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Europe and Canada Seek to Mandate Human Rights Due Diligence and Transparency Obligations on Companies and Their Global Partners
By Lavanga Wijekoon, Kate Bresner, Michael Congiu, and Stefan Marculewicz on
This year has seen a number of international and regional legislative efforts imposing human rights due diligence and transparency obligations on multinational employers.
Earlier this year, both Germany and Norway introduced such legislation, and in the Netherlands, draft legislation is expected to come into force in the new year. Further, a directive on corporate due diligence and accountability is currently being reviewed by the European Union Commission, which, once entered into force, will be applicable to all European Union Member States. Across the Atlantic, in Canada, supply chain transparency legislation was introduced in the form of Bill S-216.
There is a clear legislative trend towards seeking to hold companies legally liable for their human rights practices – as well as for the human rights practices of business partners that may be within their supply or value chains. These new legislative efforts add to the already existing patchwork of similar laws in such jurisdictions as California,1 the UK,2 Australia,3 and France.4 Thus, it is important for affected businesses to be aware of these new developments, and to prepare for the coming into force of these legal instruments to ensure their operations are compliant. These developments and the obligations they will impose on business are discussed in further detail below.
The European Union is Developing a Directive on Corporate Due Diligence and Corporate Accountability
On March 10, 2021, the EU Parliament5 adopted the Draft Directive on Corporate Due Diligence and Corporate Accountability (the "Draft Directive"), setting out recommendations to the European Commission.6 The Draft Directive outlines a mandatory corporate due diligence obligation on businesses to identify, prevent, manage, remedy, and report on human rights and environmental risks and violations in their value chains. A "value chain" is defined as all activities, operations, business relationships and investment chains of an undertaking and includes entities with which the undertaking has a direct or indirect business relationship, upstream and downstream, and either (a) supply products, parts of products or services that contribute to the undertaking's own products or services, or (b) receive products or services from the undertaking. This definition is broader in scope than a business's "supply chain."7
What Specific Obligations Are Placed on Companies?
The Draft Directive imposes an obligation on companies to develop an effective due diligence strategy with respect to potential or actual adverse impacts on human rights, the environment and good governance in their operations and business relationships. This necessarily includes a process of identifying, assessing, and monitoring such risks in their operations and in their business relationships – which would include subsidiaries and commercial relationships of an undertaking throughout its value chain, including suppliers and sub-contractors, that are directly connected to the business' operations, products or services.8
Businesses also have obligations to prevent and remedy risks to human rights, the environment and good governance in their operations and business relationships. When risks emerge or violations occur, businesses will be required to publicly disclose those risks and violations, and the steps the business is taking or has taken to remedy them. Included in this obligation is the requirement for businesses to develop a grievance mechanism and remediation process to address potential or actual adverse impacts on human rights, the environment and good governance. The grievance mechanism must be provided both as an early warning mechanism for risk-awareness and a mediation system, allowing any stakeholder to voice reasonable concerns about potential or actual adverse impacts.9
To Which Companies Does This Apply?
The Draft Directive will apply to "large undertakings"10 governed by the law of an EU Member State or established in the territory of the European Union; all publicly listed small and medium-sized undertakings; small and medium-sized undertakings operating in high-risk sectors; and those governed by the law of a third country and not established in the territory of the European Union when they operate in the internal market selling goods or providing services.11
When Will This Come Into Force?
This is unclear – there is currently no date set. The Draft Directive was previously expected to be finalized and to come into force in 2021, but there have been many legislative delays.
Once finalized and entered into force, EU Member States will have 24 months to bring into force the laws, regulations and administrative provisions necessary to comply with the Directive.12
Norway Passed an Act "Relating to Enterprises' Transparency and Work on Fundamental Human Rights and Decent Working Conditions"
On June 10, 2021, the Norwegian parliament passed the Act relating to enterprises' transparency and work on fundamental human rights and decent working conditions (the "Norwegian Act").
