As previously noted, on February 21, 2017, the French National Assembly adopted a law establishing a “duty of vigilance” for large multinational firms carrying out all or part of their activity in France.
In a subsequent development, on March 23, the French Constitutional Council released a decision upholding the majority of the legislation, but striking down the proposed civil penalties for companies that fail to develop a diligence plan. After the Constitutional Council’s decision, the “duty of vigilance” law came into force on March 28.
Companies subject to the law must now establish mechanisms to prevent human rights violations and environmental impacts throughout their chain of production, including for their subsidiaries and companies under their control. These mechanisms must be reported each year as part of a “vigilance plan.”
Which companies are covered by the new legislation?
This law covers large limited liability companies (“sociétés anonymes”) that meet the following criteria:
- French companies headquartered in France that employ at least 5,000 employees worldwide (including through direct and indirect subsidiaries); or
- Foreign companies headquartered outside France, with French subsidiaries, as long as they employ at least 10,000 employees worldwide (including through direct and indirect subsidiaries).
Notably, a company is considered to be a subsidiary if another company owns more than 50% of its capital. Multinationals that own more than 50% of a company operating in France may therefore be covered by the law.
What, specifically, are companies required to do?
The requirements of the French law are notably different than laws like the U.K. Modern Slavery Act and the California Transparency in Supply Chains Act, which only required companies to report on their efforts, if any, to identify certain forms of human rights-related risk. Companies subject to the French law are actually required to implement a vigilance plan.
In the coming months, the French Government is expected to issue a decree providing more details on the specific due diligence measures that companies will be expected to take. That said, generally, the French law requires companies to establish and effectively implement due diligence measures to identify and prevent human rights violations and environmental damages in connection with their operations.
Corporate due diligence plans are expected to cover the parent company, companies under its control, as well as the suppliers and subcontractors with which the parent company or any of its subsidiaries have established a commercial relationship. A company’s plan, which should developed in consultation with relevant stakeholders, is expected to include the following components:
- Procedures to identify and analyze the risks of human rights violation or environmental harms in connection with the company’s operations;
- Procedures to regularly assess risks associated with subsidiaries, sub-contractors, and suppliers with which the company has a commercial relationship;
- Actions to mitigate identified risks or prevent the most serious violations;
- Mechanisms to alert the company to risks and collect signals of potential or actual risk; and
- Mechanisms to assess measures that have been implemented as part of the company’s plan and their effectiveness.
Companies are expected to make their vigilance plans, and regular reports on the implementation of the plan, public as part of their annual reports.
What are potential penalties for failure to comply?
Any concerned party has standing to request that a judge compel a company to establish, implement, or publish a vigilance plan. As noted above, the legislation originally included civil penalty provisions for companies that do not establish or implement a plan, but these were struck down by the Constitutional Council. That said, companies could be subject to liability if individuals harmed by a company’s failure to establish or implement a plan seek damages for corporate negligence.