First draft on EU mandatory human rights due diligence out

See update on the EU Parliament draft Directive adopted on March 10, 2021.

On September 2020, the EU Parliament Committee on Legal Affairs published a draft report containing a text of proposed Directive on mandatory human rights due diligence and recommendations to the EU Commission.

According to an EU Commission study, currently, only 37% of business respondents conduct environmental and human rights due diligence and only 16% cover the entire supply chain.

Cross-sectorial approach for all European companies

The proposed Directive imposes on all companies “governed by the law of a Member State or established in the territory of the Union”, as well as “limited liability undertakings governed by the law of a non-Member State and not established in the territory of the Union when they operate in the internal market selling goods or providing services” mandatory due diligence (Article 2).

Such due diligence not only covers human rights, but also the environment and good governance (Article 1). In that regards, environmental risks are defined as including adverse impact on the climate, the sustainable use of natural resources, biodiversity, and ecosystems. Governance risks encompass among others, non-compliance with OECD Guidelines for Multinational Enterprises, Chapter VII on Combatting Bribery, Bribe Solicitation and Extortion (Article 3).

Due diligence must cover risks posed both by companies’ own operations and by those of their business relationships (Article 3). Trade unions must be involved in good faith and consultations with stakeholders must be carried out when establishing, implementing, and reviewing the due diligence strategy (Articles 5 and 8).

Companies are required to establish a grievance mechanism, “both as an early-warning risk-awareness and as a remediation system” allowing any stakeholder to raise concerns regarding potential and actual risks (Article 9).

Large corporations must set up an advisory committee in charge of advising the governing body of the company, itself having to have necessary qualification, knowledge, and expertise regarding due diligence (Article 12).

Criminal liability in case of repeated infringement

To ensure companies’ compliance with their obligations, States are required to designate competent authorities and grant them the power to carry out investigations. This must include authorisation to carry out checks on companies and interviews with stakeholders (Article 15).

If investigations reveal non-compliance, competent authorities must grant the company an appropriate period of time to take remedial action. It may also order the adoption of interim measures or order the temporary suspension of activities if the failure to comply could lead to irreparable harm (Article 15).

If the company fails to adopt remedial action, penalties must be imposed. Such penalties must be effective, proportionate and dissuasive (Article 19).

Finally, repeated infringement, when committed intentionally or with serious negligence, constitute criminal offence (Article 19).  

Access to EU courts for victims

As adversely impacted stakeholders are often non-Europeans individuals denied justice in their home country and lacking access to Member-States courts, the Committee on Legal Affairs provided recommendations amending Regulation No. 1215/2012 on jurisdiction and the recognition and enforcement of judgements in civil and commercial matters (Brussels I), and Regulation No. 864/2007 on the law applicable to non-contractual obligations (Rome II) to introduce a forum necessitatis.

Amendments to Brussels I include a new paragraph 5 in Article 8:

“ In matters relating to business civil claims for human rights violations within the value chain … an undertaking domiciled in a Member State may also be sued in the Member State where it has its domicile or in which it operates when the damage caused in a third country can be imputed to a subsidiary or another undertaking with which the parent company has a business relationship …”.

And new Article 26a:

“… where no court of a Member State has jurisdiction under this Regulation, the courts of a Member State may, on an exceptional basis, hear the case if the right to a fair trial or the right to access to justice so requires, in particular: (a) if proceedings cannot reasonably be brought or conducted or would be impossible in a third State with which the dispute is closely related; or (b) if a judgment given on the claim in a third State would not be entitled to recognition and enforcement in the Member State of the court seised under the law of that State and such recognition and enforcement is necessary to ensure that the rights of the claimant are satisfied; and the dispute has a sufficient connection with the Member State of the court seised.”

Amendment to Rome II inserts Article 6a:

“… the law applicable to a non-contractual obligation arising out of the damage sustained shall be the law determined pursuant to Article 4(1), unless the person seeking compensation for damage chooses to base his or her claim on the law of the country in which the event giving rise to the damage occurred or on the law of the country in which the parent company has its domicile or, where it does not have a domicile in a Member State, the law of the country where it operates.”

This draft will serve as the basis for future negotiations.