The overall objective of the proposal for a directive on corporate sustainability due diligence is to “ensure that companies contribute to sustainable development through the identification, prevention and mitigation of adverse human rights and environmental impacts connected with companies’ operations, subsidiaries and value chain”. The proposal codifies much of the UN guiding principles and the OECD guidelines on business and human rights and has five specific aims:
· Improve corporate governance practices to better integrate sustainability risk management into corporate strategies;
· Avoid fragmentation of due diligence requirements and create legal certainty for business and stakeholders (including trade unions and workers’ representatives);
· Increase corporate accountability for adverse impacts and ensure coherence for companies;
· Improve access to remedy;
· Complement specific sustainability measures
While the EFBWW supports the ambition of the proposal, we have some major reservations and severe doubts about the drafting and do not believe that it meets its stated aims. First of all, the Directive does not go far enough, missing the human rights and governance focus and even if it did meet this focus, the scope is extremely limited; workers’ rights provision is extremely limited, selective and random. Moreover, trade union and workers’ representation is effectively overlooked.
However, there are opportunities: Complex corporate structures, value chains and subcontracting arrangements have enabled unscrupulous companies to circumvent human rights, social and environmental standards, which this proposal may serve to remedy. Due Diligence rules provide an opportunity to avoid a race to the bottom and empower workers to fight against violations of human rights.
EFFECT ON THE CONSTRUCTION SECTOR
The draft proposal requires only ‘very large’ companies (more than 500 employees) to perform due diligence. There is a lower threshold (of 250 employees), but this only concerns three sectors: textiles, agriculture and extraction of minerals. Extremely few construction companies would come within the scope of the directive.
More than 99% of construction firms can be classified as small and medium sized enterprises (SMEs) and more than 88% of construction workers are employed by SMEs. In 2017, almost 50% of construction workers were employed within micro enterprises (0-9 employees), with many of those workers being self-employed.
The construction sector sees the highest number of fatal accidents at work of any sector across Europe particularly amongst posted workers involved in subcontracting chains. The proposal therefore presents an opportunity to require contractors to perform robust due diligence on the companies and suppliers they do business with, which will provide a safer working environment for workers. The involvement of trade unions in this process would make the process of due diligence and the establishment of codes of conduct more transparent and improve the representation of workers therein.
Furthermore, late or non-payment of workers across the construction sector is rampant. In addition to joint and several liability schemes and the involvement of trade unions in business codes of conduct, remedies arising from failure to perform due diligence represents another opportunity of due diligence.
For this proposal to work for the workers the EFBWW represents, the process of due diligence must be robust and involve trade unions throughout the entire process. Moreover, we consider that a robust and effective due diligence process has little effect if it does not cover enough of the industry. The EFBWW therefore proposes five recommendations on how to improve the proposal:
1. A comprehensive non-regression clause, ensuring that there is no back-sliding
2. Extending the scope of the directive to more companies
3. Deleting the novel ‘established business relationship’ concept
4. Involving trade unions in a robust system of due diligence
5. No lee-way for liability
EFBWW cannot support a directive due diligence that undermines joint and several liability in the construction industry.
ARTICLE 1 – SUBJECT MATTER: NON-REGRESSION CLAUSE
Article 1 sets out the subject matter of the Directive: that it relates to obligations regarding adverse human rights and environmental impacts and that there is liability for the violation of the obligations. Paragraphs 2 and 3 provide the basis for a non-regression clause:
2. This Directive shall not constitute grounds for reducing the level of protection of human rights or of protection of the environment or the protection of the climate provided for by the law of Member States at the time of the adoption of this Directive.
3. This Directive shall be without prejudice to obligations in the areas of human rights, protection of the environment and climate change under other Union legislative acts. If the provisions of this Directive conflict with a provision of another Union legislative act pursuing the same objectives and providing for more extensive or more specific obligations, the provisions of the other Union legislative act shall prevail to the extent of the conflict and shall apply to those specific obligations.
However, as some social rights covered in the proposal are set by collective agreements, the wording would need to be strengthened and clarified. Similarly, paragraph 3 would need to clarify what would constitute “more extensive or more specific obligations” – in the recitals or otherwise – as this directive would touch on a lot of economic activities.
