Jurisgenerative role of auditors in transnational ... - Wiley Online Library

Regulation & Governance (2018)

doi:10.1111/rego.12196

Jurisgenerative role of auditors in transnational labor governance Phillip Paiement Department of Public Law, Jurisprudence and Legal History, Tilburg Law School, Tilburg, Netherlands

Abstract This article builds on the model of regulatory intermediaries by incorporating insights from the field of legal hermeneutics about the process through which the meaning of a legal rule emerges. It describes how intermediaries can take on a jurisgenerative role in the development of legal rules through their interpretation of legal rules. This role is demonstrated through an analysis of social audits from Chinese and Vietnamese factories involved in the Fair Labor Association (FLA). The analysis illustrates how the integration of fundamental labor rights into the FLA’s private Code of Conduct requires auditors to develop new interpretations of the Freedom of Association as a result of uncertainties and contradictions between legal requirements at various levels, as well as with the FLA’s own rules. Through this empirical analysis, the article contributes to the literature by identifying regulatory intermediaries’ jurisgenerative capacities when they monitor fundamental labor rights referenced by private governance instruments. It further highlights why legal and regulatory governance scholars need to consider the transformative effects that transnational private labor governance may have on international labor law. Keywords: auditor, hermeneutics, intermediary, labor, transnational private regulation.

1. Introduction Recent contributions to regulatory governance literature have highlighted the role of regulatory intermediaries as primary, influential actors in regulatory initiatives (Abbott et al. 2017). While the roles of rulemaking actors and target groups are widely integrated into models of regulatory governance, the multiple types of intermediaries that operate in the spaces and moments between rulemaking and compliance demand greater analytic attention. Distinguishing intermediaries as a class of actors separate from rulemakers and targets is an essential step to analyze the type of regulatory governance work they produce. This article addresses whether and how the integration of fundamental legal rights into transnational multi-stakeholder codes of conduct requires intermediaries to take part in the process of rule emergence. By using a hermeneutic approach to assess the work of intermediaries, the article argues that intermediaries offer new interpretations of fundamental legal rights in order to overcome uncertainties and contradictions between legal systems and other private rules in codes of conduct. While researchers have paid considerable attention to the roles of various types of regulatory actors involved in developing rules, the more specific challenge of integrating legal rights into private codes of conduct and other governance instruments has not yet been explored in detail. Thus, the burgeoning literature on regulatory intermediaries is reviewed in light of legal hermeneutic insights in order to identify specific challenges for intermediaries when they must monitor compliance with legal rules. In particular, considerations about the interpretative development of a legal concept within a broader system of legal rules, as well as the influence of internal and external legal cultures in determining the practical meaning of legal concepts, are discussed. Based on these considerations, it is suggested that regulatory intermediaries might be involved in developing new legal interpretations as they implement private codes of conduct. That is, they could be acting in a jurisgenerative manner to transpose national and international legal concepts into transnational multi-stakeholder governance contexts. The second half of the article includes an empirical analysis of 20 audits performed to assess factory compliance with Fair Labor Association (FLA) codes in China and Vietnam. In particular, the article assesses auditors’ Correspondence: Phillip Paiement, Department of Public Law, Jurisprudence and Legal History, Tilburg Law School, PO Box 90153, 5000 LE, Tilburg, The Netherlands. Email: [email protected] Accepted for publication 1 April 2018. © 2018 The Authors. Regulation & Governance Published by John Wiley & Sons Australia, Ltd This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited.

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Jurisgenerative role of social auditors

treatment of Freedom of Association (FoA) rights compliance in these audit reports to identify the interpretative meanings applied to the concept of the FoA by the auditors. In the contexts of China and Vietnam, where national legal systems fail to protect FoA rights in accordance with International Labour Organization (ILO) standards, this assessment identifies instances in which auditors require protection of workers who take part in illegal strikes, dismiss local legal cultures surrounding the selection of union leadership, and create new interpretations of independent worker representation. Through this empirical analysis, the article contributes to the literature of regulatory intermediaries by identifying their jurisgenerative capacities when they monitor fundamental labor rights referenced by private governance instruments. 2. Regulatory intermediaries and the emergence of rules With the transition from the “regulatory state” to “regulatory capitalism,” “de-centered regulation,” and, significant for this collection, “transnational multi-stakeholder regulation,” it is clear that new analytic tools are required to understand the types of actors and roles that are orchestrated on these complex regulatory platforms (Majone 1994; Black 2001; Levi-Faur 2005; Bartley 2007; Fransen & Kolk 2007; Abbott & Snidal 2009a; Yeung 2010). Regulators today not only include state actors but also consist of an amalgamation of states, international bodies, multi-national corporations (MNCs), and non-governmental organizations (NGOs) (Bartley 2007; Cafaggi 2014). In addition, regulatory targets are concentrated and dispersed according to the logics of industry networks and global value chains rather than territorial jurisdictions. In this setting, there are numerous regulatory tasks required to bridge gaps – jurisdictional, institutional, and epistemic – between rulemakers and targets. Abbott and Snidal (2009b) divide the stages of the regulatory process into five tasks: agenda setting, negotiation, implementation, monitoring, and enforcement (ANIME). This division identifies the multitude of tasks required to render rules effective in transnational contexts. However, recent literature on regulatory intermediaries has shifted the focus to the actors behind the processes of implementing, monitoring, and enforcing rules on targets. In this “Rulemaker-Intermediary-Target” (RIT) model, intermediaries are considered to be “any actor that acts directly or indirectly in conjunction with a regulator to affect the behavior of a target” (Abbott et al. 2017, p. 19). An earlier definition more thoroughly describes intermediaries as any “regulatory actors with the capacity to affect, control, and monitor relations between rule-makers and rule-takers via their interpretations of standards and their role in the increasingly institutionalized processes of monitoring, verification, testing, auditing, and certification” (Levi-Faur & Starobin 2014, p. 21). In short, the model posits regulatory intermediaries as the analytic unit responsible for much of the complex bridging between regulators and targets, which in turn makes transnational regulation possible. Distinguishing intermediaries as a unique actor-type in the RIT model implies that the tasks of intermediaries are sufficiently different from those of regulators and targets. Intermediaries have capacities related to their operation, expertise, independence, and legitimacy that regulators rely on in order to overcome their own resource deficits and access problems (Abbott et al. 2017, p. 20; van der Heijden 2017, p. 212). By working with intermediaries, regulators are more capable of governing the behavior of their targets, both effectively and legitimately. The particular challenges of transnational governance, including complex jurisdictional, institutional, and epistemic gaps between regulators and targets, likely offer even more incentives for regulators to enlist intermediaries. Importantly, intermediaries operate in different types of roles. In their introduction to this special issue, Brès et al. (forthcoming) offer two different dimensions across which we can plot the various types of roles played by intermediaries: formal-informal and official-unofficial. That is, they can perform intermediary roles with varying degrees of both formalization and authorization, resulting in four ideal-types of intermediation: (i) intermediation as orchestration (official, formal); (ii) alternative intermediation (unofficial, formal); (iii) intermediation as emergent (unofficial, informal); and (iv) intermediation as steering (official, informal) (Brès et al. forthcoming). The contributions in the 2017 special issue of The ANNALS of Political and Social Science on regulatory intermediaries specifically emphasized auditors, as well as their accreditors, as a prominent type of intermediary. Auditors hold important resources and expertise, including independency and access to production sites governed by transnational private regulation, which make them influential in the RIT chain. Auditing occurs with a 2

