrounding general principles. Article 25(1) of the Rome Statute explicitly restricts the court’s jurisdiction to natural persons, meaning that corporate wrongdoing may only be approached by the ICC through individual criminal responsibility or superior responsibility for corporate actors.[1] The Statute was a “major achievement”[2] as the first international law instrument essentially summarising the general principles of criminal law across national legal systems.[3] Concerns about ‘complementarity’ arose as the ICC would be expanding the reach of ICL far beyond the remit of ad hoc Tribunals like those used to try crimes in Rwanda and Former Yugoslavia. The new Court needed to complement, rather than undermine national courts and jurisdiction.[4]

During negotiations, individual responsibility of legal persons, corporations or criminal organisations was described as “a major political issue on which political guidance from the Committee was needed.”[5] France had submitted a compromise proposal in the International Criminal Court Draft Statute of 1998 concerning the inclusion of responsibility of legal persons. The French representatives surmised that resistance from other states to its inclusion was because there was no equivalent in some domestic legal systems, while others held the view that the concept would be misapplied in an international criminal court.[6]

The French proposal linked the responsibility of the legal persons with the responsibility of criminal organisations at Nuremberg. Under this proposal, group responsibility would be linked with the previous commission of a crime by a natural person (thus in no way concealing individual responsibility), and adopting in parts Article 10 of the Charter of the Nuremberg International Military Tribunal,[7] the Court would make binding determinations on the criminality of an organisation, which states would need to implement and then penalise by fines or proceeds of crime confiscation.[8]

The proposed text was as follows:

“[Art 23(5)]: Without prejudice to any individual criminal responsibility of natural persons under this Statute, the Court may also have jurisdiction over a juridical person under this Statute. Charges may be filed by the Prosecutor against a juridical person, and the Court may render a judgement over a judicial person for the crime charged, if:

(a) The charges filed by the Prosecutor against the natural person and the juridical person allege the matters referred to in subparagraphs (b) and (c); and

(b) The natural person charged was in a position of control within the juridical person under the national law of the State where the juridical person was registered at the time the crime was committed; and 

(c) The crime was committed by the natural person acting on behalf of and with the explicit consent of that juridical person and in the course of its activities; and

(d) The natural person has been convicted of the crime charged.

For the purpose of this Statute, ‘juridical person’ means a corporation whose concrete, real or dominant objective is seeking private profit or benefit, and not a State or other public body in the exercise of State authority, a public international body or an organisation registered, and acting under the national law of a State as a non-profit organisation.”[9]

This was a compromise solution from France between liberal and romantic conceptions,[10] looking not only to convict ultimately the company or organisation, but rather still use it as a mechanism for attributing responsibility to individuals.[11] Several countries supported the concept, however prevailing concerns of enforcement and complementarity remained, especially for countries with no basis of corporate criminal liability. The matter was referred to the Working Group following mixed reception from states, however once there, negotiations met stifling time pressures.[12] Per Saland, the Chairman of the working group which negotiated issues surrounding Part 3 of the Rome Statute concerning these general principles of criminal law (including Article 25 on individual responsibility), has since revealed that time ran out for the Working Group when it came to discussion of some more difficult issues, including liability of legal persons.[13] David Scheffer, who was also involved in the negotiations, has confirmed that the combination of time pressures and complementarity concerns prevented the proposal from succeeding, however he has added that another contributing factor was a more fundamental concern that the “novelty” of the proposed corporate criminal liability would have “imperilled” the entire treaty’s ratification by states.[14]

No agreement was reached concerning subjecting legal persons. Article 25(3)(d) retained a reference to a ‘group of persons acting’,[15] so the French idea of individual participation in a larger collective was incorporated to an extent, however all references to legal persons have been removed in the final article. Perhaps unintentionally, a similar door for corporate liability remained ajar in article 7(2)(a), through reference to organisational policy.[16] In the ICC investigation into the Kenyan situation,[17] the Court examined this issue:

“Clearly, the 'organization' is an entity different from a "State" if the legislator was to avoid redundancy. Thus, it is permissive to conclude that an 'organization' may be a private entity (a nonstate actor) which is not an organ of a State or acting on behalf of a State [para 45].”

The Court delineated various ‘state-like’ characteristics that a non-state actor would have to demonstrate in order to qualify as an organisation under this article,[18] however none expressly excluded legal persons like companies from the article’s ambit. 

Andrew Clapham provides an in-depth history of the Rome Statute negotiations, and how controversial this question of legal persons became.[19] This episode has been treated as a definitive rejection of ICL liability for legal persons,[20] however the Rome Statute is just one (important) part of the larger ICL picture.


Post-Rome caselaw developments 

Since Rome, customary international law through Tribunals, treaty law, and domestic law have all developed. Most notably, for the first time legal persons have been subjected under ICL by an international criminal tribunal.[21] In the Al Jadeed S.A.L. & Ms Khayat (New TV S.A.L.)[22] case, an Appeals Panel for the Special Tribunal for Lebanon (STL) overturned a decision that the Tribunal lacked jurisdiction over legal persons on 2 October 2014, allowing the case to proceed against the corporate entity Al Jadeed S.A.L. and natural person Ms Khayat. This was then followed by another contempt case Akhbar Beirut S.A.L., similarly against a legal and natural person.[23] In New TV S.A.L., Judge Baragwanath acknowledged the development of domestic corporate accountability, and so determined that international criminal law has likewise progressed:

“Corporate liability for serious harms is a feature of most of the world’s legal systems and therefore qualifies as a general principle of law. Where States still differ is whether such liability should be civil or criminal or both. However, the Appeals Panel considers that… corporate criminal liability is on the verge of attaining, at the very least, the status of a general principle of law applicable under international law.”[24]

The decision has been met with a mixed reception. Filled with “historical references and normative ambition,”[25] some commentators have characterised the decision as an encouraging progression from state practice and foundation stone for future ICL criminal liability.[26] However the basis of Judge Baragwanath’s decision has been described by Dov Jacobs as a “molotov cocktail to kill the principle of legality” as the judge’s reasoning relied only on “the ‘spirit’ of the statute combined with inherent jurisdiction.” Others have found the later Akhbar Beirut S.A.L. opinion more convincing due to its more concrete basis in Lebanese law.

The Tribunal very consciously restricted their consideration and findings to the specific crime of contempt: looking to precedent, they examined only whether there had been previous findings on contempt with regards to legal persons in the various international criminal tribunals, and found there had “simply been no legal pronouncement on this specific issue.” [27] The Tribunal drew its power to prosecute for contempt from its inherent jurisdiction as a judicial institution.[28] Like the ICTY and ICTR before it, the STL’s primary jurisdiction for ‘core’ international crimes is explicitly over only natural persons, however the separate framework in the general Rules of Procedure and Evidence allowed the Tribunal to consider the broader definition of ‘persons’ for contempt.  The importance of this distinction for the case does also support Andrew Clapham’s argument that “at this point, the exclusion of non-natural persons can be seen as the consequence of a ‘rule of procedure’ rather than the inevitable result of application of international criminal law.”[29]

There is debate about the broader applicability of these decisions, because of the STL's ties to Lebanese law. The STL itself is a partially-domestic forum which reduces the ICL significance of an ‘international tribunal’ taking this step. The legal basis for the Tribunal’s decisions is at least partially grounded in Lebanese law -  Article 2 of the formative statute of the STL mandates the use of Lebanese law (under which corporate criminal liability is possible) - however it is debatable whether this case is purely an instance of domestic legal application of international criminal law. Article 2 concerns only the applicable criminal law, (i.e., the ‘core crimes’ discussed above) and not the procedural rules on which this decision was based, which are grounded in international law concerning international tribunals. It would then appear that the legal basis for this decision was purely international, and the Tribunal in New TV S.A.L. accordingly based their decision on  “current international standards,”[30] however in the Akhbar Beirut S.A.L. case the Tribunal links back the foreseeability of this corporate prosecution to Lebanese law: “It would be an oddity for a Lebanese company to face criminal sanction in Lebanon for interfering with the administration of justice with respect to cases before Lebanese courts and at the same time enjoy impunity for similar acts before an internationalised Tribunal guided by Lebanese law in carrying out its judicial work.“[31]

