The rise to prominence of mandatory human rights due diligence binding multinationals

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Sarah Reilly
Navacelle, Paris
sreilly@navacellelaw.com

Julia Velho
Navacelle, Paris
jvelho@navacellelaw.com

Julie Zorrilla
Navacelle, Paris
jzorrilla@navacellelaw.com

Discussions around regulating multinationals and the impact of their activities on human rights and the environment emerged in the mid-1980s in particular, partly due to the growing number of highly mediatised corporate incidents with prejudicial effects on human lives.^[1]

The increase of the economic weight of multinationals, as well as their seeming impunity, fuelled civil society demand in the 2010s for the development of an effective and coherent regulatory framework, on national and supranational levels.

Countries have gradually attempted to create fertile ground for corporate accountability for human rights breaches, using diverging approaches among countries and a plurality of approaches within countries. In France, this legislative creativity has contributed to giving potential momentum to mandatory human rights due diligence and has led to increased litigation in the courts. The outcome of these legal actions is eagerly awaited, as well as the impact of a possible European law on the subject.

The progressive recognition of human rights due diligence as an obligation binding multinationals

The initial approach to human rights due diligence favoured non-binding obligations

As states were unable to reach a consensus regarding the mandatory nature of human rights due diligence, the compulsory aspect of obligations was set aside in favour of guiding principles and voluntary reporting.

International organisations were the first to contribute to the development of international standards to be applied by multinationals, the Organisation for Economic Cooperation and Development (OECD) and the United Nations developing guidelines for multinational companies,^[2] setting out a framework for corporate liability.

Companies began to be inspired by these guiding principles and to self-regulate, for example, implementing codes of conduct and adopting environmental and social standards. This proactivity was further encouraged by new laws (eg, the European Directive on extra financial reporting),^[3] requiring large companies to disclose information on their activities and management of social and environmental considerations.

These initiatives did not bind multinationals, however, allowing companies to use self-regulation as a greenwashing and marketing tool, rather than efficiently working towards preventing human rights disasters.

The Rana Plaza collapse marked a turning point in the push for mandatory due diligence

In 2013, a garment factory, supplying multiple American and European multinationals, collapsed in Dhaka, Bangladesh, killing and injuring thousands of workers. This tragedy triggered public outrage and non-governmental organisations (NGOs) criticised the prevailing accountability gap, whereby western companies could not be prosecuted for the action/inaction of their subsidiaries and victims were left with neither legal remedy nor compensation.^[4]

In the wake of this disaster, the need for reinforced due diligence binding parent companies became apparent. Alongside independent reports that were issued by some state National Contact Points for the OECD on supply chain due diligence and responsible business conduct in the garment sector,^[5] several laws were enacted to better protect human rights.

In 2015, the United Kingdom Modern Slavery Act was enacted, requiring businesses to annually disclose measures taken to prevent modern slavery in their supply chains.^[6] The Netherlands followed suit with its Child Labour Due Diligence Law (2017),^[7] Australia with its own Modern Slavery Act (2018)^[8] and France with its Corporate Duty of Vigilance Law (‘Vigilance Law’) (2017).^[9]

Referring expressly to Rana Plaza in the parliamentary debates, the French legislature established, under the Vigilance Law, a legally binding obligation for companies to draw up, publish and implement a due diligence plan, including measures to identify risks and prevent serious human right breaches, health and safety breaches and environmental harm as a result of their activities and those of their subsidiaries, as well as those of their subcontractors and suppliers with whom the company has an established business relationship.^[10]

Mandatory due diligence develops on a European level

In April 2020, the European Commissioner for Justice announced that the European Union was committing to enact a law by 2021, requiring companies to carry out due diligence in relation to the human rights and environmental impact of their activities and those of their supply chain.^[11]

This comes as a relief for civil society and Member States, whose expectations for the enactment of such a law have been highlighted in a June 2020 European Parliament sub-Committee on Human Rights briefing on the Human Rights Due Diligence Legislation.^[12]

There has been a growing demand from companies for an EU-wide mandatory human rights and environmental due diligence law, to provide clarity and to level the playing field, as several companies and business organisations, with a combined turnover of approximately EUR 350bn, expressed in a joint statement to the EU in September 2020.^[13]

In December 2020, a European Council decision on restrictive measures against serious human rights violations and abuses provides for the freezing of assets and economic resources of, and the prohibition to make assets and economic resources available to, natural or legal persons, entities or bodies responsible for, providing support to or otherwise involved in serious human rights violations or abuses, as well as those associated with the natural and legal persons, entities and bodies.^[14]

An increase of litigation in France based on human rights due diligence and the call for a binding European text

Mandatory due diligence leads to an increase in business and human rights litigation

An increase in human rights litigation is foreseen in France, on different legal grounds. Companies have developed a growing consideration for their Corporate Social Responsibility (CSR) commitments, which are now being used by NGOs to see companies held criminally liable for breaching their commitments.

