A Bill for Better Business
Dissecting the new Dutch Mandatory Human Rights Due Diligence Initiative
On 11 March 2021, four Dutch political parties submitted a private members’ bill which introduces a new corporate duty of care for human rights and the environment. This proposal for a ‘Responsible and Sustainable International Business Conduct Act’ [Wet verantwoord en duurzaam internationaal ondernemen] follows a legislative trend in Europe and beyond toward ‘mandatory human rights due diligence’ (mHRDD). Such legislation requires companies to identify, prevent, mitigate, and report on the risks and impacts of their activities on human rights, and, increasingly, the environment.
In 2019, the Netherlands was among the first countries to adopt a mHRDD law: the Child Labour Due Diligence Law. Its material scope, however, as the name suggests, was limited to child labour. The new bill proposes to replace the Child Labour Law, which is expected to enter into force in mid-2022, with broad due diligence legislation. Various other countries have also adopted mHRDD legislation or are in the process of doing so, such as the French Loi de devoir de vigilance, adopted in 2017, and the Lieferkettengesetz, which was recently debated in German Parliament.
The Dutch bill is particularly interesting in light of concurrent EU-level developments. A day prior to the introduction of the Dutch bill, the European Parliament passed a resolution recommending the European Commission to develop EU-wide mHRDD legislation, with a draft directive included. A European approach to mHRDD is also the explicit preference of the Dutch government, as it considers this the most effective way to regulate corporate activities and ensure a level playing field for companies. In response, the proponents of the new bill frame their initiative as a way to inform and possibly speed up the typically drawn-out EU process.
The bill is proposed at a time in which the Dutch government policy for international responsible business conduct is undergoing considerable rethinking. In a 2020 evaluation, the Minister for Foreign Trade and Development Cooperation concluded that a ‘well-thought-out policy mix’ of policy measures is needed which includes broad due diligence legislation – a discourse reminiscent of the UN Guiding Principles’ ‘smart mix’. In line with this, the new bill is framed as a legal minimum standard [wettelijke ondergrens], on top of which voluntary agreements may further advance responsible business conduct in specific sectors.
As part of its ‘policy mix’, the Dutch government has started developing three so-called ‘building blocks’ for legislation, focused on scope of application, the legal definition of due diligence requirements, and monitoring and sanctions. This not only serves to influence the development of EU legislation in this area, but is also needed for the implementation of the already adopted Child Labour Due Diligence Law. The cabinet’s building blocks seem to be a separate project from the new bill, which was developed by other political parties, and it remains unclear in what way the two processes may interact.
The Nitty-Gritty: Key Elements of the Bill
What exactly does the Dutch bill propose? Designed by MPs of the Dutch Christian Union, Labour, Green, and Socialist Parties, in cooperation with Dutch civil society network for corporate accountability MVO Platform, the bill distinguishes a duty of care [zorgplicht] and a due diligence obligation [gepaste zorgvuldigheid]. The duty of care applies to all companies incorporated in the Netherlands and Caribbean Netherlands, and large foreign companies conducting activities in the Netherlands or selling a product on the Dutch market (art. 1.3). The due diligence obligation only applies to large corporations, which is defined as those meeting at least two of three criteria: a balance sheet total of €20 million, a net revenue of €40 million, and/or an average workforce of 250 employees (art. 2.1(b)). This makes the personal scope of the Dutch bill significantly wider than the French and proposed German law. Importantly, so-called ‘letterbox companies’, holding companies based in the Netherlands for tax benefits, are explicitly included.
The duty of care (art. 1.2) is defined as a duty on ‘any enterprise that knows or can reasonably suspect that its activities may have negative impacts on human rights, labour rights, or the environment’ to take ‘all measures that may reasonably be required’ of the company to prevent, mitigate, reverse, and, where necessary, remedy such impacts. Where the impacts cannot be sufficiently mitigated, companies should refrain from those activities. The standard of reasonableness is undefined and thus left to be interpreted by the courts.
Similar to the German bill, the Dutch bill attempts to specify what ‘negative impacts on human rights, labour rights, or the environment’ involves: a non-exhaustive list including the limitation on the freedom of association and collective bargaining, discrimination, forced labour, child labour, unsafe labour conditions, slavery, and environmental damage (art. 1.2(2)). This list suggests the Dutch lawmakers are mainly concerned with labour-related human rights issues.