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considerable degree of diversity, including various combinations of first, second, and third party forms of verification, certification, and accreditation, despite attempts by both the International Organization for Standardization and the ISEAL Alliance, among others, to provide authoritative standards for auditing and accreditation (Loconto 2017). While the “audit society” was initially associated with public sector and financial auditing under New Public Management (Power 1999, 2003), the importance of auditing has only increased over time with its expansion into the fields of quality management systems, and environmental and labor standards. With this continued growth over the past decades, we now witness the consolidation of auditing services among large firms, or “big third party certifiers” (Galland 2017). Although treated primarily as intermediaries, previous research demonstrates that auditors are also frequently involved in rulemaking processes (Fransen & LeBaron forthcoming). Reasons for their involvement in rulemaking – a task usually associated with the regulator rather than the intermediary – stem in part from their expertise in on-the-ground behavior of targets and the practical implementation of rules (Galland 2017, p. 272). This expertise is particularly influential during the early stages of rule development and operationalization (Auld & Renckens 2017). In short, there are strong organizational incentives for regulators to involve auditors because they can ensure that regulators formulate the rules in a manner that can facilitate systematic implementation and enforcement. While the “intermediation feedback” of auditors at these early stages may be particularly influential, in the case of the Marine Stewardship Council this feedback notably occurred outside formal governance structures (Auld & Renckens 2017, p. 103). Furthermore, auditors have an organizational incentive to influence rulemaking processes so that rules become uniform and their implementation tasks become as standardized, and thus as efficient, as possible (Galland 2017, p. 275). This reflects the insight that regulation has become an industry in itself, and that market influences on auditing firms can drive them to influence rulemaking processes in ways that are financially and organizationally beneficial to them (van der Heijden 2017). In addition to their contribution to rulemaking, the role of auditors in the RIT model becomes even more complex if one accounts for their simultaneous incorporation into multiple RIT chains and the referencing of legislation by transnational private regulators. In the context of food safety governance, auditors provide “simultaneous intermediation” to both a multitude of regulators, as well as a multitude of targets, effectively binding together a number of RIT chains (Havinga & Verbruggen 2017). For example, intermediaries could provide formal and official intermediation in one RIT chain, while simultaneously operating unofficially and informally in another (Brès et al. forthcoming). Furthermore, transnational private regulators frequently refer to national and international laws in their rulemaking. As such, auditors enlisted by these rulemakers automatically acquire a second, and “non-delegated,” intermediary role implementing and monitoring compliance with those referenced legal standards (Havinga & Verbruggen 2017; Marx & Wouters 2017). That is, they take upon themselves the role of implementing laws and thus serving as an intermediary for states and international organizations, such as the ILO, that have not requested their intermediary services (Zandvliet & van der Heijden 2015). In the course of this work, it is likely that auditors assist rulemakers in operationalizing international legal requirements into their private rules. For example, in the case of the Fair Wear Foundation, auditors must remain up to date on developments in ILO jurisprudence and apply the Fair Wear Foundation standard in accordance with that jurisprudence (Marx & Wouters 2017, p. 201). A number of studies on intermediaries, and particularly auditors, criticize the analytic choice of isolating intermediaries from rulemakers because of the inherent complexity of the regulatory work they perform. Some have described intermediaries as “chameleonic” in nature, insofar as they can function simultaneously as regulators, intermediaries, and even targets (Havinga & Verbruggen 2017, pp. 70–71). Others have suggested that the analytic problem lies in the linearity of the RIT model in which rules are assumed to be created by a single actor (Lytton 2017, pp. 86–87). Discussing food safety governance, Lytton instead suggests that “[r]ules … emerge out of a pool of experts working in different institutional settings, all of whom are in direct or intermediated dialogue, facilitated by network connections,” and includes governmental officials, judges, industry representatives, private regulators, firms, and underwriters in the networked process of rule emergence (Lytton 2017, p. 88). The ability of intermediaries to bridge gaps between rulemakers and targets simultaneously exposes them to heightened risks of capture. With the insight that intermediaries occasionally partake in rulemaking, capture concerns become more serious (van der Heijden 2017). There are namely three risks of capture involved (Abbott et al. 2017, p. 29). First, the target might capture the intermediary and thus influence rulemaking indirectly vis-à© 2018 The Authors. Regulation & Governance Published by John Wiley & Sons Australia, Ltd

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vis the intermediary. Second, the intermediary may capture the rulemaker and influence rulemaking in accordance with their own organizational interests (Galland 2017, p. 275). Finally, in a more complex scenario of simultaneous intermediation, one of a multitude of rulemakers may try to capture an intermediary and thus influence rulemaking and the implementation of rules shared among a network of rulemakers. Transparency mechanisms in audit reporting and the incorporation of beneficiaries and third parties (e.g. accreditation bodies) as intermediaries can partially prevent these capture risks (Auld & Renckens 2017). At the core of this debate over the analytic depiction of intermediaries vis-à-vis regulators and targets appears to be a more fundamental question about the role intermediaries play in the emergence of rules. Within the context of social and environmental sustainability governance, this question must also take into account the extensive referencing of labor and environmental laws, from both national and international levels, in transnational private regulatory schemes. In the literature reviewed, it is clear that there are organizational incentives for auditors to involve themselves in rulemaking, and institutional limitations that drive rulemakers to rely on feedback loops and informal participation by auditors in rulemaking. Yet when it comes to integrating fundamental labor rights into private codes of conduct, auditors lack the formal legal expertise and authority that drives their rulemaking roles in other instances. Their potential rulemaking role with respect to legal requirements poses a new capture risk, as it does not stem from their organizational or financial interests, but rather from the referencing of complex, possibly unclear or contradictory legal requirements within private governance instruments. This study examines the role of auditors in this setting of rule emergence by assessing the legal interpretations they offer in transposing fundamental labor rights into private code of conduct obligations. The question is how intermediaries go about resolving scenarios in which they must, albeit informally and unofficially, produce legal interpretations in order to monitor compliance with national and international law. While the case discussed at length in this paper deals with the incorporation of FoA rights into the FLA, similar examples could be drawn from many transnational private regulatory schemes incorporating fundamental labor rights. 3. Reviewing the Rulemaker-Intermediary-Target (RIT) model in light of legal hermeneutics Hermeneutics, the science of interpretation, has been a principle concern of legal theoreticians for centuries. In the Hart–Fuller debate, one of the most influential exchanges in 20th century legal theory, the two authors start from the shared observation that legal rules are, in their very nature, uncertain and open-ended (Fuller 1958; Hart 1958). They agree that for every legal rule there will be future factual circumstances for which it will be unclear whether or how the rule is to apply. Hart summarizes this challenging nature of legal rules as follows: Fact situations do not await us neatly labeled, creased, and folded, nor is their legal classification written on them to be simply read off by the judge. Instead, in applying legal rules, someone must take the responsibility of deciding that words do or do not cover some case in hand with all the practical consequences involved in this decision. (1958, p. 607) For Hart, the application of law can be categorized into situations involving either the “core” or the “penumbra” of a legal rule. In the former, the manner by which a legal rule is to be interpreted and applied in a given situation is uncontested, while in the latter case the uncertainty of legal rules entail that deductive reasoning is insufficient for determining how the rule should be applied in the case. While the “core” of a rule may straightforwardly cover the majority of instances in which behavior is required to comply with a rule, the task of legal professionals is often preoccupied with the evolving contours of a rule’s penumbra. Both Fuller and Hart invoke a puzzle from Wittgenstein to demonstrate why the interpretation of legal rules cannot always rely on deductive reasoning: Someone says to me: “Show the children a game.” I teach them gaming with dice and the other says “I did not mean that sort of game.” Must the exclusion of the game with dice have come before his mind when he gave me the order? (Wittgenstein 1958, p. 33) This language game revolves around the question of intentionality, namely whether the speaker had different categories of games in mind when issuing the request and whether the specific game of dice was intended to fit within the category of games. It constitutes a puzzle to the extent that we cannot know whether the speaker had 4



