On 23rd February 2022, the European Commission published a draft Corporate Sustainability Due Diligence Directive (‘the Draft Directive’) that will mandate companies operating within the European Union (‘EU’) above a certain employee size and turnover threshold to conduct human rights and environmental due diligence in their global supply chains. The proposal came after many EU Member States passed similar laws, including the 2017 French Corporate Duty of Vigilance (‘the Vigilance Law’) and the 2021 German Lieferkettensorgfaltspflichtengesetz (‘Supply Chain Law’). Many policymakers and stakeholders from EU Member States felt that such single state laws would be inadequate to address the supply chain as a whole and advocated for an EU-wide law. Commentators have heralded the Draft Directive as the “most ambitious” of any supply chain laws which could bring global commerce into “a new era.” However, the Draft Directive has fundamental limitations resulting from its failure to resolve issues faced by similar supply chain laws. This blog post highlights challenges to the French Vigilance Law which may also be faced by the EU’s Draft Directive and suggests areas where further clarification is needed.
The Vigilance Law applies only to companies registered in France with employee headcount over a given threshold. However, legal scholars argue that such information about a company is not “systematically public and easily identifiable”, and that merger, acquisition, and other corporate restructurings further complicate the identification of such companies. Many French Non-Governmental Organisations (‘NGOs’) working in corporate accountability have long struggled to create a comprehensive list of companies falling within the scope of the Vigilance Law. After long-running protests from NGO groups seeking disclosure of a list of such companies, the French Government in May 2019 tasked senior public servants to establish such a list. However, in February 2020, the government report concluded: “it is impossible to establish a reliable list of the companies concerned”.
How will the Draft Directive create an exhaustive list of companies that will fall under the proposed obligations to conduct due diligence into their supply chains? The Draft Directive has similar threshold requirements as that of Vigilance Law. For a company registered within an EU Member State, the Draft Directive applies only to companies with headcounts of more than 500 employees worldwide and a net turnover of more than 150 million euros worldwide. Although Article 18 of the Draft Directives proposes that EU Member States should designate supervisory authorities “with powers to request information and carry out investigation” of companies, this provision alone will not likely suffice in creating a comprehensive list of companies falling within the purview of the Draft Directive. Article 145 of the French Civil Procedure Code provides for one litigant party to take investigative measures against another party in order to gather evidence before proceeding with a lawsuit, provided that the former party can establish a legitimate reason for such an investigation. However, despite such provisions, the inability of French NGOs to access the information necessary to hold French corporations accountable under the Vigilance Law suggests that the Draft Directive’s proposal will also most likely face similar hurdles.
Proper Statutory Guidance
The Vigilance Law suffers from another defect; it does not clearly state which court has jurisdiction over disputes arising from it. This has resulted in conflicting interpretations of the law, with the Versailles Court of Appeal putting the commercial court in charge, while the Nanterre Judicial Court had declared its jurisdiction until the French Supreme Court intervened to clarify the matter. The lack of statutory guidance on the relevant forum for dispute resolution in the Draft Directive could also result in similar conflicting interpretations.
Moreover, to discover risks and adverse impacts within supply chains, the Draft Directive requires that companies consult with “potentially affected stakeholders”, but only when those companies determine that such consultation is relevant. The Draft Directive does not guide companies on how they should conduct such consultation, thereby creating further uncertainty. Although under Article 13 of the Draft Directive, the European Commission has the power to issue further guidelines, pursuing such a route will create bureaucratic delays, requiring consultation with EU Member States and relevant stakeholders. This could lead to situations where the Court of Justice of the European Union would be obliged to make preliminary rulings to clarify the language of the Directive. European legislators should not allow such unnecessary uncertainty to exist, and should provide adequate guidance on these matters in the text of the Draft Directive.
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