The Situation: On November 13, 2019, the Child Labor Due Diligence Act ("Act") was published in the Dutch Government Gazette. The law introduces a duty of care for companies to prevent the supply of goods or services which have come into existence using child labor. The Act's exact date of entry into force is not yet known.
The Result: Companies, including companies registered outside the Netherlands, selling goods or services to Dutch end-users (be it companies or individuals) are required to exercise due diligence to assess whether a "reasonable suspicion" exists that the services or goods to be supplied have come into existence using child labor. Failure to comply with the Act exposes a company to the risk of an administrative fine of up to EUR 870,000 or—alternatively—10% of its annual turnover. The Act also provides for criminal liability.
Looking ahead: The Act's date of entry into force as well as certain important aspects need to be clarified by subordinate legislation. In the meantime, companies should consider conducting a preliminary applicability assessment and assessing current due diligence procedures against the ILO-IOE Child Labour Guidance Tool for Business.
As we reported in our August 2018 White Paper, "The Global Spotlight on Labor Trafficking in Corporate Supply Chains – Know Your Obligations," countries around the world are combatting labor trafficking through legislation that requires companies to disclose steps taken to combat forced labor in their supply chains. And as specifically mentioned in the December 2019 follow-up, "Labor Trafficking in Corporate Supply Chains – Where We Are Now," the Netherlands, introduced an Act establishing a duty of care for companies to prevent the supply of goods or services which have come into existence using child labor, to Dutch end-users. This Commentary serves to further detail the Act.
Currently, the Act is not expected to enter into force before 2021. In the meantime, certain important aspects of the Act, as described below, are to be clarified by subordinate governmental decrees.
The Act will apply to all companies selling or delivering goods or services to Dutch end-users, including online sales. Companies registered in the Netherlands, as well as those registered outside the Netherlands that deliver goods or services to Dutch end-users, are to comply with the Act. Companies that solely transport goods do not fall within the scope of the Act. Potential exemptions for certain categories of companies are yet to be determined by subordinate legislation.
The Act imposes three main obligations on companies: (i) a duty to investigate by means of due diligence whether there is a "reasonable suspicion" that goods or services to be supplied have been created using child labor; (ii) a duty to develop and execute a plan of action in case there is a reasonable suspicion of child labor; and (iii) a duty to issue a statement to the supervising authority that it observes the aforementioned due diligence requirements. The statement will be published by the supervising authority in a publicly available register.
According to the Act, the due diligence is to be based on sources that are reasonably knowable and consultable for the company. Further requirements as to the specific due diligence measures and the plan of action will be specified in subordinate legislation, although the Act provides that they will be in line with the ILO-IOE Child Labour Guidance Tool for Business.
A supervising authority will be appointed by subordinate legislation. The Act's provisions on enforcement are unclear, but it appears that every natural and legal entity has the right to file a complaint with the supervisory authority if its interests are affected by non-compliance with any provision under or pursuant to the Act. The supervisory authority may only handle the complaint if the complaint is not resolved satisfactorily by the company or remains unaddressed for a period of six months.
In case of a finding of non-compliance, the supervisory authority must first issue a compliance order. The supervisory authority can only impose an administrative fine if the company fails to duly comply with the order.
Non-compliance with the obligation to submit the required statement can result in an administrative fine of maximum EUR 4,350 or, in the event this is not deemed adequate, a fine of up to EUR 8,700. Failure to exercise due diligence or develop and execute a plan of action as required by the Act, may result in a fine of up to EUR 870,000 or, in the event this is not deemed adequate, a fine of up to 10% of the company's turnover in the preceding financial year.
Repeated non-compliance with the Act within five years as of the imposition of an administrative fine is an economic offense under the Dutch Economic Offences Act. While the Act's criminal provision is ambiguous, it appears that individual directors of a company may face up to two years of imprisonment or a criminal fine of up to EUR 21,750.
The Act reflects a significant new step in combatting child labor in corporate supply chains, introducing mandatory requirements under an administrative and criminal penalty regime. It fits into an increasing global focus on corporate social responsibility and labor trafficking in corporate supply chains. Although several important aspects of the Act need to be further clarified by subordinate legislation, companies should already consider assessing the possibility of any form of child labor in their supply chains. They should also consider reviewing whether existing compliance programs are fit to comply with the Act's requirements.
We will continue to monitor developments and provide updates when appropriate.
The Act can be accessed in Dutch here.
Three Key Takeaways
- Companies falling within the scope of the new Child Labor Due Diligence Act are required to (i) exercise due diligence to identify whether there is a "reasonable suspicion" that goods or services to be supplied have been created using child labor; (ii) develop and execute a plan of action in case of such reasonable suspicion; and (iii) submit a disclosure statement, which will be made publicly available.
- Failure to comply with the Act can result in administrative fines and criminal penalties.
- Although the Act is not expected to enter into force before 2021, and important aspects are to be further clarified in subordinate legislation, companies should consider to conduct a preliminary applicability assessment and assess current due diligence procedures against the ILO-IOE Child Labour Guidance Tool for Business.