Making antitrust help, not harm workers abroad

For years, U.S. companies have come under pressure to take responsibility for poor and unsafe working conditions in their global supply chains. This was particularly true after the tragic Rana Plaza building collapse in Dhaka, Bangladesh on April 24, 2013.  Two years later, some companies still refuse to accept accountability for violations of their codes of conduct abroad, but others are leading a new era of corporate social responsibility and striving to make a positive difference. 

Despite notable efforts to improve working conditions in factories throughout the developing world, many U.S. companies hesitate to take the most effective forms of action out of fear of running afoul of U.S. antitrust law. Companies worry that, by banding together to exert pressure on suppliers to fix an immediate problem or improve broader labor conditions, they will be accused of engaging in an illegal antitrust conspiracy.  Regrettably, antitrust laws that were intended to protect consumers are obstructing improvements in the health and safety of workers around the globe. The Department of Justice has tools to reverse these unintended consequences, and should do so immediately.

In our experience advising leading apparel companies, the following scenario is quite common. A major American clothing brand contracts with a factory in a developing country to produce garments to be sold by the brand. After an auditing process and compliance with the brand’s code of conduct, a purchase order is placed and the factory begins producing apparel for the brand. At some point during production, a violation of the code of conduct occurs. We’ve seen particularly egregious violations that include violence by management against workers, failure to adhere to building and fire safety codes, and anti-union activity. 

Eventually the incidents are brought to the attention of the brand and the general public.  At this point the brand has two choices, engage the factory owner and attempt to fix the problem, or ignore it and risk employee dissatisfaction, public outrage, reputational harm, and at worst, a major disaster. 

Companies that opt to be good corporate stewards now face another dilemma. How can a brand exert pressure on the overseas supplier, when, more often than not, that brand makes up only a small percentage of the violating factory’s production?  Often, a single brand’s demands to improve labor conditions go unheeded. 

The most powerful response by the brand would be to work with other brands that purchase from the same factory, and use their collective purchasing power to demand change. Many CEOs are not only willing to work with their counterparts at other brands, they are eager to do so. They know that collective action and coordination will have the biggest and most effective impact on incentivizing the factory owner to fix the immediate problem and prevent future violations.  Moreover, by working together, the costs of monitoring and enforcing good labor practices can be divided more fairly among all brands that purchase from the factory. 

But the reality today is that corporate CEOs and their general counsels are reluctant to coordinate an effective response out of fear of antitrust liability.  Although the antitrust consequences of this sort of arrangement are unclear, as a general matter, antitrust law forbids buyers to band together to force their suppliers to change their terms of dealing.  For example, an agreement by the brands to force their suppliers to sell at a lower price clearly would be illegal.  However, there is no clear precedent on whether competitor companies may collectively assert economic pressure in order to combat social evils such as violence against workers.

At times, the Justice Department has approved industry efforts to address social evils through collective action.  For example, in 1964 the Department approved a Cigarette Advertising and Promotion Code adopted collectively by the leading tobacco companies that restricted the ways they would advertise cigarettes, including prohibiting advertising targeted to minors and representations about the healthfulness of cigarettes.  Although it is usually illegal for competitors to agree among themselves on advertising strategies, the Justice Department saw this Code as a legitimate effort to address a serious public health problem.

We believe that it is time for the Justice Department to make a similar statement regarding collective efforts by U.S. companies to improve working conditions in their global supply chains.  It has taken long enough to convince companies to take their fair share of responsibility for this global challenge. Our laws should support these companies’ positive efforts, or at the very least, not stand in their way.

-The Hill.