The purpose of the Norwegian Act is two-fold: (1) to promote respect for fundamental human rights and decent working conditions in connection with the production of goods and provision of services; and (2) to provide transparency to the general public with respect to how businesses address adverse impacts on fundamental human rights and decent working conditions.13 "Fundamental human rights" are defined in accordance with the International Covenant on Economic, Social and Cultural Rights of 1966 (the "ICESCR"), the International Covenant on Civil and Political Rights of 1966 (the "ICCPR"), and the International Labour Organization's core conventions on fundamental principles and rights at work. "Decent working conditions" refers to work that safeguards fundamental human rights (as described above); health, safety and environment in the workplace; and that provides a living wage.14
The Norwegian Act imposes duties on businesses to carry out due diligence in accordance with the OECD Guidelines for Multinational Enterprises, and to publish an account of that due diligence. It grants a positive right to any person to request information (both general information and information relating to a specific product or service) from a business about how it addresses actual and potential adverse impacts arising out of its due diligence (subject to certain exceptions).15
"Due diligence" includes:16
embedding responsible business conduct into the business' policies;
identifying and assessing actual and potential adverse impacts on fundamental human rights and decent working conditions that the business has caused or contributed to, or that are otherwise linked to the business' operations, products or services through its supply chain or business partners;
implementing measures to cease, prevent, or mitigate adverse impacts, and tracking the implementation and results of those measures;
communicating with affected stakeholders and rights-holders regarding how adverse impacts are addressed; and,
providing for or cooperating in remediation and compensation where required.
The Norwegian Act applies to larger enterprises that are resident in Norway, and that offer goods and services in or outside of Norway. "Larger enterprises" are defined as those covered by section 1-5 of the Accounting Act, or those that exceed two of the following three conditions: (1) sales revenues of NOK70 million; (2) balance sheet total of NOK35 million; and/or (3) average number of employees in the financial year of 50 full-time equivalent. Parent companies are considered "larger enterprises" if the conditions are met for the parent company and subsidiaries as a whole.17
This is unclear. The Norwegian Act received Royal Assent on June 18, 2021; the date for its entry into force is pending.18
Germany Passed An "Act on Corporate Due Diligence Obligations in Supply Chains"
Also on June 10, 2021,19 Germany adopted the Act on Corporate Due Diligence Obligations in Supply Chains (the "German Act").20 The purpose of the German Act is to impose corporate due diligence obligations on prescribed businesses with respect to human rights and environmental risks. A "human rights risk" is defined as a condition in which, based on factual circumstances, there is sufficient probability that a violation of internationally recognized human rights is imminent. The German Act lists a number of such potential violations, including child and forced labour; violations of occupational health and safety obligations; violation of the right to freedom of association/collective bargaining; discrimination; withholding an adequate living wage; and other rights protected by the fundamental International Labour Organization Conventions and the ICESCR and ICCPR.21
The German Act imposes a number of due diligence obligations on applicable businesses, including the establishment of an appropriate and effective risk management system in order for the business to comply with its due diligence obligations. Part of the risk management system is an obligation to conduct an annual risk analysis to identify human rights and environment-related risks in the business' own business area, and that of its direct suppliers (and in certain circumstances, indirect suppliers). Businesses must take preventative measures where risks are identified and take remedial action where a violation of a human rights or environment-related obligation has been violated. Businesses must establish an internal complaints procedure that enables a person to report risks and violations (even those arising from the economic actions of an indirect supplier). In addition to issuing a policy statement on its human rights strategy, businesses will also have documentation and reporting obligations, including the preparation of an annual report to be published free of charge on the company's website.22 The annual report must state:
Whether the business has identified any human rights and environment-related risks or violations of a human rights-related or environment-related obligation, and if so, which ones;
What the business has done to fulfil its due diligence obligations with reference to the measures described in Sections 4 to 9 of Division 2 of the German Act, including the elements of the policy statement required under Section 6(2), and the measures taken by the business as a result of complaints under Sections 8 or 9(1);
How the business assesses the impact and effectiveness of the measures; and
What conclusions it draws from the assessment for future measures.23
If the business has not identified any human rights risks or environment-related risks, and no violation of a human rights-related or environment-related obligation, and has plausibly explained this in the report, no further details beyond those required in number 1 above are required.24
The German Act applies to enterprises that have (1) their central administration, principal place of business, administrative headquarters, statutory seat, or foreign companies with a domestic branch office (pursuant to section 13d of the Commercial Code) in Germany; and (2) normally have at least 3,000 employees in Germany (this number will be reduced to 1,000 employees in Germany on January 1, 2024).25
The German legislature (Bundestag) passed the German Act on July 16, 2021, and it is scheduled to come into force on January 1, 2023.26
The Netherlands is Debating a Bill on "Responsible and Sustainable International Business Conduct"
A Dutch bill on Responsible and Sustainable International Business Conduct was introduced to the Dutch parliament by four political parties in March of 2021 (the "Dutch Bill").27 This bill builds on the Child Labour Act, which we previously reported on,28 and which requires businesses to ascertain whether their products have been produced using child labour, and to take action to prevent the production of products and services from being produced using child labour.