The highest profile media case last before an international tribunal also concerned the responsibility of legal persons. The International Criminal Tribunal for Rwanda (ICTR) had a special focus on the media’s role of incitement in the Rwandan genocide.[32] As the Tribunal in the Akayesu case positively quoted: “it was impossible that hundreds of thousands of people should commit so many crimes unless they had been incited to do so.”[33] The ICTR case of Prosecutor v. Nahimana et al.[34] (also known as the Media Case) tried three natural persons for their roles in inciting the Rwandan genocide. Two of these were the controlling figures of media organisations: RTLM was a radio station and Kangura a publication. The court found a specific “specific causal connection” between RTLM broadcasts and the killings, which “engaged in ethnic stereotyping …[which] called explicitly for the extermination of the Tutsi ethnic group.”[35] The articles published by Kangura similarly had the impact of “whipping the Hutu population into a killing frenzy.”[36] What was distinctive about this case was that the court, before outlining the individual responsibility of the named accused, went into great detail about the culpability of the organisations in question. The court named the media organisations themselves as responsible for inciting genocide: “If the downing of the [President’s] plane was the trigger, then RTLM, Kangura and CDR were the bullets in the gun.”[37] It was not possible under the ICTR’s jurisdictional mandate to subject legal persons and so the court in the Media case did not broach this issue, however the structure and substance of the court’s reasoning centred primarily on the responsibility of the organisations, and only after did the court then address the roles of the natural persons who were actually on trial.

What may merit further investigation is how media cases before international tribunals differ from the prosecution of other international crimes that corporate actors engage in, such as pillage or complicity. The media acts as the ‘fourth estate’, a fundamental and (ideally) independent pillar of a functioning system of democratic governance. Arguably then, media companies are not purely private, non-state actors but serve a partially civic function, and so are in some ways fundamentally different actors than other corporate entities.[38] How the unique role of this specific ‘private’ actor impacts its liability under ICL warrants further investigation.


International instruments imposing some form of corporate liability

A growing number of recent international treaties and conventions are incorporating obligations to impose sanctions on legal persons.[39] These include the Optional Protocol on the Convention on the Rights of the Child (Article 3(4)), Convention Against Transnational Organised Crime 2000 (Article 10(2)), and Convention Against Corruption 2003 (Article 26 (2)). As pointed out by Sabine Gless and Sarah Wood, these instruments remain vague about implementation.[40] Nonetheless, for these crimes states are required in some form to impose sanctions on legal persons.[41]

The Draft Articles on Crimes Against Humanity being prepared by the International Law Commission (ILC) may go the same way as the afore-mentioned draft of the Rome Statute, but for now Draft article 6, paragraph 8 contains explicit subjection of legal persons:

“Subject to the provisions of its national law, each State shall take measures, where appropriate, to establish the liability of legal persons for the offences referred to in this draft article. Subject to the legal principles of the State, such liability of legal persons may be criminal, civil or administrative.”

This final sentence allows for flexibility in domestic application, however the offences being contemplated are international crimes. This convention is being designed to be a development from the Rome Statute, the “next generation” of legal tools concerning crimes against humanity.[42] The addendum to the ‘Fourth report on crimes against humanity’ drafted by Sean D. Murphy, Special Rapporteur of the ILC, links this article with the previously mentioned international law instruments which are subjecting legal persons.


Conclusion

The ICC is as yet not touched by these developments, however there are glimmerings of a shift in customary ICL. As will be explored in the next post in this series, most domestic legal systems now have established mechanisms for prosecuting legal persons for violations of ICL. The Rome Statute negotiations surrounding the subjection of legal persons were centralised on complementarity; if domestic law has fundamentally shifted in the interim period it makes sense that this issue be revisited in international caselaw and international instruments as well.


[1] David Scheffer, ‘Corporate Liability under the Rome Statute’ (2016) 57 Harvard International Law Journal Online Symposium 35, 35.

[2] Per Saland, ‘International Criminal Law Principles’ in Roy S Lee (ed) The International Criminal Court: The Making of the Rome Statute (Kluwer Law International NL, 1999) 190-191.

[3] ibid.

[4] Andrew Clapham, ‘The Question of Jurisdiction under International Criminal Law over Legal Persons: Lessons from the Rome Conference on an International Criminal Court’, in Menno Kamminga and S Zia-Zarifi (eds), Liability of Multinational Corporations Under International Law (Kluwer Law International, 2000) 139, 142.

[5] ‘Summary records of the plenary meetings and of the meetings of the Committee of the Whole’ in Official Records of the United Nations Diplomatic Conference of Plenipotentiaries on the Establishment of an International Criminal Court, Rome, 15 June-17 July 1998, Vol. II, UN Doc. A/Conf.183/C.1./L.3, 132.

[6] ibid 133.

[7] Clapham (n 4) 147.

[8] ‘Summary records of the plenary meetings and of the meetings of the Committee of the Whole’ (n 5) 133.

[9] ‘Working paper on article 23, paragraphs 5 and 6, UN Doc. A/Conf.183/C.1/WGGP/L.5/Rev.2, 3 July 1998in Official Records of the United Nations Diplomatic Conference of Plenipotentiaries on the Establishment of an International Criminal Court, Rome, 15 June-17 July 1998, Vol. III, 252.

[10] “A liberal conception of responsibility focuses on individual agency and abstracts individual wrong from collective action. The ‘romantic’ view admits that international crimes are typically by their very nature committed in collectivities, and thus closely connected to some degree of collective will. The two traditions have been in conflict since the naissance of international criminal law.” in Carsten Stahn, ‘Liberals vs. Romantics: Challenges of An Emerging Corporate International Criminal Law’ (2018) 50 Case W Res J Intl L 91, 99.

[11] ibid, 100.

[12] Saland (n 2) 194.

[13] ibid.

[14] Scheffer (n 1) 38.

[15] See the Case Matrix Network commentary on Article 25(3)(d) for the relationship between this and the doctrine of Joint Criminal Enterprise (JCE).

[16] “‘Attack directed against any civilian population’ means a course of conduct involving the multiple commission of acts referred to in paragraph 1 against any civilian population, pursuant to or in furtherance of a State or organizational policy to commit such attack” [emphasis added].

[17] Decision Pursuant to Article 15 of the Rome Statute on the Authorization of an Investigation into the Situation in the Republic of Kenya: ICC-01/09-19-Corr 01-04-2010 110/163

[18] “[para 68] As I have endeavoured to demonstrate above, certain criteria need to be satisfied to qualify a non-state actor as an 'organization' under the ambit of article 7(2)(a) of the Statute. This state-like 'organization' is the author of a policy "to commit such attack" against any civilian population which is implemented by its members using the means of the 'organization'. As in case of a State policy, it seems to me that the "organizational policy" must be established at the policymaking level of the ‘organization'."

[19] Clapham (n 4) 142.

[20] This negotiation process was used as a basis for the UK and Netherlands Amici Curiae brief in the Kiobel case, which argued that there was no corporate liability under international criminal law: “corporations have been deliberately excluded from the jurisdiction of the International Criminal Court.” Brief of the Governments of the United Kingdom of Great Britain and Northern Ireland and the Kingdom of the Netherlands as Amici Curiae in support of the Respondents (No. 10-1491) (filed 3 February 2012), 17.

In the Jesner v. Arab Bank, PLC decision, the negotiation process was cited by both Justice Kennedy in the lead decision [p 15] and Justice Sotomayor in her dissent [p 8], the former using it as evidence of ICL's rejection of corporate liability, and the latter characterising it as evidence merely of varying domestic practices and not a definitive rejection of corporate civil liability under the Alien Tort Statute (as was one of the issues in this case).

[21] Nadia Bernaz, ‘Corporate Criminal Liability under International Law: The New TVS.A.L. and Akhbar Beirut S.A.L. Cases at the Special Tribunal for Lebanon’ (2015) 13 Journal of International Criminal Justice, 313, 313.

