14 manufacturers. Factories across the globe. New rights for thousands of workers and affected communities. This is the initial result of Corporate Accountability Lab’s new test case, showing the potential to revolutionize the way companies do business, and to benefit millions of workers and affected communities producing for the US market.
The Innovation: Create Rights, Not Charity
This innovation employs a simple facet of contract law to give workers and affected communities the ability to enforce their own rights, rather than being reliant on foreign brands or consumers to protect their interests.
You may have heard of the concept in contract law of a “third party beneficiary.” Third party beneficiaries are not parties to a contract--they are people who were intended to benefit from the contract, but are otherwise uninvolved. Third party beneficiaries are often excluded from contracts in clauses called “No Third Party Beneficiaries,” making it difficult for workers or others harmed due to a contract violation to obtain remedies, even when there are human rights or environmental standards embedded in the contract.
That’s where we come in. We drafted language, after much research with the help of several terrific law school interns, to update the standard corporate code to give workers the right to enforce violations of the labor and environmental provisions of their contracts. This language could be adopted in almost any supply chain, covering merchandise from anywhere in the world. And the rights created can be enforced in state courts in the state where the contract was entered. Pretty simple. This language can even build off of a company’s existing code.
Since it puts the liability on the top tier supplier rather than the brand, it also offers companies an attractive mechanism to hold suppliers accountable for code violations, and ensures that companies take their due diligence off paper and into practice.
Why was this necessary?
While many brands and institutional buyers embed labor and environmental codes into manufacturing and licensing contracts, making a legally-enforceable commitment, they do not take legal action against their suppliers for code violations. As a result, conditions remain poor on farms and in factories across the globe, even where top brands and retailers have adopted strong standards.
The problem is not a lack of standards, nor is it that those standards are voluntary in this case--in theory, they are legally enforceable because they are already embedded in contracts.
The problem is that nobody wants to sue their business partner over a labor, environmental or human rights violation, even if they would sue if the supplier sent merchandise that failed to comply with the buyer’s quality standards. But what if someone else could enforce the code language, i.e. a person displaced by a mine or injured on the job?
Under the new model CAL has created, this is exactly what happens. The person who is injured has rights against the top tier supplier under the contract, even if that supplier is only a buyer from the factory or other operation that directly caused the harm. That is because the supplier accepted that liability all the way down the supply chain when they entered the contract--voluntarily accepting legal liability for something they would not otherwise be liable for.
Of course, legal strategies are only as good as the paper they are written on until they have been tested. The long-term vision is for corporations to start including third-party beneficiary language in all of their contracts with labor and environmental codes of conduct, moving away from one-sided CSR. But would any supplier enter an agreement with these terms? And if they did, would they comply with the disclosure requirements? And then how would we make sure workers and others affected were able to exercise their new rights?
The Test Case
While we’re not ready to disclose all of the information about our test case, we can give you a few details now. The test is going so well, and the model is so promising, that we just couldn’t wait to share.
Our initial data suggests that this new language is not deterring suppliers from entering contracts. Based on the first disclosures we have received since launching our test, we now have 14 U.S. companies who are producing merchandise under these terms in factories around the world.
That means that in our test case alone, thousands of workers and thousands more community members affected by these supply chains have new access to remedy that they would not have otherwise had.
Who exactly can benefit from this test case? Here are are a few hypothetical examples:
A Burmese migrant worker in a Thai factory who was paid less than the minimum wage for her labor producing T-shirts.
A worker in a Chinese factory producing bobbleheads who was forced to do overtime to deal with a big rush order.
A family living downstream from that same bobblehead factory, when the factory illegally dumped plastic waste products into the stream the family bathes in, in violation of local environmental law.
All of these people would have suffered as a result of violations of the labor code or local environmental law, and all are covered by the contract provisions. We should mention these are pretty small companies, but this is a test case. We need to work it all the way through before we scale up.
We have a few more steps in our test before we’re ready to do a massive scale up. First, we need those affected to know about the rights they now have. Factories have to be monitored. If violations are found, we need to send demand letters to suppliers and see how they respond. But don’t worry--all of this is in the works. We’ll be keeping you posted throughout the spring and summer as these pieces come together.
But then, we need you. You are a student activist or professor at a university. You run a small start-up and you want to make sure responsible business practices are a part of your brand. You work at an NGO that does direct brand engagement, or you are involved in a multi-stakeholder initiative. Come talk to us. Join us in creating the future of CSR--a future where affected communities drive the narrative and can enforce their rights, rather than leaving them reliant on the benevolence of foreign brands.
Charity Ryerson is a co-founder and Legal Director for Corporate Accountability Lab.