The Dutch Bill expands the duty of care in the Child Labour Act, and proposes a duty of care for all businesses in the Netherlands, and an obligation to conduct corporate due diligence to address human rights violations and environmental damage in their "value chains."29 "Value chains" are defined as "the entirety of an enterprise's activities, products, production lines, supply chain and business relationships."30
The Dutch Bill proposes to require applicable businesses to take all measures reasonably required to prevent (or if not possible, to mitigate, reverse, or provide remediation for) impacts on human rights, labour rights, or the environment in countries outside of the Netherlands in which they operate. Human rights, labour rights, or the environment are negatively impacted if any of the following exist in the value chain: the restriction of freedom of association and collective bargaining; discrimination; forced labour; child labour; unsafe working conditions; slavery; exploitation; or environmental damage.31
Applicable businesses must publish a policy document expressing its commitment to the obligation of due diligence in the value chain. The policy document must include a due diligence plan, which must be implemented in the business' management system and become incorporated into the business' regular processes.32 Businesses will be responsible for identifying potential and actual risks of negative impacts in their own activities, as well as those of their business relationships, and develop an action plan to mitigate such potential and actual risks.33 Where business activities cause or contribute to negative impacts on human rights, labour rights, or the environment, businesses must cease those activities.34 The Dutch Bill also imposes monitoring and reporting obligations, as well as the requirement to develop a remediation mechanism to remedy negative impacts that the business has caused or contributed to.35
The Dutch Bill imposes penalties for breach of specified sections of the Dutch Bill, in addition to providing a designated regulator with the power to supervise compliance with the rules of the Dutch Bill, and impose orders subject to a penalty, to enforce prescribed sections of the Dutch Bill.36
The Dutch Act's due diligence obligations would apply to all businesses that (1) engage in activities outside of the Netherlands, and (2) exceed at least two of the following criteria on their "balance sheet date": (a) balance sheet total of €20 million; (b) net revenue of €40 million; or (c) average of 250 employees during the financial year.37
If enacted, the Dutch Bill states that it will be entered into force with effect from January 1, 2023, except for certain prescribed sections, which shall be entered into force June 1, 2023, and January 1, 2024.38
If the Dutch Bill becomes law, The Child Labour Act will be repealed.
Canada – Developments from the Office of the Canadian Ombudsperson for Responsible Enterprise
The Canadian Ombudsperson for Responsible Enterprise ("CORE") took a step forward in fulfilling its mandate earlier this year by, on March 15, 2021, launching its online complaints system. The online complaints system allows any person to file complaints about possible human rights abuses by Canadian companies working abroad in the garment, mining, and oil and gas sectors. The CORE's mandate is to (1) promote the implementation of the United Nations Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises; (2) advise Canadian companies on their practices and policies with regard to responsible business conduct; (3) review complaints submitted by individuals, organizations or communities concerning alleged human rights abuses; (4) review alleged human rights abuses; (5) offer informal mediation services; and (6) provide advice to the Minister on any matter relating to their mandate, including the responsible business conduct of Canadian companies operating abroad.39
On June 16, 2021, the Parliamentary Subcommittee on International Human Rights tabled the Report of the Standing Committee on Foreign Affairs and International Development (the "Report"), which considers expanding the CORE's mandate to include the power to compel witnesses and documents. The CORE has been criticized as "lacking teeth," and without these powers it is limited in its ability to investigate alleged human rights abuses abroad. Ultimately, the Report recommends that the Government of Canada enact due diligence legislation requiring companies operating abroad to conduct a thorough evaluation prior to beginning operations to ensure that their work will not adversely impact human rights.40
Canada – Supply Chain Transparency Legislation
Another development in Canada relates to the re-introduction of Bill S-216, An Act to enact the Modern Slavery Act and to amend the Customs Tariff (the "Canada Bill"). The Canada Bill passed its second reading in the Senate on March 30, 2021 and was referred to the Standing Senate Committee on Banking, Trade and Commerce for further consideration.41 The Canada Bill has been described as Canada's "supply chain transparency legislation," and its purposes are to:
Prohibit the importation of goods manufactured or produced, in whole or in part, by forced labour or child labour;42 and
Impose mandatory, continuous reporting obligations on applicable businesses with respect to measures taken to prevent and/or reduce the risk that forced or child labour is used at any step in the business's production, manufacture, growing, extraction or processing of goods in Canada or importation of goods into Canada.43
In their annual reports, businesses will be required to set out the steps taken during that year to prevent and reduce the risk that forced labour or child labour is used at any step of the production of goods in Canada or elsewhere by the entity, or of goods imported into Canada by the entity. It must also include information respecting its structure and the goods produced/imported; its policies in relation to forced and child labour; its activities that carry a risk of forced or child labour being used, and the steps taken to assess and manage that risk; any measures taken to remediate any forced or child labour; and the training provided to employees on forced and child labour.44 The report will be provided to the Minister of Public Safety and Emergency Preparedness and published publicly on the business' website.45
The Canada Bill will, if passed, be applicable to a corporation or a trust, partnership, or other unincorporated organization that (a) is listed on a stock exchange in Canada; (b) has a place of business in Canada, does business in Canada, or has assets in Canada, and that meets at least two of the following conditions for at least one of its two most recent financial years: (i) has at least $20 million in assets; (ii) generated at least $40 million in revenue; or (iii) employs an average of at least 250 employees.
