EU Legislation on Labour and Human Rights
Within Europe, the following Human Rights Due Diligence Legislation is currently being implemented across its member states.
The Duty of Vigilance Law (Devoir de vigilance des entreprises donneuses d'ordre) from 2017 applies to companies in the French territory with over 5,000 employees in France or 10,000 employees globally. Essentially, the law builds on standard due diligence requirements as stated in the UN Guiding Principles on Business and Human Rights. This means it only currently affects some 150 companies in France.
France's Devoir de vigilance plan covers a much broader scope in terms of issues. The Ethical Trading Initiative focus is not only on ensuring decent working conditions and fair wages in supply chains but on sustainability too.
Under French law, companies are required to report on their alert mechanisms to identify risks, which should be ‘developed in consultation with legitimate trade unions operating within the company’.
Companies are expected to develop their plan in consultation with civil society organisations, such as sectoral or region-specific multi-stakeholder initiatives. If companies fail to demonstrate that they have established and implemented a plan, they will risk a penalty of up to 10 million euros.
The German Supply Chain Act imposes new obligations on companies with regard to human rights, referred to as Due Diligence Obligations. It came into force in January 2023 and applies to all companies with over 3,000 employees. In 2024, this will be applied to companies with over 1,000 employees. It covers all the labour and human rights provisions included in the ETI base code, as well as human rights if they are impacted by environmental damage. According to legal advisors Rödl & Partner, companies are required to:
- Establish a risk management system;
- Have an in-house representative for human rights;
- Perform regular risk analyses;
- Adopt human rights policies;
- Establish preventive measures in its direct operations and with suppliers;
- Establish a complaint procedure;
- Implement due diligence measures with indirect suppliers;
- Document and report performance under the due diligence obligations.
The legislation requires that companies do everything possible to prevent human rights-related risks in the supply chain, both direct and indirect. Within this context, the company must prove that it has taken adequate measures. This is determined by the following criteria:
- The nature of the company activities;
- The company’s ability to influence the perpetrator of the violation, whether social or environmental;
- The expected severity of the violation, the reversibility of the violation and the probability of this violation occurring again;
The company’s contribution to the risk.
The Netherlands Human Rights and Environmental Due Diligence law is currently a draft in process which was originally to be finalized in 2022. Worldfavor has reported that the legislation is expected to apply to companies with more than 250 employees, which is fewer than the German threshold requirements of 3000 workers (initially) and 1000 (at a later stage). The law will, along with most of the existing social and environmental due diligence laws, be based on the United Nations Guiding Principles (UNGP) which introduces the concept of human rights due diligence (HRDD). This is an ongoing risk management process that the company needs to follow to identify, prevent, mitigate and account for how it addresses any adverse human rights impacts arising from its operations. The process includes four key steps:
- Assessing actual and potential human rights impacts;
- Integrating and acting on the findings;
- Tacking responses;
- Communicating about how impacts are addressed.
There are suggestions that the Dutch law will be broader and more stringent than the legislation in Germany, France and the UK. The national parliament has called for an expansion of the Child Labour Law to cover other human rights impacts, such as discrimination, environmental damage and climate change.
Small and medium-sized enterprises [SMEs] with less than 250 employees will have a transparency obligation similar to that of reporting under the UK Modern Slavery Act. In order to alleviate the administrative burden of applying the law, the law could allow a sectoral approach to certain obligations, allowing collective grievance mechanisms and easing the transparency requirements for medium-sized companies.
Republic of Ireland
There are no immediate requirements for companies to conduct due diligence here, but in 2020, Trócaire, the Irish overseas aid agency, called on all political parties to introduce mandatory due diligence and support a UN binding treaty. In October 2021, a civil society campaign, the Irish Coalition for Business and Human Rights (ICBHR), was launched to call on the government to introduce corporate accountability legislation. This legislation would make it a legal requirement for businesses operating in Ireland to identify and prevent human rights abuses and environmental damage occurring in their operations anywhere in the world. This legislation would also make companies liable for any harm done to communities affected by their activities.
The EU Corporate Sustainability Reporting Directive (CSRD)
The EU has announced that it will present EU-wide mandatory human rights and environmental due diligence legislation across all member states. This is to prevent fragmentation of the single market through various national initiatives and provide the EU with a harmonised set of due diligence rules applicable across all Member States. The finer details of the legislation are yet to be published.
The EU CSRD will come into force in 2024, upgrading the EU sustainability reporting framework and introducing more detailed reporting requirements on company impacts on the environment, human rights and social and sustainability related risks.
The directive will apply from 2023 to large public interest companies with over 500 employees, followed by companies with more than 250 employees or Euro 40 million revenue in 2025, and listed as SMEs in 2026.
Under these new reporting standards, companies will have to disclose all material information on their sustainability-related impacts, risks and opportunities. Due diligence will be the obligation of a company ‘to take all proportionate and commensurate measures and make efforts within their means to prevent adverse impacts on human rights, the environment or good governance from occurring in their value chains, and to address such impacts when they occur.’ (UNGP).
In short, the directive sets up an EU due diligence standard for responsible business conduct. The directive aims to ensure that companies are subject to mandatory due diligence requirements to cover human rights, the environment and good governance. This means that the responsibility to respect human rights under international standards will be transformed into a legal duty at the EU level.
Please note that this overview is not comprehensive, and those interested in the detail of any part of the frameworks discussed will need to consult the appropriate regulations and check that they have not changed since this review was completed.