SUSTAINABLE SUPPLY CHAINS: STRENGTHENING THE LINKS

Speakers:

Sarah Dadush Rutgers Law School | Associate Professor of Law

Jaren Dunning

PepsiCo | Legal Counsel and Human Rights Director

Nathan Fleisig

Outerstuff | Director of Corporate Social Responsibility

Kevin Kolben

Rutgers Business School | Associate Professor

Dave Yawman

PepsiCo | Executive Vice President, Government Affairs, General Counsel and Corporate Secretary

Program Materials

April 11, 2019 | Newark, New Jersey

Rutgers Center for Corporate Law and Governance

cclg.rutgers.edu

Rutgers Law School 123 Washington Street

Newark, NJ 07102 and

217 N. Fifth Street Camden, NJ 08102

law.rutgers.edu

Rutgers Institute for Professional Education

rutgerscle.com

Institute for Professional Education Center for Corporate Law and Governance

TABLE OF CONTENTS

I. PepsiCo, Inc. Global Supplier Code of Conduct .............................................................. 1

II. PepsiCo, Inc. Global Human Rights Policy ...................................................................... 4

III. PepsiCo, Inc. Statement on Modern Slavery and Human Trafficking ............................... 6

IV. Human Rights Legislation Links .................................................................................... 15

• California Transparency in Supply Chains Act (2010)

• Federal Acquisition Regulation: Ending Trafficking in Persons (2015)

• UK Modern Slavery Act (2015)

• France Duty of Vigilance Law (2017)

• Swiss Responsible Business Initiative (2017)

• Dutch Child Labor Due Diligence Law (2017)

• Australian Modern Slavery Act (2018)

• German Human Rights Due Diligence Law (2019

• Draft UN Treaty on Business and Human Rights

V. The Business Lawyer; Vol. 73, Fall 2018. Human Rights Protections in International

Supply Chains—Protecting Workers and Managing Company Risk .............................. 17

VI. Kevin Kolben, The Consumer Imaginary Labor Rights, Human Rights, and citizen-

Consumers in the Global Supply Chain, **Not for citation** ........................................... 28

VII. Sarah Dadush, Why You Should be Unsettled by the Biggest Automotive Settlement in

History, **Not for citation** ............................................................................................ 43

PepsiCo, Inc. Global Supplier Code of Conduct June 2018

Purpose and scope

At PepsiCo, we believe acting ethically and responsibly is not only the right thing to do, but also the right thing to do for our business. Our Global Supplier Code of Conduct (“Supplier Code”) sets out our expectations for suppliers in the areas of business integrity and anticorruption, labor practices, health and safety, and environmental management.

All suppliers, vendors, contractors, consultants, agents and other providers of goods and services who do business with or on behalf of PepsiCo (“suppliers”) are expected to follow the Supplier Code and all other relevant policies1 as a condition of doing business with PepsiCo and its affiliates. Suppliers are also expected to communicate and apply the Supplier Code and relevant policies throughout their supply chain.

Business Conduct Principles

PepsiCo expects its suppliers to conduct business responsibly, with integrity, honesty, and transparency, and to adhere to the following principles:

1. Maintain awareness and comply with all applicable laws and regulations of the countries of their operation.

2. Maintain the confidentiality of all PepsiCo’s and its partners’ information.Suppliers must take all reasonable and necessary precautions to safeguard PepsiCo’s and its partners’ information to which it has access, including not disclosing to anyone, inside or outside of PepsiCo, unless disclosure is properly authorized, in connection with a clearly defined legitimate business need (i.e., shared only on a need-to-know basis), and subject to a written confidentiality agreement.

3. Compete fairly for PepsiCo’s business and conduct all such business on behalf of PepsiCo in a lawful manner. PepsiCo is committed to conducting business legally and ethically within the framework of a free enterprise system and strictly prohibits corrupt arrangements with customers, suppliers, government officials, or other third parties. As such, PepsiCo prohibits its suppliers from engaging in any form of public sector or commercial bribery. Under no circumstances may a supplier acting on behalf of PepsiCo promise or provide anything of value directly or indirectly to a government official, or to any person or entity in the private or commercial sector, if the payment is intended to induce the recipient to misuse his or her position to obtain or retain an unfair business advantage or personal benefit. Consistent with these principles, suppliers acting on behalf of PepsiCo must comply with the U.S. Foreign Corrupt Practices Act, any applicable local anticorruption laws, and are expected to comply with PepsiCo’s Global Anti-Bribery Compliance Policy (“ABAC Policy”).

4. Encourage a diverse workforce and provide a workplace free from discrimination, harassmentor any other form of abuse.PepsiCo suppliers shall create a work environment in which employees and business partners feel valued and respected for their contributions. Harassment, including unwelcome verbal, visual, physical, or other conduct of any kind that creates an intimidating, offensive or hostile work environment will not be tolerated. Employment decisions must be based on qualifications, skills, performance, and experience.

5. Treat employees fairly, including with respect to wages, working hours and benefits. PepsiCo suppliers shall comply with all applicable wage, working hours, and benefits laws and regulatory requirements. Suppliers should also strive to meet international standards for working

1 Applicable policies/commitments include PepsiCo’s: (i) Environmental Health and Safety Policy, (ii) Sustainable Agriculture Policy, (iii) Land Use Policy, (iv) Forestry Stewardship Policy, (v) Sustainable Packaging Policy, (vi) Cage-Free Egg Policy, (vii) Human Rights Workplace Policy, (viii) Palm Oil Commitments, (ix) Cane Sugar Commitment, and (x) Global Anti-Bribery Compliance (ABAC) Policy. Copies of each document can be found on www.pepsico.com.

hours and rest periods, including2: (i) work weeks of no more than 48 regularly scheduled work hours and 12 voluntary overtime hours, (ii) overtime hours compensated at a premium rate, (iii) workers provided one day of rest every 7 days, except in emergencies or unusual situations, and (iv) no working more than 21 consecutive days without a rest day. Where a supplier’s practices do not meet

such international standards, the supplier should identify the root causes and work to improve its practices.

6. Prohibit all forms of forced or compulsory labor.PepsiCo suppliers shall maintain and promote fundamental human rights including freedom of

movement of workers. Employment decisions must be based on free choice and there can be no coerced or prison labor, and no use of physical punishment or threats of violence or other forms of physical, sexual, psychological or verbal abuse as a method of discipline or control. Employment contracts must clearly state the terms of employment and must not restrict worker movement through the retention of identity papers, holding of deposits, or other actions aimed to prevent worker termination of their employment. In addition, workers must not be required to pay recruitment or other similar fees to obtain or retain their employment and suppliers shall ensure that any third-party recruitment agencies comply with these principles.

7. Prohibit use of child labor.Suppliers shall adhere to the minimum employment age limit defined by national law or regulation and comply with relevant International Labor Organization (ILO) standards. In addition, PepsiCo prohibits the hiring of individuals under the age of (15), the local legal minimum working age, or the compulsory schooling age, whichever is higher. In no instance shall a supplier permit children to perform work that exposes them to undue physical risks that can harm their physical, mental, or emotional development or improperly interfere with their education or vocational needs.

8. Respect employees’ rights to freedom of association and collective bargaining.Consistent with applicable law, PepsiCo suppliers shall respect employees’ rights to join associations and worker organizations.

9. Provide safe and healthy working conditions. PepsiCo suppliers shall proactively manage health and safety risks to provide an incident-free environment where occupational injuries and illnesses are prevented. Suppliers must implement management systems and controls that identify hazards and assess and control risk related to theirspecific industry. In addition, suppliers shall provide access to safe drinking water, sanitation and hygiene, including adequate restrooms and handwashing facilities; fire exits and essential fire safety equipment; emergency aid kits; and access to emergency response services including environmental, fire and medical.

10. Carry out operations with care for the environment and comply with all applicableenvironmental laws and regulations.The potential environmental impacts of daily business decision-making processes should be considered along with opportunities for conservation of natural resources, source reduction, materialrecycling, and pollution control to ensure cleaner air and water and reduction of landfill wastes. PepsiCo encourages its suppliers to identify, set targets and implement action plans for reducing environmental impacts in the areas of water, wastewater, energy, greenhouse gas emissions, waste and packaging. PepsiCo, Inc. Global Supplier Code of Conduct -3- June 2018.

11. Maintain accurate financial books and business records in accordance with all applicable legal and regulatory requirements and accepted accounting practices, including with respect to all invoices submitted to PepsiCo for payment or reimbursement.

12. Deliver products and services meeting applicable quality and food safety standards.PepsiCo is committed to producing high quality and safe products across all of our brands. Suppliers involved in any aspect of developing, handling, manufacturing, packaging, transporting, or storing our products are expected to:

Know and comply with the product quality standards, policies, specifications, and procedures that apply to the products produced at your location

Follow and adhere to good manufacturing practices and testing protocols

Comply with all applicable federal, state, and local food safety laws and regulations

Report issues immediately to PepsiCo that could negatively affect the quality or public perception of a PepsiCo product

13. Support compliance with the Supplier Code by establishing appropriate managementprocesses and cooperating with reasonable assessment processes requested by PepsiCo.To conduct business with PepsiCo, suppliers must enter into contracts and execute purchase orders that mandate compliance with the Supplier Code. With prior notice, PepsiCo may conduct reasonable audits to verify Supplier’s compliance with the Supplier Code. In addition, as further outlined in the ABAC Policy, certain suppliers are required to complete our Third Party Due Diligence process from time to time.

14. Observe PepsiCo’s policies regarding gifts and entertainment and conflicts of interest when dealing with PepsiCo employees.PepsiCo suppliers, or anyone acting on PepsiCo’s behalf, are prohibited from providing or offering gifts to PepsiCo employees that could inappropriately influence PepsiCo’s business decisions or gain an unfair advantage.

15. Ensure that all land acquisitions (including leasing and utilization) meet International FinanceCorporation (IFC) Performance Standards, including Free, Prior and Informed Consent.

16. Report suspected violations of the Code.PepsiCo expects that suppliers have an effective Grievance Management system in place for grievances raised by workers within their operations or by third parties, which elevate potentialviolations to management in line with the UN Guiding Principles. Supplier’s employees or contractors may also report suspected violations of this Code to the PepsiCo “Speak Up” hotline at 1-866-729-4888 in the United States or to dedicated phone lines in other countries throughout the world. A list of international hotline telephone numbers is attached to this Supplier Code and may be updated from time to time as reflected at http://www.pepsico.com/about/global-code-of-conduct.

The “Speak Up” hotline is available worldwide on a 24/7 basis. Communications may also be made electronically at “Speak Up” web-line address http://www.pepsico.com/about/global-code-of-conduct. All such reports are treated as confidential, whether provided through our Speak Up telephone or web-line, and you may remain anonymous where permitted by law.

PepsiCo Global Human Rights Policy Our PepsiCo Guiding Principles provide that we will respect others and succeed together. Respecting the human rights of our employees, along with those in our value chain, and the communities in which we operate is the cornerstone of our Human Rights Policy. PepsiCo’s Human Rights Policy aligns with our Values and Guiding Principles, Global Code of Conduct, and business policies covering diversity, environment, health and safety, and employee relations. The Human Rights Policy also reflects the principles contained in the International Bill of Human Rights, International Labor Organization Declaration on Fundamental Principles and Rights at Work, the United Nations Global Compact and the UN Guiding Principles on Business and Human Rights. The Human Rights Policy applies to all PepsiCo employees and joint venture employees over which PepsiCo has management control.

Respect for Human Rights

PepsiCo recognizes the importance of maintaining and promoting the fundamental human rights of employees by operating under programs and policies that:

Promote a workplace free of discrimination and harassment

Prohibit child labor, forced labor, and human trafficking

Provide fair and equitable wages, benefits, and other conditions of employment in accordance with local laws

Provide humane and safe working conditions, including safe housing conditions as applicable

Recognize employees’ rights to freedom of association and collective bargaining

Failure to adhere to the following PepsiCo standards of conduct intended to respect the human rights of our employees may result in disciplinary action, up to and including termination of employment.

1. Forced Labor and Human Trafficking PepsiCo prohibits the use of all forms of forced labor, including prison labor, indentured labor, bonded labor, military labor, slave labor and any form of human trafficking. No use of physical punishment or threats of violence or other forms of physical, sexual, psychological or verbal abuse as method of discipline or control will be tolerated in the workplace.

2. Harassment and Discrimination PepsiCo prohibits any type of discrimination or harassment based on age, race, sex, color, national origin, religion, gender identity, disability, sexual orientation, pregnancy status, or any other status protected by applicable law. Furthermore, the basis of recruitment, hiring, placement, training, compensation and advancement at PepsiCo is qualifications, skills, experience, and performance. We value the diversity 2 and unique contributions of our employees and have a long-standing commitment to equal opportunity and intolerance of discrimination and harassment.

3. Child Labor PepsiCo prohibits the hiring of individuals under the age of (15) or the local legal minimum working age or the compulsory schooling age, whichever is higher. Younger workers may be employed through Company approved, short-term internships, apprenticeships or work experience programs, but they are never permitted to do work that may threaten their health and safety, or hinder their education or vocational orientation and training.

4. Safe and Healthy Working Conditions PepsiCo provides and maintains a safe and healthy workplace and complies with applicable safety and health laws, regulations, and internal requirements. We are dedicated to ensuring a safe workplace by minimizing the risk of accidents, injury and exposure to health risks. We are committed to engaging with our employees to continually improve health and safety in our workplaces, including the identification of hazards and remediation of health and safety issues.

5. Workplace Security PepsiCo provides and maintains a workplace that is free from violence, harassment, intimidation, and other unsafe or disruptive conditions due to internal and external threats.

6. Freedom of Association and Collective Bargaining PepsiCo respects our employees’ right to join, form or not to join a labor union without fear of reprisal, intimidation, or harassment. Where employees are represented by a legally recognized union, we are committed to establishing a constructive dialogue with their freely chosen representatives. PepsiCo is committed to bargaining in good faith with such representatives.

7. Working Hours, Wages, and Benefits PepsiCo compensates employees competitively relative to the industry and complies with all applicable local laws governing the payment of wages and benefits to employees.

Reporting Concerns PepsiCo encourages all employees to report violations of the Human Rights Policy through one of several channels available to them without fear of reprisal. Employees can contact:

Their direct manager or next-level manager

Their Human Resources manager

The PepsiCo Law Department

Global Compliance and Ethics

Speak Up Hotline (available by phone or web)

Retaliation against an employee for reporting an issue in good faith is a violation of our Global Code of Conduct and our Non-Retaliation Policy.

PEPSICO STATEMENT ON MODERN SLAVERY AND HUMAN TRAFFICKING

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This statement addresses the California Transparency in Supply Chains Act and the UK Modern Slavery Act and sets out the steps we have taken to ensure that modern slavery and human trafficking are not taking place in our supply chain or in any part of our business.

This statement constitutes our disclosure for the fiscal year ending December 30, 2017.

Our Business We are a leading global food and beverage company with a complementary portfolio of enjoyable brands, including Frito-Lay, Gatorade, Pepsi-Cola, Quaker, and Tropicana. Through a complex value chain of our operations, authorized bottlers, contract manufacturers and other third parties, we make, market, distribute and sell a wide variety of convenient and enjoyable beverages, foods and snacks, serving customers and consumers in more than 200 countries and territories.

We operate approximately 300 manufacturing facilities across the world, with our largest operations being in North America, Mexico, Russia, the United Kingdom, and Brazil. As of December 30, 2017, we and our consolidated subsidiaries employed approximately 263,000 people worldwide. In addition to our own operations, we leverage hundreds of franchise bottlers, joint ventures, co-manufacturers, co-packers, and thousands of suppliers to make, distribute, and sell our products around the world.

Please see our 2017 Annual Report for more information on our business and organizational structure.

Our ApprOAchAt PepsiCo, we believe acting ethically and responsibly is not only the right thing to do, but also the right thing to do for our business. PepsiCo is committed to respecting the human rights of workers and local communities throughout our operations and value chain. Our aim is to ensure that all rights holders that

pepsicO sTATeMenT On MODern sLAVerY AnD huMAn TrAFFicKinG

PEPSICO STATEMENT ON MODERN SLAVERY AND HUMAN TRAFFICKING

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might be affected by PepsiCo directly or through our value chain can enjoy the human rights described in the International Bill of Human Rights and the ILO Declaration on Fundamental Principles and Rights at Work. Our approach is guided by the UN Guiding Principles on Business and Human Rights and centered on:

• Embedding respect for human rights throughout our business practices;

• Conducting due diligence to proactively identify, address, and track potential human rights impacts in our value chain;

• Engaging with stakeholders, including rights holders, to inform our programs and approach; and

• Providing effective grievance mechanisms and access to remedy where we have caused or contributed to adverse human rights impacts.

