Soft Law in Bangladesh

Sometimes a human tragedy opens a crack, as poet Leonard Cohen wrote, that lets the light shine through. In this case, two competing reform initiatives proposed after a garment factory collapse in Bangladesh exposed the carefully crafted network of separate legal entities that limits liability along the global supply chain.

The dust covering the Rana Plaza ruins in Bangladesh had barely settled when two global labor federations and several nongovernmental organizations (NGOs) drafted an Accord on Fire and Building Safety in Bangladesh. The accord commits signatories to finance and implement safety inspections, remediation, and fire-safety training for a five-year period. Each company contributes to the plan in proportion to the annual volume of its garment production, up to a limit of $500,000. A steering committee governs, with three seats each for the companies and the trade unions, and a neutral chair chosen by the International Labor Organization.

With details of the disaster still fresh, some 70 mostly European garment and retail brands - including H&M, Zara's corporate parent Inditex, Carrefour, and Marks & Spencer - signed up. But to date only two U.S.-based brands - PVH (the parent company of Calvin Klein and Tommy Hilfiger) and Abercrombie & Fitch - have joined them.

For American companies, the accord had two obvious problems. First, it was promulgated by European labor groups and blessed by the ILO, and second, it would be legally binding. The steering committee decides any dispute between the parties, and any appeals will be submitted to arbitration subject to the New York Convention on the recognition and enforcement of foreign arbitral awards. That means enforcement by the courts.

International employment lawyer Johan Lubbe, a partner in the New York office of Littler Mendelson, told a U.S. Senate hearing in June that the accord "unduly shifts the responsibility on signatory retailers to essentially establish an independent employment relationship with the employees of their suppliers."

As the U.K. firm Eversheds put it, "With provisions in the Accord for legally enforceable, and potentially unlimited, penalties for noncompliance, the unions and NGOs have achieved something new - some 'hard' law in the world of global labor standards which has hitherto been typified by 'soft' law, nonbinding principles, and aspirations."

Ah, soft law. Littler has an entire practice area devoted to it, described in a website video by Stefan J. Marculewicz, a partner in the Washington, D.C., office. "As globalization deepens, the absence of hard law is driving the creation of soft-law mechanisms to regulate corporate behavior," he states in the Littler video. "Companies are already using soft law through corporate codes of conduct and ... social responsibility to protect a global brand and a global market. This is a game-changer."

In an interview, Marculewicz defines soft law as commitments - made by companies either unilaterally or through associations - to adhere to established international standards through codes of conduct and codes of social responsibility. Those include the ILO Conventions, the Organization for Economic Co-operation & Development Guidelines for Multinational Enterprises, and the U.N. Global Compact. There is also a framework called the U.N. Guiding Principles on Business and Human Rights, known as the Ruggie Principles.

The guidelines and codes affirm the duty of governments to protect the human rights of their citizenry, and companies to respect human rights in all nations where they do business and to provide remedies in the case of human rights abuses. But the codes reek of paternalism: The active agents are governments and corporate buyers who promise to protect both foreign workers and consumers - with no meaningful consequences for not doing so.

Marculewicz admits that the international standards in the codes can be vague. "No court determines what they mean," he says. And the commitments, no matter how earnest and well-intended, are voluntary. "When something happens that seems contrary," Marculewicz says, "the company is taken to task in the court of public opinion - in print, in media, and blogs."

Before the ink was dry on the Bangladesh Accord, five U.S.-based apparel and retail trade associations presented a soft-law alternative: the Safer Factories Initiative. Wal-Mart Inc. Stores - the world's largest retailer and Marculewicz's client - was one of the first on board, promising to inspect within six months 279 factories that supply its stores. In July the initiative was endorsed by an alliance of 17 major brands, including Gap, JCPenney, Sears, Nordstrom, and Target.

But under provisions of the initiative, buyers and retailers have little legal exposure for the safety transgressions of their suppliers. Plaintiffs lawyers have attempted to dent that immunity for years. In 2005 attorneys in Los Angeles representing workers in Bangladesh, China, Indonesia, Nicaragua, and Swaziland sued Wal-Mart, alleging that it was liable for failing to either monitor or enforce compliance with its code of conduct. The plaintiffs alleged that only 8 percent of the audits were unannounced in 2004, and that workers were often coached on how to respond to auditors.

The plaintiffs' lawyers presented four different legal theories for why the federal courts should enforce violations of common law brought by employees of foreign companies that sell goods to Wal-Mart. They argued that the employees are third-party beneficiaries of the Standards for Suppliers; that they are jointly employed by Wal-Mart; that Wal-Mart negligently breached a duty to monitor the suppliers; and that Wal-Mart was unjustly enriched by their mistreatment. But the trial court dismissed the complaint for failure to state a claim, and a three-judge panel of the Ninth Circuit unanimously affirmed. On the facts alleged, the court held, "Wal-Mart had no legal duty under the Standards or common law negligence principles to monitor its suppliers, or to protect Plaintiffs from the suppliers' alleged substandard labor practices." (Doe I v. Wal-Mart Stores, Inc., 572 F.3d 677, 685 (9th Cir. 2009).)

Different facts, of course, could produce different results. If a company exercises day-to-day control over employment, for instance, it could have a duty to workers under a theory of respondeat superior. And if a company promises to monitor and enforce supplier standards, failure to do so could constitute a breach of contract. Wal-Mart's promises in the alliance's proposed initiative could come close to that level of involvement.

But litigation isn't really a threat. "The U.S. brands are afraid of oversight, not liability," says Dan Stormer, a partner at Hadsell, Stormer, Richardson & Renick in Pasadena and lead counsel in Wal-Mart. "Even if the accord is a toothless tiger, information about [garment makers'] behavior could become public. We can always rely on the power of greed to lead companies to do something bad."

For now, soft law rules. Bad publicity is the only sanction for U.S. brands - and even that doesn't matter if the pants are cute. As Russian President Vladimir Putin said recently of another highly charged but pointless debate, "It's like shearing a piglet; a lot of squealing and little wool."

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