In 2015 the UK was the first country in Europe to introduce legislation imposing obligations on commercial organisations to report on steps taken to tackle modern slavery in its business or supply chain. On 27 March 2017, a new “duty of vigilance” was introduced in France, requiring the largest companies operating in France to monitor their business, subsidiaries and supply chains for human rights abuses and environmental violations.
The law applies to all companies operating in France:
- if their headquarters are located in France, with 5,000 or more employees (including employees of their direct or indirect subsidiaries); or
- if their headquarters are located outside France, with 10,000 or more employees.
According to the French government, this will include approximately 150 multinational companies in France. Like the UK’s Modern Slavery Act (which applies to commercial organisations that simply “do business in the UK”), the duty of vigilance clearly has an international impact.
A vigilance plan
The companies concerned must establish and publish a “vigilance plan” each year, in which they should:
- identify and analyse the risks linked to human rights abuses and environmental violations;
- organise regular evaluation processes with regard to their subsidiaries, subcontractors and suppliers with whom they have an “established commercial relationship”;
- take action to mitigate and prevent human rights and environmental violations;
- put in place warning mechanisms to collect data on existing risks; and
- introduce a mechanism for monitoring the means put in place and the effectiveness of their operation.
Currently, the French duty of vigilance establishes the most extensive set of reporting obligations imposed by a Western government so far. Both the UK’s Modern Slavery Act and the Californian Transparency in Supply Chains Act 2010 only require reports on steps taken. However, this has the potential to go much further.
An area where the duty of vigilance is similar to UK and US legislation is in respect of the consequences of non-compliance. Initially, it was proposed that non-compliance with the duty would result in civil fines of up to 30 million Euros, but this penalty has been removed by the French Constitutional Council.
The law now specifies that if a company does not comply with its obligations within three months after a formal notice is served, any person with a legitimate interest (including victims, a union, an association or an NGO) can apply for a court order to implement the vigilance plan. This notion of “policing” by the public or NGOs is another common theme that is shared with the UK’s Modern Slavery Act. This, combined with the reputational risk of non-compliance, is expected to be the main driver of compliance.
Immediate action is required
The obligation to implement a vigilance plan for the relevant companies concerned came into force on March 28, 2017.
Companies should therefore, begin implementing the obligations imposed under the new law immediately. They should also initiate the introduction of new clauses in commercial contracts, which outline the business partner’s commitment to human rights and environmental issues, and also the draft of addenda in which such commitments are established.
Those covered by the duty of vigilance may see this as a burden, but it has the potential to have a positive impact on them. It is never possible to entirely eliminate the risk of malpractice in an organisation’s supply chain; however, with this new obligation to put in place a “vigilance plan”, a company ensuring effective monitoring and implementation of this plan will be able to demonstrate its good faith and commitment to doing so. In this way it will be able to safeguard its reputation in instances of malpractice affecting one of its subcontractors or business partners.
A more detailed decree is expected to come out in the near future. It is hoped that it will further outline the contents of the vigilance plan and the means required to put one in place. We will provide further updates on this when they are available.
The duty of vigilance is part of a continuing trend towards passing the responsibility for monitoring compliance to larger commercial organisations. Although originally fines were planned for non-compliance, the duty of vigilance follows the model of the UK and USA legislation in relying on the public and NGOs to ensure compliance, focusing on the potential reputational risks associated with not doing so. The international reach of the legislation, and the likelihood of other countries in Europe adopting a similar approach, will make this ever more important for multinational companies to keep on their radar.
Reforms in employment law after French Presidential elections
The French Republic’s new president, Emmanuel Macron, has promised several changes to French employment law in the coming months. He wants to liberalize and modernise France’s rigid employment laws with the aim of attracting foreign companies to establish a base in France.
The French Labour Code has increased from 2,590 pages in 2005, to 3,334 pages at present. Macron’s main proposed changes are listed below.
- Promote negotiation within companies in respect of working conditions and wages, in particular in respect of fundamental employment issues (legal working time duration, minimum wages, etc.). Currently, firms can only negotiate agreements that are more beneficial to employees. However, the reform gives companies increased flexibility, allowing them to adapt rules to their business. Through such a reform, priority would be given to the agreement reached within the company (though in the absence of a company agreement, collective bargaining agreements will apply).
