The Model Contract Clauses (MCCs) are designed as a practical tool to help buyers and suppliers protect the human rights of workers in international supply chains. This second version (MCCs 2.0) marks a major shift in contract design to align better with existing and forthcoming legislation, as well as with widely-accepted principles of responsible business conduct, such as those contained in the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Responsible Business Conduct.
MCCs 2.0 reflect both recent research and evolving thought about effective organizational strategies for improving the human rights performance of international supply chains. They also respond to a string of significant legal developments in the US and overseas, including a marked uptick in US CBP investigations and Withhold Release Orders, the adoption by Congress of the Uyghur Forced Labor Prevention Act, and the international movement to enact mandatory human rights due diligence legislation, such as the European Commission’s Proposed Directive on Corporate Sustainability Due Diligence published in February 2022. Reflecting these developments, the MCCs 2.0 provide missing operational guidance for mapping, identifying, and addressing human rights risks at every tier of the supply chain.
While the most prominent shift in MCCs 2.0 is that buyers share contractual responsibility for protecting human rights with their suppliers and sub-suppliers, other contract design changes are equally fundamental. Instead of a typical regime of representations and warranties, with concomitant strict contractual liability, these clauses provide for a regime of human rights due diligence, requiring both parties to take appropriate steps to identify and mitigate human rights risks and to address adverse human rights impacts—potential or existing—as they arise. This regime is considerably more pragmatic. Many representations and warranties are questionable in these contexts, encouraging the parties to turn a blind eye to reality while taking on theoretical strict liability (the problematic “tickbox” or “checkbox” approach). Human rights due diligence is a more realistic process that asks the parties to collaborate in setting priorities based on their (ongoing) due diligence findings and to take affirmative measures to address the most pressing issues first, without a fictional representation that everything is perfect.
In addition, MCCs 2.0 stress victim-centered remediation of human rights harms over traditional contract remedies, and they introduce relational dispute resolution mechanisms. Finally, in an innovative provision engendered by the COVID-19 pandemic, buyers take on an obligation of “responsible exit,” both generally and particularly with respect to force majeure or similar events. As in MCCs 1.0, MCCs 2.0 continue to impose obligations throughout the supply chain (not only on first tier suppliers); address the unique problems of mitigation and contract remedies when human rights are involved; and manage the risk and exposure of the buyers through disclaimers—noting that the disclaimers now reflect the shared responsibilities of both parties. With some adaptation, the MCCs can also be used to advance additional environmental, social, and governance (ESG) goals.
The clauses are intended to be fully modular; in-house and outside lawyers can pick and choose what clauses to adopt or adapt. Alternative text is often provided, with extensive footnotes providing counsel with information and resources that might be useful in making drafting decisions. MCCs 2.0 can assist companies of all sizes and industries in implementing their own human rights and ESG policies and improving compliance with an expanding array of legislative initiatives designed to address forced and child labor, worker health and safety, and other human rights issues.
Also read the Executive Summary of the Model Contract Clauses
These resources were initially published on the website of the American Bar Association.
ACC note: You may also be interested in checking out the ACC-curated self-paced course on How Corporate Counsel Can Use Contracts to Manage ESG in Supply Chains.