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an explicit intention with respect to dice beforehand, or whether the speaker’s distinction only arose after the fact. The puzzle relates to legal hermeneutics if one considers the speaker to be legislating a rule about an obligation (to teach children a game), and an intermediary faced with determining whether the specific factual circumstance (of someone teaching children dice) constitutes compliance with the rule. Transposing this situation into a legal situation only further complicates the question of intentionality, as legislation is the product of a multiplicity of actors, with both overlapping and conflicting intentions and goals, and the same holds for private regulatory rules. Although some of their intentions may be recorded in preparatory working documents, such as hearing minutes and public statements, others will be impossible to ascertain. More recently, hermeneutics scholars have shifted focus beyond just the role of judges, as addressed in the Hart–Fuller debate, toward the broader “communities of interpretation” involved in the process of determining the contours of a legal rule’s penumbra. White (1982) identifies how both the embeddedness of a legal rule within a broader system of rules and the contextual elements play essential roles in constructing the meaning of law. According to White, the meaning of a legal rule continually evolves as it is “textually redefined” with respect to other terms, concepts, and principles in the legal system. Legal interpretation is often broken down into three types – linguistic, systemic, and teleological interpretative strategies – all three of which are involved in the redefinition of legal texts over time (MacCormick 1993, 2005, Ch. 7). While core–pneumbra challenges are not necessarily unique to legal interpretation, systemic interpretative strategies highlight the important systemic character that is unique to legal rules. Namely, the content and scope of application of a legal rule often develops out of the much larger context of rules constituting a legal system rather than solely out of the linguistic formulation of the individual rule itself. Furthermore, the interpretation of a legal text requires the reader to understand the nonlegal context (cultural, political, economic, and social) within which the text was written (White 1982, p. 435). As a result, “the law can more properly be seen not as a set of commands or rules, even with a set of restatable principles or values behind them, but as a culture of argument and interpretation through the operations of which the rules acquire their life and ultimate meaning” (White 1982, p. 436). Viewing legal interpretation and argumentation from this perspective, legal practice becomes a constituting force of a rhetorical community invested in providing and arguing about the meaning of legal rules (White 1985). White’s hermeneutic insights become more relevant for the context of regulatory governance and intermediaries when one considers the role of private communities and organizations in legal interpretation. Cover (1993) expanded the concept of “interpretative communities” to include private associations and communities, particularly religious communities and civil rights movements. Noteworthy for regulatory governance scholars, Cover (1993, pp. 125–132) argues that the freedoms of association and contract are used, both historically and contemporaneously, to create quasi-autonomous communities that are active in positing alternative interpretations of legal texts with the goal of transforming the constitutional principles of their broader society. This “jurisgenerative” role of private communities and associations is as essential a component of a legal system, and legal interpretative processes more specifically, as the “jurispathic” role of judges through which they inevitably select one among many possible interpretations to be authoritative (Cover 1993, p. 155). Cover’s position is premised on the perspective that legal interpretation does not arise as a result of unclear or ambiguous law, as Hart would maintain, but because of the plurality of interpretations from which the courts must continually make choices. His theory is namely, “that different interpretative communities will almost certainly exist and will generate distinctive responses to any normative problem of substantial complexity” (Cover 1993, p. 141). This perspective draws on the distinction between law as an organization of power, for which the state and its courts hold a privileged position, and law as an organization of meaning, for which a diverse set of actors and organizations are capable of formulating and arguing over interpretations of the law (Cover 1993, p. 112). The concept of jurisgenerative hermeneutics has more recently been invoked in global governance scholarship. For Berman (2013), global governance often features moments of “jurisdictional redundancy” in which a multiplicity of opportunities for adjudication exist for actors to posit their competing interpretations about legal rules and principles, and thus act as jurisgenerative platforms. As he states it, “the existence of overlapping jurisdictional claims often leads to a nuanced negotiation – either explicit or implicit – between or among the various communities making those claims” (Berman 2013, p. 693). While common law lawyers primarily influence this line of scholarship on interpretative communities within legal hermeneutics, comparative studies also © 2018 The Authors. Regulation & Governance Published by John Wiley & Sons Australia, Ltd

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demonstrate that interpretative processes in civil law countries share a “common core” of rationality and interpretative principles with their common law counterparts (MacCormick & Summers 2016, Ch. 12–13). The field of comparative socio-legal studies offers similar theoretical lessons about normative emergence within legal systems. Studies on legal transplants have routinely emphasized how the national legal and social environments will inevitably modulate foreign legal concepts, rules, or procedures as they are transplanted into a host country (Nelken & Feest 2001). More recently, studies have examined how transnational private regulation facilitates transplants among legal systems, and how studying transnational private regulation through this lens could lend greater emphasis to contextual elements (power, culture, and values, among others), which may affect the implementation of transnational norms in a given locale (Lin 2009; Ferrando 2014; Short 2016). The now widely accepted critique of the automaticity of legal transplants is a symptom of a larger shift toward emphasizing the cultural facets of legal systems. Since Friedman (1969) coined the term, “legal culture” has been used by comparativists to explain a wide range of differences among legal systems and practices, including: why people turn to legal institutions to solve disputes; when and why people comply with laws, and why this can differ so much from country to country; how officers enforce laws; and how judges apply laws and sentencing guidelines (Nelken 2004). Analyses of legal culture include both the “internal legal culture” of legal professionals (judges, lawyers, officers) and the “external legal culture” of the general public and its constitutive elements (Friedman 1975). Importantly, both are understood to be capable of affecting and influencing the development, evolution, and implementation of legal norms in a society. With respect to the relationship between private regulatory intermediaries and internal legal cultures, there is a growing emphasis on the diversity of enforcement styles, with varying degrees of formalism and coercion expressed by enforcement officers, and the relation these stylistic differences have to enforcement actions (May & Winter 2000; McAllister 2010). In summary, roughly five lessons about the emergence of norms arise from this brief review of legal hermeneutics and comparative socio-legal scholarship, which help further develop the role of intermediaries in the RIT model. First, textual representations of legal rules are open to multiple and competing interpretations based on different hermeneutic strategies. Second, both official and non-official actors and groups take part in the development and promulgation of legal interpretations, and courts are largely limited to choose from among the interpretations offered to them. Third, the interpretations of legal texts developed by private communities are part of broader projects of reforming the normative environment in which they live. Fourth, from a transnational perspective, the same legal text will take on different meanings in different social and legal contexts. Fifth, the meaning ascribed to a legal text in a given social and legal context is dependent on how the public at large understands and uses the legal text, as well as how legal officials understand the text and implement it in practice. For the model of regulatory intermediaries, these lessons correspond with two important consequences. First, there is a simple consequence that intermediaries, as actors involved with the interpretation and implementation of both legal and non-legal rules, could be involved in the process of constructing the meaning of the legal rules. This occurs as intermediaries provide either implicit or explicit interpretations of rules when the manner of their application is unclear or contested. Both official and unofficial (or “non-delegated”) intermediaries are capable of taking part in this meaning construction process. It is posited here that this will occur as fundamental labor rights are transposed into private code of conduct obligations and implemented by auditors. Secondly, there is a more complex consequence for non-delegated intermediaries in the position of transnationally monitoring compliance with international and national legal rules across numerous jurisdictions. If these intermediaries are to understand the meaning of international and national laws, these lessons suggest that they need to become experts of the legal cultures (internal and external, local and national) that modulate the meaning of the law as it is used in practice. In addition, intermediaries in this position would need to follow the interpretative evolution of the legal texts with which they monitor compliance, requiring them to follow the jurisprudence of the courts in the countries they operate. Most importantly, it is conceivable that intermediaries will find themselves in situations in which an authoritative interpretation of a legal text has not yet developed. In such cases, intermediaries may themselves partake as jurisgenerative actors, proffering their own interpretations of how a text should apply to the situation before them. The subsequent question is how the potential jurisgenerative role of auditors affects the current understanding of capture risks in the RIT model. In particular, the jurisgenerative process in which auditors may involve themselves offers a new type of capture risk that arises out of the need to construct a new 6



