Prosocial Contracts: Making Relational Contracts More Relational

Abstract

The COVID pandemic exposed the selfishness with which fashion brands deal with their overseas suppliers. When it hit, many brands simply abandoned their contracts, without giving notice or paying for completed—even shipped—orders, and without considering the impacts of cancelation on workers. The pandemic exposed but did not create the extractive relational dynamics at work in the apparel sector. Such dynamics existed long before anyone had heard of COVID-19. Given that the 'real deal' of international supply contracting tends to be excessively buyer-friendly, relational contract theorists likely would have correctly predicted that a pandemic-like event would lead to widespread contract abandonment by buyers. However, relational contract theory has little to say about how to improve the fairness of the relational dynamics at play, particularly with respect to non-parties. This Article seeks to take that next analytical step.

It is generally understood that contracts are relational, not just transactional. They both reflect and inform the dynamics between the parties. But contracts’ relational powers extend beyond the parties to encompass relationships with workers and their communities (people and planet) throughout the supply chain. These groups can be understood as contract stakeholders, even if they have no rights under the contract.

This Article explains why companies should seriously consider upgrading to prosocial contracts that can do more to ensure positive outcomes for contract stakeholders than conventional, extractive contracts. Companies should make this shift because it is the right thing to do, but also because the legal and business cases for doing so are becoming stronger by the day, particularly with new human rights due diligence legislation coming from Europe. Drawing on the United Nations Guiding Principles for Business and Human Rights and the model contract clauses developed by an ABA working group, this Article offers a practical framework for prosocial, shared-responsibility contracting whereby both parties assume responsibility for the social performance of their relationship.

Keywords: COVID, pandemic, social performance, private governance, social breach, UNGPs, force majeure, supply chains, supply contracts, purchasing practices, relational contracts, formal relational contracts, expressive contracts, human rights due diligence, structural justice, social compliance