This is unclear, as the Canada Bill has not yet been finalized and passed.
These new legislative efforts only solidify the trend towards the development of international and regional legislation to address corporate due diligence, transparency, and accountability with respect to human rights. These efforts continue alongside the ongoing negotiations at the United Nations for a multilateral treaty that addresses human rights violations committed by businesses.46 Regardless of the outcome of these treaty negotiations, multinational employers will increasingly be bound by various international and regional legislative efforts to hold their operations and the operations of their supply chains accountable for human rights practices. Therefore, companies should take stock of these operations, and identify areas in those operations where there is a high risk of forced labor and other modern slavery practices. Where such risks are identified, companies should take appropriate action to address those risks and implement procedures to ensure that new and existing relationships remain free of such activities. Because this due diligence process can be complex, it is recommended that employers engage the services of experienced counsel.
1 See Michael Manoukian, Michael G. Congiu, Stefan J. Marculewicz, and Lavanga V. Wijekoon, California Enacts Two Laws Aimed At Combating Human Trafficking, Littler ASAP (Oct. 2, 2018).
2 See Tahl Tyson, United Kingdom: New Law to Combat Supply Chain Slavery and Human Trafficking, Littler ASAP (July 14, 2015).
3 See Naomi Seddon, Lavanga Wijekoon, Michael Congiu, Stefan Marculewicz, and Daniel Kim, Australia: New South Wales Introduces Law Requiring Companies to Report on Modern Slavery, Littler Insight (July 13, 2018); Naomi Seddon, Lavanga Wijekoon, Merille Raagas, Alexander MacDonald, Michael Congiu, and Stefan Marculewicz, Australia Passes Law Requiring Large Companies to Report on Modern Slavery, Littler Insight (Dec. 4, 2018).
4 See Michael Congiu, Stefan Marculewicz, John Kloosterman, Stephan Swinkels, Aaron Saltzman, and Lavanga Wijekoon, Dutch and French Legislatures Introduce New Human Rights Due Diligence Reporting Requirements, Littler Insight (Mar. 13, 2017).
5 The Directive is available here.
6 Under the ordinary legislative procedure, the European Commission submits a legislative proposal to the European Parliament, which then proceeds through the process of readings in Parliament. During the first reading, Parliament may amend the proposal and provide recommendations. Now that the Parliament has made its recommendations to the Commission, the Directive must move through its first reading in European Council. If the Directive is accepted by Council, it will be adopted as law and entered into force.
7 Directive, Article 3(5): Definitions: https://www.europarl.europa.eu/doceo/document/TA-9-2021-0073_EN.pdf.
8 Directive, Article 4: Due diligence strategy: https://www.europarl.europa.eu/doceo/document/TA-9-2021-0073_EN.pdf.
9 Directive, Article 1: Subject Matter and Objective, Article 4: Due Diligence Strategy, and Article 9: Grievance Mechanisms.
10 Currently, there is no clear definition of this term.
11 Directive, Article 2: Scope.
12 Directive, Article 21: Transposition.
EU Member States will have a number of responsibilities under the Directive, including:
to implement rules to ensure that companies carry out effective due diligence;
To ensure that any business that has identified an adverse impact provides remediation or co-operates with the remediation process. Member States will be required to ensure that remedies implemented would not prevent those affected from bringing civil proceedings under national laws;
To encourage the adoption of voluntary or cross-sectoral due diligence action plans at national or European Union level in an effort to coordinate the due diligence strategies or undertakings;
To designate a national competent authority, responsible for the supervision of the application of the Directive, as transposed into national law, and for the dissemination of due diligence practices. Such national competent authority shall also have the power to carry out investigations to ensure that undertakings comply with the obligations set out in the Directive;
To impose proportionate sanctions for infringements of the national provisions adopted in accordance with the Directive, and take all measures to ensure that the sanctions are enforced; and
To ensure that Member States have a liability regime in place under which businesses can, in accordance with national law, be held liable and provide remediation for any harm arising out of potential or actual adverse impacts.