- Establish upper and lower limits for damages awarded for unfair dismissal (except in cases of discrimination, harassment, etc.). Currently, Labour Courts (known as “Conseils de prud’hommes”) often award substantial sums following years of costly procedure. This measure would therefore be welcomed by companies, as it would make redundancy costs more predictable, and would assist companies in limiting their financial exposure. Macron believes that the country’s chronic mass unemployment would potentially decrease if employers did not fear the unpredictable and potentially high costs associated with firing employees. In fact, Macron already tried to implement such a measure when he was Minister of Economy, but it was overturned by the French Constitutional Council in 2016. At present, it seems that if the upper and lower limits do not depend on the size of the company, the French Constitutional Council would allow for this change.
- Reinstate social security contribution exemptions on overtime. As each hour worked costs employers an additional 70% by way of social charges, this measure would greatly decrease the cost of each hour of overtime performed by employees. This would also encourage productivity, similar to the “Work More to Earn More” measure introduced by President Sarkozy in 2007. Consequently, employers could ask their employees to work overtime with limited additional social charges.
- Remove unemployment and sickness contributions paid by employees vs. an increase of the Contribution Sociale Généralisée (CSG). This measure would allow employees to pay fewer charges and consequently benefit from a higher net salary. However, it could have a negative impact on the small amounts of settlement indemnities which are not subject to social charges but only to the CSG (and CRDS). Consequently, their net amount would be reduced by the increase of CSG.
- Create a single employee representation body covering all the functions of the works council, employee delegates and health, safety and working conditions committee in all companies and groups, without a threshold (except if the company agrees to maintain current bodies or create new ones). This change seeks to simplify the communication lines between companies and their employees, as currently, some companies have many points of contact, which can be confusing and complicated, particularly when negotiations are underway.
- Reduce employers’ social security contributions to replace the tax credit for competitiveness and employment (CICE). This measure aims to encourage employers to hire more.
- Greater leniency for employer error. Companies will now be notified and advised before they are sanctioned (except for deliberate, repeated, or particularly serious breaches), which will be very useful, especially for foreign companies for whom French employment laws can be difficult to understand.
- Establish a universal unemployment insurance scheme enabling artisans, the self-employed, contractors, liberal professions and farmers to benefit from the same guarantees as employees. This measure would be the first real response to the evolution of workers’ status (reflecting the rise in startups, the sharing economy, big data and smart manufacturing).
- Opening the right to unemployment insurance to employees who resign (possible every five years). This measure would also assist with the adaptation of French employment law to modern work solutions. An increasing number of employees currently resign from their jobs in order to open their own businesses. However, they do not receive any allowance from the French unemployment fund upon resignation to help them start their business. This change seeks to encourage innovation and reduce the number of employment terminations by mutual agreement, as well as reducing the employers’ respective costs (employers have to pay a termination indemnity in the event of termination by mutual agreement).
- One year limit on the authorised length of stay for workers posted to France. Thereafter, employees would need to be on a local French employment contract. Macron also intends to renegotiate the EU Posted Workers Directive for France to reduce the number of employees working in France but remaining on their home payroll, such that they are not being fully subject to French employment laws.
- Reduced procedures and reduced delays in obtaining “talent” visas.
- Simplified access to work for all foreign students holding a master’s degree in France.
To help him in the implementation of these social measures, Macron appointed Ms. Muriel Pénicaud as Minister of Labour and Employment. Previously, she was the CEO of Business France. In this role, she promoted foreign investment in France to boost job creation.
Attempts by Macron’s predecessors, Nicolas Sarkozy and François Hollande, to reform and rewrite the Labour Code brought hundreds of thousands of demonstrators to the streets. Some fear that Macron’s reform of the Labour Code could lead to similar issues, but Macron has the advantage of being newly elected and popular.
Moreover, in his campaign, President Macron said that he would use decrees to liberalize the labour market quickly, thereby avoiding long parliamentary debates. However, he must first obtain the authorisation of the French Parliament before he can do this.