Since 2015, a United Nations working group has met annually to negotiate and draft a multilateral treaty that addresses human rights violations committed by businesses. The most recent of these annual meetings was held from October 15 to 19, 2018, at which a first draft of the treaty was debated.

The debates at these working group meetings reveal that much of the focus of the treaty process is to hold multinational corporations (“MNCs”) liable for human rights violations that arise within their global operations, including the operations of a MNCs’ multi-tiered business partners. While the proposed treaty has not yet been finalized, this UN effort continues to be a matter of keen debate and interest amongst stakeholders within the business community and broader civil society.

Background to the Proposed Treaty

The proposed treaty arrives on the scene against the backdrop of the UN Guiding Principles on Business and Human Rights (the “UN Guiding Principles”), which, since their advent in 2011, constitute the authoritative set of guidelines for governments and businesses to address, mitigate, and, as necessary and appropriate, remedy human rights abuses committed within business operations. MNCs have made great strides in complying with these UN Guiding Principles, implementing a wide array of thoughtful policies and practices to address human rights violations in their operations.

Nevertheless, in June 2014, a plurality of the UN Human Rights Council member states, led by Ecuador and South Africa, established a working group named the “Open-ended Intergovernmental Working Group on Transnational Corporations and Other Business Enterprises with Respect to Human Rights” (“the IWG”) “to elaborate an international legally binding instrument to regulate, in international human rights law, the activities of transnational corporations and other business enterprises.” The IWG’s first meeting took place in July 2015, the second in October 2016, and the third in October 2017. During these three sessions, the potential function and content of a treaty was broadly debated among State and non-governmental organization (NGO) delegates, academics, practitioners, and a handful of business representatives. While no draft treaty was produced in the first and second sessions, the third session’s debates surrounded an “Elements Paper,” which was the first attempt at drafting – albeit in a skeletal fashion – a potential treaty.

First Draft of the Proposed Treaty is Published in Advance of the IWG’s Fourth Session

In mid-2018, in advance of the IWG’s fourth session, the Chairperson of the IWG published a “Zero Draft” of the treaty with an accompanying “Draft Optional Protocol.” The Zero Draft largely expands on the points asserted in the third session’s “Elements Paper.” It requires ratifying States, through their domestic laws, to both hold “natural and legal persons … criminally, civil [sic], or administratively liable for violations of human rights undertaken in the context of business activities of transnational character” and ensure that “all persons with business activities of transnational character” undertake human rights due diligence “throughout such business activities.” The Draft Optional Protocol mainly seeks to create a National Implementation Mechanism for ratifying States for purposes of implementing the obligations stated in the Zero Draft.

The text of the Zero Draft and Draft Optional Protocol (together the “Proposed Treaty”), as well as the debates at the fourth session surrounding these documents, reveals several areas of significant concern for employers with international operations.

  • MNCs are the Exclusive Target

The “Scope” of the Proposed Treaty covers “human rights violations in the context of any business activities of a transnational character.” “Business activities of a transnational character” is further defined as “any for-profit economic activit[ies] … undertaken by a natural or legal person … that take place or involve actions, persons or impact in two or more national jurisdictions.” Thus, purely domestic companies and State-Owned Enterprises (SOEs) that are often not strictly profit-driven, are excluded from the Proposed Treaty’s scope. The Proposed Treaty also allows States to “exempt certain small and medium-sized undertakings” – regardless of their transnational activities – from any obligation to conduct human rights due diligence. These provisions thus target MNCs and exempt domestic and state-owned enterprises.

  • MNCs are Required to Conduct Due Diligence of Entities that are not Under their Direct Control

The Proposed Treaty requires States to impose due diligence requirements on MNCs, including monitoring human rights impacts, assessing human rights risks, preventing human rights violations, and conducting human rights impact assessments – flowing from the MNCs’ own business activities, as well as the activities of their “subsidiaries and … entities under its direct or indirect control.” Failure to comply with these due diligence requirements will “result in commensurate liability and compensation ….” Thus, the Proposed Treaty contemplates that a MNC police the activities of business partners who may be situated multiple levels within a so-called supply chain and may neither be visible nor have any contractual relationship with the MNC.

