Corporate social responsibility: are franchises off the hook, or can a treaty catch them?

• Published date: 01 January 2017
• Author: Verseman, Lauren
• Date: 01 January 2017

I. INTRODUCTION

In July 2015, the Opcn-Ended Intergovernmental Working Group on Transnational Corporations and Other Business Enterprises with Respect to Human Rights (the "Working Group") held its first meeting to discuss the elaboration of a binding international treaty on business and human rights. (1) These initial treaty discussions follow a long line of work by United Nations entities and others in the area of business and human rights. The discussions build on both the State's responsibility to promote and protect human rights and the business enterprise's responsibility to respect those rights. (2) As U.N. Human Rights Council Resolution 26/9 prescribed, the first session was devoted primarily to "constructive deliberations on the content, scope, nature and form of the future international instrument." (3) Among other topics, participants debated about which types of business arrangements would be targeted by a future treaty--would a future treaty target only Multinational Corporations (MNCs), or would such a treaty also target other types of business arrangements? (4)

Although much of the business and human rights literature focuses on the responsibilities of MNCs or Transnational Corporations (TNCs), (5) other types of business arrangements may also have human rights impacts. John Ruggie, former Special Representative for Business and Human Rights to the UN Secretary-General, has noted that corporations are increasingly structured like a "bundle of contracts"--suppliers, franchise arrangements, and joint ventures. (6) Franchise operations, in particular, range across a wide variety of industries, from education services to convenience stores to home health care. (7) International franchises are prominent in a number of business sectors: many well-known international brands operate in whole or in part through a franchise structure. Hotel chains like Choice, (8) Marriott, (9) and Intercontinental (10) are commonly operated as franchises. Fast food companies, like McDonald's (11) and food and beverage companies like Coca-Cola, (12) are also prominent examples of franchises operating internationally on a large scale. The sectors in which the franchisors operate are also sectors that touch a variety of human rights issues: hotels can be hotspots for human trafficking, (13) retail operations can be a site of labor disputes, (14) and bottling agreements can deplete scarce local resources, most notably water. (15) These conflicts underscore that franchise operations, like other business entities, have human rights impacts in the countries and communities in which they operate.

In response to calls for greater responsibility in the face of corporate human rights impacts, many companies have publicly adopted human rights or anti-human trafficking policies or both, with some incorporating outside frameworks like the UN Guiding Principles on Business and Human Rights. (16) While companies that operate international franchises may have human rights policies, these companies sometimes add a disclaimer to their policies explaining that, due to the nature of their franchise agreements, conditions may vary by location. (17) These disclaimers are especially common in labor and employment provisions. (18) While it is difficult to enforce international human rights laws against traditional, vertically integrated multinational corporations (MNCs), (19) these kinds of alternative, contract-based arrangements add another level of complexity to human rights protection regimes.

In the current human rights compliance landscape, a company like McDonald's can pledge to serve sustainably sourced beef at its restaurants worldwide but at the same time decline to require policies that ensure employees at McDonald's franchise locations are not subject to unfair labor practices, human rights abuses, or even human trafficking. (20) This paper will explore the duty of business enterprises to respect human rights. It will then discuss the efforts to define the scope of a business and human rights treaty in the face of the "bundle of contracts" the structures of many business entities, specifically franchise arrangements. Finally, it will argue that a treaty covering the duties of franchises could have conflicting results: a treaty could provide more stability to the ever-evolving set of national franchise liability laws and perhaps encourage countries to open their courts to human rights claims against business entities. At the same time, increasing the possibility of liability could justify franchise fears about voluntarily implementing human rights policies and may ultimately incentivize innovation in corporate reorganization to escape treaty coverage instead of promoting corporate respect of human rights.

II. THE GUIDING PRINCIPLES AND DUTY OF BUSINESS TO RESPECT HUMAN RIGHTS

The relationship between business and human rights has been a topic of intense inquiry and concern for some time, (21) and many companies have responded with some degree of human rights policy. (22) The Guiding Principles on Business and Human Rights have been a major catalyst for the transmission of business and human rights norms and the increased recognition of corporate responsibility in the area of human rights. (23) They are principles that have been developed to guide companies on human rights issues and to establish best practices; notably, the Guiding Principles are applicable to all business enterprises regardless of size or home country. (24) The Guiding Principles call on business enterprises to meet their duty to respect human rights by developing a policy regarding human rights, a due diligence process, and a remediation process to address any violations that surface during their performance of due diligence. (25)

The Guiding Principles are based on the UN "Protect, Respect, and Remedy" framework, which discusses three pillars necessary to support human rights. (26) "Protect" in this context applies to States: State actors have the duty to protect human rights through policies, legislation, regulation, and adjudication. (27) This is not identical to the duty of corporations, which according to the Guiding Principles is to "respect" human rights, meaning they will "avoid infringing on the human rights of others and should address adverse human rights impacts with which they are involved." (28) Nonetheless, the Guiding Principles seek to explicitly create a duty for businesses to respect human rights, with the view of providing remedies for breach of that duty. (29)

The Guiding Principles are an example of soft law--they are not binding, but have been broadly accepted and implemented by state and non-state actors. (30) Since their endorsement, many companies have incorporated the Guiding Principles into their corporate social responsibility (CSR) policies. (31) Likewise, investors (32) have used the Guiding Principles as a model for reforms they ask of companies. (33) Many countries, including the U.S., are developing National Action Plans for implementing the Guiding Principles. (34) International organizations like the Group of 7 (G7) and the Organization for Economic Cooperation and Development (OECD) have endorsed the Guiding Principles. (35) Reporting mechanisms have recently been developed with an initial focus on governance and corporate policies. (36) These mechanisms do not, however, discuss how different corporate structures impact implementation. (37) The Guiding Principles themselves apply to any corporate form: they are not limited to traditional MNCs and so, would ostensibly cover franchises. Although they are cast in broad language, they do not deal with the liability issues and incentives specific to franchise agreements.

III. To CONTROL OR NOT TO CONTROL? THE PROBLEM OF FRANCHISES

Alongside the development of the Guiding Principles and the related implementation tools that have emerged, many corporations have established human rights policies that address labor policies, human trafficking, rights of children, the right to water, and political speech. Franchise operations have consequences for human rights, especially in the area of labor rights. Corporate human rights policies are increasingly aimed at modern-day slavery and human trafficking. (38) The latter has been especially important in the hotel industry, with organizations like ECPAT (39) working with companies to draft and implement policies with the aim of preventing sex trafficking, particularly of children. (40) Some franchise hotels have taken steps toward human rights policies, even though the implementation may be constrained by their franchise model. Choice, for example, has a human rights policy and provides training to its corporate employees, as does Intercontinental. (41)

Many corporations that operate a franchise model also have a human rights policy in place, but under the caveat that it may not be able to implement it in its franchise relationships. McDonald's is one example. (42) Coca-Cola has itself recently pointed out the lack of control it currently exercises over its franchisees: in many of their global operations, the bottles and trucks say Coca-Cola, but they have no control over what's actually happening. (43) People on the ground see the corporate logo and brand, and for practical purposes do not separate the franchisor from the franchisee. (44) This puts franchisors in the position of disavowing control over the practices of its franchisees while still being associated in the popular mind with human rights risk in franchisee operations. Faced with this dilemma, a franchisor might wish to influence franchisee behavior, but may also hold back because of the particular nature of the franchise relationship. (45)

McDonald's has flagged the franchise agreement as a barrier to implementing human rights policies. McDonald's adopted a human rights policy in 2014, but with the caveat that it could not impose the policy on franchisees. Specifically, McDonald's...