Yesterday, the French Parliament adopted a duty of vigilance, or “devoir de vigilance,” obligation for large companies headquartered in France. In doing so, France became the first country to require corporations to conduct human rights due diligence. While the law currently applies only to French companies, it could have wide-ranging implications for formal requirements in other jurisdictions.
What is required of companies to comply with the law?
The law applies to companies headquartered in France, which have at least five-thousand employees “within the company and its direct and indirect subsidiaries.” It is estimated that 100-200 French companies will be required to comply with the law.
Companies meeting that description will be required to establish and implement a “vigilance plan” for its operations, as well as those of its subsidiaries. According to the law, the vigilance plan should focus on “severe violations of human rights and fundamental freedoms, serious bodily injury or environmental damage or health risks.”
Specifically, the law calls for five key actions by companies:
- Mapping human rights and environmental risk within the company’s direct operations, as well as those related to subsidiaries, subcontractors or suppliers with whom the company “maintains an established commercial relationship, when such operations derive from this relationship”
- Appropriate action to mitigate risks and prevent serious violations
- A grievance, or “alert” mechanism, to be developed in collaboration with relevant trade unions
- A monitoring scheme to assess the effectiveness of the vigilance plan
- A public report summarizing the vigilance plan and its effectiveness.
For companies who have effectively implemented the UN Guiding Principles on Business and Human Rights (UNGPs), this law formalizes due diligence processes already in place. In these instances, companies will already have a solid understanding of, and response to, actual and potential human rights risks stemming from their own operations as well as those with whom they have formal business relationships.
For companies who have yet to implement the UNGPs, the law will trigger similar due diligence expectations, and companies should refer to the guidance established in the UNGPs, as well examples from leading companies. Indeed, companies across a range of sectors and geographies—from Microsoft to Unilever—have contributed significant investments to surfacing and responding to human rights risks not only in their direct operations but also in relation to their suppliers, contractors and use of their products.
What are the penalties for non-compliance?
Companies who do not comply with the law will first receive a formal notice to meet its obligations. If a company fails to meet its obligations within three months of the notice, legitimate stakeholders can bring the issue before the courts who have the power to fine the company up to 10 million euros. In addition, in cases where effective due diligence would have prevented serious harm, the courts can increase the fine to 30 million euros “depending on the seriousness and the circumstances of the negligence and the damage caused.”
One notable aspect of the law stipulates that if a company has implemented an adequate vigilance plan, the company will not be liable for adverse impacts that may still result. As such, companies are not required to guarantee full respect for human rights, but rather to outline the steps it took to avoid adverse impacts.
How should non-French companies respond to the law?
Legal requirements to increase corporate respect for human rights are increasingly gaining steam. The UK Modern Slavery Act and the California Transparency in Supply Chains Act both require companies to outline steps they have taken to combat human trafficking. This month the Dutch Parliament adopted the Child Labor Due Diligence Bill that, if approved, would require companies to identify whether child labor is present in their supply chain and develop a plan to respond to surfaced risks. In addition, similar legislation to the French law is being considered in Switzerland, where a referendum on mandatory human rights due diligence may take place. Meanwhile, discussions around a binding international treaty on business and human rights continue at the UN Human Rights Council.
As legally binding instruments continue to emerge, there is a strong push from civil society to scale the French law to the EU level – thereby requiring similar due diligence efforts by companies headquartered across the EU.
The take-away for companies is clear: Human rights due diligence is unlikely to remain a voluntary expectation confined to leading companies. Instead, companies across the board will increasingly be required to implement the UNGPs and be transparent on their efforts to effectively manage human rights risks. The French law reaffirms the importance of implementing the UNGPs, which continue to the be basis for legal expectations across jurisdictions.
At Article One, we have worked with companies across sectors to design and implement human rights due diligence programs. These engagements not only ensure our clients are able to meet evolving legal expectations, reduce operational and legal risks, but also increase public recognition for their efforts, resulting in improved performance on public rankings and a greater consumer and employee loyalty. As the domino effect of binding due diligence expectations continues, we expect that companies will increasingly see the benefits of human rights due diligence – beyond legal compliance.