Supply chain issues and the working conditions of factories in Bangladesh, among other countries, are becoming the focus for consumers as well as companies working to improve their corporate social responsibilities. Issues surrounding the management of this become even more complex when products are manufactured by a third party under a licensing agreement, explains Lois Herzeca of Gibson, Dunn & Crutcher in this recent post.
“Typically, license agreements for apparel, accessories or footwear include specific provisions addressing the licensee’s owned or contract factors,” says Herzeca. “The nature and extent of these provisions vary widely, depending on the relative bargaining power and resources of the licensor and licensee.” Here are two of the most common:
- Adherence to Licensee’s Codes: Herzeca says that if the licensee is a large or public company, it’s likely it already has written corporate codes of conduct regarding issues like child labor and working conditions for its employees. The licensor has the ability to require the company to adhere to its codes, but Herzeca explains that even under such a contract condition, the company can still change its codes without the licensor’s agreement, thus essentially removing any assurance of continued protection.
- Assurances the Licensee’s Factories Meet Specified Standards: This is another way—and perhaps a more concrete one—of ensuring good working conditions in the factories. The agreement can dictate the licensee comply with all applicable laws, conform with best industry practices or even list out each standard, which Herzeca says is the clearest and most specific approach.
