Transnational company agreements. Should firms self-regulate on social matters?

On 22 February 2017, Solvay signed a transnational company agreement for global social protection. On 7 March of the same year, PSA also concluded an agreement on social responsibility, and on 17 March, Auchan Retail revealed that they had signed a global agreement on the same theme. Why are transnational company agreements (TCAs) so popular with multinationals? What in fact are these “UNOs”, or unidentified legal objects, and what is their purpose?

Fast-developing agreements

Transnational company agreements concern companies whose subsidiaries are located on the territories of several states, inside or outside the European Union, thus making them “transnational”.

These agreements are voluntary instruments that emerged outside of any legal framework, in other words they do not depend on any specifically established bargaining and adoption rules. Negotiation depends only on the readiness of, on the one hand, the employers, represented by the management of the transnational company, and on the other hand, employee representatives (international and/or European and/or national trade union organizations and/or a European or global works council).

Since the first transnational company agreement, concluded in 1988 between BSN, now Danone, and the International Union of Food, Agricultural, Hotel, Restaurant, Catering, Tobacco and Allied Workers’ Associations (IUF), this instrument has developed considerably in two aspects.

The first aspect is quantity. Starting from about fifteen framework agreements concluded in the 1990s, over 300 agreements of international or European scope are now in place, concerning over 165 transnational companies and involving over 10 million workers.

The second aspect is quality. The very first agreements were essentially centred on protecting workers’ basic human and social rights, as set out in the Universal Declaration of Human Rights, or the Fundamental Conventions of the International Labour Organization (ILO), in particular the freedom of association and the right to organize collective bargaining. Today, the themes covered by these agreements are a lot more diverse and precise, relating to work conditions, corporate restructuring, CSR, and anti-corruption measures. Sometimes, their scope also covers suppliers and subcontractors. What are the reasons behind this phenomenon.

The rise of multinational companies

Since the 1980s, multinational companies (MNCs) have seen unprecedented growth. According to the United Nations Conference on Trade and Development (UNCTAD), 37,000 of them existed in the early 1990s. In 2002, 83,000 MNCs controlled 810,000 subsidiaries, employed 80 million people and represented 80% of global trade flows.

Thanks to their widespread locations, multinationals tend to create their own economic areas, independently from states, while their flexibility allows them to take advantage of differences in social, environmental and tax laws and put them into competition, thus sidestepping state sovereignty. Firms can, for example, exploit a country’s natural resources, or locate polluting activities in less vigilant countries. In the case of a breach of national legislation, it can be difficult to sanction these multinationals because they straddle several legal systems.

“I would define globalization as the freedom for my group of companies to invest where it wants when it wants, to produce what it wants, to buy and sell where it wants, and support the fewest restrictions possible coming from labour laws and social conventions”.

This capacity to progressively bypass national economic and social regulation systems, which is one of the consequences of globalization, raises the question of alternative ways to regulate MNCs’ action at an international scale, including to protect workers’ social rights.

Emergence of a “privatization” of international labour law

International labour law (i.e. the ILO’s conventions and recommendations) is mainly aimed at states, which must ratify these internationally defined standards and then apply them. Yet, as multinationals become increasingly influential, with a scope that covers several states, this law has proved insufficient and it has become important to find a way of taking action against MNCs.

In the absence of global governance, the answer could come from better cooperation between states, as is the case at some regional levels like the European Union. However, this cooperation often comes up against competition between states or regional blocs to attract corporate investments and implantations in order to create wealth and jobs. In addition, regional measures are necessarily geographically limited and do not correspond to the challenges raised by truly globalized companies.

The multilateralism promoted by international organizations, like the UN, ILO and OECD, mostly takes the form of declarations of principles, non-binding recommendations, and incentives inviting multinational companies “to act in accordance with government policies and the expectations of society”, which form a set of rules known as “soft law”.

The result is that it is very difficult to take legal action against MNCs by traditional means. However, these “soft” incentives, combined with increasing pressure from public opinion, NGOs, unions, rating agencies and diverse groups, which are more vigilant about corporate social responsibility (CSR) and have amplified their communication efforts thanks to the digital era, have progressively led multinationals to take different paths of voluntary self-regulation to ensure the international protection of workers, and other aspects of CSR.

These voluntary instruments include codes of good conduct, ethical charters, and transnational company agreements. Unlike the first two, which are unilateral, TCAs involve bargaining with social partners. Which changes everything.

Trade union ambivalence

Faced by this move to “privatize” international labour protection – we call this “privatization” because it involves private forms of regulation – trade union organizations as a whole tend to react quite sceptically to the unilateral instruments promoted by general management departments, since they reduce or do away with any form of collective bargaining.

However, the same is not true for TCAs. Since the latter involve a transnational social dialogue, not only do trade union organizations participate, in a practical way, in negotiations aimed at concluding such agreements, they even, under the leadership of international or European union federations, tend to influence the opening of negotiation and give it a framework by defining typical procedures, tackling numerous questions such as trade union representation of the parties to the agreement, and follow-up measures. This corresponds to the vision of an international trade union movement for which “[…] framework agreements should be seen as labour relations at a global level rather than relating to corporate social responsibility, even though the signature of a framework agreement is an important way for companies to demonstrate that they act in a socially responsible way”.