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form of legal knowledge rather than more traditional concerns of organizational and financial conflicts of interest. The following empirical analysis assesses the hermeneutics of auditors by identifying the multitude of interpretations they offer in the process of applying FoA rules originating from national and international law. In particular, the assessment focuses on their interpretative resolutions when challenges arise as a result of textual representations of the FoA that are either unclear or contradictory in light of the factual scenario they encounter. The analysis also highlights how auditors treat challenges posed by the gap between the textual formulation of FoA rules and the meaning given to them by the national legal cultures they encounter. 4. Methodology The following empirical analysis details a review of 20 audits conducted in Chinese and Vietnamese factories to monitor compliance with the FLA’s code of conduct. In particular, the analysis examines the auditors’ monitoring of the FoA clauses in the FLA’s Code of Conduct.1 The choice of FoA monitoring is based on the broad referencing of FoA rights within transnational private sustainability governance initiatives. The workplace codes of conduct from the Forest Stewardship Council, Marine Stewardship Council, Fair Trade International, Roundtable on Sustainable Palm Oil, Roundtable on Sustainable Biofuel, UTZ, and many others include similar FoA requirements. Furthermore, the FoA and its component rights related to collective bargaining, the establishment of trade unions and the participation in workplace strikes are internationally accepted principles that manifest in a variety of formats at the national level. As such, this example provides a helpful opportunity to assess the process of norm emergence that takes places as auditors interpret and apply these rights in specific scenarios. The author randomly selected FLA audits from Chinese and Vietnamese factories, discarding audits without any discussion of FoA compliance, until a set of 20 audits from unique years was collected. The interpretations offered in these audits were inductively coded and thematically analyzed (Boyatzis 1998) to identify the variety of positive and negative obligations for factory managers that the auditors interpreted as arising out of the FoA rights of laborers in FLA monitored workplaces. The analysis includes interpretations for both positive and negative compliance findings. The choice of focusing on Chinese and Vietnamese factories arises from the similarities in labor law regimes in these two countries stemming from their common socialist histories. Namely, both countries utilize a monopolistic labor union regime in which all labor unions must affiliate with a single union federation that has institutional ties to their Communist parties. This poses a challenge in implementing FoA rights, as the ILO considers these national regimes to violate its understanding of the FoA, which the FLA claims to uphold in its Code of Conduct. While this overt conflict between domestic and international FoA frameworks is perhaps a unique situation for transnational private governance systems, this topic illustrates the auditors’ FoA interpretations rather than the basic conflict between legal systems. It is an extreme example in its obviousness, but that is also its utility as it offers a clear insight into the kinds of hermeneutic challenges faced by this particular group of intermediaries when working with fundamental labor rights. In other words, while we cannot extrapolate the findings in this analysis to all types of legal references found in transnational codes of conduct, this analysis does illustrate a type of hermeneutic challenge that has the potential of arising from references to broadly recognized, fundamental labor rights and principles. 5. Interpreting the Fair Labor Association’s (FLA’s) Freedom of Association (FoA) rights 5.1. The FLA’s code of conduct and compliance system Formed in 1998, the FLA is a multi-stakeholder organization dedicated to implementing core international labor standards among its participating members and suppliers. It was incorporated as a 501(3)(c) non-profit association in the District of Columbia in 1999, and arose in light of the Clinton Administration’s shift away from pursuing comprehensive labor standards in international trade instruments, and instead embracing private labor standards as a solution to sweatshops and the use of child labor in foreign factories working for American brands (Bartley 2003, 2007). Although initially intended to serve as a monitoring partner for the Apparel Industry Partnership, the FLA has since developed into a standard-setting and monitoring body its own right, having © 2018 The Authors. Regulation & Governance Published by John Wiley & Sons Australia, Ltd

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implemented its own Code of Conduct in 2001. Corporate, university, and non-governmental representatives constitute its Board of Directors in an explicit effort to achieve balanced multi-stakeholder governance. The FLA has successfully engaged large multinational brands and their respective suppliers, initially concentrated in the apparel industry but now extended into a diverse range of industries, including brands like Apple, Nike, and Nestlé. Marx (2008) found that apparel brands were most likely to join the FLA if they faced union pressure in their country of origin, experienced sustained civil society campaigns targeting their supply chains, and had business structures to develop and benefit from a positive public reputation. The FLA’s success in recent years has largely built upon its cooperation with large apparel brands, in contrast to the Worker Rights Consortium’s close ties to labor unions (Fransen 2012). While the FLA has emerged as one of a small number of transnational initiatives to protect core labor standards in global value chains using voluntary and private codes of conduct, its ability to positively affect fundamental labor rights in countries with weak state institutions has been hampered by its unwillingness to take stringent measures against non-compliant supply chains, particularly when dealing with FoA rights (Anner 2012). In its Code of Conduct, the FLA has formulated specific standards for its participating companies clustered around the following themes: employment relationship (ER); nondiscrimination; harassment and abuse; forced labor; child labor; FoA and collective bargaining; health, safety, and environment; hours of work; and compensation. These themes closely reflect the ILO’s four core principles.2 Most of the components of the Code of Conduct establish substantive rules to govern workplace conditions. For example, ER.24 requires that: Employers shall not set production targets, piece rates or any other incentive or production system at such a level that workers need to work beyond regular working hours as set under the FLA Workplace Code, excluding overtime, in order to make at least the minimum wage or the prevailing industry wage, whichever is higher.3 With these substantive rules, the FLA Code of Conduct aims to govern the workplace conditions of production facilities linked to its associated suppliers and retailers. For every cluster of rules, FLA’s Code of Conduct also contains general requirements to abide by national and international laws (Pekdemir et al. 2015, pp. 220–221). For example, FOA.1 requires that, “Employers shall comply with all national laws, regulations, and procedures concerning freedom of association and collective bargaining.”4 In other instances, the FLA’s own substantive rules intertwine with general requirements to abide by national laws. For example, FOA.3 states: “When the right to freedom of association and collective bargaining is restricted under law, employers shall not obstruct legal alternative means of works association.”5 The range of labor and workplace concerns for which the FLA Code of Conduct invokes national or international laws is considerably broad. Legal references for fundamental standards, such as the prohibition of discrimination, the prohibition of child labor, and the freedom of movement of workers, are included, as well as technical labor law concerns, such as the offering of continuing professional education, the obligation for employers to bargain in good faith during wage and contract negotiations, and the presence of medical facilities in the workplace. In short, the FLA Code of Conduct refers to local, national, and international legal requirements on more than a dozen occasions. The FLA uses both internal and external procedures to monitor compliance with its Code of Conduct in production facilities linked to associated suppliers and retailers. Participating companies are required to implement an internal program to self-review compliance with FLA Code requirements. In turn, FLA staff audit these selfreview compliance programs on a yearly basis. These programs are the principal component of the FLA’s regulatory structure. The FLA does not certify factories, brands, or supply chains, but instead accredits whether a company’s compliance program successfully meets FLA Code of Conduct requirements. As such, this first-party self-assessment coupled with second-party (FLA staff ) review comprises an essential component of the FLA’s framework. Participating companies are required to allow independent external monitors to conduct site visits to assess the production facilities’ compliance with the FLA’s Code requirements. At least five percent of a participating company’s applicable facilities must be reviewed in each annual compliance assessment, with the possibility of higher levels of monitoring at the discretion of the participating company. There are a number of mechanisms used to overcome conflicts of interest and possibilities for collusion between independent external monitors (hereafter referred to as “social auditors”) and participating companies.6 For example, FLA staff choose the facilities to monitor based on risk assessments and random sampling. The independent social auditors deliver their 8



