Due diligence and forced labour: how the EU wants to tackle illegal work practices

With 374 positive votes, 235 against, and 19 abstentions, the European Parliament greenlit the provisions contained in the Corporate Sustainability Due Diligence Directive (CSDDD).

This directive went through a quite troubled path, culminating in a compromise text reached after the abstention of Germany, France, Italy, and other Member States at the end of 2023. It enforces businesses to develop due diligence strategies to detect, prevent, minimize, and halt negative effects on the environment and human rights.

Member States disagreed on the directive’s breadth from the original proposal. Initially impacting companies with 500 employees and 150 million euros turnover, concerns from Germany led to revisions of the proposal, setting thresholds at 1,000 employees and 450 million euros. This shift broadened the scope to include smaller businesses and financial institutions, like banks and insurers, in industries prone to human rights or environmental issues. This expansion, which is foreseen to cover more than 5000 EU enterprises, constitutes a setback from a focus solely on large companies and sectors.

Each Member State will choose supervisory authorities to make sure companies follow the rules of the directive. They can ask for information, investigate, and sanction companies that don’t follow the rules. Penalties can be up to 5% of a company’s worldwide income. In addition, companies might be held responsible for damages caused by their actions, unless their business partners caused them.

This pairs with the regulation against the sale, import, and export of products made with forced labor, adopted on April 23rd with 555 votes in favor, 6 votes against, and 45 abstentions. The directive arose from the requests of EU citizens expressed in the Conference on the Future of Europe conclusions.

The directive circumscribes forced labor as a phenomenon linked to poverty and discrimination. Moreover, workers can undergo forced labor situations when their employers or recruitment agents manipulate their finances. The International Labour Organization (ILO) further clarifies that community work as a punishment shouldn’t degrade or strip the person of their dignity, threatening them of losing rights or benefits.

With the enforcement of this directive, authorities from Member States and the European Commission will investigate suspicious products, supply chains, and manufacturers. If authorities find a product made using forced labor, they will prohibit its sale in the EU and halt shipments at the borders.

Investigations will be based on reliable information from sources like international organizations, cooperating authorities, and whistleblowers. Manufacturers of banned products must remove them from the EU market and dispose of them responsibly. Non-compliant companies may face fines, at the discretion of the competent authority. Once a company removes forced labor from its supply chains, the companies might sell those goods into the EU market.

Both directives now must undergo formal adoption from the EU Council, before their publication in the EU Official Gazette.