Yet in this way, international trade union organizations also help reinforce the trend towards “privatizing” the processes of establishing an “international labour law”, with the result that the level of protection is sometimes judged as minimal, and always as non-binding. For the most radical of these organizations, the pursuit of this kind of approach jeopardizes the possibility of seeing a “global space” open up, leading to the construction of a true “public international labour law”, whereby “public” means international “public order”. In their view, the increasing numbers of TCAs constitute a “manoeuvre” wielded by MNCs to avoid the establishment of a truly global international labour law that would be binding on companies.

Nevertheless, there clearly exists de facto a coming-together of interests between the international and European trade union movement (with all of its nuances), which sees TCAs as a tool for “union renewal”, and transnational companies, which want to both put forward a good image and standardize work conditions in their subsidiaries.

Duty of vigilance

Companies’ engagement in this approach to voluntary regulation seems all the more necessary given the clear call from society for stricter application of corporate social responsibility by multinationals. Evidence includes the adoption in France of the Act of 27 March 2017 on the duty of vigilance of mother companies and multinationals or principals.

This law was a response to numerous scandals, including the Rana Plaza disaster in Bangladesh in April 2013. The collapse of a building housing garment factories killed over 1,100 workers and injured another 2,000. Most of the factories belonged to subcontractors and suppliers working for major European multinationals. This event and others raised awareness in Europe of the working conditions imposed by subcontractors and suppliers of large European manufacturing groups. The aim of the French Act on the duty of vigilance is to make respect for human rights a central issue for multinationals. It concerns large companies: French firms that employ at least 5,000 employees in France and those whose headquarters are in France or abroad and employ at least 10,000 people around the world. This represents 150 to 200 companies. These multinationals now have to establish, publish and implement a vigilance plan to anticipate risks concerning human rights and fundamental freedoms, health and safety and the environment, related to their own activities and those of their subsidiaries, subcontractors and suppliers, in France and abroad.

The new legislation has triggered discontent from employer organizations, since it directly goes against the “voluntary” measures preferred by multinationals. It establishes a (civil and non-penal) legal responsibility that replaces cooperation mechanisms designed to correct or improve a situation. The law appears to ignore the CSR efforts already made by French and European multinationals; in addition, the extension of its scope to include subcontractors and suppliers is considered to be unrealistic. Lastly, it is considered to jeopardize the competitiveness of French companies by distorting competition conditions. However, this position should at least partly be put into perspective. On the one hand, the financial sanctions initially anticipated by the Act were invalidated by the Constitutional Council. On the other hand, other European countries are currently examining the possibility of adopting measures inspired by the French law: to be among the first to have integrated the consequences of these obligations could turn out to be an asset for pioneering companies.

As a result, companies that are already party to transnational company agreements (i.e. over a quarter of the companies targeted by the French law) have anticipated the measures and got one step ahead on these issues. Their reactions include risk mapping, setting up procedures to evaluate the situation of subsidiaries and follow-up measures, and putting together a fair, concerted method with trade union organizations. TCAs can thus be seen as models for implementing these new obligations.

Dynamics of TCAs

The situation is therefore favourable for pursuing the negotiation and conclusion of TCAs and extending them to include new multinational companies.

The first wave of transnational company agreements took place during the 1990s, aimed essentially at establishing minimum social rights, inspired by the ILO’s fundamental conventions. These agreements were mainly international framework agreements or agreements with a global scope. This movement, which was accompanied by international trade union federations, expanded with the emergence of European Works Councils7, which became natural points of contact for company managers regarding transnational issues at European, and even global, scale. The second wave has seen the catching-up of numerous European framework agreements and the conclusion of agreements with European scope.

The fact that European Works Councils have taken up this instrument, and at the same time offer an ideal framework for bargaining, gives TCAs a new dynamic thrust. Although TCAs still bear the marks of their European, even French, origin, groups with headquarters located outside Europe also conclude this type of agreement.

Transnational company agreements develop outside any defined legal framework at European or international level. The absence of specific regulations on these agreements thus leaves numerous legal issues unresolved. These include the bargaining procedure, the legitimacy of the bargaining parties, the legal status, follow-up and implementation of these agreements. Such uncertainties dampen the genuine impact that these agreements can have on their primary objective, i.e. to concretize the fundamental social rights of workers throughout the world – in legal terms, its “effectiveness”, which remains relative. As a result, European trade union organizations, and in particular the European Trade Union Confederation, are campaigning for the adoption of an optional European legal framework for these agreements, in order to guarantee their better application. However, for companies, the absence of rules is also a guarantee of flexibility, which explains why the definition of a European framework remains unresolved.

The strong move to adopt this type of agreement shows that these arrangements now go beyond the “social marketing” ambitions of TNCs. In fact, on the one hand, they translate an entente or consensus between the company management and worker representatives, which gives their content true legitimacy. On the other hand, they contribute to reinforcing the practices of transnational social dialogue and spreading the principles of a “social side of globalization” within networks of globalized value chain actors. While reflection should continue to guarantee that these agreements are more effective, they still represent an important and promising tool to promote workers’ rights and CSR throughout the world.

This study is divided into two main parts. The first part analyses the political interest of these kinds of agreement for social partners, their results and limitations. The second takes the form of a practical and legal guide, providing pointers for actors involved in transnational negotiations: the nature, scope and object of agreements, choice of negotiators, and measures to include to improve their effectiveness.

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