Charles Mayo and Chris Owen examine the possibility of further legislation in the field of business and human rights.
On 05 April 2017, the House of Commons and the House of Lords’ Joint Committee on Human Rights published its much anticipated report on human rights and business. This article considers the impact of that report on businesses operating within the UK.
What’s our view?
The UK has been taking a leading role on the protection of human rights in the modern business world. The Modern Slavery Act 2015 introduced a series of offences to tackle identified slavery within companies. And, it requires commercial organisations that supply goods or services, carry on business in the UK and have an annual turnover threshold of at least £36m to publish an annual slavery and human trafficking statement each financial year. Read our article "The need for commercial organisations to show supply chain transparency" for more detailed guidance on the Modern Slavery Act.
The Government has also taken steps to implement the UN Guiding Principles on Business and Human Rights (UNGPs). This has primarily been through the publication of a UK National Action Plan, originally published in 2013 and revised in 2016.
In the UK the new non-financial reporting regulations, implementing the Non-Financial Reporting Directive (as it is known), apply to certain large companies and qualifying partnerships with more than 500 employees. The regulations apply for financial years beginning on or after 01 January 2017. They require companies within scope to disclose, to the extent necessary for an understanding of the company’s development, performance, position and impact of its activity, information relating to environmental, employee, social, respect for human rights, anti-corruption and anti-bribery matters.
This includes a description of:
- the company’s business model
- the policies pursued by the company in relation to the matters noted
- any due diligence processes implemented by the company in pursuance of those policies
- the outcome of those policies
- the principal risks relating to the matters noted arising in connection with the company’s operations
- how the company manages those principal risks, where relevant and proportionate, and
- the non-financial key performance indicators.
Disclosure is also required to describe, where relevant and proportionate, the business relationships, products and services which are likely to cause adverse impacts relating to those principal risks.
These efforts have resulted in a notable shift in corporate attention on human rights compliance. The direction of travel is towards further legislation. But, even before further legislation the risks of failing to comply with human rights is, we think, increasing. Those risks are both reputational risks but also legal risks with the increase in specialist litigation claimant firms who are seeking to pursue claims based on human rights’ grounds.
Who sits on the Joint Committee?
The Joint Committee on Human Rights comprises 12 members appointed from the House of Commons and House of Lords. The Committee has a mandate to examine matters relating to human rights within the UK including to scrutinise legislation and the UK’s compliance with its international human rights obligations. The current membership comprises four members of the Labour Party, six Conservatives, one Liberal Democrat and one crossbench peer (Lord Woolf). It is chaired by the Rt Hon Harriet Harman QC MP.
What does the report conclude?
The Committee acknowledges that the UK Government’s introduction of reporting requirements under the UK Modern Slavery Act 2015 and the publication of the first National Action Plan to implement the UN Guiding Principles on Business and Human Rights, have effected a change in corporate behaviour.
However, the Committee found that there were significant obstacles preventing victims of business-related human rights abuse from accessing effective remedies in the UK, including legislative changes that have reduced access to legal aid, limits on the recovery of legal costs, increases in court and tribunal fees and the high costs of civil litigation. As well as new civil and criminal remedies, the report also calls for reform of the UK National Contact Point, which is responsible for resolving complaints about the conduct of UK enterprises involving human rights, environment, labour and other matters (based on the OECD Guidelines for Multinational Enterprises).
What recommendations does the report put forward?
The report urges the Government to introduce stronger regulation. In particular, the Committee has called for:
- an obligation on large companies to put in place human rights due diligence processes both for their subsidiaries and across their whole supply chain, with appropriate monitoring and enforcement procedures
- civil remedies against parent companies when human rights abuses occur
- a criminal offence of "failure to prevent human rights abuse" for all companies including parent companies
- Government power to publish a list of all companies required to publish a modern slavery statement
- company obligations to publish a modern slavery statement in their annual reports and accounts, and
- more effective human rights due diligence.
The report also gives a nod of approval to the investor-led Corporate Human rights Benchmark (CHRB) initiative, which ranks the human rights practices of certain companies in the agricultural, apparel and extractives industries. Publishers of the CHRB hope that it will contribute to a race to the top between peers in corporate human rights compliance.
What will be the effect on business if the recommendations are adopted?
If the Committee’s recommendations are adopted in full, business enterprises could be liable to prosecution for failing to prevent human rights abuses, in a similar manner to the operation of the Bribery Act 2010, which imposes criminal sanctions for companies which fail to prevent bribery unless they can show that they had in place "adequate procedures" designed to prevent persons associated with them committing bribery.
We are already seeing a rapid increase in the number of mass tort claims in which claimants are seeking damages where corporates have breached their human rights’ obligations. New legislation would provide additional grounds of claim and thus facilitate an increase in the number of follow on civil litigation actions where there have been corporate human rights abuses.
What is the impact of Brexit in this area?
The Committee acknowledged concerns related to the protection of human rights in the UK post-Brexit and specifically recommended that EU laws on human rights reporting requirements and public procurement rules relating to human rights should be transposed into UK law by means of the Great Repeal Bill and that “in the longer term, UK laws on reporting and procurement in relation to human rights should continue to set standards at least as high as those set by the EU.”
What is happening outside the UK?
The Committee report reflects a global trend towards tighter regulation of human rights practices and increased transparency.
In 2017, a French duty of vigilance came into force, requiring large French companies to implement a vigilance plan to assess and address adverse human rights impacts of activities in their global supply chains, including impacts linked to companies under their control and of certain suppliers and subcontractors.
In the Netherlands, the Dutch Parliament is considering legislation which would impose a child labour due diligence requirement for Dutch companies designed to eradicate child labour in their supply chains.
A new EU regulation on minerals from conflict zones, which comes into effect in January 2021, will impose due diligence requirements on importers of certain metals and minerals.
And, implementation elsewhere in Europe of the EU Directive on disclosure of non-financial and diversity information (the so-called "Non-Financial Reporting Directive") will increase the transparency of corporate disclosures on human rights compliance.
Imminent legislative reform by the UK Government seems unlikely in the immediate term given Parliament’s packed Brexit agenda. But, the report provides further evidence of a clear direction of travel in this space. Even if legislative change does not happen immediately, human rights compliance is increasingly important, not least because of the transparency resulting from non-financial reporting obligations, reputational risk and the increasing civil litigation risks where national and international standards are breached.
Reputational risk and, we sense, the direction of legislative travel is not only towards greater legal obligations for human rights compliance but also seems headed towards greater responsibility by groups for their businesses and supply chains and by parent companies for those groups.
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.