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reports directly to the FLA, whose staff review and analyze both the independent audit report and the internal self-assessment before determining whether to accredit the participating company’s compliance program. An independent subsidiary, FLA Independent External Monitoring LLC, pays the social auditors and thereby acts as a buffer between the auditor and the audited company. The FLA Board of Directors must accredit independent social auditors conducting audits for FLA compliance.7 Auditors receive accreditation for two-year periods. Initial accreditation requires auditors to demonstrate their independence and competency in auditing practices (background knowledge, monitoring, analysis, and reporting), undertake training on FLA standards and methodology, and successfully conduct a trial audit. Reaccreditation requires social auditors to disclose changes to their independence and competency in auditing practices and pass an FLA evaluation in head and field offices. In addition, the FLA annually audits the internal records of its accredited social auditors. These accreditation procedures are used to accredit social auditing organizations as well as freelance or individual lead auditors. As of June 2017, there are nine auditing organizations and six lead auditors accredited by the FLA to carry out independent external monitoring. Through these institutional arrangements, the FLA attempts to limit risks of capture between FLA staff, independent auditors, and participating companies. 5.2. The intermediary position of social auditors in the FLA Social auditors in the FLA’s compliance system act as intermediaries at two different conceptual levels and with significantly different degrees of authorization and formalization. This analysis distinguishes between micro-levels and meso-levels of governance interactions. The micro-level focuses on interactions between individual actors in a regulatory scheme, while the meso-level focuses on the interaction between regulatory schemes in a regime or organizational field (Wood et al. 2015, p. 346). In this example of “simultaneous intermediation” (Havinga & Verbruggen 2017), placing the dual intermediary roles of FLA’s social auditors side by side helps to illustrate the importance of considering the legal hermeneutics involved in their work, and, more generally, the complex and multi-faceted tasks of their work that require them to partake in rulemaking from time to time. At the micro-level, within the FLA governance scheme, social auditors play a straightforward role as compliance monitors. This role is formal and official insofar as it was explicitly established by the FLA Charter, which incorporates a series of formalized procedural and substantive requirements. The social auditors are responsible for assessing whether production facilities, the FLA’s targets, comply with the rules created by the FLA in its Code. The beneficiaries of the micro-level situation are laborers, labor unions, and other parties concerned with the enforcement of core labor standards, and these lie outside of the relationship between the FLA, social auditors, and producing facilities. Figure 1 shows this relationship. Social auditors also interact at a meso-level between the FLA’s governance scheme and parallel labor governance schemes (in this case, international and domestic labor laws). The legal referencing in the FLA’s Code makes the social auditors’ assessment of domestic and international legal compliance an integral part of FLA compliance assessment. In terms of the intermediary model, at the meso-level social auditors act as monitors of compliance with rules created by the ILO and state governments and imposed on the same targets, FLAassociated production facilities (see Fig. 2). However, this is an informal and unofficial intermediary role, as the ILO and state governments do not task FLA social auditors with monitoring responsibilities or powers. Furthermore, there are only minimal explicit procedural or substantive guidelines from the FLA guiding auditors in their legal interpretations. Thus, their intermediary role is unilaterally asserted in isolation from the respective rulemaker, which distinguishes it from their formal role at the micro-level. The integration of these two levels depicts a more complex description of social auditors in the FLA (see Fig. 3). They are at once both formal compliance monitors of the FLA’s Code, and thus, by necessity, informal

FLA (Regulator)

Social Auditors (Intermediary Monitor)

Production facilities (Target)

Figure 1 Micro-level formal relationship. © 2018 The Authors. Regulation & Governance Published by John Wiley & Sons Australia, Ltd

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ILO, National Legislatures & Labor Agencies (Regulators)


Production Facilities (Targets)

Figure 2 Meso-level informal relationship. ILO, International Labour Organization.

compliance monitors of international and national labor laws. This is even more complex because of the legal transformations that are required of them in this double role. FoA rights are traditionally formulated as public rights that place legal duties upon public authorities to respect and protect the rights of individuals. For example, ILO Convention 87 states in Article 3: “The public authorities shall refrain from any interference which would restrict this [FoA] right or impede the lawful exercise thereof.” FLA social auditors, however, are tasked with monitoring compliance with this right within the employment relationships of private actors. In other words, social auditors must consider the obligations and duties of employers pertaining to FoA rights while ignoring the core duty-holder, the state. Sometimes it is possible to follow the national labor law framework that the public authorities have developed in fulfillment of their FoA obligations. However, when a state’s legal framework is controversial or contested, as in the cases examined, this transformation from public right to private duty becomes problematic, as the employer’s fulfillment of national legal obligations can no longer be assumed to be a sufficient form of compliance with the laborers’ FoA rights, in and of itself. In light of the discussion on legal hermeneutics, the following questions arise: What interpretations of employers’ FoA obligations do social auditors develop? To what extent do they draw on national legal developments and the legal culture in the respective countries to develop these interpretations? In other words, what is the jurisprudence of these social auditors with respect to the FoA? 5.3. Social auditors’ interpretations of the FLA’s FoA requirements The audit reports analyzed in this study come from factories in China and Vietnam. Both countries’ national laws impose a monopolistic trade union system which has prevented either from signing the fundamental ILO Convention 87 on the Freedom of Association and Protection of the Right to Organise. When China ratified the International Covenant on Economic, Social, and Cultural Rights in 2001, it did so using a reservation to negate the covenant’s clause protecting workers’ rights to participate in trade unions of their choice. In China, the Trade Union Law establishes the All-China Federation of Trade Unions (ACTFU) as the umbrella organization under which all local and factory-level labor organizations must fall. The legislation also places the ACTFU under the supervision of the Communist Party. This lack of independence for ACTFU unions, and the inability for laborers to create or join labor associations outside of the ACTFU, has raised considerable criticism from labor law scholars and activists. In particular, the situation has been criticized for the strong influence that factory management has over the composition of union leadership. Chan (2013, p. 16) points out that the union chair is commonly the factory’s human resource manager. In addition, even if laborers succeed in electing their own representatives to their union, union leaders are legally obliged to promote and support the state’s labor policy, ILO & National Legislatures (Regulator1)

FLA (Regulator2)


Production Facilities (Target)

