Reed Smith Client Alerts

The new French law on the duty of vigilance imposes new obligations on companies to prevent human rights, health and environmental disasters with prohibitive fines in case of non-compliance, and the law has a broad extraterritorial application.

Authors: Daniel Kadar

French Flag

The French MPs behind the new bill relating to the so-called ‘duty of vigilance’ (led by the majority leader of the lower house of the French National Assembly) wanted lawmakers to adopt coercive measures in order to prevent major human rights, health and environmental disasters such as the Rana Plaza collapse, the Bhopal gas tragedy and the sinking of Erika. The French Parliament has been examining the new bill since February 2015. The bill has proved controversial and has for a number of months been subject to heated debates among French parliamentarians, in particular as to possible sanctions.

On 21 February 2017, the bill was definitively adopted by the French Parliament. However, it was then subject to a challenge and referred for review by the French Constitutional Council on 23 February 2017, so has yet to be enacted. Due to the innovative nature of the duty of vigilance imposed on parent companies, the referral to the French Constitutional Council has challenged numerous provisions of the bill on the grounds of unconstitutionality, arguing, for instance, that French criminal law should not allow vicarious liability. The French Constitutional Council will rule within one month and its opinion will address each of the challenges made. If it rules invalid any of the provisions in the four articles which comprise the legislation, three options will be available: (i) the law could be enacted without the invalid provisions, (ii) the law could be debated again before Parliament, or (iii) the French Constitutional Council’s expressed reservations could be taken into account in future implementing decrees. At this stage, it is in any case clear that significant changes have been made to the approach regulators will take with respect to the relationship between entities within a group of companies and cooperating entities within the supply chain when faced with a major disaster.

Which companies are targeted by the new law?

Those affected are companies registered in France with at least 5,000 employees including employees in direct or indirect affiliates located in France, or 10,000 employees including employees in direct or indirect affiliates located in France or abroad. French newspapers have stated that this would affect approximately 150 companies.

By contrast, the recent French Bribery Act, adopted on 9 December 2016, applies to companies with at least 500 employees and a yearly turnover of over €100 million, and is expected to affect about 1,570 companies.

Extraterritorial application

The new duty of vigilance will therefore have a more limited scope as it would apply to fewer companies. That being said, the long arm of the law will enable it to target, in particular, foreign affiliates and therefore have a clear extraterritorial remit.

Extraterritorial jurisdiction has also been provided in the French Bribery Act, which applies extensively to acts of corruption committed abroad by a French citizen or by a person located abroad who has his or her habitual residence in France or by a company which carries out all or part its activities in France. On that last point, the French law draws its inspiration from the UK Bribery Act, which covers corruption committed both in the UK and abroad. English courts are competent to rule over corruption-related offences, regardless of the place where an offence is committed, as long as the relevant company carries out all or part of its activities in the UK.

The new law clearly pursues the same goals.