Apparel companies need to remain up-to-date on how human rights laws impact their businesses. There is a trend in favor of increased reporting of transparency in the supply chains of global businesses, and the development by companies of human rights policies, which should result from human rights due diligence into how business operations may impact human rights of workers and consumers. This article describes the latest developments in this area.
Reporting Requirements Regarding Supply Chain Transparency and Human Rights
Increasingly, regional and national laws impose legally binding reporting requirements on companies operating in their jurisdictions on human rights issues. For example, in the EU, Directive 2014/95/EU (“Non-Financial Reporting Directive”) mandates disclosure of non-financial and diversity information. Apparel companies in the EU should be aware that this applies to “large public-interest companies with more than five hundred employees” (of which there are approximately 6,000 across the EU). The directive requires disclosure on topics of environmental protection, social responsibility and treatment of employees, respect for human rights, anticorruption and bribery, and diversity on company boards (in terms of age, gender, educational and professional background). The Directive does not mandate a specific form of disclosure, but recommends that businesses rely on the U.N. Global Compact or the OECD Guidelines as a point of reference.
More stringent than the Directive, France’s “Corporate Duty of Vigilance” law, enacted in 2017, compels businesses headquartered in France with more than 5,000 employees in France (or 10,000 employees globally) to draft “vigilance plans” and take steps to prevent adverse human rights and environmental impacts arising from the activity of their own company and companies that they “control.” The French law requires companies to actively undertake due diligence to identify and mitigate business risks. If businesses do not comply, “interested parties” (including victims, NGOs and trade unions) are empowered to bring actions seeking orders in respect of noncompliance. The legislation also creates a new basis for civil liability for human rights-related and environmental damage under the French Civil Code.
Similarly, the California Transparency in Supply Chains Act requires companies doing business in California with worldwide gross receipts above $100 million to publicly disclose the degree to which they are taking action to eradicate slavery and human trafficking from their direct supply chain. It further requires companies to verify whether the company assesses and manages the risks of human trafficking, and to disclose the type of auditing that was performed, what types of certifications are required from their suppliers, what internal procedures are created to protect against slavery and human trafficking, and what type of training is available.
Thus, it is essential that apparel companies determine whether the jurisdictions in which they are headquartered or operate impose any reporting obligations on them.
International Labor Standards Governing Working Conditions
Increasingly, the authors expect that labor unions and retailers will enter into binding agreements regarding the conditions of identified groups of workers operating under certain conditions. For example, following the collapse of the Rana Plaza building in Bangladesh on April 24, 2013, which killed more than 1,100 garment workers and injured more than 2,000 others, and previous fires that had occurred in Pakistan’s Ali Enterprises factory and Bangladesh’s Tazreen Fashions factory, more than 200 global brands and retailers, trade unions and private companies voluntarily entered into the Accord on Fire and Building Safety in Bangladesh on May 12, 2013. The Accord holds the signatories accountable to developing a fire and building safety program in Bangladesh for a period of five years. Failure to fulfill the obligations may be enforced through binding arbitration.
On Sept. 4, 2017, an arbitral tribunal in an arbitration administered by the Permanent Court of Arbitration in The Hague, the Netherlands, held that claims brought by two Swiss NGOs, IndustriALL Global Union and UNI Global Union against two global retailers were admissible in the arbitration. Both the claimant labor unions and the respondent global retailers had signed the Accord. The claims stipulated that the respondent brands failed to (a) compel suppliers to remediate facilities within the deadlines imposed by the Accord, and (b) negotiate commercial terms to make it financially feasible for their suppliers to cover the costs of remediation. The claimants seek a declaration that the brands violated their obligations under the Accord and an order that they contribute to remediation costs. An arbitration hearing on the merits of whether the respondent retailers breached their obligations under the Accord is scheduled for March.
This development shows that labor unions will seek to hold retailers accountable through binding dispute settlement mechanisms, such as that contained in the Accord.
Public Peer-to-Peer Comparison of Human Rights Compliance
NGOs and investors have also sought to identify best practices regarding apparel companies’ compliance with human rights norms by comparing their performance against each other. Recently, a consortium of organizations conducted the Corporate Human Rights Benchmark, which sought to rank the top 100 companies in the agricultural products, apparel, and extractive industries on their human rights performance. As part of this initiative, the CHRB evaluated 30 apparel companies on their human rights policies, human rights due diligence, and their responses to allegations of human rights violations (including remedies). The overall average “score” awarded to the companies was 27.3 percent, with the highest scores being in the 60 to 69 percent range. The authors expect NGOs and international organizations to undertake more public peer-to-peer comparison of companies within the apparel industry.
Apparel companies need to stay abreast of the developments in the area of business human rights. These companies may either have legally binding obligations imposed on them (in the form of reporting requirements) or, alternatively, they may lose in the court of public opinion depending on what comes to light, especially given what could have been avoided had they undertaken the requisite level of human rights due diligence.
Viren Mascarenhas is counsel in King & Spalding’s New York office and is a member of the International Arbitration Practice Group. Kayla Winarsky Green is an associate in the Special Matters and Investigations practice.