Blog by Joseph Michael Kelen of the Garden Court Commercial and Business Ethics Team.
UK announces it will follow the EU and require large companies to be human rights compliant
On Wednesday, 4 November, the UK announced that it will legislate for a mandatory human rights due diligence regime, covering services across the UK and goods in Great Britain.[1] A link to the statement can be found here. It follows an “evidence-based review” of how to strengthen the UK’s approach to “promoting Responsible Business Conduct”.
In reality, this appears to be two announcements:
- First, an alignment with the European Union Forced Labour Regulation (EU FLR), noted expressly in an explanatory memorandum published the same day. The EU FLR is expected to apply in Northern Ireland from 14 December 2027, with a matching power for a regulator to remove goods made with forced labour in Great Britain.
- Second, a human rights due diligence regime, less clearly defined, which looks closer to the EU Corporate Sustainability Due Diligence Directive (CSDDD), though with some differences outlined below.
This comes off the back of mounting pressure from the British Retail Consortium, think tanks such as the Fabian Society, whose Just Values report estimates the harm from labour exploitation and environmental damage in the UK at £4.4 billion a year, against around £0.4 billion for the cost of action, and NGOs such as the Corporate Justice Coalition, which has called for a law that “aligns with the EU”.
Human Rights Due Diligence Legislation: What stage are we at?
There is no draft legislation yet, but the statement and the memorandum tell us a few things about what it may cover.
Who will be covered
The regime will apply, subject to a five-yearly review of the threshold, to those businesses involved in the sale of goods. Specifically:
- UK businesses with a global turnover of over £350 million; and
- non-UK businesses with a UK-generated turnover of over £350 million.[2]
This is a much lower threshold than the CSDDD’s €1.5 billion (Article 2) which admittedly covers the whole of the EU for non-EU companies.
Whilst “human rights abuses”, “forced labour” and “human rights and forced labour risks across supply chains” are expressly mentioned, there is notable absence so far of discussion of environmental harms.
This stand in stark contrast to the CSDDD, where environmental harms are included (Article 1).
Who can bring a claim?
This is not outlined, nor is it clear that there will be any private right of action. If there is, collective claims would most likely be opt-in, absent a bespoke scheme.
By comparison, the CSDDD no longer requires Member States to allow representative actions by trade unions or NGOs, though they remain free to do so.
Duties
Businesses will be “required to identify, assess, and address risks of human rights and labour exploitation within their operations and supply chains”.
The government says the regime will be anchored in international standards, specifically noting the OECD Guidelines for Responsible Business Conduct and will draw on existing reporting under the Modern Slavery Act 2015, rather than adding new burdens.
Penalties
So far, the only enforcement tool described, even for the wider duty, is the forced labour power mentioned above, which applies where a business has failed to meet the required standard of due diligence.
By comparison, the CSDDD guarantees full compensation where a company is held liable under national law.
Possible defences
Although not stated, it is important to note that the government has already qualified that these duties will be “risk-based, proportionate and reflect how responsible businesses already manage risk by aligning with established international standards, including the OECD Guidelines for Responsible Business Conduct and the UN Guiding Principles on Business and Human Rights” (the “UNGPs”).
In line with those guidelines therefore, defences on the limits of what type of investigation or prevention a company will need to take based on proportionality seem likely.
So what do those standards already say?
In terms of identification, due diligence should cover adverse human rights impacts that a business may cause or contribute to through its own activities, or which may be directly linked to its operations, products or services by its business relationships (UNGPs, principle 17(a)). It should also look at risks to rights-holders, not just to the company (principle 17, commentary).
In terms of assessment, it should begin early, be ongoing, and draw on human rights expertise and consultation with potentially affected groups (principles 17 and 18).
It will, however, vary with the size of the business and the risks involved, and a business with many entities in its value chains should focus on the areas of greatest risk (principle 17(b) and commentary). The CSDDD takes a similar approach (Article 8(2)).
In terms of addressing, the findings should feed into internal decision-making, budgets and oversight (principle 19(a)).
The action expected depends on whether the business causes or contributes to the harm, or is only directly linked to it, and on its leverage, meaning its “ability to effect change in the wrongful practices of an entity that causes a harm”, which it should use (principle 19(b) and commentary).
The CSDDD also requires a corrective action plan where harm cannot be stopped immediately (Article 11(3)), and remediation where the company caused or jointly caused it (Article 12).
An example
So what does this mean for future claims? Take the Rana Plaza disaster in Bangladesh.
On 24 April 2013, an eight-storey building that housed five garment factories collapsed in Dhaka, Bangladesh, killing at least 1,132 people and causing at least another 2,500 to be severely injured. Reports alleged poor working conditions and deficient safety in the building, including literal locks being placed on fire escapes.
The disaster led to the Accord on Fire and Building Safety in Bangladesh, an agreement between global brands and trade unions, under which IndustriALL Global Union and UNI Global Union later brought some of the first arbitrations against two unnamed global fashion brands, known as the Bangladesh Accord Arbitrations. These were contract claims under the Accord, rather than claims for breaches of human rights as such.
So, what would happen under the new law?
First, in terms of scope, it would have to be shown that the brand met the £350 million threshold and, since the claim concerns goods, that it sold them in Great Britain (before questions of jurisdiction, which would turn this post into a book, come into play).
Second, on breach, the allegations were that the brands knew of the abuses, and knew they could be remedied, but failed to use their leverage to prevent them. This would map closely onto the UNGPs’ approach to leverage.
Third, on causation, it was alleged that these failures allowed the abuses to happen. This is likely to be the hardest element, since a brand that is only directly linked to a supplier’s failings may argue that it did not cause or jointly cause them (compare CSDDD, Article 12).
As to outcome, the arbitrations settled without any admission of liability, with contracts with the individual factories upgraded to meet health and safety requirements.
It should be noted that the only enforcement tool so far described, the removal of goods made with forced labour, would not obviously apply, though preventing the selling of garments created from such factories could itself be a powerful disincentive.
Summary
The announcement is a significant, if overdue, step, but much will turn on the detail. Its important that scrutiny is maintained on:
- The threshold for businesses, so that high street retailers with documented issues are covered;
- Whether the regime will permit representative actions or opt-out claims, so that complex claims are worth bringing;
- Whether the duty to assess and address is strong enough to impose genuine standards or, whether like the Modern Slavery Act 2015, it becomes a box-ticking exercise; and
- Whether there is adequate compensation to make companies act.
Until a draft bill is published, however, the OECD Guidelines, the UNGPs and the CSDDD remain the best guide to what the new duty is likely to require.
This blog was written by Joseph Michael Kelen of the Garden Court Commercial and Business Ethics Team.
Notes
[1] The fact that only “Great Britain” is mentioned suggests that Northern Ireland might in the future be covered by the EU’s human rights due diligence legislation, the EU Corporate Sustainability Due Diligence Directive (CSDDD).
[2] Although the goods regime will technically apply only to the market in Great Britain, the threshold refers to UK-generated turnover, with nothing to suggest that sales in Northern Ireland would not count.
