Balancing Buyer and Supplier Responsibilities: Model Contract Clauses to Protect Workers in International Supply Chains, Version 2.0
77 Business Lawyer (ABA) __ (Winter 2021 - 2022)
American University, WCL Research Paper No. 2021-15
68 Pages Posted: 20 Apr 2021 Last revised: 11 Feb 2022
Date Written: April 19, 2021
These Model Contract Clauses (MCCs) are designed to help protect the human rights of workers in international supply chains. This second version (MCCs 2.0) marks a major shift in contract design, reflecting both recent research and thinking about what organizational strategies are most effective and recent and ongoing legislative developments, including not only US legislation but also the likely mandatory human rights due diligence law in the European Union. While the most prominent shift in MCCs 2.0 is that buyers share contractual responsibility for human rights with their suppliers and sub-suppliers, other contract design changes are equally fundamental. Instead of a typical regime of representations and warranties, with concomitant strict contractual liability, these clauses provide for a regime of human rights due diligence, requiring the parties to take appropriate steps to identify and address adverse human rights impacts. This regime aligns better with current and contemplated legislation as well as initiatives such as the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Responsible Business Conduct. It is also considerably more pragmatic. Many representations and warranties are questionable in these contexts, encouraging the parties to turn a blind eye to reality while taking on theoretical strict liability (the problematic “tickbox” or “checkbox” approach). Human rights due diligence is a more realistic process that assumes parties will need to set priorities, addressing the most pressing issues first, without a fictional representation that everything is perfect. In addition to the shift to human rights due diligence, MCCs 2.0 stress remediation of human rights harms over contractual remedies, and they introduce relational dispute resolution mechanisms. Finally, in an innovative provision engendered by the COVID-19 pandemic, buyers take on an obligation of “responsible exit” both generally and particularly with respect to force majeure or similar events. As in MCCs 1.0, MCCs 2.0 continue to impose obligations through the supply chain (not merely to first tier suppliers); address the unique problems of mitigation and contract remedies when human rights are involved; and manage the risk and exposure of the buyers through disclaimers, although the disclaimers now reflect the shared responsibilities of both parties. As before, MCCs 2.0 are fully modular so counsel can choose which provisions and what level of commitment are appropriate for a particular client. With some adaptation, the MCCs can also be used to advance additional environmental, social, and governance (ESG) goals.
Keywords: supply chains, model contract clauses, global value chains, human rights, supply contracts, international sales, worker health and safety, corporate social responsibility (CSR), mandatory human rights due diligence (mHRDD) (mHREDD), due diligence, UN Guiding Principles, OECD Guidelines
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