Anna Triponel | 14 October 2019

There is a lot of discussion on ‘business and human rights laws.’ What are they? Where have they been passed? What is the direction of travel? This post complements my remarks delivered as guest speaker to Paris Sciences Po School of Management and Innovation, titled “When soft law is not so soft: The rapid legalisation of business and human rights.” It describes the business and human rights-related laws we have seen since the UN Guiding Principles on Business and Human Rights (UNGPs) were endorsed in 2011.

First and second generation of laws: disclosure and duty of care

But first, as a recap, business and human rights laws tend to fall into one of two categories:

The first generation: laws focused on disclosure

These laws ask companies to be transparent about their human rights risks and how they seek to manage them. The idea behind these laws is that having more human rights-related information in the public domain allows stakeholders – investors, consumers, business partners – to reward those companies that are taking meaningful strides to embed respectful practices into their business.

The first laws specifically focused on business and human rights fell into this category. These include laws from California, the United Kingdom and Australia (focused on modern slavery); as well as proposed laws in Hong Kong (on modern slavery), Canada (on modern slavery and child labour) and the U.S. (on human rights). Although the consequences of not preparing the requisite information may carry legal consequences (e.g. injunction, fine), the primary driver for compliance remains reputational.

The second generation: laws focused on creating a duty of care and compelling human rights due diligence

These laws go beyond disclosure to create a new responsibility for companies to conduct human rights due diligence, primarily in the form of a duty of care in common law countries, or ‘duty of vigilance’ in civil law countries. These laws have emerged following frustration with the limitations of disclosure-based legislation to meaningfully shape company behaviour.

They include laws from France (on human rights) and the Netherlands (on child labour); as well as proposed laws in Switzerland (on human rights) and discussions at the EU-level (human rights). The consequences are not complying with these laws include lawsuits and fines. This year we have seen discussions on this model intensify, with extensive calls for mandatory human rights due diligence, with a focus on an EU-wide approach.

The first generation: laws focused on disclosure

  • United States – California: The California Transparency in Supply Chains (CTSC) Act of 2010 was the first piece of legislation to recognise the scale of modern slavery in company supply chains. The premise of the law is to provide consumers with the information they need to make educated purchasing decisions. Large retailers and manufacturers doing business in California now publish on their websites the efforts they are taking to eradicate slavery and human trafficking from their supply chains. The statement does not need to be renewed annually, conversely to subsequent legislation.
  • United States: The same year, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) 2010 was passed in the U.S. This law was intended to increase company knowledge about where the minerals they rely upon for their products came from, to in turn help them ensure that they were not inadvertently financing conflict in the Democratic Republic of Congo (the DRC) through their sourcing activities. The law requested that U.S. publicly traded companies conduct supply chain due diligence and report to the US Securities and Exchange Commission (SEC) if they found that the minerals in their products (i.e. tin, tantalum, tungsten and gold) originated from the DRC.
  • The United Kingdom: The UK Modern Slavery Act (MSA) of 2015 was intended to create a level playing field for companies that act responsibly. Large (i.e. a total annual turnover of £36 million plus, including subsidiaries) commercial organisations that supply goods and services and carry out business in the UK are to disclose the steps they have taken to seek to address modern slavery in their operations and supply chains. This statement is to be provided each year within six months of the financial year end. The Home Office recently made clear that reporting on modern slavery forms part of reporting on broader human rights due diligence, as expected under the UNGPs. The UK government also recently committed to strengthening the law in response to an independent review published in 2019: it is now in the process of assessing changes to the law based on its public consultation.
  • Australia followed suit with its new Commonwealth Modern Slavery Act of 2018. The law, which applies to business entities based or operating in Australia with an annual consolidated revenue above $100 million AUD, carries a similar premise to the UK law. At the same time, there are distinctions. Every statement must include seven areas described in the law, the law does not create an Anti-Slavery Commissioner, the law provides for a national register for all statements, and the law extends to non-governmental organisations, universities, the government and its agencies. The Australian government also made clear in its recently released guidance that the UNGPs should be used to identify what should be included in the statement.