This approach helps to ensure that we have the appropriate policies and management systems in place to prevent, identify, and address potential human rights risks in our value chain. This statement highlights elements of our management approach and details our work to address risks related to modern slavery and human trafficking. Additional information on our human rights program and initiatives can be found on our Human Rights Webpage.

GOVernAnceWe have established a formal governance structure to oversee and manage human rights at various levels throughout our business.

• Our Board of Directors plays an essential role in determining strategic priorities and considers sustainability issues an integral part of its business oversight, with its Public Policy and Sustainability Committee providing more-focused oversight of these issues.

• The PepsiCo Executive Committee (PEC), comprised of our Chairman & CEO, Sector CEOs, and top functional leaders, has direct oversight of human rights and regularly reviews our strategy and progress against our goals and salient issues.

• Our Chief Human Rights Officer (CHRO) has day-to-day responsibility for human rights, leads our Human Rights Office, and chairs our Human Rights Operating Council.

• Our Human Rights Operating Council (HROC), a cross-functional group of corporate and sector representatives, supports our CHRO and advises on initiatives to address human rights risks.

• Our Human Rights Office, established in 2017, drives our human rights strategy, facilitates performance against our goals, and manages our salient human rights issues.

Board of Directors

PepsiCo Executive Committee

Chief Human Rights Officer

Human Rights Operating Council

Human Rights Office

PEPSICO STATEMENT ON MODERN SLAVERY AND HUMAN TRAFFICKING

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Our pOLiciesOur policies play an important role in our ongoing work to embed respect for human rights throughout our business activities and address potential modern slavery and human trafficking risks in our value chain. They help us set clear expectations for our employees, suppliers, and other business partners, and they also establish a framework for monitoring compliance with our standards. Our Global Human Rights & Salient Issues Statement outlines our overall approach to respecting human rights and details our salient human rights issues. We have additional policies that apply to specific segments of our value chain and others that cover issues such as forced labor, child labor, and human trafficking. We regularly review our policies for alignment with stakeholder feedback, emerging regulatory developments, and internationally-recognized best practices.

Our OperatiOns

All PepsiCo employees and joint venture employees over which we have management control are required to comply with our Global Code of Conduct (Code) and Human Rights Workplace Policy. Both documents recognize the importance of maintaining and promoting fundamental human rights and explicitly prohibit the use of forced labor, child labor, and human trafficking.

Our suppliers

All suppliers, vendors, contractors, consultants, agents and other providers of goods and services who do business with or on behalf of PepsiCo (“suppliers”) are required to comply with our Supplier Code of Conduct (SCoC). Our SCoC sets out the expectations we have of our suppliers in a variety of areas, including labor practices. The SCoC is based on recognized international human rights standards and explicitly prohibits the use of forced labor, child labor, and human trafficking.

During a review of our policies in 2017, we identified the need to update our SCoC to clarify our expectations of suppliers in several key areas, including forced labor risks. As part of this process, we aligned our SCoC with the Consumer Goods Forum Priority Industry Principles and the Employer Pays Principle to help ensure that:

• Every worker has freedom of movement, • No worker has to pay for a job, and• No worker is indebted or coerced to workwork.

We will continue working with our suppliers and exploring industry partnerships and other collaborative efforts to help address potential forced labor risks in our supply chain and to help ensure these goals are realized. For example, in 2017 we co-sponsored an AIM-PROGRESS supplier capability building event in Kuala Lumpur, Malaysia for over 150 participants that focused on strengthening grievance mechanisms and reducing forced labor-related risks.

Our Business partners

To further advance respect for human rights among our business partners, we have established a goal to extend the principles of our Code to all franchisees and joint venture partners by 2025. Compliance with our Code and all other applicable PepsiCo policies is already required for all joint ventures where we have management control. In 2017, we initiated work to develop a formal engagement program around this goal for all of our other joint venture partners and franchisees. We have met with a number of our partners and franchisees over the past several months to discuss our human rights agenda and gather input on the engagement program. Our aim is to finalize and launch the program later this year.

PEPSICO STATEMENT ON MODERN SLAVERY AND HUMAN TRAFFICKING

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TrAininG AnD AwArenessTraining also plays an important role in our work to embed respect for human rights throughout our business activities. It not only allows us to communicate our policies, standards, and expectations to our employees and suppliers, but it also allows us to raise awareness of potential human rights risks across our value chain and strengthen our ability to identify and prevent potential impacts. We have formal training programs for our employees and direct third-party suppliers that include guidance on forced labor, child labor, and human trafficking risks.

Training Our EmplOyEEsIn 2017, over 4,200 employees across our core functions (i.e., Human Resources, Global Procurement, Law Department, and Compliance) completed targeted human rights training on modern slavery and human trafficking. These functions were selected because they serve as critical touchpoints for our employees, suppliers, and other business partners. This training was designed to raise awareness of potential forced labor risks and to strengthen employee ability to identify and prevent potential impacts across our value chain. We plan to launch additional human rights training in 2018 to reinforce these learnings.

We also require associates at all levels in the organization to complete annual Code training so they understand their obligation to comply with our Code and the behaviors that are expected under the Code. In 2017, over 72,000 employees worldwide completed an online Code training course available in 24 languages. Also in 2017, over 184,000 frontline employees in our plants and warehouses received Code and Values training through in-person training workshops.

Training Our DirEcT suppliErsWe use our Sustainable Sourcing Program to communicate our Supplier Code of Conduct to suppliers, evaluate their compliance, and facilitate continuous improvements within our supply chain. In 2017, 100% of our targeted key suppliers completed our SCoC training. This training helps to ensure suppliers understand and comply with the principles of our SCoC and support our goal of long-term sustainable supply by addressing known social risks and building capability in their operations. We are currently revising our SCoC training to provide additional guidance on forced labor-related risks, particularly recruitment fees, freedom of movement, and clear worker contracts. Our aim is to launch the revised training later this year. Our current SCoC training can be viewed here.

PEPSICO STATEMENT ON MODERN SLAVERY AND HUMAN TRAFFICKING

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AssessinG AnD MAnAGinG risKs As one of the largest food and beverage companies in the world, we recognize there are a variety of ways that our business activities might directly or indirectly impact human rights. To help us prioritize our efforts, our HROC conducted a detailed assessment in 2017 to identify our salient human rights issues - those human rights at risk of the most severe negative impact through our company activities and business relationships.

In partnership with Shift, we started by defining our focus as the most salient issues for rights holders in our value chain. We then mapped the potential impacts that our business activities might have on rights holders in our value chain, which involved detail analysis of our business operations and supply chain, past assessment and audit findings, and input from internal and external experts, including industry groups, NGOs, human rights bodies, and socially responsible investors. After identifying a list of potential impacts, we determined our salient issues by applying the “severity of impact” and “likelihood of occurrence” criteria outlined in the UNGP Reporting Framework. Through this process, the HROC identified six salient issues for our value chain.

saliEnT issuEs

FrEEDOm OF assOciaTiOn

Human rigHT TO WaTEr

lanD rigHTs

VulnErablE WOrkErs(Migrant Workers, Young Workers, Contract/

Temporary Workers, and Women)

WOrking HOurs anD WagEs

WOrkplacE saFETy

While we take steps to address all potential risks in our value chain, saliency informs our strategy and helps us prioritize where we should focus our work. We regularly review our salient issues to determine whether other human rights have become greater priorities over time. We set out the initial framing for our salient issues in our Global Human Rights & Salient Issues Statement, and we are currently establishing detailed roadmaps for each of them.

HrOc assEssmEnT prOcEssDEFinED FOcus as THE mOsT saliEnT issuEs

FOr rigHT HOlDErs

appliED “sEVEriTy OF impacT” anD “likEliHOOD OF OccurEncE” criTEria

iDEnTiFiED siX saliEnT issuEs FOr Our ValuE cHain

mappED pOnTEnTial impacTs OF Our businEss

Business Ops & Supply Chain

Past Assessments & Audit Findings

Input from Internal & External Experts

pErFOrmED DETailED analysis OF

PEPSICO STATEMENT ON MODERN SLAVERY AND HUMAN TRAFFICKING

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Our work on forced labor risks intersects with several of our salient issues, particularly vulnerable workers. Below are some examples of our recent work related to forced labor.

• We recently revised our SCoC to align with the Consumer Goods Forum Priority Industry Principles and the Employer Pays Principle.

• We are revising our SCoC training to provide additional guidance to our direct suppliers on forced labor-related risks.

• We are expanding our Sustainable Sourcing Program to include third-party labor providers to better assess, prevent, and address risks specific to contract and migrant workers, such as recruitment fees.

• We are using our leadership position within AIM-PROGRESS and the Sedex Stakeholder Forum to help evolve the current auditing protocol used by PepsiCo and other companies to better reflect changes in risk, including forced labor and land use practices.

• We are addressing risks and impacts to vulnerable workers, including temporary workers and women, in our palm oil supply chain and the industry more broadly. This means working with peers, suppliers, civil society, and others to identify and address systemic issues as well as to address non-compliances in our own supply chain.

Our DuE DiligEncE prOgramsWe manage our human rights risks, including forced labor, by assessing adverse human rights impacts in our value chain; integrating these findings into our internal systems, controls, and processes; tracking the effectiveness of our actions and influence; and communicating with our external stakeholders.

We recognize that potential human rights impacts can occur at any point along our value chain, and our aim is to identify and address these risks wherever they occur. Our initial focus has been on our own operations, direct suppliers, and agricultural partners. These areas were identified through internal analysis and external stakeholder feedback as the points along our value chain where we have the greatest ability (i.e., our operations) to prevent and respond to human rights impacts and where the risks to rights holders are high (i.e., supply chain and agricultural partners). We have established programs to assess potential risks, independently audit sites, and identify and remediate impacts found along these areas of our value chain.

GlOBal laBOr Human riGHts assessment prOGram (GlHr)

Assesses potential human rights impacts at all of our nearly 300 company-owned manufacturing sites. GLHR assessments are conducted by third-party auditors and conform to the SMETA protocol. Approximately 80% of our direct operations have completed GLHR assessments, and we anticipate achieving 100% completion by the end of 2018.

sustainaBle sOurcinG prOGram (ssp)

Assesses risk and monitors supplier compliance with our Supplier Code of Conduct through scored self-assessments and third-party auditing of our most business-critical direct suppliers and contract manufacturing and co-packing locations across 68 countries. SSP audits also leverage SMETA 4-Pillar requirements. To date, roughly 83% of our total business critical direct suppliers have been assessed through the SSP.

sustainaBle FarminG prOGram (sFp)

Helps us assess our direct growers, identify potential non-compliances, and implement corrective action plans to address human rights issues and improve agricultural practices at the farm level. From 2013 to 2017, we have implemented the SFP across 38 countries, with active programs representing over 40,000 growers in our supply chain.

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To better understand the risks along other points in our value chain, we are continuing to expand our due diligence programs. For example, we are expanding our Sustainable Sourcing Program to include indirect suppliers, such as third-party labor providers, and establishing a new program to engage our franchisees and joint venture partners.

aDDrEssing nOn-cOmpliancEsIn 2017, we conducted 80 GLHR on-site audits of our company-owned manufacturing operations and conducted or recognized over 1,000 on-site audits of our first-tier suppliers through our Sustainable Sourcing Program. The following represent the categories where we found the most frequent non-compliances from these audits of our own manufacturing operations and our direct third-party suppliers in 2017.

Top 5 Non-Compliance Categories in 2017

When non-compliances are identified through our due diligence programs, they are addressed through the implementation of corrective action plans. Each corrective action plan has a set timeframe, depending on the type of non-compliance and its severity. Once in place, corrective action plans are tracked through our respective programs, which may require an additional on-site audit to verify remediation of non-compliances. We also take additional steps to identify and better understand the root cause(s) of the non-compliances we find.

In 2017, we identified two forced labor-related non-compliances in the over 1,000 on-site supplier audits conducted or recognized by our Sustainable Sourcing Program. Both instances involved supplier sites in the UK and concerned the compulsory overtime provisions in their human resources policies. In both instances, the sites reviewed our non-compliance findings, identified the root cause of the issue within their operations, and submitted Corrective Action Plans to PepsiCo outlining the actions they would take to remediate the issue within a set timeframe. In both cases, the policies were revised within the set timeframe and verified to be in place during our follow up audit. Learnings from both instances have been integrated into our updated Supplier Code of Conduct and revised Supplier Code of Conduct training to provide additional guidance to suppliers on forced labor-related risks.

sTAKehOLDer enGAGeMenTWe understand the importance of capturing the voice of rights holders, and we are committed to engaging with potentially and actually affected stakeholders, including our employees, supply chain workers, and the local communities in which we operate. We regularly engage a wide range of external stakeholders and human rights experts on our approach, salient issues, and specific concerns. For example, following feedback from several stakeholders including the Interfaith Center on Corporate Responsibility (ICCR), we are taking an active role in the Consumer Goods Forum’s initiative to fight

1. Health, Safety, and Hygiene

2. Working Hours

3. Wages and Benefits

4. Regular Employment

5. No Rest Day Provided

PEPSICO STATEMENT ON MODERN SLAVERY AND HUMAN TRAFFICKING

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forced labor through the Priority Industry Principles. The initiative seeks to establish common standards amongst its large retail and consumer goods company members to tackle forced labor through key issues such as ensuring freedom of movement for workers, no document retention, and no fees paid by workers for our own operations and our value chains.

GrieVAnces prOcess AnD Access TO reMeDYWe recognize that our policies and programs may not prevent all adverse impacts in our value chain, and we aim to provide effective remedy where we have caused or contributed to those impacts and to using our leverage to encourage our suppliers or partners to provide remedy where we find impacts directly linked to our business operations, goods, or services. We have established a variety of mechanisms that allow our employees, stakeholders, and other potentially affected individuals to raise grievances and seek remedy.

All of our employees have an obligation to report suspected violations of our Values, our Code, our policies or applicable law. Our employees have several avenues for reporting issues and seeking advice, including their manager, HR, the PepsiCo Law Department, the Global Compliance and Ethics Department, and our Speak Up hotline. Our Speak Up program is an important component of our culture of ethics and integrity, and we encourage our suppliers and business partners to use their own effective grievance mechanisms and make the PepsiCo Speak Up hotline available for their use through our Supplier Code of Conduct and its associated training.

In July 2017, we launched an enhanced grievance mechanism for agricultural commodities that is complementary to our existing Speak Up! Process. The agricultural grievance mechanism is open to anyone who has a concern that PepsiCo’s policies and goals related to agricultural commodities are not being met. Further details on the

grievance mechanism can be found here. In addition to these formal grievance mechanisms, we also actively engage with external stakeholders to address issues they raise on behalf of individuals in our value chain.

Contact Speak Up by web or by phone www.tnwgrc.com/PepsiCoSpeakUp

If you see or hear something you believe is illegal or a violation of our Values or our Code of Conduct….

Speak Up!

PepsiCo policy protects employees who raise concerns in good faith against retaliation

Report your concerns to your supervisor, Human Resources manager or Speak Up

With Speak Up, you may choose to remain

anonymous, where permitted by law

You should report:*

• Inaccuracy of financial records • Accounting and auditing irregularities • Bribery, corruption or illegal payments • Criminal conduct and violations of law • Safety and environmental hazards

• Discrimination and harassment • Product quality issues • Conflicts of interest • Theft or fraud • Workplace violence

* Due to local privacy laws in certain countries and the European Union region, the Speak Up line may permit only specific types of calls, such as accounting, financial, auditing and bribery matters. In those countries, contact your Human Resources manager to report issues.

For the phone number in your country, see next page for our

International Phone List Confidential. Toll Free. 24 hours a day.

PEPSICO STATEMENT ON MODERN SLAVERY AND HUMAN TRAFFICKING

9

nexT sTeps We will continue our work to address potential modern slavery and human trafficking risks throughout our value chain and will focus on:

›› Launching additional human rights training to our employees in 2018 to raise awareness of potential forced labor risks and to strengthen their ability to identify and prevent potential impacts across our value chain.

›› Publishing our updated Supplier Code of Conduct to provide additional guidance to our suppliers on our expectations.

›› Revising our Supplier Code of Conduct training to provide additional guidance to our suppliers on forced labor-related risks.

›› Working with our direct suppliers to implement our updated Supplier Code of Conduct, with a particular focus on recruitment fees, freedom of movement, and clear worker contracts.

›› Expanding our Sustainable Sourcing Program to include third-party labor providers to better assess, prevent, and address potential risks specific to contract and migrant workers, such as recruitment fees.