[22] New TV S.A.L, Decision on Interlocutory Appeal Concerning Personal Jurisdiction in Contempt Proceedings, Al Jadeed S.A.L. & Ms Khayat (STL-14-05),, Special Tribunal for Lebanon Appeals Panel (2 October 2014).

[23] Akhbar Beirut S.A.L., Decision on Interlocutory Appeal Concerning Personal Jurisdiction in Contempt Proceedings, Case No STL-14-06/PT/AP/AR126.1, 23 January 2015.

[24] New TV S.A.L. (n 22) para 67.

[25] Stahn (n 10) 98.

[26] See Nadia Bernaz (n 21).

[27] New TV S.A.L. (n 22) para 41.

[28] As articulated in Rule 60 bis (A) [Contempt and Obstruction of Justice] of the Rules of Procedure and Evidence for the STL.

[29] Andrew Clapham, ‘Extending International Criminal Law beyond the Individual to Corporations and Armed Opposition Groups’ (2008) 6 Journal of International Criminal Justice 899, 902.

[30] New TV S.A.L. (n 22) para 60.

[31] Akhbar Beirut S.A.L. (n 23) para 59.

[32] “The power of the media to create and destroy fundamental human values comes with great responsibility. Those who control such media are accountable for its consequences.” Prosecutor v. Nahimana et al., ICTR–99–52, Judgment and Sentence (3 December 2003) para 945.

[33] Akayesu (TC) ICTR-96-4 (2 September 1998) para 551.

[34]Prosecutor v. Nahimana et al., ICTR–99–52, Judgment and Sentence (3 December 2003) para 953.

[35] Ibid para 949.

[36] Ibid para 951.

[37] Ibid para 953.

[38] This might be a controversial statement within the broader debate in Business Human Rights circles concerning the civil functions, and public duties and responsibilities, of all companies.

[39] Bert Swart cites seventeen international instruments which have provisions on corporate criminal liability with discretion concerning state-level sanctions, “while before 1997 none existed at all": Bert Swart, ‘International Trends Towards Establishing Some Form of Punishment for Corporations’ (2008) 6 J International Grim Just 947, 949.

[40] Sabine Gless and Sarah Wood, ‘General Report on Prosecuting Corporations for Violations of International Criminal Law: Jurisdictional Issues’ in S Gless and S Broniszewska (eds) Prosecuting Corporations for Violations of International Criminal Law: Jurisdictional Issues (International Colloquium Section 4, Basel, 21-23 June 2017) 16.

[41] ibid.

[42] See a summary of Professor Murphy’s 2015 Supranational Criminal Law Lecture at the T.M.C. Asser Instituut.

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Doing Business Right Blog | The Dutch Agreement on Sustainable Garment and Textile. Taming transnational supply chains via corporate due diligence.

The Dutch Agreement on Sustainable Garment and Textile. Taming transnational supply chains via corporate due diligence.

The six months between 2012 and 2013 represented a turning point for the garment industry. On 24 April 2013, the Rana Plaza building collapse in Bangladesh killed more than 1100 workers. Just a year before, more than 350 garment workers died in two factory fires in Pakistan and Bangladesh. These three tragedies, among the deadliest industrial disasters in recent times, generated a previously unseen level of outrage to which followed a considerable mobilisation by civil society, business communities, States, and international organisations. Apart from the horror stemming from the loss of lives, mostly of young women, the three catastrophes were particularly shocking for Western audiences as they exposed our ignorance and even complicity. It turned out that we - the consumers – turn a blind eye to the working conditions, including health and safety, of garment workers. Thereafter, it was impossible to ignore that well-known brands we regularly purchase were connected to these production sites, which were regular suppliers of many European and American clothing companies.

A certain consensus has since then coalesced around possible means to avoid the reoccurrence of such tragedies, which has pivoted on the concept of corporate due diligence in investigating the impact of their operations and taking measures to protect human rights. Due diligence relies heavily on corporate practice in defining and implementing strategies limiting their negative impact. Initiatives at the national level such as the Dutch Agreement on Sustainable Garment and Textile can be seen as interesting attempts to constrain into a more structured frame the due diligence process. The question, as usual, is whether this is enough.

Changing supply chain and novel transnational regulatory approaches

In Twenty-First century capitalism, manufacture spans across the globe in global value chains. Corporations in Western countries are connected to myriads of suppliers and contractors responsible for different steps in the production process. In the garment industry, retailers in the Global North are connected through a network of contractual relations to independent entities across the world which, in turn, often subcontract production and assembly to other firms and producers all the way down to those responsible for the production of inputs such as cotton and other fibres. The retailer has little influence on all these entities, and its control remains often indirect at best. Global value chains make it difficult for companies to structure their relations with their suppliers in a way which limits the negative impact linked to their activities. In addition, also single States are impotent in the regulation of diffuse supply chains if they want to limit their negative impact on human rights, labour rights, and the environment. Indeed, the contribution from countries where production is located is essential, especially for the enforcement of labour and health and safety standards. Also corporations are required to step up their efforts in dealing with their partners in the supply chain.

The several regulatory efforts initiated in the aftermath of the Rana Plaza illustrate a novel multi-actor, multi-level, and less top-down approach to the regulation of transnational business conduct which aims at overcoming the jurisdictional constraints of State rules. The proliferation of global value chains and their increased impact coincided with a process that, under international law at first, switched the consensus about which actors should be responsible for regulating supply chains, and by means of which tools. This process culminated with the United Nations Guiding Principles on Business and Human Rights, that affirmed the principle of corporate responsibility to respect human rights. Corporate due diligence was chosen as a regulatory strategy to ensure the protection of human rights. Due diligence is a continuous process which requires enterprises to assess actual and potential human rights impact directly linked to their activities. Companies must design strategies to proactively minimise and correct their negative impact.  Transparency in the form of communication of corporate impact to external stakeholders is an important component of due diligence. Companies are expected to regularly report about the effects of their operations and the corrective response taken in order to build trust of all actors involved, including workers, consumers, NGOs, and even investors.

It is within the framework of these principles that the many public and private regulatory efforts that followed the Rana Plaza disaster must be understood. As initiatives in the area of garment have proliferated, a peculiar form of ‘division of labour’ began to take shape at the transnational stage. On the one hand, initiatives involving trade unions, business actors, States and international organisations such as the ILO, have addressed worker safety in Bangladesh,[1] and compensations and reparations for the families of the victims.[2] On the other hand, States aimed at improving working conditions in Bangladesh through programs focused on training and capacity-building.[3] Other initiatives took a ‘global’ approach by creating mechanisms capable of harnessing business conduct generally, and not just in a specific country. Crucial OECD work has focused on the practical implementation of due diligence procedures. Thus, the OECD Due Diligence Guidance for Responsible Supply Chains in the Garment and Footwear Sector constitutes one of the first sector-specific implementing document of the OECD’s set of standards for responsible business conduct - the OECD Guidelines for Multinational Corporations, the first version of which dates back to 1976. 

Enter the Dutch Agreement on Sustainable Garment and Textile

The Dutch Agreement on Sustainable Garment and Textile is one of the first initiatives at the national level supporting the implementation by corporate actors of their due diligence obligations. At the same time, it attempts to ‘harden’ business obligations to perform human rights due diligence in the supply chain, and provides means to enforce an obligation which could not stem from the UNGP. The Agreement represents an interesting example of multi-stakeholder efforts in the regulation of fundamental socio-economic issues, where industry organisations, trade union, non-governmental organisations and the Dutch government agreed to join forces to ensure responsible business practices in the global garment and textile supply chain.

The Agreement expressly builds on the UN Guiding Principles and on the OECD Guidelines in order to i) making progress in 3-5 years towards the improvement the conditions of groups affected by adverse impacts in respect of specific risks in the garment and textile supply chains; ii) to provide business actors with a set of tools for preventing their operations and production from negatively impacting on their supply chain; iii) to develop joint projects to address issues that single companies could not tackle successfully. The Agreement was signed in July 2016 by 55 companies with their representative organisations - together constituting around 30% of the sectors in the Netherlands, 5 NGOs, the Dutch trade unions, and the Government. Signatories are expected to engage with business actors which did not enter into the Agreement and urge them to sign, so that the market shares of the companies involved reaches at least 50% by 2018 and 80% by 2022.

