Business and Human Rights: Prevailing Trends and Future Developments
This post originally featured in the Freshfields Bruckhaus Deringer blog on the 22nd November 2017.
Adoption of national legislation in France scrutinizing corporate efforts through mandated disclosure regimes and requiring companies to establish and implement vigilance plans constituted a watershed moment in business and human rights law. In the UK, the next step for legislative proposals to extend corporate liability for human rights impacts is unclear; the UK Government’s current focus appears to be promoting best practices in companies’ Modern Slavery Act disclosures. Here we explore current patterns and possible, future developments in both countries.
Unpacking the duty of vigilance in France
As previously reported here, France enacted a new law imposing a positive duty of human rights vigilance (devoir de vigilance) on parent companies and ordering companies last spring. The law seeks to prevent serious violations with respect to human rights and fundamental freedoms, and to protect the health and safety of persons and the environment, by establishing a “duty of vigilance” for parent companies and ordering companies vis-à-vis their subsidiaries, subcontractors and suppliers.
The law applies to French companies, provided that they employ, at the end of two consecutive financial periods, either at least 5,000 people directly or through French subsidiaries or at least 10,000 people directly or through French and foreign subsidiaries (it being specified that for a multinational group, these thresholds are not calculated globally but rather in regards to the employees within and by the French company, even if the French company is not the top-company of the group).
From a practical point of view, the duty of vigilance requires companies to establish and implement a vigilance plan (plan de vigilance) in order to identify and assess serious risks, anticipate them, and prevent their occurrence. As part of their vigilance plan, companies are obligated to undertake various measures, namely:
- completing a risk mapping exercise intended to identify, analyze and classify the risks;
- implementing a mechanism to regularly assess subsidiaries, subcontractors or suppliers with which they have an established commercial relationship, for the purpose of risk mapping;
- undertaking measures designed to mitigate risks or prevent serious violations;
- establishing a risk alert and warning system; and
- establishing a follow-up mechanism for measures implemented and an assessment procedure to evaluate their efficiency.
The law has experienced a somewhat turbulent trip through France’s legislative system so far. On 23 March, the French Constitutional Court held that the law’s proposed civil fines for companies in breach of the law for failing to implement vigilance plans were unconstitutional. The law was enacted five days later without any civil fine mechanism.
Although the law’s main enforcement mechanism has been removed, should a company fail to comply with its obligations under the law, any interested party can apply to a competent court to instruct the company to do so. French courts can attach a monetary penalty to a failure to comply with a court instruction (known as making an instruction sous astreinte). The law still provides that any company in breach of the law may be held civilly liable for harm that could have been avoided by that company complying with the law.
Committee recommendation and new guidance in the UK
In the UK, Members of Parliament have signalled interest in establishing a hard-edged legal duty on companies to prevent human rights abuses. In its report on Human Rights and Business in 2017 released last April, the UK Parliament’s Joint Committee on Human Rights recommended penalizing companies that fail to prevent human rights abuses in their supply chains.
UK practitioners will be familiar with the concept of a corporate offence for “failure to prevent” from the Bribery Act 2010, on which the Committee recommends this offence should be modelled. This suggests that, like the offence for failure to prevent bribery, a proposed human rights offence would make a company liable for human rights abuses committed by its “associated persons,” subject to a defence that the company had in place “adequate procedures” to prevent human rights abuses.
Interestingly, UK authorities have also considered the use of the Bribery Act’s “failure to prevent” offence as a model in other areas of corporate compliance. Last year, the Ministry of Justice announced plans to extend “failure to prevent” to other economic crimes, and in July of this year the Director of the UK Serious Office Fraud Office reiterated calls to reform the law so that companies can be held accountable for any economic crime unless they can demonstrate adequate controls were in place to prevent the crime. It is possible, therefore, to see the Committee’s proposal as part of a broader legislative trend in the UK ratcheting up pressure on companies to ensure that their internal compliance processes are robust.
It is not certain that the Committee’s recommendations will be adopted by the present government, however. The Committee has not met since the UK general election in June 2017, and the government has not indicated when – or indeed if – it will respond to the Committee’s report, or put its proposals on the legislative agenda. That said, the corporate responsibility to respect human rights clearly remains a point of interest for the Government.
Last month, the UK Home Office updated its guidance on the Modern Slavery Act, adding a definition of child labour, clarifying issues around the signing and approval of statements, and stating that statements published in previous years should be retained on the company’s website. The guidance also articulates that statements “should aim to include information” currently covered in the six suggested criteria captured in the legislation. Whether the legislation itself will be subject to an overhaul at some stage remains to be seen.
Developments in the imposition of corporate duties of due diligence in the field of human rights in the UK and in France are at different stages. France has unveiled a wide-ranging new duty of vigilance, albeit with questions around its enforcement in the absence of a civil fine mechanism. The UK has, by contrast, focused on fine-tuning its published guidance on the interpretation of established legislation which, while it requires companies to make statements regarding their human rights due diligence, does not require companies to carry out that due diligence. What is clear is the continuing interest of legislatures and governments in encouraging companies to think more carefully about their impact on human rights, not only directly but also through their subsidiaries, affiliates and supply chains.