›› Continuing to work within industry partnerships and other collaborative efforts to help address potential forced labor issues in our supply chain and contribute to tackling the systemic issues that cause forced labor where the risks are highest.

This statement has been reviewed and approved by PepsiCo’s Chairman of the Board of Directors and Chief Executive Officer.

Signed,

Indra K. Nooyi PepsiCo Chairman of the Board of Directors and Chief Executive Officer

Human Rights Legislation

• California Transparency in Supply Chains Act (2010) - Link

• Federal Acquisition Regulation: Ending Trafficking in Persons (2015) - Link

• UK Modern Slavery Act (2015) - Link

• France Duty of Vigilance Law (2017) - Link

• Swiss Responsible Business Initiative (2017) - Link

• Dutch Child Labor Due Diligence Law (2017) - Link

• Australian Modern Slavery Act (2018) – Link

• German Human Rights Due Diligence Law (2019) – Link

• Draft UN Treaty on Business and Human Rights – Link

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1093 The Business Lawyer; Vol. 73, Fall 2018

Human Rights Protections in International Supply Chains—Protecting Workers and Managing Company Risk 2018 Report and Model Contract Clauses from the Working Group to Draft Human Rights Protections in International Supply Contracts, ABA Business Law Section* David V. Snyder (chair) dsnyder@wcl.american.edu and Susan A. Maslow (vice chair)smaslow@ammlaw.com

CLAUSES TO BE INSERTED INTO SUPPLY CONTRACTS, PURCHASE ORDERS, OR SIMILAR DOCUMENTS FOR THE SALE OF GOODS

The following clauses are designed for supply contracts. They assume that assurances with respect to compliance with certain human-rights-related policies is desired or required by the buyer and that such policies will appear in an appendix to the agreement, Schedule P, just as the buyer’s specifications for goods themselves are likely to appear in an appendix. The clauses below are intended to make those policies legally binding and to provide enforceable remedies for their violation while also managing the risk that may come with such policies. The ABA Model Principles and Policies1are an example of what might appear in Schedule P; many companies may wish to adopt or adapt them. Some companies may prefer or need something broader (see infra note 5 regarding certain laws that apply to some buyers), and other companies may need something broader still (e.g., to comply with the FAR, other human rights and health and safety standards, or moral obligations). Other possibilities include the OECD

*This report is the product of the Working Group, as explained in the text, and reflects the rough (and sometimes debated) consensus of the Working Group. While produced under the auspices of the Uniform Commercial Code Committee of the American Bar Association Business Law Section, the report has not been approved or endorsed by the Committee, the Section, or the Association as of the time of publication. Accordingly, the report should not be construed to be the action of either the American Bar Association or the Business Law Section. Nothing contained herein, including the clauses to be considered for adoption, is intended, nor should it be considered, as the rendering of legal advice for specific cases or particular situations, and readers are responsible for obtaining such advice from their own legal counsel. This report and the clauses and other materials herein are intended for educational and informational purposes only. The lawyer who advises on the use of these clauses must take responsibility for the legal advice offered. 1 There are both ABA Model Business and Supplier Principles on Labor Trafficking and Child Labor (“ABA Model Principles”) and ABA Model Business and Supplier Policies on Labor Trafficking and Child Labor (“Model Policies”) (emphasis added). The ABA Model Principles are the high level articulation of the detailed material in the Model Policies. The ABA Model Principles also form Part II of the Model Policies. Only the ABA Model Principles were adopted by the ABA House of Delegates, so only the ABA Model Principles represent the official position of the American Bar Association. For a detailed discussion, see E. Christopher Johnson, Jr., Business Lawyers Are in a Unique Position to Help Their Clients Identify Supply-Chain Risks Involving Labor Trafficking and Child Labor, 70 BUS. LAW. 1083 (2015). See also the Model Principles Task Force website: http://www.americanbar.org/groups/business_law/initiatives_awards/child_labor.html.

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Guidelines and the UN Guiding Principles (the Ruggie Principles). Many companies will already have supplier codes of conduct or similar documents that they can use as the content of Schedule P, or Schedule P may simply require obtaining and maintaining certification from a designated third party. The content of Schedule P will likely vary significantly by industry and is beyond the scope of this Working Group. The text proposed assumes that buyers are located in the United States and that the applicable law is the Uniform Commercial Code (the “U.C.C.”) or the United Nations Convention on Contracts for the International Sale of Goods (the “CISG,” a treaty to which the United States is a party). Buyers and suppliers in other jurisdictions may also find these clauses a useful starting point. Note on negotiation stance. The proposed text is buyer-friendly, sometimes extremely so, and it could be perceived by some suppliers as unduly aggressive. The drafters have crafted the text this way because some buyers may have the leverage to use the proposed text, and in any case, these clauses are aimed primarily at companies in the role of buyer. The text as proposed gives an indication of what a company would want as buyer, and each company can decide if particular provisions need to be adjusted or eliminated based on its negotiating position and its stance in other transactions (given that most companies are sometimes in the position of buyer and sometimes in the position of seller). 1. Representations, Warranties, and Covenants on Abusive Labor Practices. Supplier represents and warrants to Buyer, on the date of this Agreement and throughout the contractual relationship between Supplier and the Buyer, that: 1.1 Compliance. Supplier and its subcontractors and [to Supplier’s [best] knowledge]2 the [shareholders/partners, officers, directors, employees, and] agents of Supplier and all intermediaries, subcontractors, consultants and any other person providing staffing for Goods3 or services required by this Agreement [on behalf of Supplier]4 (collectively, the “Representatives”) are in compliance with Schedule P.5 Each shipment and delivery of Goods shall constitute a 2 An unqualified representation supports Buyer’s goals to allocate the risk of undiscovered issues to Supplier and contractually encourage Supplier to gather accurate information about its subcontractors. The parties may negotiate the knowledge qualifier and the degree of knowledge required as it relates to additional levels of subcontractors and any other third party and whether “best” knowledge should be defined to include the imposition of certain periodic inquiry obligations on Supplier. It can also reinforce the Buyer’s right to revoke acceptance under U.C.C. section 2-608. 3 “Goods” is assumed to be defined earlier in the Agreement (and not defined in Schedule P). See also infra note 16 (on the definition of “Nonconforming Goods”). 4 Supplier may attempt to negotiate the use of the phrase “on behalf of Supplier” here, but such a phrase might allow Supplier to argue that the breaching Representative did so without Supplier’s knowledge or authority, which defeats the purpose of a strict representation and covenant. 5 The content of Schedule P is beyond the scope of this document, but note that some suggest the best practice is to avoid reference to specific laws in favor of a general reference because legislative

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representation by Supplier and Representatives of compliance with Schedule P; such shipment or delivery shall be deemed to have the same effect as an express representation. [Supplier’s delivery documents shall include Supplier’s certification of such compliance.]6 1.2 Schedule P Compliance Through the Supply Chain. Supplier and its Representatives shall make the performance of all of its Representatives subject to the terms and conditions in Schedule P and Supplier shall ensure that Supplier, its Representatives, and all of its and their respective Representatives acting7 in connection with this Agreement do so throughout the contractual relationship only on the basis of legally binding and enforceable written contracts that impose on and secure from the Representatives terms [in compliance with] [equivalent to those imposed by] [at least as protective as those imposed by] Schedule P. To restate for clarity, each Supplier and each Representative shall require each of its Representatives’ compliance so that such obligations are required at each step of the supply chain. Notwithstanding anything contained herein to the contrary, Supplier shall be responsible for the strict observance and performance by Supplier and its Representatives of the terms and conditions in Schedule P and shall be directly liable to Buyer for any violation by Supplier or its Representatives of Schedule P. 1.3 Supplier’s Policies. Supplier shall establish and maintain throughout the term of this Agreement its own policies and procedures to ensure compliance with Schedule P (“Supplier’s Policies”), which shall include a reporting mechanism for Representatives to report potential and actual

initiatives in some countries are broader than in others. In the event that the drafter nevertheless wishes to require that Supplier specifically represent compliance with anti-trafficking and similar legislation, consider avoiding the term “applicable,” which will limit required adherence by companies that do not meet the size or revenue requirements of certain legislation. Prominent guidance can be found, for example, in U.S. anti-trafficking statutes, see, e.g., Trafficking Victims Protection Act of 2000, 22 U.S.C. §§ 7101–7114 (2018); see also 18 U.S.C. §§ 1589–1592 (2018) (criminal sanctions for forced labor, trafficking, and peonage); Trafficking Victims Protection Reauthorization Act of 2013 (TVPRA) (Title XII of the Violence Against Women Reauthorization Act of 2013, Pub. L. No. 113-4, 127 Stat. 54 (2013)), as well as the U.N. Guiding Principles on Business and Human Rights (often called the Ruggie Principles); see John Ruggie (Special Representative of the Secretary-General), Guiding Principles on Business and Human Rights: Implementing the United Nations “Protect, Respect and Remedy” Framework, U.N. Doc. A/HRC/17/31, annex (Mar. 21, 2011), https://www.ohchr.org/Documents/Issues/Business/A-HRC-17-31_AEV.pdf. Note again however, that specific guidance with respect to law that might be desired by Buyer or Supplier to be included in Schedule P is beyond the scope of this document, and this note does not attempt to be exhaustive (omitting, for example, certain anti-trafficking legislation as well as conflict mineral issues and the EU rules on non-financial and diversity information). 6 The bracketed sentence may support Buyer’s continuing reliance upon Supplier’s monitoring and compliance. The actual express representation would arguably make reliance more reasonable, and such reliance may delay Buyer’s discovery and could help explain periodic rather than constant or continual audits by Buyer. See also infra section 2.4. Delivery documents could include commercial invoices, packing lists, beneficiary’s certificates, or an additional document delivered with the goods or tendered through banking channels to obtain payment for the goods. See infra note 25. If the bracketed language is included, the second clause of the preceding sentence should be deleted. 7 Supplier may again attempt to negotiate the use of the phrase “acting on the behalf of Supplier” here. Buyer, if possible, will want to avoid such language. See supra note 4.

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violations of Supplier’s Policies and/or Schedule P.8 Within _____days of (a) Supplier having reason to believe there is any potential or actual violation of Supplier’s Policies and/or Schedule P, or (b) receipt of any oral or written notice of any potential or actual violation of Supplier’s Policies and/or Schedule P, Supplier shall provide a detailed summary of (i) the factual circumstances surrounding such violation, (ii) the specific provisions of the Supplier’s Policies and/or Schedule P that are alleged to have been violated, and (iii) the investigation and remediation that has been conducted or that is planned.9

1.4 Provision of Information. Upon request, Supplier shall deliver to Buyer such information and materials as Buyer reasonably requires with respect to the subject matter of Schedule P.

2. Rejection of Goods and [Cancellation] [Avoidance] of Agreement.

2.1 Strict Compliance. It is a material term of this Agreement that Supplier and Representatives shall strictly comply with Schedule P. 2.2 Rejection. Buyer shall have the right to reject any Goods produced by or associated with Supplier or Representative that Buyer has reason to believe has violated Schedule P, regardless of whether the rejected Goods were themselves produced in violation of Schedule P, and regardless of whether such Goods were produced under this or other contracts.10 2.3 [Cancellation.] [Avoidance.] Noncompliance with Schedule P [substantially impairs the value of the Goods and this Agreement to Buyer]11 [is a fundamental breach of the entire Agreement]12 and Buyer may immediately [cancel] [avoid]13 this entire Agreement with 8 As part of Buyer’s due diligence in choosing its Supplier, it should request copies of all anti-trafficking policies, as well as similar policies, and should determine, for example, how and when training is conducted and to whom it is given, how Supplier’s policies are monitored, and how compliance is checked and certified. If Supplier does not have its own policies against forced and child labor, including worker health and safety, for example, or if Buyer prefers, Supplier can be required to adopt Buyer’s policies.

9 All of the covenants set forth above are prospective. Counsel to Buyer may consider requiring Supplier to state that it has no history of using forced labor or underage workers, subjecting workers to hazardous conditions or other similar conduct, and has never been the subject of investigations or proceedings relating to such conduct. In some industries and for some companies, such historical assurances cannot be made or expected, even though the companies are currently compliant and may have been compliant for a number of years. 10 See U.C.C. §§ 2-601, 2-602 (2011). 11 Because installment contracts under Article 2 of the U.C.C. do not enjoy the “perfect tender” rule applicable to a single-delivery contract, such installment contracts should include the phrase within the first bracket. The additional phrase within the first bracket “and this Agreement” should be included if Buyer wishes not only to reject goods based on noncompliance with Schedule P but also wishes to terminate the installment contract in its entirety in light of, for example, Buyer’s internal policy, the possible damage to Buyer’s reputation, or justifiable fear of a repeated breach by Supplier. 12 The phrase within the second bracket is applicable for agreements to which the CISG applies, whether for a single delivery or an installment contract, under article 49. 13 “Cancellation” occurs when a “party puts an end to the contract for breach by the other” under U.C.C. section 2-106(4). “Avoidance” is the appropriate term under CISG article 49.

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immediate effect and without penalty and/or may exercise its right to indemnification and all other remedies.14 Buyer shall have no liability to Supplier for such [cancellation] [avoidance]. 2.4 Timely Notice. Notwithstanding any provision of this Agreement or applicable law (including without limitation [the Inspection Period in Section ____ of this Agreement and] [Articles 38 to 40 of the CISG] [and U.C.C. §§ 2-607 and 2-608]),15 Buyer’s rejection of any Goods16 as a result of noncompliance with Schedule P shall be deemed timely if Buyer gives notice to Supplier within a reasonable time after Buyer’s discovery of same. 2.5 No Right to Cure. Supplier hereby acknowledges that it shall have no right to cure by substitution and tender of Goods created and/or delivered without violation of Schedule P if Buyer elects to refuse such tender, in Buyer’s sole discretion.17

14 This section expressly provides for cancellation as a remedy in the event of Supplier’s failure to comply with a human rights policy adopted as part of a supply contract. Ultimately, without a contract clause expressly permitting cancellation for human rights policy breaches, Buyer may have a difficult time assembling compelling evidence that the value of the goods was fatally and “substantially impaired” due to the violation of the policy. The value of a particular good supplied in violation of a human rights policy might not necessarily change in the marketplace due to the troubled and tainted background of manufacture. 15 Articles 38 to 40 of the CISG require that Buyer examine the goods or cause them to be examined within as short a period as is practicable. Buyer loses the right to rely on a lack of conformity of the goods if it does not give Supplier notice within a reasonable time after Buyer discovers or ought to have discovered a defect and, at the latest, within two years of the date of delivery (or other contractual period) unless Supplier knew or could not have been unaware of the defect. Because U.C.C. section 2-607(3)(a) provides a similar argument that Buyer’s failure to notify Supplier of a breach within a reasonable time bars any remedy, it is suggested that the contractual text be included to limit disputes about what constitutes a reasonable time. If the U.C.C. is referenced in the text, the applicable state version should be cited. 16 “Nonconforming Goods” and “Inspection Period” are assumed to be defined earlier in the Agreement (and not defined in Schedule P). The definitional portion of the Agreement must include as “Non-conforming Goods” any goods received by Buyer that Buyer has reasonable grounds to believe (i) include any materials in fabrication, assembly, packaging, or shipment, directly or indirectly, that do not comply with Schedule P; or (ii) originate from or are associated with a Supplier or Representative that [may have] [is reputed to have] [has] violated human rights protections similar to Schedule P. 17 This clause negates Supplier’s right to cure under U.C.C. section 2-508 and CISG articles 37 and 48. In cases of mere technical or recordkeeping violations, Buyer may elect to accept the tender of a cure. In other cases, Buyer may not want to do business with a Supplier that violates Schedule P. Under the provision as drafted, Buyer retains discretion here. Many parties, however, may prefer to provide a right to cure; experience suggests that many violations may consist of recordkeeping problems or other clerical shortcomings. Even in cases of substantive violations of health and safety standards, for example, the parties may prefer to institute a program to alleviate the problems (e.g., by providing for appropriate working conditions) rather than to end the Agreement and throw the employees out of work. For these reasons, a “notice and cure” clause may be preferable to the elimination of any cure right for Supplier. In such a situation, this section should add, “Except as provided in Section _____,” at the beginning. Another section can then provide for Buyer to give notice of default to Supplier. That default notice would trigger a cure period, either set by this Agreement or by the notice (as the parties prefer), and if cure is not effected within that period, then Supplier would be in breach, which would then trigger the remedies provided in the Agreement. In this way, a Supplier who does not comply with Schedule P is in default but is given a chance to fix the problem. A Supplier who implements a successful fix thus avoids breach, and Buyer will have no right to a remedy (but perhaps no need for one either). A notice-and-cure mechanism may make the Agreement more palatable to Supplier, although Buyer may prefer the stronger rights provided in the text as drafted, or Buyer may need them under the FAR. See 48 C.F.R. § 22.1703(c) (2018) (requiring contractor certification (within threshold limits) that it will “monitor, detect, and terminate the contract with a subcontractor or agent engaging in prohibited activities”

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3. [Revocation of Acceptance.18 3.1 Notice of Buyer’s Discovery. Buyer may revoke its acceptance, in whole or in part, upon notice sent [in accordance with Section ___] to Supplier of Buyer’s discovery of Supplier’s noncompliance with Schedule P, which the parties have agreed in Section 2 above is a nonconformity that substantially impairs the value of the Goods and this Agreement to Buyer. 3.2 Same Rights and Duties as Rejection. Upon revocation of acceptance, Buyer shall have the same rights and duties as if it had rejected the Goods before acceptance. 3.3 Timeliness. Notwithstanding any provision of this Agreement or applicable law (including without limitation [the Inspection Period in Section ____ of this Agreement and] U.C.C. § 2-608), Buyer’s revocation of acceptance of any Goods as a result of noncompliance with Schedule P shall be deemed timely if Buyer gives notice to Supplier within a reasonable time after Buyer’s discovery of same.]