The commitments made by the enterprises

Enterprises party to the Agreement assume certain obligations, the main of which being the inclusion of nine ‘themes’ in their internal policies for responsible business conduct. Interestingly, the Agreement takes up a broad scope with respects to the supply chain risks which corporations must tackle, including not just human rights and work-related issues such as forced labour, freedom of association and living wage, but also safety and health concerns, and even gender themes, environment and pollution, and animal welfare. The detailed components of each specific theme are laid down in the Annexes to the Agreement. The obligation to address these issues is operationalised via due diligence processes which, in line with the OECD Guidance, must be communicated to all partners in the supply chain and other stakeholders, and must be performed in a manner proportionate to the size of the business and the specific circumstances of the operations.

 The commitment to conduct due diligence on the nine themes identified in the Agreement is far from being just hortative. In the first place, companies are given access to a set of tools for implementation provided for by the Secretariat. Corporate signatories are then required to annually submit an ‘action plan’ for assessment and approval by the Secretariat of the Agreement. Such an ‘action plan’ does not seem to be contemplated by the OECD Guidance, which only refers to a Corrective Action Plan with a different content. The action plan is not available to the public in light of confidential business information about suppliers and pricing policies. Nonetheless, the information required therein forces companies to gather information about their operations and to reflect upon their own practices. The plan must present the insights gained through due diligence about the structure of their supply chain. It must address how specific purchase practices of the companies, including prices, delivery times and duration of the contacts of supply, may increase risk in their supply chain. The action plan also requires companies to substantiate their policies with regards to the nine themes, and formulate measurable targets for improvement.

The Agreement explicitly stresses the ‘business case’ for an early-mover engagement in responsible production. Indeed, it allows signatories companies to anticipate the growing trend of mandatory due diligence, which is particularly noticeable in the EU. After the Directive on non-financial reporting and the Regulation on conflict minerals, the European Parliament has recently tabled a Motion to require the Commission to propose mandatory regulation for the garment supply chain. Different from mandatory due diligence as laid down, for example, in the conflict minerals Regulation, the Agreement does not contemplate third party auditing of due diligence, the outcome of which must normally be made public by companies. In any event, signatory corporations to the Agreement can publicise their participation, can rely on the support of other parties in its implementation, and have access to a growing corpus of best practices that the signatories are going to share within the framework of the Covenant. Companies can also rest assured that, in case information arises concerning an enterprise’s adverse effects in the supply chain, other parties (presumably NGOs) will not make the information public before the elapsing of a two-week period during which the involved company must produce a ‘satisfactory result’.

Institutional features, mechanisms for review and dispute settlement

Certain institutional features constitute the most innovative and interesting elements of the Agreement, which sets up permanent institutions responsible for monitoring companies’ action plans and for settling disputes. The Steering Group and its Secretariat are instrumental in overseeing compliance with the Agreement, in pushing companies towards respecting the commitments in their action plans, and in ensuring that continuous improvement takes place. The Steering Group, which acts by consensus and whose composition reflects the multi-stakeholder character of the Agreement, is responsible for its day-to-day management and possible projects for its implementation. The Steering Group is supported by a Secretariat.

The Secretariat serves as a central source of expertise, training and support for enterprises in the area of due diligence. Its most important task is, however, the assessment of companies’ action plans elaborated within the frame of their due diligence obligation. The assessment is performed against the text of the Agreement itself, the OECD Guidance, and the context of operation of the enterprise under review. Specific elements of due diligence are under scrutiny as well, such as the way the company communicates its principles and policies for ‘international responsible business conduct’, and how these policies are implemented in its daily operations. The review shall also appraise the way the company has analysed risk of adverse impact, whether it has collected sufficient information about its supply chain, whether it has prioritised its activities, and investigated the correlation between its own practice and adverse impact.

The review of the action plan evaluates the undertakings for improvement both with respect to the reduction of its adverse impact, the monitoring of its suppliers and the insights acquired over its operations, and theme-specific suggestions made by the parties to the Agreement. Further, the Secretariat compares the companies’ objectives with respect to each of the nine themes. Companies with less ambitious goals and which may be expected to do more, given their size and context of operations, will be ‘asked’ to scale up their efforts. Under this scenario, the enterprise is given the opportunity to present a revised action plan after two months. The Secretariat is also empowered to randomly verify that the information supplied is accurate. Finally, the Secretariat prepares aggregated annual public reports of the results achieved and of the improvements in the supply chain.

The review of action plans is given a prominent place in the Agreement, although it seems to lack real enforcement tools. A dispute settlement mechanism is created to solve disagreements (that the Agreement defines as ‘disputes’) between the company and the Secretariat about its assessment. Such disputes are limited to the review of the action plans, and not the appraisal of other elements of individual due diligence. An independent Complaints and Dispute Committee will be appointed by the Parties, with the competence to assess whether, with specific respect to action plans, a signatory enterprise is acting in accordance to the Agreement. The ruling of the Committee is binding both on the enterprise in question and on the Secretariat, which is entrusted with monitoring compliance. In case a company fails to comply with the ruling of the Committee after the timeframe it has specified, all information the Secretariat possesses on the company in question, including the dispute proceedings, is released to the Steering Committee members, excluding the business ones. The Agreement does not clarify whether the reports can be made public. At this stage, the Steering Committee can then only ‘issue written reminders’ to urge compliance. In the presence of further disagreement over compliance with a decision of the Complaints and Dispute Committees, one or more parties to the Agreement can submit the question to arbitration by the Netherlands Arbitration Institute (NAI). The standard of review of the NAI is expressly limited to ‘review marginally’ whether or not the company is in compliance with the binding advice of Committee. As it can be seen, no sanctions stem from failing to comply with the Committee’s advice. This questions whether the Agreement actually provides with real tools to scale up ‘sloppy’ commitments, or even just to enforce current ones, apart from offering a platform for discussion and peer pressure.

A second mechanism is contemplated for ‘complaints’, which can be raised by any stakeholder suffering injury, loss, or damage caused by a company party to the Agreement. As a non-negligible limitation, the subject matter of the complaint must be ‘of material significance’ to the complaining party, and must be substantiated in relation to the responding business party. This mechanism however is only ‘residual’. To the extent it may overlap with the jurisdiction of another dispute settlement mechanism (arguably the National Contact Point for the OECD Guidelines), the Agreement gives precedence to the latter one. It can therefore be expected that the complaints mechanism under the Agreement will deal with, for example, complaints linked to themes which are outside the scope of the OECD instruments. While the subject of the complaint and the parties involved are made public, the rest of the proceeding is not accessible, and the parties must withhold any information. Also the public nature of the binding ruling can be questioned, as parties can require confidentiality for competition and privacy concerns. The Committee will rule on whether the company is acting in accordance with the Agreement. In case further failure to comply with a ruling of the Committee is due to a supplier which cannot be induced to cooperate, such supplier is black-listed and parties to the Agreement are no longer allowed to purchase from it. In case of ‘unjustifiable’ failure to comply, parties can release information to the public about the dispute as well as express their opinion on the failure to comply. As a measure of last resort, parties can also request to the Steering Committee that the enterprise in question is expelled from the Agreement.

The challenges lying ahead

The Agreement is a much needed step to ensure more responsible practices in the Dutch garment sector, and to foster corporate due diligence. Its most important contribution appears to be the establishment of a system to enforce voluntary commitments. However, its multi-stakeholder nature has required certain compromises limiting the extent of review of due diligence practice and the amount of insight the public can acquire about a specific company and its supply chain. Although companies are required to perform due diligence, it is unclear whether, and if so to what extent, the way the due diligence process is operationalised in practice is checked. This should be compared with the approach followed by recent EU legislation contemplating auditing of the processes implemented by enterprises, and thereafter the release of the findings. Granted, the power of peer pressure should not be underestimated as a check on companies’ action plans. The establishment of a permanent structure capable of exercising pressure on corporate entities to force them to respect their commitments, and eventually to scale them up, appears a sensible approach to engage companies in behaviour that, as of now, goes beyond legal provisions which would otherwise be applicable.

