The First Consultation Version of the European Model Clauses (EMCs) Is Published
The draft, consultation version of the EMCs was published in October 2023 and is available on the Erasmus School of Law website. The EMCs are open for an initial round of online feedback until December 15, 2023. To read the draft and submit feedback, click here.
The input received will be integrated into the next version of the EMCs, which will be released for a second round of consultations in Summer of 2024. A final version of the EMCs is expected to be published by December 2024-January 2025.
The EMCs are a set of model contract clauses that aim to improve human rights and environmental (HRE) performance in global supply chains and to support the implementation of the German Supply Chains Due Diligence Ac (LkSG), the proposed EU Corporate Sustainability Due Diligence Directive (CS3D), and similar mandatory Human Rights and Environmental Due Diligence (mHREDD) legislation. The EMCs are being drafted by the European Working Group (European WG), an independent working group formed in 2021 that is composed of legal practitioners and academics representing France, Germany, Italy, the Netherlands, Poland, Portugal, and Spain, as well as legal experts from the UK and the US. It includes RCP Team members Sarah Dadush (French team), Daniel Schönfelder (German team), and Michaela Streibelt (German team).
The EMCs seek to improve the effectiveness of contracts as tools for preventing and addressing adverse HRE impacts*, as required by the new mHREDD laws. As traditionally used, contracts tend to undermine the effectiveness of companies’ HREDD processes by transferring both the contractual and the financial responsibility for upholding HRE standards to other actors in the supply chain, namely their suppliers (e.g. manufacturers).
Traditional, one-sided contracts that place the entire responsibility for upholding HRE standards on suppliers and allow the buyer to exit the contract immediately in the event of--even small--deviations from the supplier code of conduct, are ineffective for avoiding adverse HRE impacts. By extension, traditional contracts are not fit for purpose when it comes to carrying out effective HREDD, as required by the new laws**.
The EMCs move away from the traditional, one-sided model of contracting towards a model of shared-responsibility contracting where both parties to the contract, the buyer (e.g. brands and retailers) and the supplier, contractually commit to carry out on-going and risk-based HREDD in cooperation with one another.
* Sarah Dadush, Daniel Schönfelder & Bettina Braun, Complying with Mandatory Human Rights Due Diligence Legislation through Shared-Responsibility Contracting: The Example of Germany’s Supply Chain Act (LkSG), Chapter 14, Contracts for Responsible and Sustainable Supply Chains: Model Contract Clauses, Legal Analysis, and Practical Perspectives, (Susan Maslow & David Snyder eds., ABA Business Law Section, 2023) (Book available here).
** The CS3D text agreed by the European Parliament in June 2023 clarifies, under Article 12 on Model Contractual Clauses, that "contractual clauses shall not be such as to result in the transfer of responsibility for carrying out due diligence".
Representations and Warranties
Whereby the supplier must make an unrealistic and static promise that it is and will always be in perfect compliance with the buyer’s human rights standards, as set out in the buyer’s human rights policies and supplier code of conduct (the so-called "tickbox" approach).
Human Rights Due Diligence
Whereby both parties commit to take, in cooperation with one another, proactive and ongoing measures to identify, prevent, mitigate, account for and, where appropriate, remedy potential and actual adverse impacts in the supply chain. Human rights due diligence (HRDD) is dynamic, risk-based, and stakeholder-focused.
Whereby only the supplier is responsible for upholding human rights standards and, if anything goes wrong, only the supplier will be to blame and in breach. The buyer will (often) have the right to immediately terminate the contract and sue the supplier for damages.
Whereby the buyer and the supplier share responsibility for upholding human rights standards and both commit to avoid causing or contributing to adverse human rights impacts. The buyer commits to supporting the supplier's human rights performance, including through its purchasing practices (e.g., responsible pricing, assistance, changes, and exit).
Traditional Contract Remedies
Whereby, if an adverse human rights impact is discovered, the buyer can immediately suspend payments, terminate the contract, and sue the supplier for breach, without giving the supplier an opportunity to cure or fix the problem, even when the buyer contributed to the impact through, for example, its purchasing practices.
Human Rights Remediation First
Whereby, human rights remediation, designed to ensure that the adversely impacted stakeholders are, to the extent possible, restored to the position they would have been in without the impact, comes ahead of traditional contract remedies. The buyer must collaborate in providing remedy to victims, especially if it contributed to the adverse impact. If either party wishes to exit the contract for whatever reason, they must do so responsibly by identifying and mitigating the adverse human rights impacts of their exit."
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The EMCs build on the 2021 Model Contract Clauses to Protect Workers in International Supply Chains, Version 2.0 (MCCs 2.0). The key difference is that, while the MCCs 2.0 were written primarily for US companies operating in the US legal context, the EMCs are written for companies that are, or will be, subject to--or otherwise impacted by--the new mHREDD laws coming from Europe.
When they are finalized, the EMCs will be aligned with the LkSG and the forthcoming CS3D, as well as with the United Nations Guiding Principles on Business and Human Rights (UNGPs) (2011), the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct (2023) and the OECD Due Diligence Guidance for Responsible Business Conduct (2018). The LkSG and the draft CS3D identify contracts as an important preventive measure for addressing adverse HRE impacts; as such, contracts must be effective***. Furthermore, Article 12 of the draft CS3D states that the European Commission will prepare guidance on model contractual clauses. The EMCs aim to be a useful reference point for effective due diligence-aligned contracting, as well as for the eventual guidance by the Commission.
Like the MCCs 2.0, the EMCs are pan-industry and modular, meaning that companies can select which clauses to include in their contracts and adapt them to suit their particular HREDD-related needs. The EMCs include clauses that can support companies’ HREDD processes, including clauses on cooperation, information sharing, responsible purchasing practices (e.g., pricing, modifications, providing assistance, responsible exit), as well as rightsholder-focused provisions on stakeholder engagement, internal grievance mechanisms, and human rights remediation. Critically, the EMCs include clauses that operationalize the “exit as a last resort” principle enshrined in the UNGPs, the OECD guidance, and the new mHREDD laws. This means that the EMCs contractualize the prioritization of HRE remediation over traditional contract remedies (e.g., suspension of payment, termination, and damages) in the event of an actual adverse impact.
The EMCs reflect the core RCP Principles of responsible contracting:
1. Joint Obligation to Human Rights and Environmental Due Diligence: buyer and supplier commit to cooperate in carrying out HREDD before and during the term of the contract to identify, prevent, mitigate, account for and, where appropriate, remedy potential and actual adverse impacts in the supply chain.
2. Shared Responsibility: buyer and supplier commit to engaging in responsible sourcing and purchasing practices to meet their respective HREDD obligations and avoid causing or contributing to adverse impacts.
3. Human Rights Remediation First: if an adverse impact occurs, human rights remediation will be prioritized over conventional contract remedies (e.g., termination, rejection, and money damages). Remediation should, to the extent possible, restore affected stakeholders to the position they would have been in without the impact. The buyer will cooperate in providing remedy to victims, especially if it contributed to the adverse impact (e.g., through its purchasing practices). If a party wishes to exit the contract for whatever reason, including due to a force majeure event, they must do so responsibly, by identifying and mitigating the adverse impacts of their exit.