The French National Assembly has passed a law that is set to ‘force companies to change their mindset’, says Els Reynaers Kini, Senior Vice-Chair of the IBA’s Environment, Health and Safety Law Committee.
The new law makes it mandatory to carry out ‘vigilance’ and monitoring of human rights and environmental concerns within companies and, crucially, within their supply chains.
Translated as ‘On the Duty of Care of Parent and Ordering Companies’, the law goes further than similar legislation in other jurisdictions such as the UK’s Modern Slavery Act or the EU’s Non-Financial Reporting Directive by establishing not only a reporting obligation but also a monitoring obligation. ‘In-house counsel will have to apply their minds to it,’ Reynaers Kini says.
There are concerns that the law does not go far enough in specific areas. For instance, it has a restrictive definition of which organisations are covered by it: they have to have at least 5,000 employees. It has been estimated that in France only 100 to 200 companies will fall within that definition and so be caught by the law.
‘This definition is outdated because it measures companies by the number of staff they have, which reflects traditional manufacturing notions of size,’ says Reynaers Kini. ‘These days there are successful companies in industries which don’t have so many employees. Other jurisdictions use a broader definition which means their laws have more effect.’
Those companies covered by the legislation must investigate, report on and monitor their own operations and those in their supply chain to see what the potential human rights and environmental implications of their activities might be.
It is not yet clear how far companies will have to go to ensure that there are no violations of human rights or the environment on their watch and to what extent they will be implicated in any violations. ‘What is expected of a company in each individual case will depend on the circumstances, including the operating context,’ says Lise Smit, Research Fellow in Business and Human Rights at the British Institute of International Comparative Law.
‘‘There is a misconception that businesses want less regulation… What they want is legal certainty
Lise Smit, Research Fellow, British Institute of International Comparative Law
The legal test of whether or not a company should be liable for a specific violation by, for instance, a subcontractor is a tortious one. ‘The test used may be similar to the “reasonable person” test as to what a company should have done,’ says Smit.
This means that knowledge, or what a company ought to have known and taken actual steps to find out, may be an important consideration. ‘Companies may be able to show that they have done all that could be expected of them,’ she says, ‘by putting in place and implementing a comprehensive “vigilance plan”, tracking its effectiveness, reporting on it, and so on. It remains to be seen whether having taken these steps helps a company with its defence or as mitigating factors. We will know more clearly once courts start to apply the new law.’
The French law has been pushed along by the MP Dominique Potier who was prompted to act by a major disaster in a garment factory in Bangladesh, which was believed to have supplied a number of Western companies with clothing for Western markets. The factory, the Savar in Rana Plaza, dramatically collapsed in 2013 resulting in over 1,000 deaths.
Despite the high death toll, compensation was a complex issue. French NGOs brought claims against a French chain, arguing its clothing range had been made in Rana Plaza, but these were unsuccessful.
The tragedy highlighted the poor conditions and lack of legal protections of workers in a sector, which forms part of the supply chain of well-known Western brands and thus pushed business and human rights principles up the legislative agenda.
Those principles, that businesses have an obligation to be aware of and work to protect human rights, were first put on the map by John Ruggie, former UN Special Representative on Business and Human Rights, in his Guiding Principles published by the UN in 2011. Last year, the IBA produced its Practical Guide on Business and Human Rights for Business Lawyers as a handbook for the Ruggie principles.
But the new law has had its opponents – and was subject to challenge in the French Constitutional Court only weeks after it was brought in. 120 legislators from both the National Assembly and the French Senate raised various constitutional questions about the law. The Constitutional Court, however, only invalidated one element of the law: the civil fine.
The constitutional challenge was a symptom of opposition to legislation of this kind. Reynaers Kini, however, argues that companies do adapt and she has seen this in India, where, in 2013, a similar law was brought in. ‘Each company has to adopt a corporate social responsibility action plan. Companies have to allocate 2% of their profit wherever they have a presence to a project which enhances human rights. Indian businesses were really against it but in only four years they have really changed – and the law has had a very positive response,’ says Reynaers Kini.
Smit argues that, though it might appear that the French law is onerous on French businesses, the law should provide much-needed clarity on what a company’s obligations are: ‘There is a misconception that businesses want less regulation. In reality, companies are creations of statute and operate within the confines of regulation daily. What they want is legal certainty – where is the law going and how can we make sure that we comply and avoid future legal risks? For this purpose, a clear law is welcome.’
Polly Botsford is a freelance journalist and can be contacted at Polly@pollybotsford.com