Within this frame, it is regrettable that action plans are not made available in a disaggregated form, so as to allow the public to evaluate the commitments entered into by specific corporations. If one of the purposes of the Agreement is to establish a framework for accountability with respect to their own commitments, then more transparency would have certainly be welcomed. Wouldn't it be sufficient to remove sensitive information from action plan? Generally, transparency can also allow the public to form a better understanding of the garment supply chain in which Dutch companies operate. Admittedly, the situation could improve, as companies are to decide - within 1 year from the entry into force - which information to disclose and - within 3 years - how to communicate individually to the public. Developments are still possible as companies are expected to begin implementation of their actions plans in July 2017. Future practice of the Secretariat, the Steering Committee, and especially of the signatory companies will be key to determine the impact of the initiative.



[1] Alliance for Bangladesh Worker Safety, supported by US businesses; Accord on Fire and Building Safety in Bangladesh, which features a tripartite structure.

[2] Rana Plaza Arrangement.

[3] Sustainability Compact for Bangladesh.

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Doing Business Right Blog | National Human Rights Institutions as Gateways to Remedy under the UNGPs: The Australian Human Rights Commission (Part.4) - By Alexandru Tofan

National Human Rights Institutions as Gateways to Remedy under the UNGPs: The Australian Human Rights Commission (Part.4) - By Alexandru Tofan

Editor's Note: Alexandru Rares Tofan recently graduated with an LLM in Transnational Law from King’s College London where he focused on international human rights law, transnational litigation and international law. He is currently an intern with the Doing Business Right project at the Asser Institute in The Hague. He previously worked as a research assistant at the Transnational Law Institute in London on several projects pertaining to human rights, labour law and transnational corporate conduct.


The Australian Human Rights Commission (AHRC) is charged with leading the promotion and protection of human rights in Australia and with ensuring that Australians have access to effective complaint and public inquiry processes on human rights matters (see the Australian Human Rights Commission Act No 125, hereinafter ‘the Act’). The AHRC was established in 1986 as the Human Rights and Equal Opportunity Commission but underwent a name change and several other amendments through the 2003 Australian Human Rights Commission Legislation Bill (see also the Explanatory Memorandum). The AHRC primarily exercises the functions conferred on it by four federal anti-discrimination acts, namely the Age Discrimination Act 2004, the Disability Discrimination Act 1992, the Racial Discrimination Act 1975, and the Sex Discrimination Act 1984 (see s.11). It is further empowered to act on the basis of several international human rights instruments such as the ICCPR (see here). Specifically, the AHRC advises the federal government on the compatibility of its legislation with human rights, promotes an understanding and acceptance of human rights in Australia, undertakes research and educational programmes, intervenes in court proceedings as an amicus, and it may handle complaints through its conciliatory process (see s.11 (1) (a)-(o)). Notably, the AHRC enjoys an open-ended mandate in that s.11 (1) (p) stipulates that it may undertake any action that is incidental or conducive to the performance of the functions contained in subparagraphs (a) to and including (o). The Commission is made up of one president and seven specialised commissioners (see s.8 (1)). Its headquarters are located in Sydney.

This article analyses two types of actions in order to assess the extent to which the AHRC has assumed its role in promoting access to remedy in business and human rights cases. According to the 2010 Edinburgh Declaration of the International Co-ordinating Committee of National Institutions for the Promotion and Protection of Human Rights (ICC), the participation of NHRIs in the remedial process may be either direct or indirect. As will be shown, the AHRC’s mandate to entertain complaints against companies is rather limited in terms of subject-matter jurisdiction. On the other hand, the Commission plays a prominent role in the promotion and operationalisation of the UNGPs in Australia.

As to direct participation to access to remedy, three types of complaints fall under the jurisdiction of the Commission’s complaints mechanism. Firstly, the AHRC may resolve complaints alleging unlawful discrimination, harassment and bullying in so far as they relate to one of the prohibited grounds of race, disability, age and sex (including gender identity, intersex status and sexual orientation). The second type of complaints that the Commission may entertain are those relating to discrimination in employment. The prohibited grounds on which such a complaint may be based include a person’s criminal record, trade union activity, political opinion, religion and social origin. Thirdly, the AHRC may resolve complaints arguing breaches of any human right but only to the extent that the alleged perpetrator is the Australian government or one of its agencies. It should be borne in mind however that the Commission is an administrative body and that it therefore does not have the capacity to make binding and enforceable judicial decisions. As the High Court ruled in the Brandy case, such a power would be unconstitutional and the Commission may therefore only act in a conciliatory capacity.

Once such a complaint is filed, the Commission begins a non-adversarial process of conciliation whereby it seeks to help the parties reach an agreeable outcome. The most common types of reparations include apologies, policy changes and pecuniary compensation. Out of 1,262 conciliation processes carried out in 2017-2018, 74% were successfully resolved according to both parties (see here at page 15). Nevertheless, if such an outcome cannot be reached, complaints may be taken further to the federal courts. This process exemplifies the Commission’s complementary role in providing remedy for human rights violations. Nonetheless, the AHRC’s complaints mechanism suffers from a narrow mandate in terms of business and human rights. It may only entertain complaints against companies in so far as these fall under the first or second category of complaints. Other alleged breaches of human rights against companies escape the Commission’s competences. The AHRC’s direct participation in providing access to remedy in business and human rights cases is therefore rather limited. While the conciliatory process fits the role envisioned for NHRIs under the UNGPs, the limitation of the mandate to allegations of discrimination curtails the AHRC’s potential as an alternative to instituting judicial proceedings.

On the other hand, the Commission’s indirect participation in promoting access to effective remedy is slightly more robust. The AHRC has elaborated a fully-fledged business and human rights agenda upon which it has based several activities meant to raise awareness and promote dialogue (see also here at page 23). For instance, the Commission convenes an annual business and human rights dialogue jointly with the Global Compact Network Australia that focuses on capacity-building by helping businesses operationalise the UNGPs. Access to remedy has been a central theme in these dialogues (see for instance the outcomes of the 2015 and 2016 dialogues). The AHRC has further endeavoured to help companies internalise the UNGPs by developing easy to understand factsheets on how to best integrate human rights in business policies and practices. Alongside working with businesses, the Commission has collaborated with the civil society with the purpose of finding a way to better operationalise the UNGPs in Australia. In 2016, the AHRC hosted a roundtable discussion with civil society representatives, which culminated in a joint statement. This tackled among others the upcoming National Action Plan of Australia and the measures this should include to ensure adequate access to remedy. On a regional level, the AHRC has participated in the Interregional Dialogue on Business and Human Rights, which was hosted by the ASEAN Intergovernmental Commission on Human Rights. As a part of this dialogue, the Australian Commission convened a roundtable discussion on the NHRI’s engagement with business and human rights issues under the framework of the UNGPs (see here at page 42).

In conclusion, while the Australian Human Rights Commission plays an important role in the promotion and implementation of the UNGPs in Australia, its role is considerably more prominent in terms of indirect rather than direct participation in providing access to remedy for business-related human rights harms.

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Doing Business Right Blog | Doing Business Right Event! Supply chain regulation in the garment industry on 29 June @Asser Institute

Doing Business Right Event! Supply chain regulation in the garment industry on 29 June @Asser Institute

The negative impact on human rights of what we wear is not always well-known to the consumer. Our clothing consumption has increased over five times since the Nineties. At the same time, the business model of certain fashion brands is too often dependent on widespread human rights and labour rights violations to be profitable, cheap, and fast. The 2013 tragedy of Rana Plaza, where more than 1100 garment workers died, gives us just a small hint of the true costs of our clothes and footwear. Efforts by governments to tame the negative effects of transnational supply chains have proven difficult due to the extreme delocalisation of production, and the difficulty to even be aware of a company’s last tier of suppliers in certain developing countries. 