  • Accepted Due Diligence Standards are Rejected in Favor of “Outcome-Based” Standards

In a significant departure from the UN Guiding Principles, the Proposed Treaty’s due diligence process requires that MNCs actually prevent human rights abuses, or be held liable. The UN Guiding Principles, on the other hand, presented human rights due diligence as a process in which companies take adequate measures to seek to prevent, mitigate and account for human rights impacts. The Proposed Treaty seeks to transform due diligence from a process-based standard to an outcome-based standard, which may be overly difficult or impossible to satisfy.

  • Liability is Potentially Extended to MNCs’ Directors and Shareholders

The Proposed Treaty attempts to “pierce the corporate veil” in seeking to impose liability on a broad, undefined swath of individuals within MNCs. As the article on “Legal Liability” makes clear, ratifying States are required to hold “natural and legal persons” liable under civil, criminal, and administrative laws for human rights violations “undertaken in the context of business activities of transnational character.” This language opens the door for States to hold liable MNCs’ directors or even shareholders based on the individual State’s definition of such legal standards as proximate cause, mens rea, and actus reus.

  • The Rights to be Protected are Unclear

The definition of the rights to be protected under the Proposed Treaty is muddled. The article on “Scope” states that “all international human rights and those rights recognized under domestic law” are covered. However, the phrase “all international human rights” is not a recognized category of laws under international law. Moreover, the second phrase, “rights recognized under domestic law,” raises the question – unanswered by the Proposed Treaty – of how possible tensions and contradictions between international and national standards are to be reconciled. Adding to this confusion, in seemingly random sections, the Proposed Treaty mentions “environmental rights,” without explaining how such rights fall within the mandate of the IWG or how they relate to the human rights mentioned in the article on “Scope.”

  • Broad Extraterritorial Jurisdiction is Granted to Ratifying States’ Courts

The Proposed Treaty reflects a broad conception of extraterritorial jurisdiction, to allow plaintiffs access to the courts of companies’ home nations, even though the alleged harm to the claimants occurred in other nations. It also allows a court in the country where the harm occurred to exercise jurisdiction over companies domiciled abroad where those companies allegedly committed abuses in the nation where that court sits In this latter instance, the Proposed Treaty further allows, at the request of victims, that the court apply the law of the home State of the defendant, and not the law of the State in which the court sits.

This concept runs contrary to the UN Guiding Principles’ position: “States are not generally required under international human rights law to regulate the extraterritorial activities of businesses domiciled in their territory and/or jurisdiction.”

What Next?

The fourth session did not provide a clear indication as to the IWG’s next steps in developing the Proposed Treaty. Indeed, there does not appear to be a consensus on the part of the States on the content of the Proposed Treaty, or on the treaty process in general. Indeed, some countries like the U.S. and Canada have opted out of participating in any of the IWG’s sessions. Other countries like Russia and China, as well as the E.U., while present at the sessions, have voiced serious concerns about the Proposed Treaty and the treaty process. Yet another group of countries, including Ecuador, South Africa and Namibia, have been generally supportive of the treaty process and much of the substance of the Proposed Treaty.

It is possible that the IWG will seek to publish another draft of the Proposed Treaty in the hope of achieving a broader consensus among States. This may mean that a new draft will be further debated at the IWG’s session in 2019.

Even though these debates may continue, the Proposed Treaty serves as additional notice that business and human rights legislation will continue to be aggressively pursued in sub-national, national, and supranational legislatures. Indeed, the broad reach for liability suggested in the Proposed Treaty may serve as guide posts for national governments that are seeking to reform their laws – regardless of whether they ratify a treaty. In fact, many countries—including the home nations of many MNCs—have already enacted various laws to that very end. These include mandatory disclosure laws such as the California Transparency in Supply Chains Act, the U.K. Modern Slavery Act, and mandatory due diligence laws such as the French law requiring companies to create and implement a “vigilance plan” aimed at identifying and preventing potential human rights violations, including those associated with subsidiaries. The Proposed Treaty, if finalized, will potentially add to this complex array of human rights obligations placed on companies.