4. Nonvariation of Matters Related to Schedule P. 4.1 Course of Performance, Established Practices, and Customs. Course of performance and course of dealing (including, without limitation, any failure by Buyer to effectively exercise any audit rights)19 shall not be construed as a waiver and shall not be a factor in Buyer’s right to reject Goods, [cancel] [avoid]20 this Agreement, or exercise any other remedy. Supplier acknowledges that with respect to the matters in Schedule P, any reliance by Supplier on course of performance, course of dealing, or similar conduct would be unreasonable. Supplier acknowledges the fundamental importance to Buyer of the matters in Schedule P and understands that no usage or practice established between the parties should be understood otherwise, and any apparent conduct or statement to the contrary should not be relied upon.21 The parties agree that no usage of trade, industry custom, or similar usage shall apply to this Agreement to the extent such custom or usage would lessen the

(emphasis added)). The text as drafted avoids the problem of disputes about whether a cure is successful. Further, nothing in the text as drafted prevents Buyer from forbearing to exercise its remedies and giving Supplier a period to cure if Buyer thinks a cure would be appropriate. The provision on Notice of Breach appears in section 5.1. Any forbearance should include an appropriate notice of reservation of rights. 18 The clauses on revocation of acceptance are designed primarily for use in contracts governed by the U.C.C. and are drafted with U.C.C. section 2-608 in mind. They should be omitted in con- tracts governed by the CISG. For this reason, section 3 is bracketed. 19 What audit rights Buyer has, if any, are beyond the scope of this document and should be set forth in Schedule P. 20 “Cancel” for agreements under the U.C.C., “avoid” for the CISG. See supra note 13. 21 The first phrase uses the terminology of U.C.C. section 1-303 and the second phrase uses the terminology of CISG article 9(1).

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protections provided or the obligations imposed by Schedule P. No person except [Title/Officer] has authority on behalf of Buyer to vary Schedule P or any provisions relating to it, and any such variation must be in a signed writing or an authenticated electronic communication. 4.2 No Waiver of Remedy. Buyer’s acceptance of any Goods in whole or in part will not be deemed a waiver of any right or remedy22 nor will it otherwise limit Supplier’s obligations, including, without limitation, those obligations with respect to warranty and indemnification. 5. Remedies. 5.1 Notice of Breach. If Buyer has reason to believe, at any time, that Supplier or a Representative is not in compliance with Schedule P, Buyer shall notify Supplier [in accordance with Section ____]. [Buyer’s notice requesting remediation as well as Buyer’s notices of breach or rejection [or revocation]23 may be given orally or in writing.] A notice to remediate noncompliance with Schedule P also constitutes notice of breach of this Agreement.24 5.2 Investigation and Suspension of Payment. Buyer has the right to suspend all payments to Supplier, whether due under this Agreement or other agreements, if Buyer deems, in its sole discretion, that investigation of possible noncompliance with Schedule P is advisable. Such suspension of payments will continue during investigation. Supplier shall fully cooperate with investigation by Buyer or Buyer’s agents. Without limitation, such cooperation shall include, at Buyer’s request, working with governmental authorities to enable Buyer or its agents to enter the country, to be issued appropriate visas, and to investigate fully.25

22 U.C.C. § 2-601 (2011). 23 Again, revocation language should be used in U.C.C. but not CISG contracts. 24 This section addresses notice requirements under Article 2 of the U.C.C. For instance, section 2-607(3)(a) requires notice of a breach within a reasonable time after constructive discovery of the breach. A buyer who fails to give such notice will find its claims barred, with many courts holding that pre-suit notice is required. 25 Some supply contracts will call for payment by letter of credit, which will complicate the right to suspend payment. When a documentary credit is involved, the supply contract and letter of credit should require presentation of a certificate of compliance with Schedule P. Ideally the certificate would be issued by a third party that has audited the Supplier or Representatives, but a beneficiary’s certificate may also be helpful if a third-party certificate is impractical. Under U.S. law, a false beneficiary’s certificate could allow an injunction against payment on grounds of “material fraud by the beneficiary on the issuer or applicant.” See U.C.C. § 5-109(b) (2011). Purposeful falsity of the certificate might perhaps be helpful even if suit must be in London or in a jurisdiction following English law, which requires fraud on the documents. The leading case from the House of Lords is United City Merchants (Invs.) Ltd. v. Royal Bank of Canada, [1983] A.C. 168, 183 (referring to “documents that contain, expressly or by implication, material representations of fact that to his knowledge are untrue”); see also Inflatable Toy Co. Pty Ltd v. State Bank of New South Wales Ltd, [1994] 34 NSWLR 243 (applying Australian law). If the violation of Schedule P constitutes an illegal act, the illegality theory may also be useful in a suit governed by English law. In any case, the certificate should be required to be dated within a reasonably short time of the draw. Many banks probably will not object to the requirement of an additional certificate as certificates (e.g., by SGS) are commonplace in such transactions, and environmental certificates are similar to (and in some cases may be the same as) a certificate of compliance with Schedule P. While some banks may resist the requirement of such a certificate because of fear of injunction actions and the concomitant extension

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5.3 Exercise of Remedies. Remedies shall be cumulative. Remedies shall not be exclusive of, and shall be without prejudice to, any other remedies provided at law or in equity. Buyer’s exercise of remedies and the timing thereof shall not be construed in any circumstance as constituting a waiver of its rights under this Agreement. In addition to the right to [cancel] [avoid] this Agreement, in whole or in part, and any other remedies available to Buyer, in the event that Supplier or a Representative fails to comply with Schedule P, Buyer may:

a. deem itself insecure and demand adequate assurance from

Supplier of due performance in conformance with Schedule P;

b. obtain an injunction with respect to Supplier’s noncompliance with Schedule P, and the parties agree that noncompliance with Schedule P causes Buyer great and irreparable harm for which Buyer has no adequate remedy at law and that the public interest would be served by injunctive and other equitable relief;

c. require Supplier to remove an employee or employees and/or other Representatives;

d. require Supplier to terminate a subcontract;

e. suspend payments, whether under this Agreement or other agreements, until Buyer determines, in Buyer’s sole discretion, that Supplier has taken appropriate remedial action;

f. decline to exercise available options under this Agreement; and

g. obtain damages.26

of the credit risk if the injunction is ultimately denied, most banks seem unlikely to be concerned by the requirement of one more certificate, and any additional credit risk from an injunction may be mitigated by a bond or other credit support as contemplated by U.C.C. section 5-109(b)(2) and comment 7, or by the civil procedure laws or rules of certain jurisdictions or by collateralization or bonding provisions in the reimbursement agreement. Still, despite all of these efforts, suspension of payment may be impossible in cross-border documentary credit transactions because frequently a foreign bank will have honored before the injunction can issue. Once one bank honors in good faith, the commitments along the chain all become firm and cannot be enjoined. See U.C.C. § 5-109 (2011). 26 This section reflects the remedies provided in the FAR § 52.222.50 relative to combating trafficking in persons. Additionally, the clause adds an insecurity provision under U.C.C. section 2-609. The clause also clarifies that injunctive relief may be necessary. In addition, while Buyer may want to work with a Supplier toward full compliance, Buyer should be prepared to face waiver arguments. The timing of the exercise of remedies is sensitive and the exercise of remedies and any requests for damages may themselves have impacts on human rights. Therefore, this provision

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5.4 Damages. [Supplier acknowledges that it may be difficult for Buyer to fix actual damages or injury to its business, prospects and reputation with respect to Goods produced in violation of Schedule P or associated with a company that has violated Schedule P, and the parties have therefore agreed to liquidated damages in an amount calculated as follows: .] [In the event Supplier or Representative fails to comply with Schedule P, Buyer shall be entitled to all general and consequential damages [together with the liquidated damages set forth above],27 including but not limited to losses arising from:

a. procurement of replacement Goods;

b. non-delivery of Goods;

c. diminished sales of Goods arising not only from the Goods to have been sold under this Agreement, but to include other diminished sales caused by noncompliance with Schedule P; and

d. [harm to reputation28].29]

5.5 Return, Destruction or Donation30 of Goods; Nonacceptance of Goods.

expressly recognizes that such careful consideration of the exercise of remedies by Buyer does not constitute a waiver of any rights. Further, with respect to removal of employees (section 5.3.c.), see infra note 35. Note also that the remedies provisions here (including sections 5.2 and 5.3.e. on suspension of payments) do not mention setoff, see 11 U.S.C. §§ 506(a)(1), 553 (2018) (setoff is a secured claim in bankruptcy), recoupment, clawback, or similar remedies; if those remedies are not already provided in the main agreement, counsel may wish to consider making such rights explicit in this clause. 27 While Buyer in some industries may prefer to adopt a liquidated damages clause, U.C.C. section 2-718 generally prohibits penalties, including providing that “unreasonably large liquidated damages [are] void as a penalty.” The ultimate enforceability of these provisions will turn on whether the exercise of the remedy in the contractual clause was reasonable. Particular care should be exercised if Buyer includes the bracketed language that allows liquidated damages in addition to other damages. 28 If no liquidated damages are included above for harm to reputation. 29 Section 5.4 addresses monetary remedies, including consequential and special damages, recoverable in the event of a breach by Supplier. While measures such as diminished sales and harm to reputation are specifically included, Buyer may face challenges with respect to proving damages. This is common in claims for breach of contract, but Buyer may have special challenges with respect to the impact on its brand that results from violations of human rights policies. It is not clear that suppliers will agree to the inclusion of Buyer’s lost profits, real or imagined, as damages. Nor is it clear, however, that Supplier will have strong views on damages; Supplier may be judgment proof—for lack of assets or for procedural reasons—and damages may not be a realistic remedy in any case. The suggested text is presented as a starting place for discussions with respect to damages. An agreed liquidation amount may be an acceptable compromise. 30 Donation of goods manufactured or otherwise delivered with the use of forced labor may not be permitted by the U.S. Customs and Border Protection, Cargo Security, Carriers and Restricted Merchandise Branch, Office of Trade. Buyer’s only option as an importer may be to return or export the goods. Other countries may have similar restrictions on the possession and ownership of merchandise mined, produced, or manufactured in any part with the use of a prohibited class of labor and such laws, which are beyond the scope of this document, must be examined before donations are made.

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a. Buyer may, in its sole discretion, store the rejected Goods for

Supplier’s account, reship them back to Supplier or, if permitted under applicable law, destroy or donate the Goods, all at Supplier’s sole cost and expense.

b. Buyer is under no duty to resell any Goods produced by or

associated with a Supplier or Representative who Buyer has reasonable grounds to believe has not complied with Schedule P, whether or not such noncompliance was involved in the production of the Goods. In an effort to reduce its possible damages and not as a penalty, Buyer is entitled to discard, destroy or donate to a charitable entity any such Goods. Notwithstanding anything contained herein to the contrary or instructions otherwise provided by Supplier, destruction or donation of Goods rejected [or as to which acceptance was revoked],31 and any conduct by Buyer required by law that would otherwise constitute acceptance, shall not be deemed acceptance and will not trigger a duty to pay for such Goods.32

5.6 Indemnification. Supplier shall indemnify, defend and hold harmless Buyer and its officers, directors, employees, agents, affiliates, successors and assigns (collectively, “Indemnified Party”) against any and all losses, damages, liabilities, deficiencies, claims, actions, judgments, settlements, interest, penalties, fines, costs or expenses of whatever kind, including, without limitation, the cost of storage, return, or destruction of Goods, the difference in cost between Buyer’s purchase of Supplier’s Goods and replacement Goods, reasonable attorneys’ fees, audit fees, and the costs of enforcing any right under this Agreement or applicable law, in each case, that arise out of the violation of Schedule P by Supplier or any of its Representatives. This Section shall apply, without limitation, regardless of whether claimants are contractual counterparties, investors, or any other person, entity, or governmental unit whatsoever. 5.7 Disclaimer Clauses. Notwithstanding anything contained herein:

a. Buyer does not assume a duty to monitor Supplier or its Representatives, including, without limitation, for compliance

31 See supra note 18. 32 This section is drafted to address concerns that might be raised with respect to the U.C.C. section 1-305 mandate to place the aggrieved party in the position of its expectation, without award of consequential or penal damages unless specifically allowed, particularly with respect to minimizing damages. See also U.C.C. § 2-715 (2011) (consequential damages cannot be recovered if they could have been prevented). With an understanding that mitigation applies and may be non-waivable, particularly with respect to claims of consequential damages, an attempt by Buyer to avoid mitigation might be seen as a lack of good faith. Nevertheless, reselling the goods that are produced in violation of a human rights policy may be understood as increasing Buyer’s damages, rather than reducing them. Accordingly, Buyer should be entitled to discard, destroy, or donate to a charity any goods produced in violation of a human rights policy as an attempt toward mitigation, rather than against it.

Page 11

with laws or standards regarding working conditions, pay, hours, discrimination, forced labor, child labor, or the like;33

b. Buyer does not assume a duty to monitor or inspect the safety of any workplace of Supplier or its Representatives nor to monitor any labor practices of Supplier or its Representatives;34

c. Buyer does not have the authority and disclaims any obligation to

control (i) the manner and method of work done by Supplier or its Representatives, (ii) implementation of safety measures by Supplier or its Representatives, or (iii) employment or engagement of employees and contractors or subcontractors by Supplier or its Representatives;35

d. There are no third-party beneficiaries to this Agreement; and

e. Buyer assumes no duty to disclose the results of any audit, questionnaire, or information gained pursuant to this Agreement other than as required by applicable law.36

33 This disclaimer conflicts with the requirements of the FAR, 48 C.F.R. §§ 52.222–56, 22.1703(c) (2018) (requiring contractor certification (within threshold limits) that it will “monitor, detect, and terminate the contract with a subcontractor or agent engaging in prohibited activities”). 34 Again, note the conflict with the FAR. See 48 C.F.R. §§ 52.222–56, 22.1703(c) (2018). 35 Note supra section 5.3.c. This disclaimer is included to help negate claims of undertaking liability or liability under the peculiar risk doctrine. See Rahaman v. J.C. Penney Corp., No. N15C-07-174MMJ, 2016 WL 2616375, at *9 (Del. Super. Ct. May 4, 2016). This disclaimer could conflict with the section noted above, however, and counsel should consider whether it is better to have the power to require that its suppliers fire employees or other representatives or whether the disclaimer as to this factor (which relates to whether a supplier is an independent contractor) is more important. See also supra section 5.3.b. 36 This provision emphasizes that Buyer is assuming no contractual duties to disclose although Buyer may have duties to disclose under other standards (legal or non-legal). For example, Buyer must determine if it provided false or misleading information to Customs and Border Protection and other officials in the event that goods are initially accepted and removed from the dock but are later determined to be tainted by forced labor. If the original information is false, a duty to amend may arise. See, e.g., 18 U.S.C. § 541 (2018); 19 C.F.R. § 12.42(b) (2018). As another example, under the FAR, contractors and subcontractors must disclose to the government contracting officer and agency inspector general “information sufficient to identify the nature and extent of an offense and the individuals responsible for the conduct.” 48 C.F.R. § 22.1703(d).

