Publication of the law regarding duty of care for parent and other companies

The French Constitutional Council has handed down its decision (no 2017-750 DC) regarding the law introducing a duty of care for parent companies and other companies.

The French Constitutional Council declared measures introducing the payment of a civil penalty from parent and other companies subject to this new law to be unconstitutional. The Council did not consider any of the remaining terms to be unconstitutional.

The financial penalty declared unconstitutional

The text adopted by the French National Assembly states that companies that fail to respect the requirements outlined by this law could face financial penalties in excess of €10m. It was also stated that the judge ruling upon the fine must set it in accordance with the severity of the breach in question (see our article: "Introduction of a new corporate duty of care into French Law").

The French Constitutional Council believes that, given the imprecision in the legislator’s drafting to outline the obligations created and the scope of the companies concerned, the constitutionality of the provisions setting a penalty cannot be accepted. In other words, the new legal obligation created by the legislator was too vague to be correctly enforced.

The Council has thus declared the following to be unconstitutional: the final paragraph of article 1 of the law, the third paragraph of article 2 and the entirety of article 3.

However, the French Constitutional Council has approved the other binding mechanisms introduced by the law. Thus, a company can still be issued with a notice requiring it to respect the law’s requirements, and a court can impose an injunction on said company, requiring it to publish a plan of action for its duty of care as a penalty. In addition, the company will have to take responsibility for any breach of its obligations. Finally, a court can order the company to publish or circulate the decision.

The terms approved by the French Constitutional Council

The remainder of the terms were approved; the French Constitutional Council did not deem any other terms of the law to be unconstitutional.

The French Constitutional Council has also not declared the law to be unconstitutional on the basis of the imprecision of the terms regarding the scope of the law. Consequently, only public limited companies and companies limited by shares who reach the threshold outlined by the law, as well as joint stock companies, will have to respect the obligations resulting from the new law according to our analysis (see our article: "Introduction of a new corporate duty of care into French Law).

The law was also criticised by senators and MPs, because the latter believed that the law gives rise to vicarious liability. According to the Council, this is not the case: the legislator only intended to reiterate that a company’s liability arising from its failure to comply with the obligations laid down by the vigilance measures is engaged as required by French domestic law; that is to say when a direct causal link is established between the breaches of the law and the damages caused. The terms in question therefore do not give rise to vicarious liability.

In conclusion, the French Constitutional Council does not believe that the law impinges upon companies’ freedom to conduct business as a result of its new requirements.