However, in recent years, initiatives have emerged which pivot on business’ due diligence and self-regulation, under a process initiated and supported by governments, international organisations and NGOs. The approval, in February 2017, of the OECD Due Diligence Guidance for Responsible Supply Chains in the Garment and Footwear Sector might induce a transformation in the way the sector deals with the issue. It is a multi-stakeholder-negotiated guidance tool specifically designed for enterprises in the garment and footwear supply chain to implement the due diligence recommendations contained in the OECD Guidelines for Multinational Enterprises, the UN Guiding Principles on Business and Human Rights, the Universal Declaration of Human Rights, and a host of ILO Conventions and Recommendations. At the national level, just a few months earlier, in July 2016, the Sustainable Garment and Textile Sector Agreement was signed by the Dutch Government, trade unions, several business and non-governmental organisations. When producing in developing countries, the signatories commit to cooperate on the prevention of discrimination, child labour and forced labour, to promote the right to collective bargaining by independent trade unions, living wages, healthy and safe working conditions, and to reduce the negative environmental impact of clothing production. Also EU activity is on the rise: the EU Commission in recent years has initiated a host of initiatives in the framework of external action, and the European Parliament has recently approved a motion for a EU flagship initiative on the garment sector calling on the Commission to table a proposal for mandatory supply chain regulation.

On 29 June 2017, the T.M.C. Asser Institute organises a roundtable on sustainability in the garment industry to discuss how better regulation can tame the negative effects of transnational supply chains. The roundtable brings together experts from international organisations, EU institutions, the Dutch government, non-governmental organisations, and the business world. The speakers will discuss the evolution of the regulatory efforts to curtail human rights violations in global supply chain by means of the establishment of clear, precise and enforceable commitments for the business community. They will highlight social, economical, and legal challenges and opportunities lying ahead for public and private partnerships in the transnational regulation of business conduct.

Program:

14:30 - 14:45 Opening - Antoine Duval (Asser Institute)

14:45 - 15:15  Keynote presentation

‘Corporate due diligence in the garment industry. Which role for the European Union?’ Judith Sargentini, Member of the European Parliament (GroenLinks)

15:15 – 16:30 Panel Roundtable - Enrico Partiti (Moderator, Asser Institute)

  • Mariëlle van der Linden (International CSR Unit Dutch Ministry of Foreign Affairs)
  • Lodewijk de Waal (Chairman, National Contact Point for the OECD Guidelines on Multinational Enterprises
  • Roel Nieuwenkamp (Chair OECD Working Party on Responsible Business Conduct)
  • Sibbe Krol (The Sustainable Trade Initiative)
  • Jeroen van Dijken (Vereniging van Grootwinkelbedrijven in Textiel (VGT)

16:30 – 17:00   Q&A

17:00  Reception

Registration: Registration for this event is mandatory, as a limited number of seats are available. Please register here    

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Doing Business Right Blog | Transnational legal development and the platform economy - Part 1: Uber’s foray into transnational regulation - By Morshed Mannan and Raam Dutia

Transnational legal development and the platform economy - Part 1: Uber’s foray into transnational regulation - By Morshed Mannan and Raam Dutia

Editor's note: Morshed Mannan is a Meijers PhD candidate at the Company Law department of Leiden Law School. He received his LL.M. Advanced Studies in International Civil and Commercial Law (cum laude) from Leiden University and has previously worked as a lawyer and lecturer in Dhaka, Bangladesh. Raam Dutia is currently an intern with the Doing Business Right team at the Asser Institute. He recently received his LL.M. Advanced Studies in Public International Law (cum laude) from Leiden University and has worked at an international law firm in London on a range of debt capital markets transactions.

 

For many, Uber epitomises the "move fast and break things" ethos of successful Silicon Valley start-ups. The company enters new markets before regulators are ready, capitalising on regulatory bottlenecks and uncertainties in numerous jurisdictions – only to enlist its enthusiastic customer base and other means to challenge regulators when they catch up. The backlash against this mode of operation has been severe, and boycotts and a litany of lawsuits appear to have dented Uber's image and plunged the company into crisis.[1] Elisa Chiaro’s recent blogpost discussed the implications of platform economy enterprises, such as Uber, on the rights and protections of workers. In this, the first of a series of blogposts, we will take a broader view by exploring whether the company’s concerted efforts to conduct operations in a way that avoids or attempts to undermine local, state and national regulations shapes the law across the markets in which it operates. This will be done by appraising the growing literature on the effect of its regulatory arbitrage[2] and evaluating whether the company’s use of algorithms, in conjunction with standardized service agreements, rider agreements and other contracts to govern the relationships between various stakeholders, establishes it as a source of transnational lawmaking within a large network of well-defined stakeholders: drivers, riders and civil society. Uber’s business practices and litigation in the UK will be used as a case study that is illustrative of broader trends. By doing so, we hope to contribute a deeper understanding of the patterns that have emerged through Uber’s local activities in several jurisdictions. In later entries, we will examine the response to these attempts at regulatory arbitrage and private ordering as well as the repercussions this has on the contemporary regulation of the platform economy.

 

Exploiting regulatory uncertainties

The idea of Uber was born out of solving a need. The apocryphal story of Uber’s founders waiting in the snow for a Parisian taxi that never arrived can be interpreted in at least two ways. First, as a commentary on the tired state of local transport, a system that is perceived to be slow, infrequent, expensive and inconvenient. Second, as an indictment of the regulatory framework that distorted the supply and demand of transportation services by, for instance, restricting the number of taxi medallions available in a metropolitan area at a certain time. Instead of suggesting that these inefficiencies be ameliorated by revisiting local or national legislation, the founders of Uber created a technological means to bypass regulation altogether. From the time it was known as UberCab in San Francisco to the early years of its global expansion, the company’s modus operandi has been “ride first, ask questions later”. It would roll out its services in a new market, voraciously recruit drivers and match them to passengers at scale irrespective of local licensing requirements. By the time regulators catch up, requiring Uber to obtain a private hire vehicle (PHV) operator license or banning it outright, it would have attracted a loyal base of riders and drivers with which such a measure would be deeply unpopular. While instituting measures such as aggressive litigation[3] or lobbying national or regional authorities to pre-empt municipal regulation categorising Uber as a taxi service,[4] the company leverages its popularity in order to challenge cease-and-desist orders, unfavourable ordinances and license cancellations.[5] Whether Uber's actions are undesirable remains the subject of heated debate,[6] yet the company has ultimately been able to exploit the uncertainty over its position to its advantage, helping it (at least partially) reach a valuation of around USD 48 billion in late 2017 and establishing a presence in 633 cities in over 80 countries and territories. In London alone, there are over 30,000 drivers and 2 million registered riders. As one academic persuasively argues, Uber is the archetype of the ‘postindustrial’ corporation. In lieu of productive enterprise, the company maximizes shareholder value through regulatory arbitrage and evasion, along with (ideational) asset manipulation and speculative activity.[7] 

This is manifested in Uber’s bold claims to be a mere licensor of software.[8] This pretension, based on the rupture between the legal structure and economic reality of the business, has been the central cause of myriad legal dilemmas for its drivers and riders. As a purported consumer of Uber’s software, drivers are presented as independent contractors, with attendant consequences on their capacity to access worker rights, their insurance liability and their tax status. As elaborated in Chiaro’s blogpost, the misclassification of the employment status of drivers is the most litigated cause of action involving Uber. A common theme in these lawsuits is that the extent of control and supervision exercised by Uber effectively subrogates drivers as either employees or ‘limb (b)’ workers, in countries such as the UK that recognise a third employment category. This is done while denying drivers basic rights to a minimum wage and working time protections. This additionally causes uncertainty about the right of drivers to unionise or whether they are potentially engaged in an illegal price-fixing conspiracy via the Uber app.  Vanessa Katz highlights how the blurring of the distinction between commercial and personal activity in the US has had implications for insurance liability, as drivers are unable to rely on personal insurance policies while driving with the app on. Uber has historically been reticent to provide commercial insurance during the entire period of the app's usage by the driver, even contesting attempts to introduce statutory insurance requirements in California.[9] In the UK, Uber drivers are required to cover their own private hire insurance. Similarly, the erosion of the distinction between personal and commercial activity through the categorisation of Uber drivers as ‘microbusinesses’ has raised tax issues given the ambiguity regarding when business deductions would be available and the difficulties in ensuring compliance and enforcement.[10] The burden of income tax filing is shifted entirely onto the driver, instead of being deducted at source by Uber.