1

The Consumer Imaginary

Labor Rights, Human Rights, and Citizen-Consumers in the Global Supply Chain

Prepared for Sustainable Supply Chains: Strengthening the Links Rutgers Law School, April 11, 2019

**Not for citation**

Kevin Kolben∗

Introduction

Imagine, if you will, the person who sewed the zipper onto your favorite jacket. Have

you ever met this person, or anyone who has worked in a garment factory? If not, how do

you imagine him or, most likely her, to be? What is her name? Is she married? Is she a

mother? What kind of home does she sleep in at night? What does her workplace look like?

Smell like?

Now think a moment about the cup of coffee that you drank this morning. Picture

the landscape of the plantation on which the coffee bushes grew? In your mind, form an

image of the faces and the hands of the people who picked the raw coffee beans that

eventually made it into your mug. What do you think were the working conditions of those

people whom you now have a mental image of?

If you “played along” in the exercise above, you have just engaged in what I term the

“consumer imaginary.” That is, you created for yourself a narrative and mental image of the

producers and origins of two distinct products that are staples for hundreds of millions of

people. Yet it is highly likely that you have neither worked on a coffee farm nor in a garment

factory; and it is also likely that you have not had significant if any social contact with anyone

who has. Nevertheless, it is quite possible that your consumption choices are or could be

affected by the ways in which you imagine, or are made to imagine, the context in which the

goods you consume were produced, and the degree to which you feel a bond with the

producers of those goods.

∗ Associate Professor, Rutgers Business School. This short piece is based on a longer article that is forthcoming in

the Vanderbilt Journal of Transnational Law (2019). Citations are not necessarily in bluebook form.

2

A growing body of research suggests that consumers are increasingly becoming

citizen-consumers. That is, take into account the social and environmental context of the

goods that they consume, and make purchasing choices based on these considerations. I

argue that the law should help catalyze citizen-consumers to improve labor conditions and

human rights compliance in the global supply chain by triggering the consumer imaginary,

which I define to be how consumers in a global economy conceptualize and imagine the

human beings, the processes, and the labor that produced the goods that they consume.

Doing so could lead to greater consumer pressure on lead firms to improve working

conditions in their supply chains.1

I. The Supply Chain Economy

The global economy has become a supply chain economy, or what economist Richard

Baldwin has described as having become “unbundled.” The unbundling is the result of 1)

reduced tariffs, 2) reduced transportation costs, and 3) the development of information and

communication technology. What this means is that production has become increasingly

outsourced, offshored, and spatially separated from consumption. In some industries,

businesses have basically become supply chain managers. Boeing, for example, outsourced

about 70 per cent of the manufacturing and design for its latest 787 airplane, effectively

turning the manufacture and design of its blockbuster new airplane into a highly complex

supply chain management project. What does Nike make, so goes the set up? Nothing. It’s a

design and marketing firm. Apple? The same.

These changes in the economy and in business processes have created numerous fissures,

as well as communal and economic disruptions. One of the central fissures is that a defining

feature of the supply chain economy is that the people that make our stuff are most often

1 The kinds of legal processes that I am discussing here are closely related to the regulatory literatures on reflexive

law and regulatory governance. I have both drawn on and critiqued these literatures as applied to supply chain labor regulation in other work. See e.g. Kevin Kolben, Transnational Labor Regulation and the Limits of Governance, 12 Theoretical Inquiries In Law 403 (2011); Kevin Kolben, Dialogic Labor Regulation in the Global Supply Chain, 36 MICH. J. INT’L L. 425, 440-452 (2015)(proposing a theory of public and private regulatory interaction in supply chains).

3

not direct employees of the companies from whom we buy the stuff. This has implications

for the degree to which those retailers can and do take responsibility for the working

conditions of supply chain workers. Yet often, suppliers are located in countries and

jurisdictions whose labor laws are either de jure or de facto weaker than those in the home

county of the lead firm; and more importantly, those laws may substantially diverge from the

normative expectations of civil society and consumers in the importing country. In other

words, the working conditions

One of the first well-publicized instances of consumer citizenship in global supply chains

occurred in 1996, when television celebrity Kathi Lee Gifford was accused by a labor rights

groups of licensing her name to a line of clothing marketed by Wal-Mart and manufactured

by a complicated network of suppliers, some of which were located in Honduras and that

employed 13 and 14 year old children.2 In another example, in 2006 the same labor rights

group accused Disney, among others, of using suppliers in Jordan to manufacture apparel in

Jordan that engaged in highly abusive labor practices, such as confiscating passports of the

mostly foreign workers, forcing the workers to work unconscionably long hours, and sexual

abuse.3 One of the more recent examples is the Rana Plaza building collapse in Dhaka in

2013, in which over 1100 Bangladeshi workers died and scores more were seriously injured.

II. The Consumer Strikes Back

The news media covered all of these stories intensively, and the Rana Plaza collapse in

particular. In the latter case, viewers and readers were confronted with countless images of

rubble and dead workers; arguably blurring the line between newsworthiness and

exploitation. The media clearly believed that news consumers, who are by and large also

clothing consumers, would be deeply engaged in this tragedy. And after a series of online

petitions intended to compel companies doing business in Bangladesh to take action

2 Stephanie Strom, A Sweetheart Becomes Suspect; Looking Behind Those Kathie Lee Labels, N.Y. Times, Jun 27,

1996, http://www.nytimes.com/1996/06/27/business/a-sweetheart-becomes-suspect-looking-behind-those-kathie-lee-labels.html.

3 See National Labor Committee, U.S. Jordan Free Trade Agreement Descends into Human Trafficking and Involuntary Servitude Trafficking and Involuntary Servitude (2006).

4

generated well over a million signatures, many companies believed this, also. Indeed,

following the tragedy, a small group of mostly US-based companies formed an initiative to

address fire and safety issues in Bangladesh’s garment factories,4 while a larger number of

mostly European companies joined to form a different organization that also had union

support.5 This tragic incident, and the others discussed above, exemplify the important and

growing role of the consumer in the regulation and governance of labor, the environment,

and other issues in global supply chains.

The reaction of consumers, and the threat of using their purchasing decisions to express

political and moral preferences exemplifies a new form of citizenship that we are seeing take

shape in global civil society. While few people in society actively engage in traditional forms

of politics in a sustained way, either at the local or national levels, nearly everyone engages in

acts of consumption almost every day. This means that consumption, which is generally

practiced at the level of the market, is a potentially powerful means of expressing political

and moral preferences. Consumption thus transforms in these instances from an activity

solely aimed at satisfying one’s immediate needs and desires, to one that provides

opportunities to express social and political preferences, and to make an impact on the

world. Consumption should thus be understood to be expressive of political ideals, and to

be a form of action.

Of course a fair question is to what degree consumers actually care about social justice in

the supply chain as opposed to purchasing goods at the lowest cost?

According to research conducted and reviewed by Freeman and Elliott, for example,

consumers report on surveys that they are willing to pay more for products that they are told

are made in good conditions. Of course like most things this is price contingent – those

same consumers report a sharply decreasing willingness to purchase products that are made

in good conditions as the price increases.6 On the other hand, when consumers are told that

a t-shirt is made in bad conditions, they report being less willing to buy that t-shirt, even if

4 See Alliance for Bangladesh Worker Safety, available at https://www.bangladeshworkersafety.org. The organization

ceased operating in 2018 after five years of activity. 5 See Accord on Fire and Building Safety in Bangladesh, available at https://bangladeshaccord.org. 6 KIMBERLY ANN ELLIOTT & RICHARD B. FREEMAN, CAN LABOR STANDARDS IMPROVE UNDER GLOBALIZATION?

35 (2003).

5

given a discount on that item.7 Other survey research has also found extensive support

among consumers in the United States and Europe for buying products that are made in

ethical and sweatshop free conditions. Hertel et al surveyed 508 respondents in the US and

asked how much they would willing to pay for a sweater made in non-sweatshop conditions.

The researchers found that “[a] sizable majority (62 percent) report that they are willing to

pay at least five dollars more, and more than one-third of Americans report that they would

be willing to spend 10 dollars more.”8 A similar result was obtained for fair trade coffee

consumption. That is, the authors reported that according to their surveys “more than 75

percent of coffee buyers would be willing to pay at least 50 cents more per pound for fair-

trade, while more than half would pay a premium of one dollar or more.”9

Stolle and Micheletti, drawing on surveys in the European Social Survey (2003) and

the Citizenship, Involvement, and Democracy Survey in the US (2006), surveyed self-

reported political activity by consumers in the course of consumer activity. According to

these surveys, about 31% of people surveyed reported engaging in either buycotting,

boycotting, or both. In Sweden, approximately 60% of respondents reported doing so, and

in the U.S., 28%.10 Boycotting is the refusal to buy a good from a company because of its

practices. Buycotting is the use of labels or other forms of information about a good to

affirmatively seek that product and company out and purchase the good as a means of

rewarding that company’s good behavior.11

A second strain of research attempts to gauge actual consumer behavior through field

and lab experiments. Some field experiments do in fact suggest that consumers are willing to

pay somewhat more for goods that they are told are made in better working conditions.12 In

a study by Hainmueller and Hiscox, the authors compelled the US-based retailer, Gap Inc,

which owns the retail brand Banana Republic, to allow an experiment in Banana Republic

7 Id. at 34–35. 8 Shareen Hertel, Lyle Scruggs and C Patrick Heidkamp, Human Rights and Public Opinion: From Attitudes to Action, 124

POL. SCI. Q. 443, 455 (2009). 9 This is not insignificant given that between 2001 to 2005, the authors report, the average price of a pound of

coffee was $3/pound. Id. at 455. 10 Stolle and Micheletti, Political Consumerism: Global Responsibility in Action, supra note Error! Bookmark not

defined., at 97. 11 See Id., 40. 12 Id. at 38.

6

outlet stores. Researchers conducted a study in 111 Banana Republic outlet stores in 38

states over a period of four weeks.13 Researchers placed two different signs over three

different clothing items in Banana Republic stores: a $130 women’s suit, an $18 women’s

yoga pant, and a $12 men’s t-shirt. One sign emphasized the fashion aspects of the product,

but stated nothing about labor conditions. The other emphasized the company’s

commitment to promote fair and safe working conditions, and stated that consumers can

‘feel good about what you wear.’14 The researchers found that the signs promoting good

labor conditions in the production of women’s suits significantly boosted sales of that item.

But shoppers in the market for the lower cost items showed no statistically significant

inclination to spend more on items made in good conditions.15 The researchers concluded

that their findings confirmed what many surveys suggest, that at least some segments of

shoppers – here women looking for higher price items – are in fact willing to choose items

all things being equal that are indicated to have high labor standards. Importantly, the authors

made no claims as to what exactly motivates buyers.16 But regardless of motivations, it seems

that such criteria are increasingly becoming part of the factors that lead to purchasing

decisions.

One of the most interesting experimental results, albeit in lab not field conditions, is

reported by Pigors and Rockenbach. Like other researchers, the authors find that under

experimental conditions, consumers are indeed generally price sensitive, but that when the

right balance is reached between price and social responsibility, which in their experiment

the authors uniquely define to mean producer wage levels, consumers do take wage levels

into consideration as a decision criterion.17 But I believe what is particularly interesting are

the authors’ conclusions related to what they refer to as “social distance” and direct

communication. To summarize, the authors conclude that managers choose to pay higher

wages to workers in competitive environments when there is direct communication between

workers and consumers about the satisfaction workers feel or don’t feel about those wages.

13 Jens Hainmueller & Michael J. Hiscox, The Socially Conscious Consumer? Field Experimental Tests of Consumer

Support for Fair Labor Standards 8 (MIT Political Science Department Working Paper No. 2012-15, 2012). 14 Id. at 22. 15 Id. at 13. 16 Id. 17 Mark Pigors & Bettina Rockenbach, Consumer Social Responsibility, MANAGEMENT SCIENCE 1, 2 (2016).

7

According to the authors, the reasons that managers pay the higher wages is because “direct

communication between workers and consumers reduces the social distance and triggers

social concerns of the consumers for the workers, which results in higher wages for the

workers.”18 And in a second finding, the authors report that when there is price competition,

consumers were willing to pay more for a good when there was some indication that

workers were paid higher wages.19 Moreover, when there was direct communication between

workers and consumers regarding workers satisfaction with their wage, then consumers were

most willing to pay more money for those goods.20

III. The Consumer Imaginary

These leads me to a brief discussion of the consumer imaginary, which I opened this essay

up with. It is not enough to simply observe or proclaim that consumers are interested in and

willing to pay more at the register in certain conditions to improve the working conditions of

people that they have never met and likely never will. Policymakers need to understand why

they would be willing to do such an “irrational” thing. I would like to suggest it is because of

what I described earlier as the consumer imaginary – the phenomenon by which consumers

create narratives for themselves about the processes and people that gave shape to the

products that they purchase and derive meaning and pleasure from.

An important factor in driving the consumer imaginary as it relates to labor and

human rights issues is the increased social distance between consumers and producers that

has been created by the supply chain economy. Consumers are more geographically and

socially distant from the social and environmental realities of production, and from the

workers who were involved in creating the goods. Processes, consequences, and the

humanity of production become out of sight and out of mind. To make the point more

concretely, the beautiful, shiny Apple computer seems as if it simply assembled itself out of

the magical ether, rather than by workers at a Foxconn factory in China. Likewise, it is hard

18 Id. at 9. 19 Id. at 11. 20 As the authors put it, “[w]hen suppliers compete… we find that consumers take SR in production as a decision

criterion and go for the SR-produced good whenever the price premium for SR is not too high”. Id. at 2.

8

to understand that our crisp new blue jeans that we picked off the shelves of a retail store

having been made in a hot factory in the middle of Jordan by migrant workers in work

camp-like conditions.21 If production were local, and if we knew the people who

manufactured the goods we consumed and factories were located in our communities, then

we would have a more visceral and immediate interest in ensuring that our neighbors and

community members were treated fairly.22

The question then becomes how to reduce the social distance that currently exists

between consumers and producers. I believe that the concept of the consumer imaginary

can provide some help. The concept of the consumer imaginary is influenced by Benedict

Anderson’s well-known conception of an imagined community,23 and is also related to

Charles Taylor’s notion, building off Anderson, of the social imaginary.24 Anderson used the

concept in the context of political community in the modern nation-state. He argued that a

nation is imagined as a community because, regardless of the actual inequality and

exploitation that may prevail in each, the nation is always conceived as a deep, horizontal

comradeship.25 Taylor, also building on Anderson, describes the social imaginary as “the

ways people imagine their social existence, how they fit together with others, how things go

on between them and their fellows, the expectations that are normally met, and the deeper

normative notions and images that underlie these expectations.”26 Taylor recognizes that

narrative and that “images, stories, and legends” play important roles in the way that people

“’imagine’ their social surroundings.”27

I believe that Anderson’s conceptualization also resonates with the nature of the

market-based relationships between consumers and producers, between consumers

themselves,28 as well as between consumers and lead firms. The function that imagination

21 See generally, Kevin Kolben, Trade, Development, and Migrant Garment Workers in Jordan, 5 MIDDLE EAST LAW AND

GOVERNANCE 195, 204-217 (2013) (describing the use and exploitation of migrant workers in Jordan). 22 Ian Hudson & Mark Hudson, Removing the Veil?: Commodity Fetishism, Fair Trade, and the Environment, 16

ORGANIZATION & ENVIRONMENT 413, 418 (2003). 23 See ANDERSON, supra note Error! Bookmark not defined., at 6-7. 24 See CHARLES TAYLOR, MODERN SOCIAL IMAGINARIES 23 (2004). 25 Anderson, supra note Error! Bookmark not defined., at 6. 26 Taylor, supra note 24, at 23. 27 Id. 28 See Deirdre Shaw, Consumer Voters in Imagined Communities, 27 INT’L J. SOCIOLOGY & SOCIAL POLICY 135 (2007)

(describing the imagined nature of consumer communities that engage in political consumerism)

9

plays in marketing and consumerism is well-recognized.29 Yet the imagined nature of the

relationship between the consumer and the producer in global supply chains has not been

discussed to my knowledge, but is nevertheless apparent. Indeed, most consumers of t-shirts

from Bangladesh and computers assembled in China will never travel to those countries, and

will never meet the workers who assembled them. Nor will most of those workers

themselves likely make the journey downstream to the final destination of the fruit of their

travails. Likewise, consumers who take individual action such as boycotting, making

alternative purchasing choices, or signing an online petition are imagining their fellow global

consumers as likeminded fellow travelers who share particular values and act on those

values.30 Finally, managers of lead firms also imagine their customers to be consumer-

citizens who will potentially take action in certain circumstances. This despite the potentially

limited scope of such action, and despite the lack of certainty that consumers may in fact,

act.

