Mandatory Human Rights Due Diligence: options of monitoring, enforcing and remedy under the future EU legislation

In 2020 the EU Commissioner for Justice, Didier Reynders expressed a commitment to legislate mandatory human rights and environmental due diligence obligations for EU companies.  This commitment in turn flows from the EU and member states’ support for the UN Guiding Principles on Business and Human Rights (UNGPs) which call for all businesses to undertake due diligence to operationalise their corporate responsibility to respect human rights – as well as for states to adopt a ‘smart mix’ of legislative and other regulatory measures ‘to prevent, investigate, punish and redress’ business-related human rights abuses.

In a recent Expert Briefing for the European Parliament, we considered how compliance with EU due diligence legislation should be monitored and enforced, and how it could enhance access to remedy for victims of corporate human rights abuses.  This post presents our analysis and key findings.

Monitoring

Approaches to monitoring under existing human rights disclosure and due diligence laws vary.  At company level, monitoring is an essential component of due diligence under the UNGPs and a prerequisite to effective remediation and continuous improvement in company policies and practice. But monitoring also refers to steps by external parties to track companies’ compliance with due diligence obligations. Thus, legislation may involve government bodies in due diligence monitoring, for instance, by requiring companies to file due diligence reports, or obliging national authorities to monitor individual companies’ fulfilment of due diligence or disclosure obligations. In addition, independent bodies may be tasked to review legislation’s overall application and effectiveness. In terms of monitoring, existing EU legislation requires member states to appoint competent national oversight authorities (EU Timber Regulation), and to identify and publish lists of companies subject to due diligence requirements and to undertake checks on company compliance (EU Conflict Minerals Regulation). Legislation may also provide for time-bound review of its own effectiveness (EU Conflict Minerals; Australian Modern Slavery Act).

Besides, complaint mechanisms have both monitoring and remedial functions. Early alert and warning mechanisms (French Duty of Vigilance Law– DVL) can be distinguished from complaints based on substantiated concerns (EU Timber). Draft legislation in Norway would establish a right to information on ‘how an enterprise conducts itself with regard to fundamental rights and decent work within the enterprise and its supply chains’, along with an information request procedure, applicable to all businesses, not just to large companies subject to formal reporting requirements.

Some regimes envisage third party due diligence monitoring via requirements for the conduct of supply chain audits by independent auditors (California Transparency in Supply Chains Act; EU Conflict Minerals; EU Timber Regulation). Yet the weaknesses of professional social audit in identifying risks and securing remediation are well documented, leading many actors to advocate worker-driven supply chain monitoring instead.

Taking into account insights gained from existing legislative approaches, as well as considerations of feasibility and effectiveness, our briefing recommends inter alia that EU due diligence legislation should require companies to undertake periodic monitoring to address their business’ structure, activities, actual and potential human rights risks and impacts, complaints received, and remediation. Companies should also be obliged to establish an alert/complaint mechanism open to workers and third parties and to adequately involve stakeholders, including workers, in the design and operation of monitoring arrangements. Periodic disclosure and publication of information on company monitoring and its outcomes should also be required, as should board-level approval for company monitoring schemes and reports.

Monitoring of both procedural compliance and substantive and effectiveness should be done through national bodies, therefore member states should establish relevant national frameworks for access to information, such as repositories, lists of companies under scope, transparency regarding monitoring of compliance. In this regard, establishing a right to know procedure will be a significant advancement for transparency and monitoring of due diligence processes. Finally, the EU should provide adequate frameworks to guarantee access to information, including repository, list of companies under scope, etc., and equally monitor procedural compliance and substantive effectiveness. Further legislative development or guidance would need to accompany any initial mandatory human rights due diligence legislation at EU level.  

Enforcement

Enforcement mechanisms should trigger company compliance with either procedural or substantive due diligence duties, or both, in specific instances. Existing due diligence laws include enforcement provisions of various kinds. In some cases, powers to initiate enforcement action rest exclusively with executive authorities. Yet in this scenario, enforcement powers are more theoretical than real. Under the UK Modern Slavery Act 2015, for example, companies can in principle be compelled to publish statements via injunction on the application of the Secretary of State. Yet this mechanism has never been used.