Figure 3 Integrated relationship. ILO, International Labour Organization. 10



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and, if applicable, a foreign investor’s interest in the development of their enterprise, alongside the rights and interests of their union members (Yu 2008, p. 523). Furthermore, Chinese labor law largely prohibits the use of confrontational collective action (i.e. strikes) except for very limited situations of severe health and safety concerns (Donn & Zhao 2016, pp. 259–260). Attempts at collective action by independent work activists are routinely met with criminal sanctions, although the position of workers within ACFTU-affiliated unions appears to be gradually improving (Josephs 1995, pp. 571–572; Liu 2010). These considerations demonstrate the rather limited conception of FoA rights under national law in China. The Vietnamese labor law framework shares many of the same characteristics as the Chinese framework. The Trade Union Law in Vietnam establishes the Vietnam General Confederation of Labour (VGCL) as the overarching federation under which all labor union associations in Vietnam must operate. Likewise, the VGCL is affiliated with the Communist Party in Vietnam. This lack of independence has led to criticism that the trade unions in Vietnam are more concerned with upholding the interests of the state and employers than the workers. Research has found that public authorities routinely pressure employers to increase union membership among their employees, bringing into question the freedom of workers to choose whether to join their factory’s union, and that the composition of local union leadership is often chosen or influenced by factory management (Wang 2005, p. 49). The unions’ collective labor agreements rarely exceed the minimal requirements of Vietnamese labor law (Caraway 2009, p. 170). During a brief period in 2005–2006, Vietnam experienced a liberalization of the union monopoly policy, although individuals who sought to establish independent unions were subsequently prosecuted upon a return to the single union system (Worker Rights Consortium 2013, p. 6). Formally speaking, within the context of the single VGCL union structure, workers are entitled to a wide range of rights that suggests a strong protection system in Vietnam (Caraway 2009). However, the de facto influence of managers in local union leadership limits workers’ actual enjoyment of collective bargaining and collective action rights, resulting in an increased amount of illegal “wildcat” strikes to substitute for the lack of independent unions (Worker Rights Consortium 2013, p. 7). Against this backdrop of national labor law regimes, social auditors monitor compliance with a number of FoA requirements in the FLA Workplace Code of Conduct, including the perambulatory assertion that the Code is “based on International Labor Organization standards and internationally accepted good labor practices.” A set of 11 considerations were identified in the auditors’ interpretations of the FoA requirements: (i) documented existence of a trade union; (ii) voluntary union membership and fee payment system; (iii) prohibition of disciplinary measures against union organizers; (iv) democratic elections for selecting union leadership; (v) prohibition of managers in union leadership positions; (vi) current collective labor agreement that exceeds minimal labor requirements; (vii) training and awareness of FoA rights and the collective labor agreement for both management and workers; (viii) representation possibilities for non-union workers; (ix) dialogue mechanisms between workers and management, such as suggestion boxes and grievance reporting procedures; (x) written company policy regarding industrial relations; and (xi) the ILO’s assessment of FoA rights under Chinese or Vietnamese labor law. Auditors noted each of these considerations on at least one occasion in the dataset. Table 1 shows the distribution of considerations in the audits reviewed for this study. The distribution of interpretations of FoA requirements demonstrates that auditors have offered a more multi-faceted interpretation in recent years. Auditors commonly identify numerous measures of factory management that together constitute its FoA obligations, whereas in early years fewer measures were discussed. It is important to consider that this analysis cannot specify whether this trend is illustrative of a more comprehensive approach to FoA assessment or whether it only reflects increased elaboration of an otherwise consistent auditing approach. The analysis also demonstrates noticeable variation among auditors in terms of the interpretations of FoA obligations that they arrive at in their assessments. Notably, very few of the components are widely utilized by auditors. Auditors foregoing comments on compliant management practices, which therefore do not appear in the audit report or this analysis, may (partially) explain this variation. However, upon a closer analysis of the interpretations offered in these audits, a number of unsettled interpretative challenges are apparent. First, when assessing the required prohibition of disciplinary action against workers involved in union organization, auditors must navigate an FLA requirement that works against the grain of national labor law in China.8 In a 2015 audit of a Chinese facility, the auditor reported, “The factory’s disciplinary procedure stated that workers will be dismissed if they participate in any illegal strikes. An illegal strike is defined as © 2018 The Authors. Regulation & Governance Published by John Wiley & Sons Australia, Ltd

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Table 1 Auditor’s interpretations of FoA requirements Vietnam Year

2002

Existence of trade union, documented Voluntary union membership/payment Prohibits discipline against organizers Democratic elections Prohibits management in union leadership Current CLA beyond legal requirements FoA and CLA training and awareness Representation of non-union workers Dialogue mechanisms (suggestion boxes, etc.) Company policy re: Industrial relations ILO Statement

2003

2005

2009

2010

2011

2014

x

x

x x

x x

x

x

x

x x

x x

x

x x x

x

x

x

2016

x x x x x x

China Year Existence of trade union, documented Voluntary union membership/ payment Prohibits discipline against organizers Democratic elections Prohibits management in union leadership Current CLA beyond legal requirements FoA and CLA training and awareness Representation of non-union workers Dialogue mechanisms (suggestion boxes, etc.) Company policy re: Industrial relations ILO Statement

2001

2003

2004

x

x

2007

2008

2009

2010

2011

2012

x

2014

2015

2016

x

x

x

x

x

x x x

x

x

x x

x x

x

x

x

x

x

x x

x

x x x

x

x

x

x

x

x

x

CLA, Collective Labor Agreement; FLA, Fair Labor Association; FoA, Freedom of Association; ILO, International Labour Organization.

one not approved by the union.”9 This touches upon a contentious issue in Chinese labor law. The Labor Contract Law provides employers with the right to terminate a labor contract if a worker is “seriously violating the rules and regulations of the employing unit,” which has included participation in unauthorized strikes. However, as recently as 2014, Chinese labor arbitration tribunals have evaluated the reasonableness of unauthorized strikes, rather than a formal assessment of their authorization, to determine the legality of terminating the involved (Huang 2014). The auditor’s finding of non-compliance in this instance both curtails the rights of the factory management to punish unauthorized collective action, thereby weakening the control of the factory’s ACFTU union, while also failing to incorporate a recent development in the relevant national labor law interpretation that resulted in international news headlines. The approach of the auditor in this instance goes further to protect workers than China’s national labor law system, but also ignores the illegality of most worker strikes in China (Anner 2017). 12



