In 2017, law n°2017-399 of 27 March 2017 relating to the duty of diligence of parent companies and ordering companies, known as the “duty of diligence law” (loi sur le devoir de vigilance), introduced articles L225-102-4 and L225-102-5 to the French commercial code,[1] which will become articles L225-102-1 and L225-102-2 of the French Commercial Code as of 1 January 2024 as a result of the transposition of directive (EU) 2022/2464, known as the CSRD or Corporate Sustainability Reporting Directive.[2]
Under these articles, France’s largest companies are required to adopt a due diligence plan that includes actions to prevent serious violations of human rights, fundamental freedoms, personal health and safety, as well as the environment, resulting from their activities, those of the companies they control, but also those of their subcontractors or suppliers with whom they have an established business relationship.[3]
These articles allowed any company subject to the duty of diligence to be given formal notice to comply with its obligations if it failed to do so, and, within a period of three months without complying, to be summoned by any person with an interest in the matter to appear before the Paris judicial court (tribunal judiciaire de Paris), if necessary, in urgent proceedings (procédure en référé). The Paris judicial court may then order the company to comply with its obligations, under penalty if necessary.[4]
Under this new possible action, several organizations, associations and trade unions have served formal notice and brought to court companies for failure to comply with their due diligence obligations with regard to humanitarian, environmental and workers’ rights issues.[5] First, these actions gave rise to a lengthy debate over which court would have jurisdiction over such disputes, as the text did not provide any details on this point. This debate finally led to a decision by the French Supreme Court (Cour de cassation) on 15 December 2021, recognizing the jurisdiction of the Paris judicial court,[6] and to the adoption of a law to this effect on 22 December 2021.[7]
This issue being settled, the actions initiated were able to resume, followed by numerous other actions. These actions led to several decisions issued by the Paris judicial court in 2023. After decisions in the Total Energies case in February and July as well as in the Suez case in June, regarding particularly the implications of formal notices prior to summons and the powers of the summary proceedings judge (juge des référés),[8] the Paris judicial court issued a decision on 5 December in the La Poste case regarding the substance of the due diligence obligations set out in the actual version of article L225-102-4 of the French Commercial Code.
This decision stems from several formal notices served on La Poste by the SUD PTT trade union on 8 October 2020, 14 December 2020 and 17 May 2021, and from a writ of summons issued on 22 December 2021. Indeed, La Poste was required to complete its due diligence plan and effectively implement certain due diligence actions, under penalty of 50.000 euros per day of delay from the date of the decision to be issued.[9]
The decision of the Paris judicial court granted many of the SUD PTT trade union’s claims and handed down a conviction against La Poste on the grounds of due diligence, shedding some interesting light on the due diligence plan obligations (I). However, it has been the subject of much criticism, particularly in that it did not implement all the powers granted to the judge in this area, including its power to impose penalties (II).
I. The Paris judicial court defined in more detail the obligations stemming from the due diligence plan provided for in article L225-102-4 of the French Commercial Code
In a decision of almost thirty pages, including a detailed analysis of La Poste’s due diligence plan and particularly clarifying details on due diligence obligations, as mentioned above, the Paris judicial court sentenced La Poste and ordered it to:
- complete its due diligence plan with a risk mapping designed to identify, analyze and prioritize risks;
- establish procedures for assessing subcontractors on the basis of the specific risks identified by the risk mapping;
- complement its diligence plan with a mechanism for reporting and collecting alerts, after consulting representative trade unions;
- and publish a proper system for monitoring due diligence actions.[10]
A. The Paris judicial court noted that the risk mapping must be precise and must be the basis for the other measures of the due diligence plan
Regarding risk mapping, article L225-102-4 of the French Commercial Code only provides that the due diligence plan must include a risk mapping designed to identify, analyze and prioritize risks, and that procedures for regularly assessing the situation of subsidiaries, subcontractors and suppliers must be defined based on the results of this risk mapping.[11]
In its decision, the Paris judicial court, largely influenced by the existing corruption risk mapping system, stated that risk mapping was fundamental as its results determined the subsequent steps and the effectiveness of the entire due diligence plan.[12]
It detailed the main steps of what it considered to be risk mapping, namely: (i) identifying and analyzing the potential impact of the company’s activities on fundamental rights, health, safety and the environment, then (ii) prioritizing the risks identified according to their severity, and finally (iii) determining appropriate priorities for action.[13]
More specifically, regarding La Poste’s risk mapping, the Paris judicial court required the description of risks to be precise, the specific risk factors linked to the company’s activity and its organization that affect protected values to be identified, the analysis and prioritization of risks not to be carried out at a global level, and the prioritization of risks to be able to identify clearly the priority actions to be taken or reinforced.[14]
However and although La Poste had potentially effective tools for assessing its subsidiaries and regular partners, the Paris judicial court noted that, given its risk mapping did not specify the risk factors or their prioritization, it was impossible to check that these tools were in line with the risks severity and strategically focused on the priority risks to be addressed.[15]
The Paris judicial court also specified that the published version of the risk mapping was intended to inform stakeholders and the public of the risks to human rights, health and safety as well as environment caused by the company’s activities, but that it was possible for the company to have another more detailed version.[16]