The first generation: possible upcoming laws focused on disclosure

  • New South Wales: Although currently the subject of a legislative committee inquiry and not yet effective, the New South Wales Modern Slavery Act of 2018 has also received significant attention. Under the law, companies would be asked to submit a statement to the Anti-Slavery Commissioner (established by the law) confirming the steps taken to mitigate the risk of modern slavery in their operations and supply chains.
  • Canada: In Canada, a proposed private member’s Modern Slavery Bill was tabled in the House of Commons in December 2018. This bill would apply to child labour, as well as modern slavery, and extends beyond a transparency requirement: businesses found to import goods produced using forced or child labour could be prohibited from importing into Canada. This bill follows a report published by the House of Commons Standing Committee on Foreign Affairs and International Development on child labour. In response, the government announced that it would consult on creating supply chain legislation, and launched an online consultation seeking views on possible ways to address labour exploitation in global supply chains. Another bill, the Transparency In Supply Chains Act (TSCA), is to be tabled in the Senate this year. This law would combine the transparency of this first generation of legislation (a reporting requirement) with the more stringent duty of care expectation of business in the second generation, creating a duty to take reasonable steps to avoid the use of modern slavery in a company’s overseas operations.
  • In the United States, a discussion draft of the Corporate Human Rights Risk Assessment, Prevention, and Mitigation Act of 2019 was introduced in the House of Representatives in July 2019. This law would request that publicly listed companies include information regarding their human rights risks and impacts, and provide detail on their human rights due diligence in the annual reports they file with the SEC. This law would enable investors to choose companies that implement human rights due diligence and demonstrate some understanding of their salient human rights risks. It is the first example of a disclosure law that extends to human rights due diligence more broadly, rather than focusing on one or two human rights areas.
  • In Hong Kong, a suggested Modern Slavery Bill, along the lines of the UK and Australian one, was discussed by a panel of the Legislative Council in 2018.
  • Recently, the Norwegian government committed to looking into the possibility of a Norwegian Modern Slavery Act along the lines of the UK Modern Slavery Act.

The second generation: laws focused on creating a duty of care and compelling human rights due diligence

  • France: The French law related to Duty of Vigilance of Parent Companies and Commissioning Companies ushered in the second generation of legislation. The law creates a new duty applicable to large French companies: these companies are now requested to identify and prevent risks of severe abuses to human rights, the environment as well as health and safety. Companies must establish and implement a vigilance plan to be published in their annual report which describes how they are meeting this duty. The vigilance plan includes mapping out risks, assessing subsidiaries, subcontractors and suppliers and mitigating these risks. Any person may send a formal notice to a company for it to comply with the law and damages may be imposed for non-compliance. The law is in force since March 2017 and has been implemented in stages but all companies must now be fully compliant as of 2019. Although the law provides for disclosure of companies’ human rights due diligence efforts, it differs significantly from the first generation of legislation since companies are specifically requested to conduct this due diligence and can be brought to account if they do not and there is a causal link with a harm. The law applies to French companies employing for two consecutive financial years: at least 5,000 employees in its direct and indirect subsidiaries (i.e. where a commercial relationship exists) where the registered office is in France; or at least 10,000 employees in its direct and indirect subsidiaries where the registered office is in France or abroad.
  • The Netherlands: The Dutch Child Labour Due Diligence Act was passed in May of this year (2019) and will come into force after 2020. Similar to the Californian legislation, the stated purpose of this legislation is to protect consumers. To enable this protection, the law applies to those that supply goods or services to Dutch ‘end users’ regardless of where they are incorporated. Similar to the French legislation, although there is a transparency component (companies are asked to produce a statement that is sent to the appointed regulator), the primary objective of the law is to create a duty to conduct mandatory human rights due diligence. The law essentially requires companies to carry out due diligence in their supply chain to assess whether there is a reasonable suspicion that products in companies’ supply chain have relied on child labour. Where such an investigation finds that child labour has been used, an action plan will need to be drawn up and implemented. Failure to submit a due diligence statement could lead to a fine of up to €4,100. At the most extreme, fines of up to 10% of worldwide turnover and imprisonment are possible sanctions for failing to follow the law. Like the Californian law, this statement need only be provided once (as opposed to annually).

