Analysis
14 July 2017

Duty of care of parent and contracting companies law

Bastille Day Newsletter 2017 - Legislative Updates

 

The idea for this text stems from the necessity to adapt “the legal framework to the new reality of globalization” after the Rana Plaza disaster on April 24, 2013.

According to the authors of the bill filed at the National Assembly on February 11, 2015, the aim of this text is to give more responsibilities to “transnational companies in order to prevent the occurrence of disasters in France and abroad and to obtain reparation for the victims in case of violations of human rights and environmental damage”.

Obligation for parent and contracting companies to implement a monitoring program

Companies which have their registered office in France and which, at the end of two fiscal years employ at least 5000 people within the company and their French subsidiaries or employ at least 10 000 people within the company and their French and foreign subsidiaries, have the obligation to implement a monitoring program.

The law also aims at subsidiaries or controlled companies which exceed the thresholds mentioned as soon as the company which controls them implements and executes a monitoring program on the activities of the company and the activities of all of its subsidiaries or controlled companies.

This program includes reasonable monitoring measures allowing the identification of risks and the prevention of severe violations of human rights and fundamental freedoms, damage to the health and security of individuals or to the environment resulting from the activities of the company, the activities of the companies it controls as well as subcontractors and suppliers with whom these companies have an established commercial relationship.

Among these monitoring measures, the following are cited:

  • Risk mapping aimed at identification, analysis and prioritization of risks
  • Regular evaluation procedure of the situation of subsidiaries, subcontractors or suppliers with whom an established commercial relationship is maintained
  • Actions for risk mitigation or prevention of several violations
  • A mechanism for warning and collection of reports relating to the existence or the realization of risks established in coordination with the company’s representative labor organizations.
  • A mechanism allowing the monitoring of measures implemented and the evaluation of their efficiency

This program is now part of the business report mentioned in Article L225-102-1 of the Commercial Code.

Removal of the fine provision by the Constitutional Council

Initially, the text provided that a company which would violate this obligation could be ordered to respect them after a formal notice and that it could be sentenced to pay a civil fine of 10 million euros.

This possibility of issuing a fine was rejected by the Constitutional Council in its decision dated March 23, 2017 since the terms of the obligation imposed to the company was not defined in sufficiently clear and precise terms.

Henceforth, in case of non-compliance with the duty of care, the company may be receiving formal notice to comply with the obligations set forth in this law. If the company does not comply with its obligations within three months from the receipt of the notice, the competent court may, at the request of a person having a legitimate interest in this regard, order the company to respect its obligations under financial compulsion.

The law also provides that any person who can establish a legitimate interest in this regard may take action against the company in order to obtain compensation of the damage that compliance with its obligations could have helped to avoid.

Commentators have regarded this new possibility as a new type of vicarious liability. However, it should be noted that the existence of a direct causal link between the infringements and the damage remains a condition to hold the parent company liable. Still, under this new law, a parent or a contracting company may be held liable for a damage which first originated in the acts of one of its subsidiaries as soon as its failure to implement a monitoring program is a direct cause of the damage.

Related content

Analysis
CumEx files
13 January 2022
CumEx files, from tax optimization to tax fraud?
A look back at the revelations of the "CumEx files" and key take aways on these practices of tax optimization...
Press review
Press review - Week of 27 March 2022
31 March 2023
Press review – Week of 27 March 2023
In this week's press review, Navacelle piggybacks on the raids of several banks in Paris and La Défense as part...
Analysis
29 March 2023
Arbitration between Alstom & ABL: the Versailles Court of Appeal confirms the exequatur on 14 March 2023
Following a lengthy legal battle between Alstom and ABL, the Versailles Court of Appeal approved the 30 March 2016,...
Event
will the recent French case law harm the position of Paris as preferred arbitral seat
29 March 2023
Will the recent French case law harm the position of Paris as preferred arbitral seat?
For Paris Arbitration Week 2023, Navacelle’s Arbitration team invites you to participate in its round table on the following topic...
Press review
Press review - Week of 20 March 2022
24 March 2023
Press review – Week of 20 March 2023
In this week’s press review, Navacelle looks at the arrest warrant issued by the Prosecutor of the International Criminal Court...
Publication
LIR - Second edition - Greenwashing
21 March 2023
Boosting the fight against greenwashing in France
In the recent years, French rulemakers, regulators and the judicial system have contributed to strengthen the fight against greenwashing.
Press review
Press review - Week of 13 March 2022
17 March 2023
Press review – Week of 13 March 2023
This week in the press review, first in criminal business law, Pakistani investor Arif Naqvi lost his appeal against extradition...
Analysis
15 March 2023
US FinCEN issues new rule on beneficial ownership reporting under the Corporate Transparency Act
As of January 1, 2024, companies operating in the United States will be required to report information about their beneficial...
Press review
10 March 2023
Press review – Week of 6 March 2023
This week in the press review, HVI Cat Canyon Inc. has been ordered to pay more than 65 million dollars...
Analysis
9 March 2023
Historical sanctions by the Financial Markets Authority
The Financial Markets Authority’s Enforcement Committee imposes record-breaking fines on a British asset management company and two of its executives...
Press review
Press review - Week of 27 February 2023
2 March 2023
Press review – Week of 27 February 2023
This week in the press review, the Minister of Public Accounts visited the United States to discuss improving tax cooperation....
Press review
Press review - Week of 20 February 2023
24 February 2023
Press review – Week of 20 February 2023
This week in the press review, Navacelle focuses on the cancelation of a record fine against Swiss laboratories for anti-competitive...
Press review
Press review - Week of 13 February 2023
17 February 2023
Press review – Week of 13 February 2023
This week in the press review, Shell executives were accused of endangering the company’s sustainability. German authorities raided companies suspected...