Aware of the power of consumers to pressure lead firms, and the new dynamics of

consumer citizenship, workers have taken creative steps to communicate with them about

their working conditions. In one well publicized case, an inmate at a Chinese labor camp that

made Halloween toys sold at Kmart in the US enclosed a written plea to the consumer of

the product in hope of communicating with her about his plight.31 In another example, a

women who purchased a jacket at Walmart found a note in Chinese sewn into a jacket that

described terrible working conditions in what might have been a prison labor camp, or just

an abusive factory that was prison like, including 14 hour days and beatings.32

Whereas once labor conditions and the grim reality of the workplace were hidden behind

the veil of the commodity, new technologies have enabled workers and consumer

movements to make more transparent the working conditions in factories in far flung

29 See Rebecca Jenkins, Elizabeth Nixon & Mike Molesworth, 'Just Normal and Homely': The Presence, Absence and

Othering of Consumer Culture in Everyday Imagining, 11 J. CONSUMER CULTURE 261, 263 (2011)(citing to Campbell’s thesis that the imagination is largely accountable for driving contemporary consumption by generating a bridge between the actual dissatisfactory present, and the imagined happy ideal)

30 See Shaw, supra note 2828, at 137-138. 31 See Andrew Jacobs, Behind Cry for Help From China Labor Camp, NY TIMES, June 11, 2013, available at

http://www.nytimes.com/2013/06/12/world/asia/man-details-risks-in-exposing-chinas-forced-labor.html?pagewanted=all&_r=0.

32 See Russ Wiles, Mystery Note in Jacket May Point to China Worker Abuse, USA TODAY ONLINE, May 2, 2017.

10

locales, and even closer to home.33 Like in Anderson’s account of the rise of political

nationalism, new technologies of communication and changing ‘apprehensions of time’ have

facilitated these imagined bonds.34 Newspapers, videos, the internet, and social media have

made it easier for consumers to imagine relationships and develop empathy for workers.

What transnational activists do, and what companies that utilize social marketing to promote

their product do as well, is to try and promote and forge these imagined relationships in

order to realize their respective objectives. They do so by utilizing compelling images of

workers who, consumers are told, are either suffering or happy depending on the objectives

of the campaign. Indeed, the creation and wide diffusion of narratives and images is a

central activity of TLANs to reify for consumers the abstract concepts of supply chains and

the people who work in them. While garment and apparel production is a trenchant example

of this phenomenon, it is not the only industry in which imagined communities are

exploited – and I do not necessarily mean that in a pejorative sense – to promote

transnational campaigns or corporate marketing.

Let us turn to one of the most commonly used means of harnessing the consumer

imaginary by transnational activists – social labels.35 Of all the forms of private, market-

based regulation, social labels are the most explicit in using the consumer imaginary. Social

labels are usually part of certification regimes, often administered by some nonprofit third

party. The main goal of a social label is to “provide an emerging group of ethically

conscious consumers with credible assurances that labeled goods are produced in a manner

consistent with certain social and/or ecological standards.”36 Social labels that are aimed

primarily towards communicating with the end-consumers can be termed “primary labels.”37

33 See Natalie Kitroeff and Victoria Kim, Behind a $13shirt, a $6-an-hour Worker, L.A. TIMES, AUG. 31, 2017, available at

http://www.latimes.com/projects/la-fi-forever-21-factory-workers/(reporting that in 2016 the U.S. Department of Labor found that 85% of 77 L.A. garment factories inspected were found to have labor violations, and were ordered to pay $1.3 million in back wages lost overtime, and damages). For a discussion of how imagined kinship relationships between Asian designers and their employees and contractors in New York inject social connection into a hierarchical relationship, see Thuy Linh Nguyen Tu, All in the Family? Asian American Designers and the Boundaries of Creative Labor, 2 AMER. Q. 279, 281 (2010).

34 See Anderson, supra note 23, at 32–5. 35 See supra note Error! Bookmark not defined. and accompanying text. 36 Jennifer Bair, Marsha A. Dickson and Doug Miller, To Label or Not to Label: Is that the Question? 1, 4 in, WORKERS'

RIGHTS AND LABOR COMPLIANCE IN GLOBAL SUPPLY CHAINS : IS A SOCIAL LABEL THE ANSWER? (JENNIFER BAIR, MARSHA ANN DICKSON & DOUG MILLER, EDS. 2014), http://site.ebrary.com/id/10813458.

37 Id. at 5.

11

Social labels are not only directed towards retail consumers, however. “Secondary Labels”

are business to business labels intended to assure firms that the goods and services they

purchase, as intermediate goods or as goods intended for retail sale, meet the social and

ecological standards of their stakeholders.38

Social labeling is not a new phenomenon. As scholars have noted, the first social labels

appeared in the late 19th century when the National Consumers League (NCL) issued so

called “white labels” for women’ white cotton underwear that met certain social and labor

standards.39 The NCL ended the label in 1918 so as not to compete with American unions,40

who denounced the label as being used by anti-labor employers. American unions developed

their own version of the social label which focused primarily on union representation and

were targeted to the working class and members, in contrast to the NCL’s label, which was

primarily targeted at middle class female consumers.41 By 1908, some 68 unions across the

united states had adopted a union label.

Social labels work by incentivizing lead firms or suppliers to comply with a given set

of standards in return for a certification that will presumably provide a competitive

advantage and garner higher prices from consumers and businesses. Examples of social

labels include “fair trade” initiatives such as the European based Fair Trade International

(FLO), which certifies many food items; and Fair Trade USA, which in addition to food also

certifies apparel products and home goods. Fair trade labels are a direct means of

communicating to consumers that the products that they purchase are made by workers that

are paid adequate wages,42 core labor rights are respected,43 and especially in the case of

agricultural products that they are produced by small cooperatives that meet certain

38 Id. at 6. 39 Kathryn Kish Sklar, The Consumers' White Label Campaign of the National Consumers' League, 1998-1918, in GETTING

AND SPENDING: EUROPEAN AND AMERICAN CONSUMER SOCIETIES IN THE TWENTIETH CENTURY 17, 18, 24 (SUSAN STRASSER, CHARLES MCGOVERN & MATTHIAS JUDT EDS.,1998.)

40 Id. at 366 41 See id. at 368-370. 42 See Fair Trade International, Fairtrade Standard for Hired Labour, Jan 15, 2014, at 26-28, available at

https://www.fairtrade.net/fileadmin/user_upload/content/2009/standards/documents/generic-standards/HL_EN.pdf 43 See id., at 23.

12

standards for democratic governance.44 In an effort to expand the range of goods covered,

the FLO also later issued a textile standard to cover the textile supply chain.45

What makes some kinds of primary social labels particularly interesting for the purpose of

this Article is their aim to forge a bond – albeit a largely imagined one – between consumers

and producers. Indeed, one of the hallmarks of fair trade organizations, for example, is their

efforts to try and personalize the consumer producer relationship.46 If one looks at the

websites of these organizations, invariably there will be links to photos and long descriptions

of the producers, often farmers since food and agriculture is a main industry in which social

labels are used.47 Fairtrade International, for example, even allows one to get an RSS feed of

new stories about FairTrade producers.48 This is an explicit example of an effort to reduce

the social distance between consumers and producers.

One arena in which the social imaginary is particularly mobilized is in the growing

niche market for high-end coffee that is made in conditions that meet certain social and

environmental standards. Here, the dominant approach has been the FLO certification,

whereby consumers are assured that the coffee and teas that they consume are sourced from

farms and plantations that meet a minimal set of criteria that correspond to consumer

intuitions about what constitutes a just set of economic, environmental, and social

arrangements.49 Another approach by some boutique coffee companies that are not fair

trade certified has been to describe their sourcing process as ‘direct trade.’ Direct trade

coffee companies are even more explicit in forging a close, imagined relationship between

consumers and producers. In direct trade marketing, consumers are provided with narratives

about the coffee growers, albeit usually about the farm owners and not the workers, and can

view pictures and stories about the site from which their coffee and teas are grown and

harvested.50 Here, the economic relationship is described as existing directly between the

44 See id, at 35-37. 45 See Fair Trade International, Fair Trade Textile Production Mark, Spring 2016, available at

https://www.fairtrade.net/fileadmin/user_upload/content/2009/standards/SPO_EN.pdf. 46 See Raynolds, supra note Error! Bookmark not defined., at 410. 47 See Fair Trade International, Meet the Producers, available at http://www.fairtrade.net/producers/meet-the-

producers.html 48 Id. 49 See Fair Trade International, http://www.fairtrade.net. 50 See Peter Meehan, To Burundi and Beyond for Coffee’s Holy Grail, NY TIMES, SEPT 7, 2007,

http://www.nytimes.com/2007/09/12/dining/12coff.html.

13

coffee roasters downstream in the supply chain, and the producers, farthest upstream. To

further concretize the relationship in this niche market, employees of the roaster visit the

coffee producers and often claim to be involved in the growing and processing process,

serving in a sense as agents of the consumers.51 The fiction is that consumers are active

participants in the sourcing and production of the coffee itself, directly influencing

producers on the aesthetic quality of the product, as well as on the social quality of the

production processes.

IV. Harnessing the Consumer Imaginary in Law

This conceptual conversation brings me to my final question, which is how might public law

catylyze and make use of the consumer imaginary to aid consumers in being citizen-

consumers? I would like to briefly suggest at least two ways in the context of American law.

The first is in trade law. Social and labor concerns have long been incorporated into U.S. as

well as European trade policy. Perhaps the earliest example is bans by the U.S. and other

countries on the importation of goods made by forced or slave labor and prison labor,

efforts to ban products made with child labor,52 and labor conditionality in free trade

agreements concluded with other countries. Currently, these agreements primarily provide

that trading partner countries must abide by international labor standards and domestic labor

laws. I would suggest that labor and trade provisions should be changed to facilitate

triggering the consumer imaginary by, for example, requiring mechanisms of testimony and

direct communication from supply chain workers that consumers could have access to. A

second legal arena that is ripe for triggering the consumer imaginary is transparency and

disclosure laws. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

(Dodd-Frank), provides that public companies that purchase certain minerals from the Great

Lakes Region of Africa must file reports that describe their due diligence efforts at

51 See Sarah Lyon, Fair Trade Coffee and Human Rights in Guatemala, 30 J. CONSUMER POLICY, 241, 242 (2007)(arguing

that coffee roasters act as ‘conduits for consumer actions and intentions’). 52 Bonded Child Labor Elimination Act, 2000—Pub. L. 106–200 sect 411.

14

determining if the minerals are conflict free.53 A second major transparency law is the

California Transparency in Supply Chains Act (CTSCA).54 This law covers retailers or firms

doing business in California with worldwide gross receipts of more than $100 million

worldwide. Each covered firm is required to report on “its efforts to eradicate slavery and

human trafficking from its direct supply chain for tangible goods offered for sale.”55 The

report must disclose, at a minimum, various aspects of the processes by which the company

monitors its supply chain for slavery and human trafficking, and implements processes to

ensure that the supply chain is compliant and the companies are engaging in due diligence.

The problem with these laws, however, is that they only require technical reports from

companies that are not easily digestible or actionable by consumers, who should be the main

audience for the information generated.56 If what motivates consumers to buycott and boycott

is the imagined connection to producers, then fairly technical reporting on internal sourcing

process will not likely motivate consumers to take action or discern between high due

diligence or low due diligence activity.57 Some scholars have suggested that we alter the

CTSCA so that consumers be provided with information at the checkout counter, enabling

them to make purchasing decisions.58

I would suggest that we go a step further and think about not simply ratings or labels,

which are relatively cold and impersonal. Instead, we should think about creating psychic

and imagined linkages between the consumers, the suppliers, other consumers, and of

53 Pub. L. 111–203, title XV, § 1502, July 21, 2010, 124 Stat. 2213, as amended by Pub. L. 114–301, § 3(b), Dec. 16,

2016, 130 Stat. 1515(2010) Specifically, the Act requires companies to file if “conflict minerals are necessary to the functionality or production of a product manufactured by such person.” Dodd Frank Sec 1502 (c)(2)(B). Dodd Frank specifically calls for covered companies to include in a report a) “a description of the measures taken by the person to exercise due diligence on the source and chain of custody of such minerals, which measures shall include an independent private sector audit of such report submitted through the Commission that is conducted in accordance with standards established by the Comptroller General of the United States, in accordance with rules promulgated by the Commission, in consultation with the Secretary of State; and (ii) a description of the products manufactured or contracted to be manufactured that are not DRC conflict free (‘DRC conflict free’ is defined to mean the products that do not contain minerals that directly or indirectly finance or benefit armed groups in the Democratic Republic of the Congo or an adjoining country), the entity that conducted the independent private sector audit in accordance with clause (i), the facilities used to process the conflict minerals, the country of origin of the conflict minerals, and the efforts to determine the mine or location of origin with the greatest possible specificity.” Dodd Frank Sec 1502 (c) (1)(A)(i-ii). For a discussion see SUSAN ARIEL AARONSON & ETHAN WHAM, CAN TRANSPARENCY IN SUPPLY CHAINS ADVANCE LABOR RIGHTS? MAPPING OF EXISTING EFFORTS 7 (The George Washington University, Institute for International Economic Policy, (2016)

54 California Transparency in Supply Chains Act [hereinafter CTSCA], California Civil Code §1714.43. 55 CTSCA 1714.43(a)(1).

56 57 Id. at 24.

58 See Adam S. Chilton & Galit A. Sarfaty, the limitations of supply chain disclosure regimes, 53 STAN. J. INT’L L. 1, _ (2017).

15

course, the workers. This would entail forms of direct communication from the workers

themselves, as described in the work of Pigors and Rockenbach that was discussed earlier.59

This might include, for example, worker testimonies that have been provided by NGOs and

TLANs that work in the field. To ensure fairness to companies, the NGOs could go through

a governmental certification process that requires them to meet certain accreditation

standards and that requires them to comply with their own due diligence standards.

Conclusion

What I have sketched our here is really a starting point for conversation. But what I have

tried to argue is that if we are to effectively regulate labor and human rights in the global

supply chain, traditional legal tools are insufficient. Instead, citizen-consumers and their

activity in the market must be part of the solution. By mobilizing and activating those

consumers in their private role as consumers, the law can convert harness that consumer

drive into public policy goods.

59 Pigors and Rockenbach, supra note 17.

WHY YOU SHOULD BE UNSETTLED BY THE BIGGEST AUTOMOTIVE SETTLEMENT IN HISTORY

SARAH DADUSH*

INTRODUCTION†

In September 2015, the world learned that Volkswagen (VW) had rigged millions of its “clean diesel” vehicles with illegal software designed to cheat emissions tests.1 Tests carried out with the cheat device indicated that the cars were as clean as advertised; however, tests carried out without the cheat device revealed that the cars in fact emitted up to forty times the legal limit of polluting nitrogen oxides.2 The fraud, which some have taken to calling “Dieselgate,” lasted for over seven years.3 When affected owners learned that their cars were much more toxic than advertised, what were they upset about? Was it that their cars were now worth fewer dollars, or was it that they had been deceived into being bad global citizens when they thought they were being good?

Coverage of Dieselgate strongly suggests that affected car owners experienced both kinds of disappointment—economic and noneconomic—and in heavy doses at that.4 But

* Associate Professor, Rutgers Law School. † Editor’s note: This short Essay, prepared specifically for the University of Colorado Law Review Forum, introduces topics and ideas addressed at greater length in Professor Dadush’s forthcoming article, Identity Harm, 89 U. COLO. L. REV. (forthcoming 2018). 1. Amended Partial Consent Decree, In Re Volkswagen “Clean Diesel” Mktg., Sales Practices, & Prod. Liab. Litig., MDL No. 2672 CRB (JSC), 2016 WL 6460404, (N.D. Cal. Sept. 30, 2016) (No. 1973-1), at 1–5, https://www.epa.gov/ sites/production/files/2016-10/documents/amended20lpartial-cd.pdf [https://perma.cc/G8FT-32U5] [hereinafter First Consent Decree]. 2. Guilbert Gates et. al, How Volkswagen’s ‘Defeat Devices’ Worked, N.Y. TIMES (Mar. 16, 2017), https://www.nytimes.com/interactive/2015/business/ international/vw-diesel-emissions-scandal-explained.html?mcubz=0&_r=0 [https://perma.cc/JMW9-XRYL]. 3. VW Scandal: Company Warned Over Test Cheating Years Ago, BBC (Sept. 27, 2015), http://www.bbc.com/news/business-34373637 [https://perma.cc/D2EA-FZPF]. 4. Jad Mouawad & Christopher Jensen, The Wrath of Volkswagen Drivers, N.Y. TIMES (Sept. 21, 2015), http://www.nytimes.com/2015/09/22/business/the-wrath-of-volkswagens-drivers.html [https://perma.cc/J72R-NB82]; Jacob Bogage,

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while the first kind of harm is relatively easy to recognize and address, our protective regime is ill-equipped to shield consumers from the second, a type of emotional harm that I refer to as “identity harm.” I define identity harm as the anguish experienced by a consumer who learns that her efforts to live in line with her personal values have been undermined by a seller’s exaggerated or false promises about their wares. While a range of promises can elicit identity harm (e.g., organic, animal cruelty-free, Kosher, Made in America, etc.), I focus on a particularly important and fast-growing category of promises pertaining to environmental and social sustainability. Here, identity harm arises when a consumer learns that her purchase has rendered her unwittingly complicit in causing injury to another human or the planet.