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Second, in terms of the placement of managers in union leadership, FLA auditors noted in both a Chinese and a Vietnamese facility that the inclusion of management personnel in union leadership constituted noncompliance with the FLA’s FoA requirements.10 This arises out of a hard distinction in FLA’s Code between management and workers, only the latter of which are entitled to the FLA’s FoA protection. The Vietnamese Charter of Trade Unions instead takes a very inclusive approach to defining “workers,” forgoing an explicit distinction between laborers and management personnel in an enterprise, or any limitations on who may be elected by workers to represent them as trade union officials.11 The Chinese Trade Union Law explicitly mandates that trade unions represent the interests of workers and staff, who are both considered eligible members of unions and equal participants in electing, and serving as, union committee members.12 The ILO has avoided providing a single or authoritative definition of the term “worker.” Furthermore, Anner found that, in China and Vietnam, including managers in union leadership may be reflective of a strategic choice that workers are making: By all accounts, managers should not be factory-level union leaders. But my field research in China (and Vietnam) revealed that even in democratic-elections, workers often elect supervisors or managers to these positions, particularly human resource managers. Why? No doubt there may be manipulation and pressure from management to do this. But the other reason is that some workers believe that having a manager on their leadership body will give certain influence that is otherwise missing due to their lack of independent collective representation and their inability to strike. (2017, p. 632) By prohibiting the placement of managers in union leadership roles, the auditors introduce a distinction within the concept of “employee” or “worker” that the national legal frameworks do not recognize, and are possibly curtailing the rights of workers – in all definitions of the term – to freely elect who they wish to represent them. There is a sound argument that this limitation ultimately serves the interests of workers in isolating union leadership from management influence. Nonetheless, the auditors’ interpretation of FoA requirements in these instances can only be understood as creating a requirement of union leadership selection that neither arises out of national labor law frameworks nor the observed practice of unions in these contexts. Third, in a number of instances, auditors issued a notice that factory management needed to improve the procedures through which workers can raise concerns or grievances to supervisors in order to comply with FLA confidentiality requirements.13 This relates to FoA requirements insofar as unions and worker associations would typically offer the procedures for workers to raise complaints in a protective setting. However, in the union monopoly contexts of China and Vietnam, where union leaders often have ties to management, alternative forms of dialogue are essential. Yet it is unclear what alternative forms of grievance procedures are sufficient in these contexts. Some auditors requested the use of “suggestion boxes” placed in private locations, such as bathrooms, while in other instances the auditors’ remarks lead to the creation of Worker Committees that operate independently from the factory’s union. The creation of independent Worker Committees, particularly in Chinese factories producing for foreign supply chains, has been utilized more broadly as a tactic to circumvent the challenges of a single-union labor system, although there have also been reports of ACTFU taking actions against these Worker Committees (Chan 2013, p. 17). Indeed, requiring an independent worker committee resembling a union could result in a violation of Chinese labor law. Therefore, auditors are in the difficult position of ensuring that serious grievance reporting mechanisms exist that protect the identity of workers from both management and possibly the factory’s ACTFU union leaders, but cannot require robust forms of alternative worker representation because of national legal restrictions. Finally, if there is one consistent practice among the auditors it is the incorporation of an FLA-formulated text to account for the inherent contradictions between the ILO’s FoA requirements and Chinese and Vietnamese labor laws, respectively.14 These texts are consistently in the audits reviewed for this study since 2004 (China) and 2009 (Vietnam), although the inherent contradictions that they outline already existed when the FLA was formed. Notably, they do not raise any specific obligations for factory management with respect to FoA, but instead place responsibility on the national legal frameworks for their failure to protect worker FoA rights in accordance with ILO standards. Interestingly, FLA-affiliated companies sometimes respond to these comments to discuss ways in which they can overcome these systemic limits on FoA rights protections. For example, one company working with a Vietnamese factory suggested the creation of an independent Worker Committee: © 2018 The Authors. Regulation & Governance Published by John Wiley & Sons Australia, Ltd

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Since law requires that all unions are required to affiliate with the single trade union – VGCL, we cannot set up another union because it would violate the law. However, we could consider setting up a Welfare Committee and inviting workers representatives to join. Also, set up the grievance system to ensure that workers have means to communicate with management.15 In subsequent correspondence, the company reported that the Welfare Committee was established, that it meets once or twice per month, and that it reviews suggestions submitted to the management via the factory’s grievance procedure, a suggestion box. In this manner, the auditing system has led to the interpretation – in this case, posited by a purchasing company in response to the auditor’s report – that an independent worker committee, albeit without the representational, bargaining, and collective action rights of a labor union, is a sufficient alternative to an independent union. This interpretation of the FoA principle notably lacks any basis in either the ILO or respective national legal systems. Finally, the consistent replication of this standard ILO text in audits should demonstrate the auditors’ knowledge of legal requirements and developments. However, neither text has been adapted to incorporate legislative developments, particularly the 2007 revisions in China to the Labor Contract Law and Law on Labor-dispute Mediation and Arbitration (Donn & Zhao, 2016). This suggests that the incorporation of text could be an automatism of FLA auditors without more substantial reflection of legal developments that affect FLA Code of Conduct requirements.

6. Discussion: The jurisgenerative role of social auditors in transnational labor governance This analysis illustrates the complex situation of legal hermeneutics in which auditors find themselves. National labor law regimes function to distribute economic power in industrial settings and other labor contexts, and their distributive logics are the terrain for contestation among competing interest groups and their respective political, social, and economic ideologies. As a result, the competing interests of a single national labor union closely associated with the state, as well as the management’s interests in limiting possibilities for collective action and bargaining, hold the laborers’ FoA rights in tension. It is futile to discuss FoA rights in isolation from this broader systemic context of Chinese and Vietnamese labor laws and policies, and the auditors apparently acknowledge this. In this context, the possibility for workers to participate in local unions is limited by the predominance of management personnel in leadership positions, their lack of awareness of membership, criminal sanctions against forming alternative assemblies, and other legal barriers to collective action (i.e. striking). The auditors, as well as the FLA, find themselves in a bind between respecting national legal requirements and the legal culture found in the factories they audit versus the aspiration of improving the protection of workers’ rights in light of internationally accepted FoA standards. The auditors in our sample depicted at least three different interpretative strategies in response to the challenges posed by the legal requirements referenced in the FLA Code of Conduct. First, auditors dismissed the illegality of unauthorized worker strikes according to Chinese labor law in prohibiting factory managers from dismissing workers who participate in such strikes. Second, in order to uphold the principle that unions represent workers, auditors disregarded the legal culture of appointing members of management to union leadership, particularly in China, as a strategic choice by workers. Third, when irresolvable conflicts between national and international interpretations of FoA rights occurred, auditors contributed to the development of new interpretations of independent worker representation in the form of Worker Committees. In all three variations, the auditors are playing an influential jurisgenerative role as fundamental FoA rights are transposed from the field of international public law into the FLA’s private governance system, and as the target shifts from state governments to factory management. It is important to consider that the interpretations provided by the auditors in this analysis were not the only possible outcomes. The auditors, or the FLA for that matter, could have chosen to block facilities based in countries whose national legal frameworks do not meet the ILO’s FoA standards, rendering Chinese and Vietnamese factories ineligible for FLA certification. This was conceivably not applied given the market consequences it would entail; China and Vietnam are the leading countries in FLA certification. This consideration illustrates how the market-driven nature of transnational private labor governance may affect the jurisgenerative role of auditors and others in private governance communities by effectively prohibiting interpretations with too severe financial 14



