France adopts multinational duty of care law

Trying to punish large corporations for the abuses they and their suppliers commit overseas has gained popular appeal in recent years, though legislation and enforcement curbing such practices is still very much a work in progress.

The horrendous cumulative death count witnessed in Bangladesh following a Dhaka factory fire in 2012, and then the disastrous Rana Plaza building collapse in 2013, has prompted lawmakers, regulators, and labour organisations to question the “arm’s length” attitude some companies have to health and safety in their supply chains, as well as to look again at how easily multinationals can be held liable and to account in their home countries for their inaction abroad.

France has been trying to tackle the issue for some years, and progress has often stalled even as proposals have been watered down. But at the end of March the French Constitutional Council—the body that gives its decision on proposed legislation after Parliament has voted on it but before the President signs it into law—backed a bill introducing a corporate “duty of care” law. This will force France’s biggest companies to make public their plans to check on how effectively their subsidiaries and suppliers obey local law, adhere to best practice, and follow the lead set by their major multinational clients regarding human rights and environmental protection.

The French Parliament had backed the proposed legislation in February, and the Council has maintained much of the law’s text in its decision released on 27 March.

The law obliges large, French-registered companies (those whose staff exceeds 5,000 employees in France or 10,000 employees worldwide) to assess and address the adverse impacts of their activities on people and the environment by having them publish public “vigilance plans” as part of their annual company report. These must include detailed assessments on the impacts linked to their own activities, those of companies under their control, and those of suppliers and sub-contractors with whom they have an “established commercial relationship,” a broadly defined term that covers transactions made with or without contracts.

The law specifies that the establishment and implementation of the vigilance plan corresponds to the concept of human rights due diligence outlined in the UN Guiding Principles on Business and Human Rights (UNGPs).

Once the law is made part of the French Commercial Code and is in force—expected to be for the next financial year with reporting starting in 2019—companies’ vigilance plans will need to include risk mapping to identify, analyse, and rank risks in their operations (and those of subsidiaries and suppliers), as well as details relating to the procedures that they use to regularly assess the situation of subsidiaries, sub-contractors, and suppliers.

Vigilance plans will also need to include details about the “appropriate actions” that a company will use to mitigate risks or prevent serious violations, and will require companies to develop an “alert mechanism”—in partnership with trade union representatives—that will flag potential or actual risks. Companies will also need to have a monitoring scheme in place to follow up on the measures implemented and assess their efficiency.

“The French law is a historical step forward in regulating the activities of transnational corporations.”
Sandra Junco, Spokesperson, European Coalition for Corporate Justice

While the law “marks a historic step towards improving corporate respect for human rights and the environment,” according to corporate accountability campaign group the European Coalition for Corporate Justice (ECCJ), the legislation has its limits. In fact, the bill had already been significantly softened to gain parliamentary approval: the idea of criminal prosecutions for company directors was ditched early on, and the threshold used to determine which companies would be liable under the legislation was raised to such a level that only the country’s biggest businesses would be impacted by it.

Campaigners such as the ECCJ and the French corporate accountability platform, Forum Citoyen pour la RSE, believe that the law could have been more ambitious. While welcoming the legislation, they say that the law’s scope is limited, as it only applies to around 150 large French multinational companies, rather than all French companies that had multinational operations, as was intended in earlier drafts.

Also, they point out that the burden of proof still falls on the victims, who often lack the means to seek justice, which “further accentuates the imbalance of power between large companies and victims of abuse,” says Sandra Cossart, head of the globalisation and human rights programme at Sherpa, a Paris-based human rights group.

Furthermore, parent companies that have a vigilance plan in place will avoid liability for any damages caused if they can prove that the plan is “adequate.” That means companies are not required to guarantee results, Cossart says, but only to prove that they have done everything in their power to avoid damages.

Additionally—as is often the case with highly politicised issues—there have been some significant changes to make the legislation more palatable to the country’s business community. One of the most notable has been the Constitutional Council’s decision to remove the substantial civil penalties that were originally available for victims. Under the proposals backed by Parliament in February, judges would have been able to issue fines of up to €10m (U.S.$10.87 million) if companies failed to establish vigilance plans and up to €30m (U.S.$32.6 million) if this absence resulted in otherwise preventable damages.