The second generation: possible upcoming laws focused on creating a duty of care

  • Switzerland: There has been significant discussion around the Swiss Responsible Business Initiative (RBI) which seeks to amend the Swiss Federal Constitution to require all companies with a registered office, central administration or principal place of business in Switzerland to respect internationally recognized human rights and environmental standards. In essence, this proposal would establish a duty of care whereby companies must exercise due diligence to assess human rights risks, cease existing violations and prevent further instances of violations and account for actions taken. Parent companies will also be responsible for damages caused by companies under their control unless it can be shown that due care was taken to avoid the damage/loss or that it would have occurred even if all due care had been taken. There are currently no transparency requirements in the proposal. This had led to multiple back and forths on legislative language between the lower house (the National Council) and the upper house (the Council of States), with the lower house adopting a counter-proposal to the RBI in June 2018 and the Legal Affairs Committee of the upper house suggesting changes to this counter-proposal, in particular to introduce a clause on limited liability for subsidiaries of Swiss companies. The vote by the upper house was postponed until after the October parliamentary elections, with Senators seeking to debate this law on duty of care with a counter-proposal submitted by the Swiss Government focused on disclosure.
  • In Germany, the government’s National Action Plan of 2016 committed to examining the possibility of requiring mandatory human rights due diligence in 2020 if less than half of large German companies haven’t voluntarily put the relevant policies and processes in place by then. In preparation for the 2020 deadline, Germany’s ministry of development prepared a draft law in 2019 of this year providing for corporate responsibility to conduct human rights due diligence. This was followed by the launch in September of a civil society campaign pushing for such a law to be discussed and passed.
  • In Italy, the government’s National Action Plan of 2016 discusses the need to conduct a comprehensive review of existing commercial and civil law to assess whether to introduce new legislation providing for a ‘duty of care’ in this area.
  • In Finland, the Government committed in June to conduct a study with the objective of adopting a law that requires mandatory human rights due diligence. This follows on the heels of a civil society campaign launched in September 2018.
  • In Sweden, the Swedish Agency for Public Management recommended to the Minister of Trade in 2018 that the government consider the idea of adopting binding human rights due diligence requirements.

Other forms of legislation

In addition to these two models of legislation, we have seen other forms of legislation.

The 2015 revision (the Trade Facilitation and Trade Enforcement act of 2015) to the U.S. Tariff Act of 1930 allows the government to apply a temporary withholding or conclusive ban of goods being imported into the U.S. that are suspected to be the result of forced or child labour. In short, the law reverses the “consumptive demand exception” which had allowed the import of products resulting from forced or child labour if they could not be produced in the US. Any imported goods mined, produced or manufactured in whole or in part by forced labour (including convict and child labour) are now firmly prohibited. The Commissioner of U.S. Customs and Border Protection (CBP) may issue withhold release orders (WRO) if there is a reasonable indication (the indication need not be conclusive) that merchandise results from forced labour. If it is found that forced labour was used in the company’s supply chain to produce the goods, these can be seized and/or the company excluded. Shipments subject to WROs are detained but can be released if information is provided to evidence that the shipment in question is not a result of forced labour. This law has been used recently to halt shipments of products such as rubber gloves made by a company in Malaysia, gold from artisanal mines in Democratic Republic of Congo, clothes produced by a firm in Xinjiang, China, diamonds from the Marange Diamond Fields in Zimbabwe, and bone black – charred animal bones – manufactured by a business in Brazil.

The 2015 amendment to the U.S. Federal Acquisitions Regulations requires qualifying government contractors and subcontractors to certify that they have made efforts to ensure their supply chains are free from forced labor and human trafficking, failing which the procurement contract may be terminated.

There is also ongoing discussion on the Zero Draft treaty on Business and Human rights which would be the first international treaty prescribing transnational corporations’ behaviour regarding human rights. While some welcome the element of credibility and weight that accompanies such a treaty, others highlight limitations to the treaty such as the necessity for States to pass legislation implementing it, or the scope of the draft which it is argued should include domestic corporations, not just transnational ones.