The due diligence obligation (chapter 2) consists of six elements: (1) a due diligence policy (art. 2.2); (2) a risk assessment (art. 2.3); (3) an action plan (art. 2.3) and the termination of activities that cause or contribute to adverse impacts (art. 2.4); (4) monitoring of implementation and effectiveness (art. 2.5); (5) annual reporting (art. 2.6); and (6) remedy, in the form of a grievance mechanism (art. 2.7), remediation of harm caused, and contribution to remediation of harm to which the company has contributed (art. 2.8). These elements draw on the six steps of the OECD Due Diligence Guidance for Responsible Business Conduct.
Strikingly, the duty of care and the due diligence obligation only concern activities abroad. While the negative impacts of Dutch-based corporations may indeed be most strongly felt ‘at the bottom of the value chain’, in countries where labour and environmental regulations are often less stringent than in the Netherlands, the bill’s framing begs the question why the adverse impacts of activities in the Netherlands should fall outside the scope of the law.
Separating Duty of Care and Due Diligence
The bill’s distinction between a general duty of care and specific due diligence obligations intends to reflect the fact that all companies, regardless of size, may face human rights risks in their supply chains, but that legal requirements on corporations should be proportionate to the severity of the risk, the company’s market position, and its size. All companies have a duty of care, but the due diligence obligations connected to this duty are only binding for large corporations, as they are better able to shoulder the administrative burden of such obligations than small and medium-sized enterprises.
The duty of care is not administratively or criminally enforceable. Nevertheless, it may make it somewhat easier to bring tort claims [vordering wegens onrechtmatige daad] against companies (of any size). The existing Dutch tort regime already allows such claims on the basis of a breach of a ‘societal’ duty of care, defined as ‘what according to unwritten law has to be regarded as proper social conduct’ (art. 6:162(2) DCC). The new bill enables claimants to argue a breach of a statutory duty of care. However, considerable hurdles remain. The burden of proof remains on the claimant, who needs to prove attributability of the unlawful act or omission to the defendant, damages/harm, causation, and relativity (that the breached norm is intended to protect the affected interest).
Interestingly, in arguing that a ‘societal’ or ‘unwritten’ duty of care already exists in case law, the drafters refer to recent rulings of the Court of Appeals of The Hague, in which the Court found that parent company Royal Dutch Shell owed a (common law) duty of care to Nigerian farmers affected by oil spills. Their bill, the drafters argue, turns this unwritten duty of care into a statutory duty.
Monitoring and Enforcement
The bill includes civil, administrative, and criminal liability (chapter 3). As discussed above, this only concerns the due diligence obligations for large corporations, not the general duty of care.
With respect to civil enforcement, the bill’s drafters envisage this will be done by stakeholders and advocacy groups, who have standing under Dutch civil law. If a company does not comply with its due diligence obligations, they may seek an injunction (e.g. ordering the company to develop a due diligence policy), a ‘declaratory decision’ [verklaring voor recht] (e.g. a judicial declaration that a company does not have a plan of action), and, if the lack of due diligence has resulted in harm, claim damages.
The main enforcement mechanism is administrative, and consists of the creation of a public regulator [toezichthouder], to be decided in a separate implementing decree [algemene maatregel van bestuur]. The regulator is given the dual task of enforcement and education (art. 3.1(2)). According to the drafters, “the combination of positive and repressive supervision engages companies’ capacity to learn, and gives them the opportunity to improve” (p. 33).
The positive role of the regulator involves informing companies about their legal due diligence obligations and about the OECD Guidelines. He also has the authority to give companies a ‘binding instruction’ [bindende aanwijzing] to comply (art. 3.3(2)), which enables companies to correct non-compliance before being fined.
The punitive role of the regulator, on the other hand, involves the authority to impose financial sanctions (‘orders subject to a penalty’ [last onder dwangsom] (art. 3.2) and administrative fines (art. 3.3)). Both can be made public (art. 3.5). Fines for non-compliance related to the due diligence policy, the action plan, and reporting can amount to up to €21,750 (4th category, art. 23(4) DPC). Fines for a failure to terminate activities that cause or contribute to adverse human rights impacts, or a failure to provide remedy can be up to €87,000 (5th category, art. 23(4) DPC).
Finally, the bill criminalizes repeat offenders (art. 3.6). If, for the third time within five years, a company fails to terminate activities that cause or contribute to adverse impacts, or fails to provide remedy, this will be considered a criminal offence under the Dutch Economic Offences Act. These crimes are punishable by up to six years’ imprisonment, community service, or a fine of €87,000 (art. 6.1(1°) Dutch Economic Offences Act).
The proposal is currently awaiting a feasibility and constitutionality check by the Council of State, after which it will be debated, potentially amended, and voted on by the House of Representatives. In the meantime, broad-based societal support for the bill is emerging, with civil society organizations, trade unions, academics, and companies publicly backing the ‘Initiative for Sustainable and Responsible Business Conduct’.