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consequences for the business model of private governance organizations. Alternatively, the auditors could also rule that the ILO’s interpretation of the FoA is not applicable in the case of China because it has not ratified Convention No. 87 and the ILO itself implies that compliance would otherwise be impossible. They could limit themselves to the domestic legal framework when determining whether a production facility complies with ER.26 in its Code of Conduct. This would render the inclusion of ILO texts in audit reports unnecessary. Finally, the auditors and the FLA could have interpreted other obligations aimed at altering the national labor law frameworks given the conflicts they have with the ILO’s understanding of FoA rights. Labor groups initially proposed a variation of this strategy during the formation of the FLA. They suggested that the FLA would need to incorporate political action requirements for operators in countries like China and Vietnam, where amendments to national labor laws are required to increase the protection of workers’ rights. These suggestions went ignored, and these groups left the FLA upon realizing that the application of FoA rights in China and Vietnam, without a plan for affecting future legislative change, would lead to the weakening of the concept of the FoA (Anner 2017, pp. 615–616). While the state may hold a privileged position in the organization of law as power (Cover 1993), the auditors in this study ascribe meaning to the contested terrain of national and international FoA laws in order to decide whether the social practices in the workplace before them have negotiated the competing interests of labor law in an appropriate fashion. In doing so, they operate as an interpretative community struggling over “what techniques of argument and interpretation are in play for the construction of what can be said to be legal” (Rajkovic et al. 2016, p. 18). Although tasked with monitoring compliance to the letter of the law, they do so through access to the legal practices of the workplace. This is particularly significant given that the law of the workplace is often far removed from formal legal requirements: [T]he labour law that actually regulates workplace relations often differs from state law partly because the state concedes the parties considerable latitude in defining their relationship, partly because it lacks the capacity to enforce its law in countless workplaces, and partly because of the irrepressible tendency of workplaces to generate their own indigenous law that is sometimes explicit (contracts, collective agreements, standard operating procedures), sometimes implicit (customs, usages, and patterns of behavior imbricated in routines of work) – but always powerful. (Arthurs 2011, p. 16) As they take up this task, albeit informally, auditors take on roles that are usually ascribed to the rulemaker. This confirms previous findings about the “chameleonic” character of intermediaries (Havinga & Verbruggen 2017). The general risk of capture, in light of hermeneutics, is that an intermediary may deploy an interpretative strategy that aligns with the interests of the target, the intermediary, or a competing rulemaker. In this study, the auditors generally adopted interpretations of FoA rights that correspond with the FLA’s understanding of the rights, and coincidentally also the Chinese and Vietnamese governments’ general interests, rather than the ILO’s position. It is noteworthy that this form of capture arises out of the need for auditors to develop interpretations of legal requirements amid conflicts between legal systems, and between a legal system and the FLA’s own rules. This risk of capture problematizes research portraying the privatization of fundamental labor rights into codes of conduct as an effective means of circumventing state legal institutions that are unwilling, or unable, to uphold laborers’ rights (Pekdemir et al. 2015; Zandvliet & van der Heijden 2015). It equally raises red flags for other transpositive developments, such as the privatization, or “contractualization” of fundamental labor rights into novel, transnational framework agreements between transnational labor union federations and multinational corporations (Moreau 2009; Drouin 2016). These capture concerns build on previous critical assessments of the limits of private labor rights enforcement (Rodríguez-Garavito 2005; Anner 2012). Finally, they demonstrate the importance of further quantitative analysis of social auditing, in particular to identify pattern and variations among auditors’ interpretations of fundamental labor rights in the course of their monitoring (Toffel et al., 2015). Despite the concerns of capture and the weakening of labor rights through privatization, jurisgenerative mechanisms in regulatory intermediation can aid in the creation of jurisdictional redundancy so that laborers, as interpretative communities, can better partake in contesting the meaning ascribed to legal norms. Some suggest “the existence of overlapping jurisdictional claims often leads to a nuanced negotiation – either explicit or implicit – between or among the various communities making those claims” (Berman 2013, p. 693). For workers in FLA© 2018 The Authors. Regulation & Governance Published by John Wiley & Sons Australia, Ltd

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certified factories, FLA audits potentially serve as opportunities for leveraging or lawfaring (Knox 2010, p. 202) their own interpretative strategies aimed at achieving more comprehensive FoA protection, better representation in unions that are independent from management oversight, and a stronger economic position for collective bargaining. The success of increasing FoA rights protection through the FLA seemingly rests on broader interpretative struggles over the contested meaning of these rights in the global economy (Rodríguez-Garavito 2005). 7. Conclusion In conclusion, integrating lessons from legal hermeneutics into the RIT model sheds light on the jurisgenerative role of intermediaries when monitoring compliance with FoA rules. As interpretative communities, intermediaries can participate in rulemaking functions in a way that resembles a rulemaker more than an intermediary because of the complex, uncertain, and sometimes contradictory nature of the legal rules relating to FoA rights. The lessons drawn from the recent emphasis on intermediaries in regulatory governance scholarship makes it clear that more attention needs to be paid to the complex work that auditors perform when legal requirements are integrated into transnational multi-stakeholder governance instruments. This article demonstrates the need to study two facets of auditors in particular. First, there is a pressing need to assess the field of auditors, including their professional and educational backgrounds and the relationships among auditing firms. Second, for legal scholars in particular, it is essential that the jurisprudence of auditors in transnational private labor governance regimes is evaluated and compared with the jurisprudence of national and international labor law. Such evaluations would need to include the normative processes, tools, and techniques that auditors use in the course of implementing legal requirements. Acknowledgment This article is based on a paper presented at an International Law Incubator seminar on 10 November 2016, Tilburg Law School, and at the TMC Asser Institute’s Doing Business Right seminar on 26 September 2017. The author kindly thanks Nik Rajkovic, Nuna Zekic, Geoff Gordon, Antoine Duval, Enrique Partiti, Morag Goodwin, and the other participants for their helpful feedback. Notes 1 For the purpose of this analysis, the FoA clauses include all of the FoA rules in the FLA Code of Conduct, as well as the Employment Relations (ER) 26 clause on the right to organize, bargain, and participate in legal strikes. 2 ILO Declaration on Fundamental Principles and Rights at Work of 18 June 1998. 3 FLA, ‘Workplace Code of Conduct’ (2011), ER.24. 4 FLA, ‘Workplace Code of Conduct’ (2011), FOA.1. 5 FLA, ‘Workplace Code of Conduct’ (2011), FOA.3. 6 FLA, ‘Charter Document’ (2014), Chapter IX ‘The Monitoring Process’. 7 FLA, ‘Charter Document’ (2014), Chapter VIII ‘Accreditation Criteria and Standards for Monitors’. 8 FLA FOA.5.1 states that “Employers shall not engage in any acts of anti-union discrimination or retaliation…” and subsequent indicator FOA.5.1.1 defines disciplinary actions as a form of engagement covered by FOA.5.1. FOA.22 prohibits sanctions against workers who participate in strikes. 9 Audit AA0000001962. 10

Audits AA0000002105 and AA0000001962.

11

Vietnamese Charter of Trade Unions, Articles 1 & 5. Instead, the Charter distinguishes between workers and employers.

12

Trade Union Law of the People’s Republic of China, Articles 6 & 9.

13

FLA ER.25.3.

14

The text for Vietnamese factories reads as follows: FLA Comment: Vietnam has not ratified ILO Conventions 87 or 98. Under Vietnamese law, all unions are required to affiliate with the single trade union, the Vietnam General Confederation of Labor (VGCL), which is affiliated with the

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Communist Party. With respect to such union monopolies, the ILO Committee on Freedom of Association (FOA) has stated that “the rights of workers to establish organizations of their own choosing implies… the effective possibility of forming… [trade unions] independent of those which exist already and of any political party.” Vietnam’s legal framework is therefore not compatible with the ILO Principles of Freedom of Association and, as such, all factories in Vietnam fail to comply with the FLA Code standard on Freedom of Association. The text for Chinese factories reads as follows: FLA Comment: The Chinese constitution guarantees Freedom of Association (FOA); however, the Trade Union Act prevents the establishment of trade unions independent of the sole official trade union - the All China Federation of Trade Unions (ACFTU). According to the ILO, many provisions of the Trade Union Act are contrary to the fundamental principles of FOA, including the non-recognition of the right to strike. As a consequence, all factories in China fall short of the ILO standards on the right to organize and bargain collectively. However, the government has introduced new regulations that could improve the functioning of the labor relations mechanisms. The Amended Trade Union Act of October 2001 stipulates that union committees have to be democratically elected at members’ assemblies and trade unions must be accountable to their members. The trade union has the responsibility to consult with management on key issues of importance to their members and to sign collective agreements. Trade unions also have an enhanced role in dispute resolution. In December 2003, the Collective Contracts Decree introduced the obligation for representative trade unions and employers to negotiate collective agreements, in contrast to the previous system of non-negotiated administrative agreements. 15 Audit 720084879GV.

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