As explored in my first in a series of articles on this subject,5 the law’s under-recognition of identity harm is problematic, particularly at a time when government agencies such as the Environmental Protection Agency (EPA) are actively retreating from interventionist regulation.6 As the federal government recedes, consumers need additional tools to hold companies accountable for exaggerated or false claims of sustainability.

Enhanced protections are further warranted given that businesses increasingly incorporate environmental and social sustainability promises into their marketing campaigns specifically to target conscious consumers, who represent a growing share of the purchasing public.7 Conscious consumers

Volkswagen Agrees to Pay Consumers Biggest Auto Settlement in History, WASH. POST (June 27, 2016), https://www.washingtonpost.com/news/the-switch/wp/2016/ 06/27/volkswagen-agrees-to-pay-consumers-biggest-auto-settlement-in-history/ [https://perma.cc/JJT7-V7JR]. 5. Sarah Dadush, Identity Harm, 89 U. COLO. L. REV. (forthcoming 2018). 6. See, e.g., Juan Carlos Rodriguez, New EPA Chief Pledges to Change Regulatory, Legal Practices, LAW360 (Feb. 21, 2017, 3:53 PM), https://www. law360.com/articles/893816/new-epa-chief-pledges-to-change-regulatory-legal-practices [https://perma.cc/SQL9-Q4F8] (reporting on Pruitt’s commitments to reduce “regulation through litigation,” which exactly describes the EPA’s handling of Dieselgate, and to promote a “very robust” role for states in implementing environmental laws and diminishing the role of the federal government in climate regulation). 7. See, e.g., Howard Kimeldorf et al., Consumers with a Conscience: Will They Pay More?, CONTEXTS, Winter 2006, at 24, 26–27, http://www.npr.org/ documents/2013/may/consumer_conscience_study_ME_20130501.pdf [https://perma.cc/UR6C-7HZU] (finding 30 percent of working-class consumers were willing to pay a 20 percent price premium for socks with a “Good Working Conditions” label); Global Consumers are Willing to Put Their Money Where Their

2018] BIGGEST AUTOMOTIVE SETTLEMENT IN HISTORY 3

care not just about the physical or price attributes of a given good or service, but also its social and environmental impact.8 They make purchases that reflect their environmental and social values, their personal principles of engagement with the world: their identity.9

Dieselgate is the perfect case study to illustrate identity harm since VW’s clean diesel advertising campaign was expressly directed at environmentally conscious consumers. Given the campaign’s target audience, it is safe to assume that a fair number of those who purchased the Dieselgate vehicles self-identify as conscious (or green).10 These individuals likely believed VW’s claims that the cars were better for the environment than conventional (non-electric) alternatives and that driving one would support, not undermine, their self-identification as conscious consumers.

The realization that one has become unwittingly complicit in harming another being—the planet (its atmosphere, oceans, rivers, animals, etc.) or fellow humans—can be painful, in particular for people who sought to avoid precisely that. It is in such instances that identity harm rears its head. Conceptually, identity harm bears resemblance to the tort of defamation, where one’s reputation is publicly sullied by a false statement. The difference is that with identity harm, it is one’s conception of oneself—of who one strives to be in the world—that has been distorted as a result of a false or exaggerated sustainability

Heart is when it Comes to Goods and Services from Companies Committed to Social Responsibility, NIELSEN (June 17, 2014), http://www.nielsen.com/us/ en/press-room/2014/global-consumers-are-willing-to-put-their-money-where-their-heart-is.html [https://perma.cc/79W7-UAH6]; FISHWISE, TRAFFICKED II: AN UPDATED SUMMARY OF HUMAN RIGHTS ABUSES IN THE SEAFOOD INDUSTRY 6 (2014), https://www.fishwise.org/images/pdfs/Trafficked_II_FishWise_2014.pdf [https://perma.cc/EB8F-HES8] (revealing that eighty-eight percent of consumers would stop buying a product if it was associated with human rights abuses and seventy percent of consumers would pay a premium for a product certified to be free of human rights abuses). 8. Phillip Haid, The Myths of Conscious Consumerism, STRATEGY (Mar. 28, 2016), http://strategyonline.ca/2016/03/28/the-myths-of-conscious-consumerism/ [https://perma.cc/D5JD-GCZM]. 9. Josée Johnson, The Citizen-Consumer Hybrid: Ideological Tensions and the Case of Whole Foods Market, 37 THEORY & SOC’Y 229, 242 (2007) (“[C]hoice is . . . central to the meaning attached to modern consumption and a modern self who makes autonomous choices expressing a unique identity, and whose sense of freedom is intimately connected to consumer choice.”). 10. Press Release, Fed. Trade Comm’n, FTC Charges Volkswagen Deceived Consumers with Its “Clean Diesel” Campaign (Mar. 29 2016), https://www.ftc.gov/news-events/press-releases/2016/03/ftc-charges-volkswagen-deceived-consumers-its-clean-diesel [https://perma.cc/W742-KXH3].

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promise: I thought I was being good when in reality I was (unknowingly) being bad.

This Essay proceeds by exposing the unique circumstances that led to the Dieselgate settlement (the Settlement) to show that, even though it did address identity harm, this happened only collaterally, not deliberately. In fact, by “tweaking the facts” just a bit, it becomes apparent just how easily the identity harm caused by Dieselgate could have gone un-addressed, in particular with respect to remedies. The next section offers examples of broken sustainability promises in the social realm—labor and human rights—and explains that, while a growing number of consumers are taking identity harm grievances to court, they are under-equipped to do so effectively. This section further highlights the key characteristics of identity harm. Specifically, identity harm is noneconomic, emotional or psychic, and derivative in the sense that the injury to the consumer stems from an injury that is at least one step removed from the actual purchasing transaction—for example, to another human or the planet. The following section explains why identity harm is legally under-accounted for today and recommends a reparations-centered (rather than compensation-centered) approach for addressing the complaints of aggrieved consumers.

I. THE VW SETTLEMENT REVEALS THE UNDER-RECOGNITION OF IDENTITY HARM

VW installed illegal cheat device software in all of its “clean diesel” vehicles, which had been advertised as green, fuel efficient, and high performing. Had the presence of the cheat device been known, VW would not have been allowed to sell the cars in the United States, both because cheat devices are illegal under the Clean Air Act (CAA) and because the cars themselves were illegally polluting. When the deception was revealed, a flurry of private class action lawsuits were filed, and these private lawsuits were complemented by aggressive action by the EPA (through the Department of Justice) and the Federal Trade Commission (FTC).

To settle the various claims stemming from its deception in the United States, VW agreed to pay approximately $10 billion to the FTC to compensate affected car owners; it also agreed to pay $4.7 billion to the EPA to finance green investments and

2018] BIGGEST AUTOMOTIVE SETTLEMENT IN HISTORY 5

mitigate the environmental damage caused by Dieselgate.11 The Settlement, the largest in the history of the auto industry, is being touted as a major victory for consumers.12 However, the Settlement was the product of such peculiar and difficult-to-reproduce circumstances that its precedential value, especially for conscious consumers, should not be overstated.

The fact that VW was the largest automaker in the world,13 that its criminal14 deception affected so many cars (500,000 in the United States alone), and that both environmental and consumer law violations were involved,15 all combined to make the Settlement particularly far-reaching. Furthermore, although the first class action claims were filed within hours after the scandal broke, it was the lawsuits brought by two government agencies—the EPA and FTC—that really put the pressure on VW to reach a large settlement.16 Governmental intervention signaled that VW’s malfeasance could not only strip the Dieselgate cars of market value, but

11. First Consent Decree, supra note 1, at 1–5. VW must remove the tainted vehicles from commerce, either physically, by buying them back, or by fixing them to be standards-compliant. Id. Car owners therefore have the option to (1) accept a buyback offer based on pre-scandal prices and receive cash payments of up to $10,000; or (2) keep the cars for VW to bring into compliance with environmental standards within two years, if/when it develops the (approved) technology and receive cash payments of up to $10,000. Id. Additionally, VW must pay $2.7 billion to a mitigation trust fund and invest $2 billion in the promotion of zero emission vehicles and charging infrastructure. Id. at 4–5. 12. Reuters, How Volkswagen Owners Can Get Compensation from the Emissions Scandal Settlement, FORTUNE (June 28, 2016), http://fortune.com/ 2016/06/28/vw-owners-compensation-scandal/ [https://perma.cc/QCP5-MM6E]. 13. Bertel Schmitt, Nice Try VW: Toyota Again Largest Automaker in the World, FORBES (Jan. 27, 2016), http://www.forbes.com/sites/bertelschmitt/2016 /01/27/nice-try-vw-toyota-again-worlds-largest-automaker/#44d787912b65 [https://perma.cc/5TDU-ZVCE]. 14. Aruna Viswanatha & Christina Rogers, VW Engineer Pleads Guilty in Emissions Cheating Scandal, CNN: MONEY (Sept. 9, 2016), http://money.cnn.com/ 2016/09/09/news/companies/volkswagen-engineer-emissions-scandal-guilty-plea/index.html [https://perma.cc/ZG27-BQTE]. 15. Eur. Parliamentary Research Serv. (EPRS), Briefing on the “Lawsuits Triggered by the Volkswagen Emissions Case” (May 2016), http://www.europarl. europa.eu/RegData/etudes/BRIE/2016/583793/EPRS_BRI(2016)583793_EN.pdf [https://perma.cc/7XRT-ZSTY] (noting that environmental violations included illegal defeat devices that concealed emissions of ten-to-forty times the allowed amount of nitrogen oxides, and that consumer law violations included false advertising claims about environmental-friendliness and high resale values that deceived consumers). 16. Bill Vlasic & Aaron M. Kessler, It Took E.P.A. Pressure to Get VW to Admit Fault, N.Y. TIMES (Sept. 21, 2015), http://www.nytimes.com/2015/09/22/ business/it-took-epa-pressure-to-get-vw-to-admit-fault.html? [https://perma.cc/FX4B-DTFJ].

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also jeopardize the automaker’s access to the American market.17 VW got the message(s) and settled accordingly.

Had Dieselgate involved a domestic company, a less sizeable foreign company, or fewer cars, the authorities might have been less politically motivated to take action. Likewise, had the scandal involved only one type of illegality—consumer or environmental—the outcome of the Settlement likely would have been much less sizable. We do not have environmental and consumer law rules to govern every type of corporate sustainability-related (mis)representation. As such, the fact that Dieselgate was doubly illegal is another crucially important peculiarity that serves to explain the magnitude of the Settlement.

These (combined) peculiarities reveal a number of gaps in our corporate accountability regime, in particular when it comes to broken sustainability promises and greenwashing. Greenwashing happens when a company seeks to boost its sales or its brand by overstating its environmental ambitions and achievements.18 It is a main source of identity harm, along with “redwashing” or “bluewashing,” terms used to describe the overstating of social (e.g., labor and human rights) ambitions and achievements. When “color-washing” happens—and goes unpunished—consumers concerned about the effects of their purchases on the planet and on other humans can experience a special type of emotional anguish that results from having been made unwittingly complicit in causing harm.

For color-washing claims to be properly addressed, the market and the regulators need to hear them, and this is by no means guaranteed. The VW tree fell loudly because of its size (hundreds of thousands of cars), the broad scope of the illegalities involved, and the willingness of the government agencies to listen and dedicate resources to prosecuting a major (foreign) company. Its thump reverberated across both the market for conventional goods—particularly sensitive to changes in resale values—and the market for sustainable goods.19 However, many broken environmental promises are

17. First Consent Decree, supra note 1, at 3–5, 38–40. 18. For analysis of greenwashing and an overview of possible solutions, see Miriam A. Cherry & Judd F. Sneirson, Beyond Profit: Rethinking Corporate Social Responsibility and Greenwashing After the BP Oil Disaster, 85 TUL. L. REV. 983, 999–1009, 1025–38 (2011). 19. Jack Ewing, In the U.S., VW Owners Get Cash. In Europe, They Get Plastic Tubes., N.Y. TIMES (Aug. 15, 2016), http://www.nytimes.com/2016/08/16/

2018] BIGGEST AUTOMOTIVE SETTLEMENT IN HISTORY 7

too small or fall too deep inside the sustainability forest to be heard by the conventional market or by regulators, even if they produce real harm for some consumers.

The point is that the Settlement likely would have been much smaller if the FTC and the EPA had not reacted to VW’s deceit as strongly as they did.20 Indeed, it is interesting to imagine how Dieselgate would have unfolded if the EPA had been headed by a climate change skeptic at the time the scandal broke.21 The pressure on VW to reach a meaningful settlement would have been greatly diminished if only state attorneys general had responded, let alone if only consumers had responded.

To understand how close the Settlement came to producing a less satisfying outcome, consider the recent complaint filed by those dirty-diesel owners who (re)sold their vehicles before the scandal broke. The Nemet v. Volkswagen Group Of America22 complaint refers to the “tens of thousands” of dirty-diesel owners who, because they sold their cars before VW’s deception was exposed, received nothing under the Settlement.23 For these plaintiffs, there was no problem of illegality to speak of; as a result, the resale value of their cars was not adversely affected by VW’s deception, even though each mile driven in the car produced exponentially more polluting gases than the drivers had believed. Since they did not incur any economic loss on their resales (beyond ordinary depreciation), one might surmise that this group of Dieselgate victims experienced no harm even though they received “hyper polluting” vehicles instead of what they paid for—clean-diesel vehicles—and even though VW’s false environmental promises “secretly turned the

business/international/vw-volkswagen-europe-us-lawsuit-settlement.html [https://perma.cc/X65T-ZE6A]. Currently, VW cannot bring the cars into compliance with national standards without compromising fuel efficiency and performance. Id. The cars’—sans settlement—market value therefore dropped. Id. 20. This is essentially what is happening in the European Union where car emissions standards are lower than in the United States, which makes it possible to bring the cars into compliance without affecting performance. To the lament and frustration of many car owners in Europe—where class action lawsuits are generally not permitted—regulators have not activated in Europe the way they have in the United States. Id. 21. Henry Fountain, Trump’s Climate Contrarian: Myron Ebell Takes on the E.P.A., N.Y. TIMES (Nov. 11, 2016), http://www.nytimes.com/2016/11/12/ science/myron-ebell-trump-epa.html [https://perma.cc/H6ZJ-GKEV]. 22. Nemet v. Volkswagen Grp. Of Am., Inc., No. 3:17-cv-04372 (N.D. Cal. Aug. 2, 2017). 23. Class Action Complaint at 4, Nemet, No. 3:17-cv-04372 (N.D. Cal. Aug. 2, 2017).

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most environmentally conscious consumers into some of the biggest polluters on the road.”24

Here lies the crux of the question: Is the fact that the resale value of the dirty-diesels was unaffected by the scandal enough to do away with the question of whether there was any harm at all? From the perspective of the Nemet plaintiffs, this question must surely be answered in the negative. To answer in the affirmative would not only be grossly under protective, but also shortsighted and antithetical to one of the driving objectives of consumer protection, which is to foster trust in a fair marketplace. Harm is more nuanced and layered than a simple change in market value. As claimed in Nemet, harm arises when consumers realize that they have become unknowingly complicit in a scheme to harm the planet, particularly when they had tried to avoid just that. Otherwise put, consumers can experience identity harm even without economic loss (diminished market value).

A related question pertains to remedies: Should remedies be measured by economic loss or according to another measure? Since they cannot recover lost resale value, the Nemet plaintiffs argue that they should receive some depreciation-adjusted share of the clean premium they had originally paid for the cars in order to recover the benefit of their bargain. However, based on the substance of the complaint, perhaps it would be more effective to measure remedies according to the lost greenness of the purchase.