13 Norwegian Act, Section 1: Purpose.
14 Norwegian Act, Section 3(b) and 3(c): Definitions.
15 Norwegian Act, Section 6: Right to Information.
16 Norwegian Act, Section 4: Duty to Carry Out Due Diligence.
17 Norwegian Act, Section 3(a): Definitions.
18 Information from the English translation: https://lovdata.no/dokument/NLE/lov/2021-06-18-99.
19 Markus Krajewski, Kristel Tonstad and Franziska Wohltmann, Mandatory Human Rights Due Diligence in Germany and Norway: Stepping, or Striding, in the Same Direction?, Business Human Rights Journal, Cambridge University Press, 16 Sept. 2021.
20 Information from the English translation of the German Act can be found here.
21 Article 1, Division 1, Section 2(2) of the German Act.
22 Article 1, Division 2 of the German Act.
23 Article 1, Division 2, Section 10(2) of the German Act.
25 Article 1, Division 1, Section 1 of the German Act.
26 Article 5 of the German Act.
27 Dutch bill on Responsible and Sustainable International Business Conduct a major step towards protecting human rights and the environment worldwide, 11 Mar. 2021, available here.
28 See Michael Congiu, Stefan Marculewicz, John Kloosterman, Stephan Swinkels, Aaron Saltzman, and Lavanga Wijekoon, Dutch and French Legislatures Introduce New Human Rights Due Diligence Reporting Requirements, Littler Insight (Mar. 13, 2017).
29 See Dutch bill on Responsible and Sustainable International Business Conduct a major step towards protecting human rights and the environment worldwide, supra note 27.
30 The Unofficial Translation of A bill introduced by the members Voordewind, Alkaya, Van den Hul and Van den Nieuwenhuijzen providing for rules regarding due diligence in value chains to combat violations of human rights, labour rights and the environment in the conduct of foreign trade (the Responsible and Sustainable International Business Conduct Act (Wet verantwoord en duurzaam international ondernemen)) is available here.
31 The Dutch Bill, Section 1.2 Duty of care for every enterprise.
32 The Dutch Bill, Section 2.2. Due diligence policies, management systems and business processes.
33 The Dutch Bill, Section 2.3 Risk analysis and action plan for negative impacts.
34 The Dutch Bill, Section 2.4 Termination of negative impacts.
35 The Dutch Bill, Sections 2.5 to 2.8.
37 The Dutch Bill, Section 2.1 Scope of due diligence.
38 See Wet verantwoord en duurzaam internationaal ondernemen.
39 Mandate of the Canadian Ombudsperson for Responsible Enterprise.
40 Mandate of the Canadian Ombudsperson for Responsible Enterprise, Report of the Standing Committee on Foreign Affairs and International Development, June 2021.
41 An Act to enact the Modern Slavery Act and to amend the Customs Tariff, S-216, 43rd Parliament, 2nd session.
42 Proposed amendment to subparagraph 132(1)(m)(i.1) of the Customs Tariff: https://parl.ca/DocumentViewer/en/43-2/bill/S-216/first-reading.
43 Preamble and section 3 of the Act: https://parl.ca/DocumentViewer/en/43-2/bill/S-216/first-reading.
44 Subsections 7(1) and 7(2) of the Act: https://parl.ca/DocumentViewer/en/43-2/bill/S-216/first-reading.
45 Section 8 of the Act: https://parl.ca/DocumentViewer/en/43-2/bill/S-216/first-reading.
46 See Lavanga V. Wijekoon, Michael G. Congiu, and Stefan J. Marculewicz, United Nations Takes Another Step in Developing a Treaty on Business and Human Rights, Littler Insight (Nov. 5, 2019).
Lavanga V. Wijekoon
lwijekoon@littler.com
Kate Bresner
kbresner@littler.com
Michael G. Congiu
mcongiu@littler.com
Stefan J. Marculewicz
smarculewicz@littler.com
Business and Human RightsCorporate Compliance and EthicsInternational Employment Law
California Enacts Two Laws Aimed At Combating Human TraffickingUnited Kingdom: New Law to Combat Supply Chain Slavery and Human TraffickingAustralia: New South Wales Introduces Law Requiring Companies to Report on Modern SlaveryAustralia Passes Law Requiring Large Companies to Report on Modern SlaveryDutch and French Legislatures Introduce New Human Rights Due Diligence Reporting RequirementsUnited Nations Takes Another Step in Developing a Treaty on Business and Human Rights