B. The Paris judicial court specified the way in which the whistleblowing system was to be set up in cooperation with the representative trade unions
Article L225-102-4 of the French Commercial Code provides that the due diligence plan must include a system for reporting and for collecting alerts regarding the occurrence or existence of risks (a whistleblowing system), which must be set up in cooperation with representative trade unions.[17]
The Paris judicial court defined “cooperation” as “the determination to jointly develop an action or a decision and cannot be limited to the simple collection of opinions on a system that has already been finalized”.[18]
In concrete terms, according to the judicial court, this means, for example, that trade unions must be able to read about the system carefully, express their point of view on it and exchange views with company representatives.[19]
The Paris judicial court added that the burden of proof in this respect was on the company, which had to prove that it had made every effort to set up the whistleblowing system in cooperation with the representative trade unions.[20]
C. The Paris judicial court pointed out that actions to mitigate risks or prevent serious harm must be specific and tailored to the risks identified in the risk mapping
Article L225-102-4 of the French Commercial Code provides that the due diligence plan must include appropriate actions to mitigate risks or prevent serious harm.[21]
The Paris judicial court provided further details on this matter, stating that the “appropriate” nature of these actions meant that they could not be limited to general declarations of intent or be general and imprecise, such as a simple reminder of the company’s policies and commitments or a brief description of existing measures without describing their modalities and effects.[22]
Instead, these actions should focus on the risks identified by the risk mapping, particularly those considered to be the most critical. They should also, while reasonable, be sufficiently precise to be implemented concretely and effectively to prevent the most serious harm and limit the impact of the other risks identified.[23]
In addition, the Paris judicial court noted that article L225-102-4 of the French Commercial Code only empowered it to order a company to comply with its obligations, and not to order it to take specific appropriate actions. In its opinion, its power is therefore limited to a mere judicial review of the integration into the due diligence plan of concrete, appropriate and effective actions in line with the risk mapping and should under no circumstances lead it to supersede the company and its stakeholders in decisions to be implemented that prove to be strategic for the company and the market.[24]
D. The Paris judicial court specified the characteristics of a proper system for monitoring and assessing due diligence actions from the due diligence plan
Article L225-102-4 of the French Commercial Code provides that the due diligence plan must include a system for monitoring the actions implemented and assessing their effectiveness.[25]
In this respect, the Paris judicial court criticized the monitoring and assessing system set up by La Poste, revealing some general characteristics, in particular regarding to what this system must not be.
Thus, the judicial court stated that a summary report in the due diligence plan, which presented only certain measures in a brief and random manner, and which made no reference, even briefly, to more in-depth assessments of certain measures when they existed, was not sufficient to usefully assess the effectiveness of the actions implemented and to be used as a guide to determine the course of action in terms of due diligence.[26]
II. The Paris judicial court has been criticized for not using all its powers in its decision, including its power to impose penalties
Although this is expressly provided for in article L225-102-4 of the French Commercial Code, [27] the judicial court decided not to impose a penalty in addition to the orders he issued, on the grounds that La Poste had made considerable efforts to improve its due diligence plan by modifying and supplementing it on an annual basis, and that this demonstrated significant progress as part of a dynamic approach to improvement.[28]
This approach has been largely criticized, in particular by professionals such as lawyers and associations, who consider that such a decision, contrary to the traditional idea according to which a penalty would encourage improvement, would run the risk of not being very effective and would amount to quasi recommendations rather than a real legal decision settling a dispute.[29] Some have even questioned whether, in doing so, the judge is fully fulfilling his role, and whether it would not be useful to involve the criminal judge for the purposes of pressure and dissuasion in due diligence cases often involving criminal offences.[30]
In addition, the judicial court was also criticized for considering it was not able to order a company to take specific measures to mitigate risks or prevent serious harm, but was only able to order them to comply with the obligations set out in article L225-102-4 of the French Commercial Code, therefore strictly interpreting the wording of this article which provides that “the competent court may, at the request of any person having an interest in the matter, order, where appropriate under penalty, to comply with them”.[31]
Despite these criticisms, this decision remains fundamental in that it is the first decision on the substance and the first sentence in cases related to the duty of diligence and in that it provides instructive clarification of the obligations laid down by the law, which has been accused of being too imprecise, vague and flexible,[32] and which has still not been supplemented by the decree (décret d’application) it refers to.[33] This decision should therefore provide companies with greater guidance in implementing their obligations.
The details of this duty of diligence should be further clarified as the Parliament and the Council have just reached agreement on the proposal for a directive on corporate sustainability on 14 December 2023.[34] Therefore, let’s hope that an official text will soon be adopted and that, when transposed into French law, the current system will be reviewed and supplemented to provide companies with a more solid legal basis and greater legal security.