Third party enforcement mechanisms appear more promising. Under the French DVL, any interested party can seek a formal notice to comply if a company fails to establish, implement or publish a vigilance plan. If a company fails to respond within a 3-month period, it may be required, subject to a penalty, to establish and publish a vigilance plan, or give an account of the absence of a plan. These mechanisms have already activated on several occasions, albeit their ultimate impact is as yet unclear.  

Research however suggests that corporate compliance with existing disclosure laws remains weak, as does voluntary corporate implementation of the corporate responsibility to respect human rights described by the UNGPs. Accordingly, our briefing recommends that an EU due diligence law require member states to establish penalties for non-compliance which are effective, proportionate and dissuasive; create national enforcement bodies (or provide specific competences to existing national bodies to exercise this function); and establish clear and specific roles for interested parties in enforcement procedures, while member states should also report periodically on national enforcement actions.

Remedy

Human rights standards establish a right to effective remedy with substantive and procedural dimensions. Access to justice and the right to an effective remedy, in the human rights and business context, refers to judicial, administrative or other mechanisms to ensure that when business-related human rights abuses occur or are threatened, those affected can avail themselves of an effective remedy. What constitutes an effective remedy is context-dependent and may range from prosecution and punishment of perpetrators, whether real or natural persons, in case of serious abuses, to compensation for economically assessable damage, orders for restitution of victims, changes in company policies, guarantees of non-repetition or disciplinary action against responsible personnel and public apologies. Member states, the EU and other regional institutions have undertaken to uphold effective access for justice and remediation of business-related human rights abuses, inside and outside their territory or technical legal jurisdiction, via legal and policy commitments.  Yet victims of business-related abuses continue to face legal and practical obstacles to access to justice and effective remedy. These include limits on parent company liability, inequality of arms, access to legal representation, information and evidence, attacks on human rights defenders, the risk of counter-litigation, including Strategic Lawsuits against public participation (SLAPP suits), as well as the limits of representative and collective redress mechanisms. Since 2011, such issues have been only weakly addressed by relevant laws, at EU and member state level, or policy initiatives such as NAPs.

Corporate human rights disclosure regimes can support the substantive dimension of remediation, for instance, where reporting requirements encourage the establishment of internal complaints mechanisms. However, disclosure regimes are generally more relevant to remedy’s procedural aspects: information yielded by such mechanisms can in principle support victims in obtaining remedies. Yet such provisions are rarely used in practice and disclosure regimes’ impact on remediation, overall, is both indirect and weak.

Enhancing remedies for victims was one goal of the French DVL.  The DVL establishes a right of civil action for victims of tortious damage caused by failures of due diligence by a parent company, its subsidiaries, suppliers or subcontractors with an established commercial relationship. In addition, the DVL permits interested parties to seek a formal notice and injunction to comply with due diligence requirements. This also supports remediation because such measures may be probative of a lack of vigilance during a subsequent civil claim. Further, the DVL allows a court to order publication, dissemination or display of its decision with costs to be paid by the defendant.

In the UK, courts have established that a duty of care may be owed by the parent company not only to a subsidiary’s employees, but also to other persons affected by its operations. Yet, in general, parent company liability for human rights abuses remains restricted. Neither do existing schemes shift the burden of proof, a recognised challenge for victims in civil litigation addressing business-related human rights harms. However, some proposed laws, such as the Swiss Initiative would require a defendant company in civil proceedings to prove that it met its due diligence obligation or that it lacked effective control over a subsidiary once a prima facie case has been made.

Anti-corruption laws may impose strict liability for compliance failures, subject to a defence based on ‘adequate procedures’ and some proposals have suggested the adoption of similar approaches in the context of corporate human rights harms. However, their viability in the context of an EU human rights due diligence law seems questionable, given inter alia requirements for legal predictability, a lack of precedents at national or EU level and the principle of subsidiarity (Art 5(3) TEU).

In light of the above, and feasibility considerations including those related to the division of competences between the EU and member states, in our recommendations, EU due diligence legislation should require member states to provide for effective and accessible remedies (judicial and non-judicial) for business-related human rights abuses; there should be clear opportunities for victims and interested parties to initiate procedures and investigations; and support for victims should be made available to combat the inequality of arms that they suffer when confronting corporate abuse.

Whilst discussions continue over the specific scope, entities subjected to the regulation, monitoring and enforcement, what does not need further discussion is the need for mandatory human rights due diligence at EU level which allow the EU and member states to guarantee that EU companies and those operating in their territory do not harm human rights when producing and commercialising the goods and services which we all consume.