WHAT COMPANIES ARE REQUIRED TO DO

Below is an excerpt from the ECCJ’s French corporate duty of vigilance law.  
France’s new multinational “duty of care” law applies to large French-registered companies and their direct and indirect subsidiaries.
Companies covered by the law must establish, publish and implement a vigilance plan which must include appropriate measures to identify and prevent risks of serious infringements to human rights and fundamental freedoms, serious bodily injury, health risks or environmental damage, resulting directly and indirectly from a company’s activities and those of its business relations (as defined by the French Commercial Code).
The vigilance plans, as well as the reports on their implementation, will be public and included in the company’s annual report. According to Article 1 of the law, which incorporates Art. L. 225-102-4 of the French Commercial Code, the vigilance plan has to include:
1. A mapping that identifies, analyses and ranks risks;
2. Procedures to regularly assess, in accordance with the risk mapping, the situation of subsidiaries, subcontractors or suppliers with whom the company maintains an established commercial relationship;
3. Appropriate actions to mitigate risks or prevent serious violations;
4. An alert mechanism that collects potential or actual risks, developed in working partnership with the trade union organisations representatives of the company concerned;
5. A monitoring scheme to follow up on the measures implemented and assess their efficiency.
The legislation provides that if a company under the law’s scope fails to establish, implement or publish a vigilance plan, any concerned parties—including victims, trade unions, labour organisations and other non-governmental organisations (NGOs)—can file a complaint with the relevant jurisdiction.
After receiving formal notice to comply with the law, a company is given a three-month period to meet its obligations. If the company still fails to meet obligations after the three-month period is over, a judge could oblige the company to publish a plan.
The judge also rules on whether a vigilance plan is complete and appropriately fulfils the obligations described in the law.
Article 2 of the law states that when harm occurs in the event of a breach of the obligations as laid down in Article 1, the company can be held liable. Furthermore, the company would have to compensate for the harm that proper fulfilment of the obligations—namely publishing and embedding an adequate vigilance plan—would have avoided.
However, campaigners say that the law still has some serious shortcomings: the burden of proof still falls on the claimants, meaning victims will still need to prove a fault by the company and a causal link between the fault and the damage they have suffered; and a company can avoid liability—despite any damage and/or injury—if a company has an adequate vigilance plan and procedures in place.
Source: European Coalition for Corporate Justice (ECCJ)

But campaigners are upbeat about the legislation, even if it has been watered down. Although the civil penalties would have created a stronger incentive for companies to comply with this law, their removal does not undermine the architecture and general mechanism of the law, says the ECCJ.

“While these sizable fines have been scrapped, legal liability—and potential financial penalties—will continue to apply when companies default on their duty of vigilance obligations, including failing to publish a vigilance plan or faults in its implementation,” says Cossart.

However, Sherpa and the ECCJ admit that any such fine is unlikely to match the punitive terms originally set out and will be at a court’s discretion.

The first—and simplest—punitive measure is the mise en demeure, which is essentially a formal notice that the company has failed to comply, but which does not attach any financial penalty. The next measure is an injunction. Made by a judge, it is subject to a specific penalty called an astreinte and the level of fine is calculated by the number of days of non-compliance with the injunction. Last, but not least, companies can still be held liable for any harm caused as a result of their actions that can be linked to the absence of a vigilance plan or if the plan is inadequate or poorly implemented.

Under the civil liability regime (as opposed to being held criminally liable), interested parties—including victims, trade unions, and non-governmental organisations (NGOs)—can take civil action and ask for compensation when a company’s violation of its legal obligations has resulted in damages. However, as there is no possibility of criminal liability under the law, none of a company’s directors can be sent to prison.

Many countries have adopted voluntary codes of conduct regarding supervision of their suppliers, but France is the first country to adopt binding legislation that covers all human rights abuses and which creates obligations for parent and sub-contracting companies across the whole supply chain. In May 2014, the European Commission pressed the need for more responsible management of global supply chains and commercial practices in developing countries in a policy paper, but the measures that it proposed remain non-binding for EU companies.

The push for greater scrutiny of supply chains has resulted in some notable legislation, however. In 2016, the United Kingdom included a “transparency in supply chain clause” within the Modern Slavery Act that obliges companies to formally conduct audits—or at least ask questions at the board level—of their third-party suppliers and contractors to determine if child or forced labour is being used. This provision requires companies domiciled or doing business in the United Kingdom to report on the measures they take to prevent slavery or human rights trafficking in their supply chains.

Other European countries are considering adopting similar measures to those approved in France. For example, legislation is currently being considered in Switzerland, where the necessary signatures have been collected for a referendum on mandatory human rights due diligence. Belgium and Spain are debating whether to also have similar legislation in place. This February, the Dutch Parliament adopted the Child Labour Due Diligence Bill, which—if approved by the Dutch Senate—would require companies to identify whether child labour is present in their supply chains and, if detected, develop a plan to combat it.

For now, it seems that France is taking the lead on supply chain oversight. “The French law is a historical step forward in regulating the activities of transnational corporations,” says Sandra Juncu, an ECCJ spokesperson. “We want similar legislation to be adopted by all European countries, and at EU and international level, in order to achieve effective human rights and environmental protection, as well as provide access to justice and remedy for victims of corporate abuse,” she adds.