While some of these issues are endemic in sectors where (bogus) self-employment is rife, others are particular to the operation of Uber’s app and impact both drivers and riders. For instance, one field investigation reveals that the company’s rider-sourced rating system to evaluate, monitor and sanction drivers is vulnerable to consumer bias and creates potential for employment discrimination. Conversely, another empirical study of 1,500 rides hailed on controlled routes in Seattle and Boston found a pattern of discrimination against ethnic minority riders, with African Americans facing longer waiting times and driver cancellations. Their private method of training, monitoring and evaluation has had a poor track record in ensuring rider safety, with the rape of a female passenger in India in 2014 gaining notoriety. As drivers are paid per ride and can be suspended from the app for turning down too many ride requests,[11] they are financially incentivized to accept difficult or intoxicated passengers, thereby exposing themselves to assault. Serious concerns have also been raised about how the company handles the data of its consumers, with Uber entering into a consent order with the US Federal Trade Commission in August 2017 requiring remedial action, only then to be found in November 2017 to be concealing a hack of the data of 57 million users, including the names, email addresses, phone numbers and license plate numbers of over 600,000 drivers.

While there have been an unfortunate number of settlements in disputes involving Uber, when given the opportunity courts have not shied away from providing clarity as to the substantive nature of the company’s activities. In determining whether Uber is a digital ‘information society’ service or a transportation provider, the Court of Justice of the European was forthright in its recent preliminary ruling that Uber provides transport services instead of simply digital intermediation services between a non-professional driver and a passenger using the app (para. 37). As such, they do not benefit from the more limited regulation and protection from liability to which a digital intermediary would be subject under EU law. A result of this decision can already be seen in the UK, where actions against Uber and HMRC for the establishment of Uber's Value Added Tax are being pursued with renewed vigour. Courts have been especially scathing about the contractual contortions that “armies of lawyers” have attempted so as to misrepresent the true rights and obligations of concerned parties.

Thus far, we have canvassed how the operation of Uber’s app has helped it circumvent the reach of local and national regulations, while creating an ecosystem that steers the behaviour of certain actors across the numerous locations in which it operates its platform. The following section will take a deeper look at the contractual architecture created by the aforementioned army of lawyers and the ‘choice architecture’[12] presented by its app to argue that it collectively acts as a transnational form of lawmaking, applicable to its network of drivers, riders and civil society (primarily the media, unions and other non-governmental organisations representing drivers).     

 

Shaping the operation of law and regulation through Uber's own contractual "rules" and algorithms

To appreciate the transnational dimension of Uber’s contractual and algorithmic management, it is necessary to have a clearer understanding of Uber’s corporate structure. This structure is somewhat opaque since Uber’s global business is carried out through a network of private entities and as such do not have public disclosure obligations as extensive as companies with publicly-traded shares. The following brief description draws from the company disclosure documents that are currently available and an informative report by Fortune in 2015 on Uber’s tax structure.

Uber Technologies Inc., the parent company, is registered as a Delaware Corporation and has its headquarters in San Francisco. However, its non-US operations are carried out from the Netherlands, where it has incorporated 10 subsidiaries. The top subsidiary is Uber International C.V., a limited partnership that is registered in Amsterdam but headquartered in Bermuda, which pays the parent royalties based on net global revenues, in exchange for the right to use the intellectual property developed by the parent. Uber International C.V. has another IP agreement with Uber B.V, one of the other Dutch subsidiaries, that permits the latter to use the application in exchange for royalties that amount to 99% of net revenue. This technology is then deployed by Uber B.V. worldwide. Uber B.V. in turn receives each payment made by riders to drivers through the application, deducts a certain percentage for its own income and via Rasier Operations B.V., another Dutch limited liability company, processes the payment made to drivers. While Uber has subsidiaries in the countries it operates, usually in the form of a private limited company, this is generally for recruiting drivers as well as marketing and support services, such as lobbying for favourable regulation and protecting brand image. In addition, Uber has a regional office in Singapore and has opened an engineering centre in Bengaluru, India. It would seem, then, that Uber's business strategy is transnationally directed and overseen from its two global hubs in California and the Netherlands.

Transnational lawmaking through contract: the UK as case study

These entities enter into a web of contracts with drivers and riders across the globe. Uber's use of contract in respect of its UK operations provides a representative illustration of this. Transactions are conducted by way of a triangular contractual relationship, with a Services Agreement entered into between Uber B.V. (UBV) and the driver, on the one hand, and a Rider Agreement between a separate Uber entity holding an operator's license, Uber London Ltd. (ULL), and the passenger, on the other. The language in the Rider Agreement makes clear that ULL provides booking services as an "agent" (Part 1, clause 1) to the driver/transportation provider (not party to the agreement) and acts also as a payment collection agent to the driver as a principal (Part 2, clause 4). The Services Agreement appears consistent with this wording. UBV's role, again, is that of "payment collection agent" as well as providing support and "on-demand intermediary and related services" to the driver (clause 1.17). Moreover, the Services Agreement refers to the driver as an "independent company in the business of providing Transportation Services" and an "independent contractor" (clause 13.1). The Services Agreement also purports to create a "legal and direct business relationship" between the driver and passenger (clause 2.3), notwithstanding the lack of any clear contractual relationship between the passenger and driver. The Services Agreement also states that "Uber [UBV] and… [ULL] do not, and shall not be deemed to, direct or control" drivers or their performance under the agreement (clause 2.4). As we have seen, as a consequence of this characterisation of the parties’ triangular relationship, protections under employment law were elided and obligations under licensing, insurance, competition and tax were added for drivers. In turn, this claim to act as a technological agent eased the regulatory burden on Uber, particularly in relation to Value Added Tax.

While there were extant laws to address such situations in the UK, they were not enforced. Between its launch (July 2012) till the act of state enforcement (i.e the decision of the UK Employment Tribunal in Aslam, Farrar and Others in October 2016), the company carved out a space in which contract created certainty as to the rights and responsibilities of Uber, its drivers and riders.

Supporting the contractual architecture through algorithmic management

The control and direction that Uber exerts through this triangular contractual arrangement has been buttressed by the workings of its app, largely replicated across its global network. The uniformity of its appearance and seamlessness of its functioning is integral to the app’s appeal. The user interface is practically identical, whether used in India or the UK.  Once a user downloads the passenger app and creates a profile, they are able to request a ride through one of Uber's service options. When a nearby driver confirms their availability for the trip on the driver app - being induced to do so at risk of being automatically logged off the app or suspended for rejecting too many trips - it confirms the ride and provides the driver's first name and license plate number to the rider. Once the rider has been picked up, drivers are prompted to take the route suggested by Uber, having to justify any deviations in case of undue delay. Once the ride is over, Uber charges the fare, the base rate being set by Uber's algorithms and from which a driver may only negotiate downwards, to the rider's credit or debit card and remits the amount to the driver less Uber's service fee. Crucially, Uber operates and monitors a feedback mechanism, whereby the rider and driver rate each other on a scale of 1 to 5. Drivers unable to improve poor scores are called in for quality checks and risk having their accounts deactivated. The supply and demand of trips are also manipulated by Uber’s surge pricing algorithm, with heat maps indicating that fares for certain undersupplied areas are temporarily increasing to entice drivers.[13] Through this system, Uber is able to nudge, control and algorithmically manage its drivers, incentivise good behaviour and engender trust between strangers.[14] While drivers can ostensibly log-off the app at any time, the combination of high initial investment (e.g. acquiring PHV license and insurance; acquiring a model of car that Uber prefers) and financial reliance on the company acts as a strong deterrent.