This could be done by estimating the number of “dirty” miles driven by the Nemet plaintiffs and, based on that figure, calculating the amount of above-what-was-advertised and above-what-was-legally-permitted emissions. The extra emissions could be priced and converted into a measure of total lost greenness that could then be used as the benchmark for damages. Some (significant) share of this money could be placed into a climate fund dedicated to offsetting the emissions produced by the deception.

On this last point—and as another illustration of the Settlement’s unsettling features—consider that without the EPA’s active involvement, the Settlement likely would not have included the establishment of a climate fund. Yet the fund is a crucial piece of the remedial puzzle for the Dieselgate victims who want to undo the environmental harm they—unwittingly

24. Id. at 6.

2018] BIGGEST AUTOMOTIVE SETTLEMENT IN HISTORY 9

and unintentionally—contributed to. To summarize, economic loss is not the only dimension along which harm is experienced, just as it is not the only dimension along which remedies should be measured.

II. BROKEN SOCIAL PROMISES MATTER, TOO

Identity harm afflicts the realm of social promises, as well. As examples, consider a “conflict free” diamond engagement ring or a purchase from any of the growing roster of companies that market themselves and their wares (e.g., clothing, coffee, chocolate, minerals, palm oil) as socially sustainable.25 For the individuals buying such goods, the production backstory likely matters a great deal.26 Should the sustainability promises that operate in the background of a purchasing decision be revealed to be hollow, buyers can experience an achingly intimate form of disappointment.

Imagine discovering that your “conflict free” engagement ring, a symbol of love and commitment, was in fact sourced from a country marred by diamond-fueled murder, rape, and slavery.27 Would your experience of the ring be altered? Would your sense of its value change? For some, wearing the ring might elicit deep distress brought on by the constant reminder of one’s participation in another’s suffering. On a smaller but no less profound scale, learning that the chocolate treat they gave their child was made using forced child labor can make a parent sick to their stomach, literally and figuratively.28

25. Marc Bain, Is H&M Misleading Customers with All Its Talk of Sustainability? QUARTZ (Apr. 16, 2016), http://qz.com/662031/is-hm-misleading-customers-with-all-its-talk-of-sustainability/ [https://perma.cc/7SYF-3HSN]. 26. Douglas Kysar, Preferences for Processes: The Process/Product Distinction and the Regulation of Consumer Choice, 118 HARV. L. REV. 525, 640–642 (2004) (arguing that “process-information” pertaining to the production backstory of consumer goods should be (1) made more available to consumers and (2) better policed in order to properly protect the “many consumers [who] have come to view themselves as purchasing with their disposable dollars not only products, but also shares of responsibility in the moral and ecological economy that produces them”). 27. Jenni Avins, How to Propose with an Engagement Ring As Rock Solid As Your Ethical Values, QUARTZ (Apr. 14, 2016), http://qz.com/657236/how-to-propose-with-an-engagement-diamond-as-rock-solid-as-your-ethical-values/ [https://perma.cc/SDJ4-5ND7]. 28. Complaint for Violation of Consumer Protection Laws at 1, Dana v. Hershey Co., 180 F. Supp. 3d 652 (N.D. Cal. 2015) (No. 3:15-cv-04453) (“[W]hen . . . food companies fail to disclose the use of child and slave labor in their supply chains to consumers, they are deceived into buying products they would not have otherwise and thereby unwittingly supporting child and slave labor themselves

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Indeed, a series of—so far, unsuccessful—class actions have been filed against big chocolate companies such as Hershey, Nestle, and Mars on the grounds that the plaintiff consumers would not have bought the companies’ chocolate products had they known that their purchases were supporting forced child labor.29

In a similar vein, in Sud v. Costco Wholesale Corp., the company was sued by a consumer because it “unlawfully induce[s] consumers to buy Costco farmed prawn products”30 the supply chain for which is “tainted by the use of slave labor in Thailand” and contaminated by “documented slavery, human trafficking and other illegal labor abuses.”31 At issue in Sud was the fact that Costco—much like the chocolate companies mentioned above—makes various disclosures and public statements that affirmatively represent to consumers that the company “makes efforts to monitor its suppliers to eradicate human rights abuses in its supply chain”32 and that “it does not tolerate human trafficking and slavery in its supply chain.”33

In both the chocolate cases and in the Costco case, the plaintiffs failed because they could not establish that the companies had a duty to disclose that their goods were sourced through a tainted supply chain, or that the companies had exclusive knowledge of the labor and human rights problems affecting their supply chains, or that the plaintiffs had actually relied on the sustainability disclosures in making their purchasing decision.

These cases offer just a few examples of how consumers’ disappointed expectations of a company’s social conduct can lead to identity harm. That these claims are being litigated demonstrates that identity harm is real, that consumers care about corporations keeping their social promises, and, by extension, that consumers want corporations to improve their social performance. Yet, in spite of an upswing in sustainability-related legal claims, consumers are failing because of under-protective interpretations and applications of

through their product purchases.”). 29. Id. 30. Class Action Complaint at 5, Sud v. Costco Wholesale Corp., 229 F. Supp. 3d. 1075 (N.D. Cal. 2017) (No. 15-cv-03783). 31. Id. at 12–13. 32. Id. at 18. 33. Id. at 19.

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consumer law statutes. Identity harm can help equip consumers to wage these legal battles more effectively.

III. WHY WE NEED BETTER PROTECTION FOR IDENTITY HARM AND WHY WE DON’T HAVE IT YET

As things stand, those aggrieved by identity harm have only limited recourse. This is so for several reasons. First, in spite of the growing number of conscious consumers, the market remains generally insensitive to sustainability promises—kept or broken.34 Market prices represent the value of a good, security, or service for the average (marginal) buyer, rather than for the conscious (infra-marginal) buyer.35 Thus, unless sustainability promises become more valued by average consumers, the economic loss produced when such promises are broken is likely to be limited.

The problem is that with minimal or no economic loss, the likelihood of market regulation is reduced, as is the likelihood of government intervention and the likelihood of success for claims brought directly by consumers against the offending company.36 As explained above, economic loss is an inadequate and problematic proxy for assessing identity harm,37 and overreliance on it allows bad corporate practices to proliferate with relative impunity.

A second reason why recourse is limited for aggrieved consumers is that government may be underequipped or unwilling to step in: there may be no law or regulation on point,38 and even if there is, resource and political constraints may direct attention elsewhere.39 This again highlights the

34. Cadesby Cooper, Rule 10b-5 at the Intersection of Greenwash and Green Investment: The Problem of Economic Loss, 42 B.C. ENVTL. AFF. L. REV. 405, 427–32 (2015) (explaining that ethical investors’ disappointment is difficult to redress due to Rule 10b-5 requirements that plaintiffs suffer economic loss attributable to the issuer’s misrepresentations). 35. Id. 36. Many states require consumers to show that they suffered an ascertainable financial loss and that they relied on the seller’s (mis)representation in making their purchase. See CAROLYN L. CARTER, NAT’L CONSUMER LAW CTR., CONSUMER PROTECTION IN THE STATES: A 50-STATE REPORT ON UNFAIR AND DECEPTIVE ACTS AND PRACTICES STATUTES, 18–21 (2009), https://www.nclc.org /images/pdf/udap/report_50_states.pdf [https://perma.cc/Z7P6-FPWH]. 37. Infra Part I. 38. For example, the FTC Guides for the Use of Environmental Marketing Claims (16 CFR 260.1) offer sellers guidance for avoiding deceptive marketing, but there is no equivalent for social claims. 39. CARTER, supra note 36, at 18 (explaining that limited state enforcement

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peculiarities of the Dieselgate Settlement. It is naïve to expect that the intensity of government agency intervention elicited by VW’s wrongdoing will occur in cases where sustainability promises are broken less “loudly”—or where the agencies in charge of protecting the environment and consumers are headed by anti-interventionists.

Third, as illustrated by the fate of the chocolate cases and Sud (among others), there are serious consumer law obstacles to identifying an actionable misrepresentation or omission pertaining to sustainability. Consumer law statutes and the case law applying them tend to be demanding with respect to vindicating emotional grievances, especially when it comes to omissions. They can also place onerous demands on consumers with respect to establishing actual reliance on a particular statement at the time of purchase.

Fourth, it may be difficult to show how consumers are harmed by an inaccurate backstory when it is the planet and/or those making the goods that are injured, at least in the traditional sense. Indeed, identity harm is different from, say, the “safety harm” caused by a spontaneously combusting cell phone where users can experience direct personal injury.40 It is also different from the distress that consumers experience when they learn that the “100% natural” food they ingested in fact contains genetically modified organisms (GMO)—partly because the health risks of consuming GMO foods remain uncertain and partly because these statements address consumers’ concerns about their own bodily health.41 In these scenarios, the primary injured party is the consumer herself. By contrast, with identity harm, the injury is, to a large extent, derivative. Identity harm affects individual consumers, but stems from an injury that is at least one step removed from the

budgets limit regulatory policing of the marketplace). 40. See Eun-Young Jeong, Samsung to Recall Galaxy Note 7 Smartphone Over Reports of Fires, WALL. ST. J. (Sept. 2, 2016, 5:35 PM), https://www.wsj.com/ articles/samsung-to-recall-galaxy-note-7-smartphone-1472805076 [https://perma.cc/G9VV-PBPM]; Daisuke Wakabayashi et al., Samsung Halts Galaxy Note 7 Production as Battery Problems Linger, N.Y. TIMES (Oct. 10, 2016), https://www.nytimes.com/2016/10/11/business/samsung-galaxy-note-fires.html?_r=0 [https://perma.cc/G3R9-G6GV]. 41. See Michele Simon, ConAgra Sued Over GMO ‘100% Natural’ Cooking Oils, FOOD SAFETY NEWS (Aug. 24. 2011), http://www.foodsafetynews.com/2011/ 08/conagra-sued-over-gmo-100-natural-cooking-oils/#.WKeHvRSnWto [https://perma.cc/JA5R-7DSJ] (describing a class action brought against ConAgra for labeling their Wesson-branded cooking oils as “100% natural” to target health conscious consumers when in fact the oils contain GMOs).

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actual purchasing transaction. In the case of broken sustainability promises, the injury is experienced by the planet and/or fellow human beings. But other kinds of broken promises can trigger identity harm, as well.

For example, identity harm can encompass the type of “spiritual harm” that an observant Jewish person might experience upon learning that the food they ingested was falsely marketed as Kosher, or a Muslim might experience upon learning that a meat product they consumed was not in fact Halal, or a Jain might experience upon learning that the food they ordered was incorrectly described as vegetarian.42 In such instances, the consumer suffers no direct (physical or economic) harm as a result of the transaction, but their faith in their relationship to the divine may be undermined.43 The “ethical harm” that an animal rights activist might experience upon learning that a product they believed to be “cruelty free” was in fact developed by experimenting on animals can likewise be included under the identity harm umbrella as their injury is derivative of the injury to the animals. In each of these instances, the injury occurs beyond the transaction and beyond the individual consumer. These examples illustrate how the “defect” of identity-harming products is not necessarily (if at all) economic—the issue is not about the product pricing. Nor is the defect related to the product’s physical attributes—consumers are not physically injured by the use of an identity-harming product. Rather, the defect is that the product undermines a consumer’s autonomy to make informed choices that will safeguard—not jeopardize—their values or their notion of who they want to be in the world.

The fact that identity harm is non-economic and derivative arguably complicates standing for those seeking to assert it.44

42. See, Stephen F. Rosenthal, Food For Thought: Kosher Fraud Laws and the Religion Clauses of the First Amendment, 65 GEO. WASH. L. REV. 951, 954 (1997) (offering a definition of spiritual harm based on an interview with commentator versed in Jewish law: “The consumption of forbidden foods defiles the holy spirit, and its sanctity is injured. This injury reduces the Jewish capacity to reap the full rewards of Torah and its fathomless depths”). 43. The argument for including spiritual harm under the identity harm umbrella is strengthened by recalling that many of the religious rules pertaining to meat consumption are borne of some concern for the well-being of the animal. As such, spiritual identity harm is partially derived from the injuries experienced by animals. I am grateful to Matthew Carey of the University of Colorado Law Review for this insight. 44. The Supreme Court’s decision in Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1545 (2016), suggests that standing challenges based on the non-concreteness of

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More importantly, however, these features highlight a remedies problem. The most common remedy for consumer claims is monetary damages, which are typically limited to purchase price, sometimes enhanced with statutory or punitive damages.45 However, in order for consumers to be made whole in the wake of a broken sustainability promise, what is needed is for the company to come through on its original promise and to repair the social or environmental damage done. Identity harm thus demands injunctive relief.

Injunctive remedies are occasionally employed to repair harm, particularly in cases involving the violation of environmental laws (e.g., the Settlement provides for billions of dollars to be paid into an EPA-administered climate fund)46 and in cases involving the violation of international human rights laws.47 In the consumer law context, however, the FTC and state attorneys general tend to steer clear of reparations-oriented remedies. To the extent that injunctive remedies are awarded, it is typically only to enjoin the seller from continuing to engage in the bad practice at issue, not to require them to repair the harm caused by the bad practice.48 Typical consumer law remedies are therefore unlikely to make aggrieved consumers whole and should be combined with injunctive remedies intended to undo or repair the harm created by the injurious corporate practice at issue. An important additional advantage of developing a reparations-centered rather than compensation-centered remedies framework is that, properly designed,49 it would reduce the risk of frivolous lawsuits.

alleged harms are not insurmountable. See also Daniel Townsend, Who Should Define Injuries For Article III Standing?, 68 STAN. L. REV. ONLINE 76, 80 (2015) (“[N]ot all harms we care about are tangible. Many wrongs we care about do not lead to bodily damage, economic damage, [or] damage to property.”). 45. CARTER, supra note 36, at 18–21. 46. First Consent Decree, supra note 1, at 12–13. 47. Tom Antkowiak, Remedial Approaches to Human Rights Violations: The Inter-American Court of Human Rights and Beyond, 46 COLUM. J. TRANSNAT’L L. 351 (2008). 48. Id. at 16; 15 U.S.C. §53 (1994); 15 U.S.C §54 (1938); 15 U.S.C §57b (1975). 49. Omri Ben-Shahar & Ariel Porat, The Restoration Remedy in Private Law: A Novel Approach To Compensation For Emotional Harm (U. Chi. L. Sch., Coase-Sandor Inst. for L. & Econ., Working Paper No. 819, 2017), https://papers. ssrn.com/sol3/papers.cfm?abstract_id=3058186 [https://perma.cc/5YK4-9AQ7] (developing a model for restorations-based remedies for emotional harms calibrated to tell apart sincere claimants from fakers).

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CONCLUSION

Limited notions of harm do little to deter companies from making and then breaking promises. This hurts consumers, but also society, by breeding distrust of the marketplace and the bodies that are supposed to regulate it. Identity harm completes the picture painted by economic loss, and providing legal recourse for it would empower consumers to be more effective agents of change—leveraging their voices to advance the interests of (often voiceless) third parties. Identity harm expands our notions of what constitutes actionable consumer harm while also creating openings for the development of new remedies frameworks that look beyond financial compensation to include reparations. Such legal innovation gives rise to difficult questions of what harms to count and how to count them. While challenging, these questions are not novel. We already have mechanisms in place for dealing with intangible harms in the context of medical injuries (e.g., pain and suffering), emotional distress, and defamation. In these areas, the inadequacy of economic loss as a measure of harm is acknowledged, and a degree of subjective experience is recognized.50 Such protective principles should be harnessed to address the harm produced by companies breaking their sustainability promises, compelling them to do more than simply claim they are making the world a better place.

Though still new, identity harm can enrich the consumer protection toolkit. Rather than create a new cause of action, the idea is to incorporate identity harm into existing consumer law statutes and equip judges to better recognize and address the grievances of consumers who feel that their efforts to live in line with their personal values have been undermined by a seller’s empty promises. At a time when the government’s protective capacity appears to be shrinking more with each passing day, it is becoming ever-more urgent to arm consumers

50. Robert L. Rabin, Intangible Damages in American Tort Law: A Roadmap (Stan. Pub. L., Working Paper No. 2727885, 2016), https://www-cdn.law. stanford.edu/wp-content/uploads/2016/07/R.L.RABIN-SSRN-Rotterdam-Conf-paper-revised-for-ssrn-2727885-Intangible-Damages-in-American-Tort-Law.pdf [https://perma.cc/S8R2-9EYV] (discussing intangible harms); JoEllen Lind, The End of Trial on Damages? Intangible Losses and Comparability Review, 51 BUFF. L. REV. 251, 301, 309–14 (2003) (discussing the challenges of comparing intangible harms).

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with the legal tools necessary for protecting their freedom to choose not to support abusive systems. Identity harm is one such tool.

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