Governance by contract?The dimensions of the legalization of labour

standards in World Bank private sector development finance

Conor Cradden & Jean-Christophe Graz

The IFC’s ‘performance standards’ system

PS system is IFC’s firm-level social &

environmental conditionality

system, introduced in 2006. Applies in

the same form across multiple

states and industry sectors

IFC client businesses required to comply with the

standards as a contractual condition of investment

One standard is about labour and

working conditions; includes provisions

on workers’ organizations drawn from

international law on FoA & CB rights,

notably ILO core conventions

“where national law is silent, the client will not discourage workers from electing worker

representatives, forming or joining workers’ organizations of their choosing, or from

bargaining collectively, and will not discriminate or retaliate against workers who

participate, or seek to participate, in such organizations and collective bargaining. The

client will engage with such workers’ representatives and workers’ organizations,

and provide them with information needed for meaningful negotiation in a timely manner”

Reasons for optimism

Language of PS is precise and appears to

establish that actively resisting

independent worker

organization and collective action is

not acceptable under any

circumstances.

IFC remains in close contact with clients. E&S staff

visit businesses at least every two years & usually

more frequently. 3rd party

compliance monitoring also

carried out in highest risk cases.

Compliance obligations written

into investment contract. IFC has the right to delay disbursement of

funds or to withdraw from the investment in the

case of non-compliance

Disappointing reality

Conformity with PS2:

71 workers (24%) working in 22

businesses (40%) report some kind of FoA violation

Internal change – direct effects:

70% of IFC ‘mitigation measures’

concern only contents of

written HR policy or establishment

of grievance procedures

Internal change – indirect effects:

Very low awareness that

performance standards exist

(6% workers, 30% union reps);

equal numbers of workers report

+ve change as -ve

The dimensions of legalization

The degree to which actors “are legally bound by a rule or commitment in the sense that their behavior thereunder is

subject to scrutiny under the general rules, procedures, and discourse of international

law, and often of domestic law as well”

Obligation

IFC Client business IFC

Workers

Empl

oym

ent

rela

tions

hip

Commercial contract

“we have to say up front that [getting to what would be normally be an acceptable level of compliance] isn’t going to work and then we decide: do we recognise it and say we’ll take the risk, or at least be transparent that this

won’t meet the requirement but that hopefully we’re pushing the envelope in other

aspects of our engagement” (Senior IFC E&S staff member)

Precision

The degree to which “rules unambiguously describe the conduct they require, authorize, or proscribe”

Precision

Application of FoA &

CB rights in practice

Core conventions (87 & 98)

Jurisprudential acquis of ILO supervisory

systemILO as external

point of reference for private compliance

initatives

Delegation

The degree to which “third parties have been granted authority to

implement, interpret, and apply the rules; to resolve disputes; and

(possibly) to make further rules.”

Delegation

E&S Staff Independence

IOs decide on sanctions

Some 3rd party monitoring

Monitors only report findings

Internal oversight office

(CAO) exists

Does not rule on the substance of

complaints

IFC Client business IFC

Workers

Empl

oym

ent

rela

tions

hip

Commercial contract

Spaces for power

ObligationPrecise compliance

obligations depend on negotiation between IFC and client, hence obligation is not legal

but a question of power and interests.

Workers excluded from that negotiation, although limited

consultation undertaken in some

cases

PrecisionMissing international institutional context means that FoA & CB rights are whatever

regulators say they are. Workers can influence

that definition in individual cases, but

IFC privileging of national law means that PS system adds little to the picture

DelegationEnforcement of PS

regulation is almost entirely non-delegated.

Complaints of violations are more

likely to be entertained if workers have some leverage over IFC via

political and campaigning action