This cumulative set of practices is known as algorithmic management. It allows a handful of managers to direct and supervise thousands of drivers. What makes it so effective is the large volumes of data that it gathers on travel times, weather, driver and rider movement, their characteristics and their preferences. The data, gathered every 4 seconds, is stored on the drivers’ phones and in data centres across six continents. The company has two data controllers, Uber Technologies, Inc. for US residents and Uber B.V. for non-US residents, who determine the purposes for which data is processed. This data is used to help Uber’s algorithms learn where drivers and riders are, forecast where they are expected to be and improve routing from point A to B. While this is used to enhance the service provided by individual drivers at a local level, this data is also utilised at the global level to, for instance, visualise demand patterns across cities and thereby further improve the Uber app.  As we can see, the big data generated through the operation of its algorithms aids Uber in both its local and global strategies.

Moreover, Uber appears to have shaped the operation and enforcement of the law in an altogether more blunt way through a worldwide programme to deceive authorities in markets where its services are being resisted or have been altogether banned. Following a NY Times investigation, it was revealed that through a process known as "Greyballing", blacklisted enforcement officials have been identified and prevented from hailing rides by showing a bogus map of an area and seemingly cancelling (non-existent) rides before they arrive. This has hampered the ability of local governments to enforce their own regulations.

We contend that this web of contracts, in conjunction with algorithmic management has rule-making effects, with Uber proffering its own interpretation of local and national regulations, which it then applies and even enforces itself. In so doing, we argue that the company has come to define the behavioural framework in which Uber, its numerous drivers, riders and civil society interact. Paraphrasing Backer (2008), who has argued that multinational enterprises such as Walmart and Gap are sources (and objects) of transnational regulation, this framework can be seen as a “freestanding… self-communicating [regulatory] system” (p. 517) that interacts (and develops in concert) with traditional public law. In his research, Backer identifies how a network is built between actors (e.g. a company, contractors, NGOs, media, consumers) through repeated interactions, instigated by a company at the nexus of this global system. The company issues a set of standards that it embeds in its supplier contracts, compliance of which is ensured through private monitoring and sanctions, including remedial action. These contracts function everyday, governing innumerable transactions over dozens of countries, with the standards acting as de facto labour codes. If there is an egregious violation of this private regulation or substantive law, for instance through the usage of child labour, organisations that form civil society, such as the media, trade unions and human rights NGOs act to reveal and challenge these failures. Consumers – and increasingly banks and institutional investors – are thus invited to reconsider their relationship with the company, exercising significant financial pressure. While acknowledging the ontological claim that the nature of law involves both the state and private arrangements,[15] the states across which these multinational enterprises operate are present but often take a backseat to transnational private regulation, either due to the economic costs of enforcement or the difficulties in enforcing national law across borders. Whether Uber operates a parallel regulatory system to quite the same degree is yet to be determined, but the company can be regarded as overlaying or interacting with traditional legal frameworks with its own claims as to what the law is or should be, in effect transforming its application.

 

Throughout this blogpost, we have demonstrated how Uber’s contractual and algorithmic practices in modifying behaviour indicate a similar – though more subtle – pattern of transnational private lawmaking, thereby producing “effects on social welfare similar to the effects resulting from rule-making and enforcement by governments”.[16] We have shown how significant violations of this regime, for instance through a massive data breach, elicits a strong response from the media and privacy groups. These civil society groups, including unions and organisations that represent drivers, have been at the forefront of exposés regarding Uber’s activities. This has evoked a swifter reaction from Uber, in terms of addressing its data protection practices (e.g. removing its chief of security), than the coordinated activities of national data protection authorities. While Uber’s activities only affect a narrow segment of economic actors, they are tied together by economic and social interest.  Thus, Uber has, at least until the most recent spate of litigation and regulation, managed to define and set the rules for its own operations as a form of transnational regulation which is enmeshed in the local and the national. At the very least, Uber has blurred the relationship between itself and regulators transnationally by interpreting the scope of the existing regulatory framework and, crucially, imposing its interpretation of these regulations over numerous actors, both public and private. It effectively defines, ex ante, how its activities are to be characterised under the law and how the relevant regulations are to apply to itself.

The next blog will take stock of recent legal developments, noting the extent to which Uber is an object of, and thus shaped by, regulations across the globe. It will examine the extent to which legal systems have been able to resist Uber's attempts to circumvent its operation and new avenues of engagement between the controversial platform and regulators.


[1] Not to mention corporate governance concerns raised in 2017, as evidenced by the exposure of sexual harassment suffered by its employees, allegations of having stolen trade secrets and bribed foreign officials and the rapid departure of its co-founder and CEO Travis Kalanick in mid-2017.

[2] Defined by Frank Partnoy as “those [financial] transactions designed specifically to reduce costs or capture profit opportunities created by differential regulation or laws.” Frank Partnoy, “Financial Derivatives and the Costs of Regulatory Arbitrage”, 22 The Journal of Corporation Law 211, 227 (1997).

[3] See Kenneth A Bamberger and Orly Lobel, “Platform Market Power” (2017) 32 Berkeley Tech LJ, 3.

[4] Nestor M Davidson and John J Infranca, “The Place of the Sharing Economy” in Nestor M Davidson, Michele Finck and John J Infranca (eds), Cambridge Handbook on the Law of the Sharing Economy (2018) (forthcoming).

[5] See, for instance, this Change.org petition to reverse Transport for London's decision to reject Uber's application for a new London license, which had over 850,000 signatures from the public, and rising, at the time of writing. For more information about Uber’s e-petitions and its solicitation of support on social media, see Sofia Ranchordás, “Digital Agoras: Democratic Legitimacy, Online Participation and the Case of Uber-petitions” (2017) 5 The Theory and Practice of Legislation 31, 33-34.

[6] See e.g. Bamberger and Lobel (n 3), 5.

[7] Julia Tomassetti, “Does Uber Redefine the Firm?: The Postindustrial Corporation and Advanced Information Technology” (2016) 34 Hofstra Labor & Employment Law Journal 1, 3, 36-38.

[8] Transcript of Proceedings at 16, O’Connor v. Uber Techs., Inc., 82 F. Supp. 3d. 1133 (N.D. Cal 2015) (No. C 13-3826 EMC)

[9] Vanessa Katz, “Regulating the Sharing Economy“(2015) 30 Berkeley Tech LJ 1067, 1094.

[10] Shu-Yi Oei and Diane M. Ring, “Can Sharing be Taxed?” (2016) 93 Washington University Law Review 989, 994; Shu-Yi Oei and Diane M. Ring, “The Tax Lives of Uber Drivers: Evidence from Internet Discussion Forums” (2017) 8 Columbia Journal of Tax Law 56, 77.

[11] In a similar vein, note the recent automatic firing of workers by the Deliveroo app.

[12] This refers to the various ways in which choices can be presented to consumers and the effect this has on their decision-making. See Richard Thaler & Cass Sunstein, Nudge: Improving Decisions about Health, Wealth and Happiness, Yale University Press, 2008.  

[13] Alex Rosenblat and Luke Stark, “Algorithmic Labor and Information Asymmetries: A Case Study of Uber’s Drivers” (2016) 10 International Journal of Communication 3758, 3765-3767.

[14] It is notable that drivers are stopped from providing their contact details to passengers and passenger details are not passed on to drivers (EAT judgment in Aslam, Farrar and Others, para. 113) Uber was recently granted a patent that enables passengers to provide alternative routing options to drivers, without having to speaking them. See O’ Hare et al., Providing Alternative Routing Options to a Rider of a Transportation Management System, US Patent No. 9857188 B1.  

[15] Simon Deakin et al, “Legal Institutionalism: Capitalism and the Constitutive Role of Law” (2017) 45 Journal of Comparative Economics 188, 188.

[16] Dan Danielsen, “How Corporations Govern: Taking Corporate Power Seriously in Transnational Regulation and Governance” (2005) 46 Harvard Journal of International Law 411, 412.

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