Faculty Scholarship Highlights

Model Contract Clauses Protecting Workers in International Supply Chains: An Interview with Professor David V. Snyder

Professor David V. Snyder, Director of American University Washington College of Law Business Law Program, chairs the ABA Business Law Section Working Group on Model Contract Clauses to Protect Human Rights in International Supply Chains. The aim of the project is to use contracts to protect the human rights of workers in international supply chains. Professor Snyder discusses the history of the project, its most recent developments, and the challenges associated with drafting the Model Clauses below.

1. Can you provide an overview of the project and its goals?

The aim of the project is to use contracts and supply chains to protect the human rights of workers internationally and to promote similar values, like sustainability. A lot of companies have commitments to these values, but they need to be in contracts to be both legally effective and operationally likely. “Legally effective and operationally likely” is our main goal.

2. How did your work on supply chains and model contracts begin?

Back in the ’90s, there were a series of sweatshop scandals that emerged, showing the world that goods were being made in sweatshops using modern slaves, child labor, and more. I, along with everyone else, was appalled, and as a Contracts professor I was interested in how companies could use contracts to prevent these things from happening. It is interesting from the standpoint of contract law and international governance. I started by researching the contracts the companies were using and how they’d changed them in response to these problems. At the time, I was writing a book on international sales of goods, and I included a section on this topic in the book. That was my first foray into this field, and I think it was the first treatment of these issues from a contracts perspective. I felt a moral obligation to do something about this given that this is my field – if there are problems, I should do something about it.

3. How has the work evolved over time?

My co-author and I were the first to bring these issues into contract law as an academic discipline. Around the same time, I became aware of the ABA’s efforts to draft principles against forced labor and child labor. The ABA, after very long efforts, did adopt these policies, and business lawyers were able to help show the importance of these policies to their clients. Many people were patting themselves on the back about this, but it wasn’t clear that the principles would actually be put into practice because if they weren’t in the contract, they were not really legally effective or operationally likely.

When I pointed this out, I was asked to chair a working group, and we decided that the best way to move forward was to draft Model Contract Clauses. From a contract and commercial law lens, the project is hard.  The law of sales, like in UCC Article 2, focuses on the goods. The problem—horrible as it is to say—is that child slaves can make good soccer balls. They typically conform to the contract specifications just fine.  You can put in a warranty that there is no forced labor or child labor or the like, but it’s not clear what damages would result from a breach of warranty unless the labor problems become public. This was a big challenge that we thought we’d solved in drafting the first version of the Model Contract Clauses, which we call MCCs 1.0.

After the Model Clauses were published, everyone had a lot of feedback. There was enthusiasm, a number of suggestions, and some pushback.  We tried to listen to what we were hearing, so we drafted a larger and more ambitious version, which we call the MCCs 2.0. From the business and human rights standpoint, this version aligns much more with progressive thinking, including developments in the law, particularly in Europe. From the contracts and commercial law standpoint, MCCs 2.0 are quite innovative, and they involve contracting for a process of due diligence rather than for particular representations and warranties that everything is perfect. The reality is that conditions are never going to be perfect, so we aimed to address that, rather than going with usual contract drafting and claiming that everything is fine when it isn’t.  The focus is on “human rights due diligence,” which comes from international standards like those in the UN Guiding Principles on Business and Human Rights and from several OECD guidance documents.

4. What are the most recent developments in the project?

There has been an amazing amount of interest and demand for the Model Clauses, partly because companies – for the most part – have wanted to do the right thing and this helps them do that. Also, as everyone knows, there has been a great push for corporations to adhere to environmental, social, and governance (ESG) norms, and this is a part of that. The push is coming not only from the traditional stakeholders like consumers and NGOs, but also from investors and regulators. Some jurisdictions are requiring the types of things called for in the Model Clauses, like human rights due diligence. For example, France began requiring human rights due diligence a few years ago; Germany has passed a similar law in the last few months; and the EU has said it will legislate in this area, most likely within the coming year. Because of these developments, we’re hearing from a lot of people who want us to come in and present our work.  We’re talking to individual companies, as well as trade associations and multi-stakeholder initiatives.

5. What are the main challenges you’ve faced in developing the Model Contracts Clauses 1.0 and 2.0?

We’ve faced four main challenges. The first has been trying to build consensus on what a reasonably coherent, practical, and usable set of Model Clauses should say. Not all stakeholders agree and, in many cases, their interests are not aligned, so we can’t pretend they are. A brand’s interest is not the same as a supplier’s interest, which is not the same as workers or those who represent them. Even within the cohort of worker interests, there is disagreement. Western unions have different objectives from workers rights’ advocates attuned to the needs of workers in the developing world. Large and small companies have different views as well as NGOs and civil society, so we have to do our best to navigate all of that.

Second, some companies are hesitant to move into this area. There’s always a temptation to bury one’s head in the sand as long as possible. Companies who pay attention may feel like it’s more responsibility and cost that they don’t want to incur. We try to help them see that they are facing a much bigger cost—legal and business risk—if they do nothing. We see this project as helping companies manage their risk.

The third challenge is very mundane. Many companies want to do this, and others know they need to do this. They don’t necessarily object, but it tends to be roughly number 6 on their list of things to do; and it’s rare to ever get to number 6 on a to-do list.

