Volume 10, Issue 2 - Special Issue: Human Rights Violations in Global Supply Chains / Guest Editor: Martin Spitzer

The author examines the difficult question of liability for human rights violations in global supply chains. After informing about the implications of the international aspect of such lawsuits, he analyses major concepts of liability in supply chains – clearly separating company law and tort law approaches from each other – and exemplifies the application of these concepts in current cases.

Where there have been violations of labour standards or human rights by organisations operating overseas, but such entities are either owned or controlled by a transnational corporation (‘TNC’) based in a Common Law system such as England and Wales, the current position in company, tort, contract and private international law is that the right of injured overseas workers (of those overseas entities) or citizens to recover the losses they have suffered from TNC is negligible to zero. This is startling in light of policies underpinning product liability and private laws. The question is whether modifications of existing private and company law doctrines could facilitate a change in the position whereby transnational corporations are held liable. Other possibilities for addressing the TNC accountability gap are also discussed.

The human rights of foreign workers in global supply chains are routinely violated, yet the problem so far has largely evaded a legal solution. Economic analysis shows why domestic tort liability can partially address this problem. Many consumers in developed countries have a lower willingness-to-pay for products produced by global supply chains that systemically subject foreign workers to egregiously dangerous working conditions in gross violation of their human rights. This attribute of consumer demand provides a basis for subjecting the domestic chain leader to domestic tort liability for the bodily injuries suffered by these foreign workers, including those employed by independent suppliers. Chain leaders, like other product sellers, are obligated to warn about foreseeable safety risks that are not known by consumers and would be material to their decision about whether to purchase or use a product. The tort duty also requires sellers to instruct consumers about the ways in which the purchase or use of the product might foreseeably harm third parties. A domestic seller that is the chain leader of a global supply chain would breach this duty by not warning domestic consumers that the product is produced by foreign workers who are systemically subjected to working conditions that are so unsafe as to amount to a gross violation of their human rights. Because the purchase of the product foreseeably exposes foreign workers to this ongoing risk of physical harm, they are protected by the tort duty and can recover for its breach. Causation can be established by the logic of the breached tort duty. If consumers had been warned that the product is produced in such a systemically unsafe work environment, a substantial number of them would not have purchased it – they would instead have purchased the same product at the higher price necessary to protect the foreign workers from these ongoing safety violations. By distorting consumer demand in this manner, the domestic product seller’s failure to warn domestic consumers of these human rights violations in the global supply chain proximately caused injury to these foreign workers, entitling them to compensation. By remedying these human rights violations, domestic chain leaders would satisfy the reasonable expectations of domestic consumers who have altruistic preferences to rescue foreign workers from extreme dangers within the production process. Tort law cannot redress the full range of human rights violations in global supply chains, but consumer demand provides a sound basis for tort liability that addresses a limited, though important component of the problem.

Both the Swiss Responsible Business popular initiative and the parliamentary counter-proposal suggest applying principals’ liability to corporate group relationships for the wrongdoing of their subsidiaries. This is in line with a clear domestic and international trend. Neither draft extends the applicable liability parameters; instead, they simply give them a concrete expression, and even limit the potential scope of tort liability by requiring human rights or environmental law violations. The liability rule anchored is thus in effect rather modest if not timid. Besides giving the defendant the possibility to escape liability by bringing an exculpatory proof – just like art 55 Swiss Code of Obligations (OR), the rule imposes liability on parent companies only for wrong done by subsidiaries they effectively control. Accordingly, relative to international trends, Switzerland has thus opted for a moderate solution. Nonetheless, the Council of States, on 12 March 2019, refused to consider the counter-proposal put forward by the National Council. On 13 June 2019 however, the National Council reacted to this refusal by deciding with an overwhelming majority to maintain its counter-proposal. The Council of States will have to deal with the consequences of this decision later this year. The chances of a parliamentary compromise solution are now higher and that of a popular vote lower.