As a pioneer in this area along with Germany, France has adopted a requirement for large French companies or groups to establish a vigilance plan to identify and prevent serious violations committed by their subsidiaries and subcontractors in France or abroad against human rights and fundamental freedoms, human health and safety, and the environment, through the law on the duty of vigilance of parent companies and ordering companies of May 27, 2017.
This vigilance plan must include specific measures, namely (i) a risk map, (ii) procedures to regularly assess the situation of subsidiaries, subcontractors or suppliers involved in a business relationship, (iii) appropriate actions to mitigate risks or prevent serious violations, (iv) a mechanism for alerting and collecting reports on the existence or occurrence of risks, and (v) a system for monitoring and evaluating the measures implemented.
Where damages are directly incurred as a result of the non-execution or failure to execute the due diligence plan, the French legislator has opted for the general rules of civil liability. Thus, a defaulting enterprise will have to compensate the damage suffered by the victims if they can prove that the company has failed to carry out its obligations or has failed to do it properly, and that there is a causal link with this fault.
In the event of a breach, French law provides for a preliminary stage before incurring liability, consisting in the possibility to give a formal notice to the defaulting company to implement such a vigilance plan within three months. If the company fails to do so, and at the request of any person having an interest in the matter, the legislation allows the competent court to enjoin the company, if necessary under penalty, to implement such a plan.
Litigation on the French duty of vigilance has been slow to take hold
In the absence of a precise indication of what court should be seized, there was a debate in the case law as to whether the “competent court” referred to in the legislation was the judicial court or the commercial court. Indeed, in the context of the Total case, several associations had, in June 2019, given formal notice to the company to comply with its new duty of care. Regarding the lack of what they considered to be sufficient compliance with this obligation, the associations brought an action against Total before the courts, seeking an injunction to require the company to implement a due diligence plan in accordance with the legal requirements. Total argued that the latter judge was not competent to hear the case but rather the commercial judge, a position that was confirmed by the court, which, in an order dated January 30, 2020, recognized the “exclusive jurisdiction of the consular courts” and referred the case to the commercial court. This debate was most certainly a focal point for the application of the 2017 law, leaving associations and companies awaiting a clear position on this procedural issue. Through a decision of December 15, 2021, the Court of Cassation has recognized the competence of the judicial court. Then, the legislator itself, through a law n° 2021-1729 of December 22, 2021, specified that the jurisdiction of the judicial court of Paris was exclusive. This procedural debate is now closed, and one would have thought that other litigation in this area would prosper. However, expectations in terms of duty of care are once again driven by the ongoing European debates regarding a duty of care at the European level.
A proposal for a directive on “corporate sustainability due diligence” was adopted by the European Commission on 23 February 2022. This proposal intends to impose on companies an obligation of means to ensure that their activities mitigate the impact on human rights or the environment.
The directive, which is only a proposal at this point, includes some important elements compared to the duty of care as it is currently provided for in France.
A duty of care affecting a larger number of operators
The proposed directive unveiled by the European Commission is intended to mitigate the negative impact of economic activities carried out by companies on human rights and the environment. It thus requires companies to adopt a due diligence and risk mapping strategy.
In contrast to the duty of care established by France, the European Union intends to apply this duty of care to a greater number of economic actors than those covered by French law. Thus, all companies with limited liability legal regime with at least 500 employees and a worldwide turnover of at least 150 million euros would be concerned by the European duty of care. It should be noted that unlike the French duty of care, which applies to companies with at least 5,000 or 10,000 employees, the proposed directive provides for two cumulative criteria concerning the number of employees and turnover.
In addition to this category, limited liability companies operating in a high-risk sector of activity will be added within two years if they employ 250 people and have a worldwide turnover of at least 40 million euros. For the purpose of being exhaustive, the proposal lists high-risk sectors, which include, for example, textiles or resource extraction.
Moreover, companies from third countries operating in the European Union whose turnover threshold is aligned with the above thresholds and which are located in the European Union could also be subject to this European duty of care.
Regarding the material scope of the obligations, the proposal is also intended to be broader than French law, since it requires companies to integrate the duty of vigilance into their own operations as well as into the entire value chain of the ordering companies as soon as a commercial relationship is established, i.e., commercial relationships upstream and downstream of the intervention of the concerned companies (suppliers, service providers, subcontractors, partners, customers, etc.). Therefore, the European duty of care would have a wider application than only to targeted companies, all contractual relationships, whether direct or indirect, would de facto have to be apprehended in order to determine whether each company trading with the targeted companies complies with the duty of care imposed. As a result, companies will have to include an infinite number of stakeholders in their due diligence plan, which will necessarily make prevention more complex. The enactment of the directive would, depending on the transposition in the different member states, lead to significant upstream work to ensure the probity of business partners and therefore significant costs for companies to improve their due diligence strategies. Thus, a control of third parties, following the example of the Sapin II law on anti-corruption, could be required.
An obligation of means that could restrain potential liability exposure
The proposed directive provides that the companies concerned will be required to take appropriate measures to avoid any negative impact on human rights or on the environment of its activities. As in French law, a legal claim, by any person with an interest in the matter, is therefore possible in the event of a breach.
The European text specifies, however, that the companies concerned will only have a simple obligation of means. Some criticisms have been raised as to the non-binding nature of this duty of care, since the obligation of means does not imply that the author guarantees the performance of his obligation but only that he makes every possible effort to achieve it. As a result, it has been pointed out that there is a risk that in practice these obligations may amount to the mere adoption of codes of conduct and the insertion of contractual clauses in contracts with business partners.
Indeed, the negligence can only be characterized against the company in the event of a clear breach of its obligation, however, a presumption of liability is imposed on the legal person in case of prejudice due to this obligation of means.
Therefore, as in French law, it is not necessary to prove the existence of a fault, a prejudice, and a causal link between them, but it will be up to the company subject to the duty of vigilance to demonstrate that it took all the precautionary measures required to avoid the prejudice.
However, the European text provides for a specific responsibility that should be held by directors who could be liable for the implementation and monitoring of due diligence measures as well as “the adoption of the company’s due diligence policy, the taking into account of contributions from stakeholders and civil society organizations and the integration of due diligence into the company’s management systems”.
Effective monitoring of the reality of vigilance measures and the possibility of sanctions in case of infringement
Concerning the control imposed on the companies concerned, the proposed directive suggests the creation of independent administrative authorities, designated by the Member States themselves. The authorities would be competent to investigate and impose financial penalties in the event of non-compliance, and could refer itself or be referred to by third parties in the event of sufficient information indicating a breach.
In addition, the proposal provides for the discretion of Member States to take the necessary measures to put an end to violations of the duty of care. In addition, it provides that the amount of the penalty must refer to the company’s turnover, without precision. In this regard, to ensure that the penalty mechanism is dissuasive and binding, the proposal could have been more explicit, as for example the European Regulation on the protection of personal data, which states that the fine may amount to up to 4% of the annual worldwide turnover.
The text proposed by the European Commission is intended to be effective, efficient and innovative in order to harmonize the legislation at the European level and to draw from the most efficient measures. Its implementation should therefore undoubtedly impact French law. However, the text remains unclear on certain points and the scope and binding nature of the duty of care will depend on the transposition in each Member State. A pending period is starting again regarding the duty of care, its scope, its consequences, and its sanctions. Let’s hope that the European process and its transposition will not lead to a wait-and-see attitude of the different actors and that a genuine implementation will be given to the existing text in France, where the duty of vigilance still has its place to make.