In 2007, in the Erika case, the courts held that Total was liable for deliberate endangerment of others by having chosen not to comply with its internal procedures, turning the company’s ethical commitments into binding legal obligations engaging criminal liability.^[15] In 2018, NGOs filed a claim with an investigating judge against Samsung France for alleged violations of fundamental rights, namely child labour in its supply chain, contravening its advertised human right commitments. In April 2019, the investigating magistrate applied for the first time the offence of misleading commercial practices to the failure of Samsung France to comply with its advertised ethical commitments, on account of its subsidiary’s acts committed abroad.^[16]

The Vigilance Law that was passed in France in 2017 is also a useful tool to enforce corporate accountability in relation to human rights issues. It provides that if a company fails to establish, implement or publish a due diligence plan, a party with standing can send formal notice to the company, requesting it to comply with its obligations. If the company still fails to comply within a three-month period, a court order can be sought for the company to comply. Compensation claims can also be filed with the courts for damages arising out of a breach of the company’s obligations.^[17]

NGOs are proactive in their monitoring of the Vigilance Law, giving formal notice to several companies in the months following the law entering into force.^[18] In June 2019, the first claim in the courts was filed, seeking that the court order Total to comply with its obligations, and namely to disclose the human rights and environmental impact of its Ugandan subsidiary.^[19] There are high expectations for the outcome of these procedures, which are still pending.

In the context of the coronavirus pandemic, academics advise companies to stay aware that with publicising labels and certifications on hygiene and security, comes a criminal liability risk in the event of misleading commercial practices in the non-compliance with classification requirements.^[20]

Mandatory due diligence faces the challenge of judicial enforcement to be mitigated by legal remedy offered at a European level

While constituting a major step forward in tackling human rights breaches by companies, there are challenges to the enforcement of the Vigilance Law. First, the Vigilance Law itself does not empower an administrative agency or authority with the mandate to monitor its enforcement, as for instance the Anti-Corruption Agency under Sapin II. Moreover, the fines it initially provided for uncompliant companies were struck down by the Constitutional Court, which held that the obligations and the offence within the Law lacked clarity and detail.^[21]

The Vigilance Law is unclear as to the competent court to rule on its enforcement. This has led to the first injunction proceedings that have been sought, ie, the aforementioned Total Uganda case, being brought to a standstill on account of the debate on court jurisdiction., Total has argued the jurisdiction of the Commercial Court rather than that of the seized judicial Tribunal of Nanterre. On 10 December 2020, the Versailles Court of Appeal has confirmed that the Commercial Court must rule on injunction requests relating to compliance with the Vigilance Law. The Court justified its ruling by stressing that Vigilance Law obligations are part of the management of the company and that they have been incorporated into the Commercial Code under the section relevant to public limited companies (société anonyme) and shareholder meetings (assemblées d’actionnaires).^[22] This decision on jurisdiction may, once again, be appealed, bringing the debate before the Cour de Cassation and further postponing the one on the merits of the case.

Compensation that can be sought under the Vigilance Law has its own share of challenges. As an action on this ground has yet to be brought, the question of jurisdiction has not been ruled on although it would appear that the judicial tribunal would be competent. Moreover, for an action in damages against a company violating its obligations under the Vigilance Law to be successful, the claimant will have to prove the standard but strenuous conditions for civil liability, demonstrating a fault, harm and a causal link. ^[23]

The absence, as yet, of successful judicial action under the Vigilance Law has created some turmoil within civil society, which thereby continues to call for a supranational approach to the issue.^[24]

Should the European human rights due diligence law be enacted as it is intended, it will undoubtedly facilitate the obtention of legal remedy. Not only does the Human Rights Due Diligence Legislation briefing provide that the law would require Member States to establish ‘effective grievance mechanisms as an element of due diligence and provide not only for effective, proportionate and dissuasive penalties for breaches but also effective means of remedy and redress for victims’,^[25] but it also recommends the establishment of competent bodies to investigate abuses, initiate enforcement actions and support victims.^[26]

An ambitious mandate for the future of human rights due diligence – what comes of it remains to be seen.