The final challenge is that companies want to use the Model Clauses, but they want more than we can give. There are different considerations for different industries. An electronics company is going to need a lot about rare earth minerals that may involve conflict minerals. An apparel company, on the other hand, would not be worried about that but they need to be worried about forced labor in the picking and processing of cotton. We cannot provide all things to all sectors; we can provide guidance, but the particulars have to be left to the industry.

6. Has COVID-19 significantly impacted your work in this area?

Absolutely. The first is almost amusing. No one noticed supply chains before COVID.  Mention them back then and people would yawn. Now everybody is talking about them constantly.

More seriously, COVID-19 has exposed vulnerabilities in supply chains. Companies’ strategy emphasizes “agility,” so if one supplier runs into problems, they can switch to another supplier easily. Because the Model Clauses require companies to invest in ensuring that there are no human rights problems, this moves away from agility—as companies invest in clean suppliers, they will want to stick with them, and the cost of switching suppliers will be relatively high. In short, COVID and other disruptions push companies to want nimble or agile supply chains, with ease of switching suppliers when disruptions occur—but responsible sourcing requires investment and diligence that makes it harder to switch. This can be a hard balance to strike.

Aside from that strategic point, there’s the granular issue—because of COVID disruptions, many companies pulled out of supply contracts, leaving suppliers and workers in the lurch, and sometimes in desperate circumstances. To respond to these COVID cancellations, MCCs 2.0 adds a provision on “responsible exit.” If a buyer—like a big Western brand—wants to cancel a contract because consumers are staying home, wearing their sweats, and not buying new clothes, the brand has to take into account the human rights impact of exiting a contract.

7. What are the biggest practical impacts for this work?

The most important, most practical impact would be to improve the human rights of workers: that’s the goal. It would also change how supply contracts are drafted. Rather than the traditional warranties and representations, the contract calls for both parties to the agreement to do due diligence, identify problems, remediate them, and prevent their reoccurrence.

8. Where is your work on this issue headed next?

The next step will be to harness cutting-edge supply chain management to address human rights and sustainability issues in the same way as product quality, prompt delivery, and protection of intellectual property. Advanced supply chain management takes advantage of technology like blockchain, RFID tags, or devices that track how the goods are moving. Mapping the supply chain is crucial: only then is it possible to inspect, audit, remediate, and build capacity to produce goods in responsible and sustainable ways. Right now, many companies don’t even know where their goods are or who is involved, beyond what are called the “first tier” suppliers.  Technology is the most likely solution, and it needs to be recognized in supply contracts and harnessed for human rights values and sustainability as well as for more traditional business values.

9. Are there any takeaways for law students specifically?

Yes. Often law students get the sense of a separation between business law and money on one hand and doing good and protecting human rights on the other. But doing business plays a tremendous role in how we live our lives and organize society. It’s easy to think that business lawyers have nothing to do with human rights and sustainability or that they are just representing business and are uninterested in other things. But these lawyers can do a tremendous amount of good and have a big impact because their clients – the businesses – have a big impact. A career in business law is one of the many ways that students can do good. Business lawyers are particularly well placed to have a positive impact on the world.

For more about Professor Snyder’s work on supply chains, human rights, and model contract clauses, visit:

Professor Hilary Allen Testifies Before U.S. House of Representative’s Subcommittee on Consumer Protection and Financial Institutions

Professor Hilary Allen
Professor Hilary Allen

On June 30, 2021, Hilary J. Allen, Professor of Law, testified in front of the House Subcommittee on Consumer Protection and Financial Institutions on “Addressing Climate as a Systemic Risk: The Need to Build Resilience within Our Banking and Financial System.” Recognizing that climate change presents significant, complex risks to the global financial system, the hearing sought to explore reforms to address the ongoing threat.

In her written testimony, Professor Allen advised: “Tackling climate-related threats to financial stability will require a coordinated and interdisciplinary approach from our financial regulatory agencies.” This will include, Professor Allen argues, a robust precautionary principles-based approach to supervising financial institutions.

Professor Allen proposed several reforms to make the financial system more robust to physical and transition risks, including a “new form of macro-operational regulation that can respond to the systemic dimensions of operational risks.” Professor Allen also stressed the need for a robust financial regulatory architecture to support any reforms moving forward.

About Professor Allen

Professor Allen is a nationally recognized expert on financial stability regulation, having testified before the House Financial Services Committee and authored more than 15 law review articles on the subject (recent articles have appeared in the Boston College Law Review, the George Washington Law Review, and the Harvard Business Law Review). Professor Hilary J. Allen joined the American University Washington College of Law faculty in 2018.  She previously held appointments at Suffolk University Law School and Loyola New Orleans College of Law, and has been a Visiting Professor at the University of Sydney (Australia), UC Davis School of Law and Brooklyn Law School.  She teaches courses in Banking Law, Securities Regulation, Financial Regulation, Corporate Finance and Business Associations, and has also taught classes on international and comparative financial regulation in Austria and Brazil.

In her work, she stresses the importance of financial stability by underlining the human consequences of financial crises, and considers a variety of existing and evolving threats to financial stability.  Her recent work has focused on threats arising from climate change and the increasing prevalence of fintech (she has authored a book “Driverless Finance: Fintech’s Impact on Financial Stability”, which is forthcoming from Oxford University Press).  Professor Allen is also actively involved in presenting scholarly publications at roundtables and conferences, and regularly contributes blog posts and podcasts on the subject of financial regulation.