ARTICLE 2 – SCOPE: TOO NARROW
In its current wording, the proposed Directive would cover less than 1% of EU-based companies and affect very few workers (in the case of construction, affect only those workers employed by companies greater than 500 employees). In conjunction with Article 3 (a) – on the definition of ‘company’ – the personal scope should be extended as much as possible. EFBWW proposes that this be replaced by a more general definition of ‘undertaking’, and ‘workers’ be used instead of ‘employees’.
EFBWW proposes that these thresholds be lowered and that paragraph 3 be amended as follows:
3. For the purposes of paragraph 1;
(a) the average number of workers shall include:
i. workers in the undertaking, and;
ii. workers in its subsidiaries;
iii. workers in third party undertakings with whom the company or its subsidiaries have entered into a vertical agreement in return for payment and/or a subcontracting agreement
(b) the number of part-time workers shall be calculated on a full-time equivalent basis. Temporary agency workers shall be included in the calculation of the number of workers in the same way as if they were workers employed directly for the same period of time by the undertaking;
(c) the net turnover shall include the net worldwide turnover generated by:
i. the undertaking, and
ii. its subsidiaries, and
iii. third-party undertakings with whom the undertaking have entered into a vertical agreement in return for payment and/or a subcontracting agreement
Due to the unique composition of the construction sector in the EU – having a high reliance on posted workers – there is a risk that some posted workers may find themselves with less protection. There is a potential conflict with Article 12 of the 2014 Enforcement Directive (Posted Workers), which provides that contractors may be held liable by a posted worker for any outstanding remuneration owed. However, in some Member States, contractors may not be liable if they can show that they have performed due diligence as defined in national law (which the CSDD would become upon its entry into force). According to the 2019 report on the transposition of the Enforcement Directive, only Croatia, Estonia, Greece, Ireland, Poland and – in the case of road haulage – Italy have been identified as having adopted such an exculpation. The report only mentions one Member State who has not adopted such a provision: Germany.
If the duty to do due diligence is weak, it may allow companies to escape their joint and several liability for the non-payment of posted workers. Hence, the EFBWW must call for a robust due diligence which complements joint and several liability instead of a due diligence which could potentially undermine such schemes.
ARTICLE 3 – DEFINITION: DANGER OF ESTABLISHED BUSINESS RELATIONSHIP
Article 3 (f) introduces the novel concept of ‘established business relationship’, which is derived from the current French law on due diligence and not only does this not exist in the ILO, UN or OECD instruments, but there is also no clear guidance from French case law. As defined within the proposal, the concept creates with it many limitations and potential loopholes. Not only does it form itself a subcategory of ‘business relationship’ (sub-paragraph (e), it is also defined within a broader context of ‘value chain’ (sub-paragraph (g)), both of which create possibilities for exclusions.
Moreover, the focus on a ‘lasting’ or ‘formal’ relationship implies the existence of semi-formal or informal arrangements, something that can be found throughout the construction industry.
ARTICLES 4-12: PROPOSAL FOR A ROBUST DUE DILIGENCE WHICH INVOLVES TRADE UNIONS
EFBWW calls for an effective and robust due diligence process to provide safety and protection for workers in the construction, woodworking and other allied sectors. In order to ensure robust and effective policies that effectively identify, prevent and monitor adverse impacts, trade union and workers’ representatives must be integrated into the provisions of articles 4 to 12. Companies must not have the ability to forum shop, engaging only sympathetic stakeholders.
Article 4 outlines what the process of due diligence entails for the purposes of the directive. Elaborated further in articles 5-11, due diligence will consist of six elements:
a) integration of due diligence into company policy/policies (Art 5)
b) identification of actual or potential adverse impacts (Art 6)
c) prevention and mitigation of potential adverse impacts (Art 7 and 8)
d) establishment of a complaints procedure (Art 9)
e) monitoring of the effectiveness of due diligence policies and measures (Art 10)
f) communication on due diligence (Art 11)
Trade unions must have the resources to exercise the right to consultation. Article 4 may be amended to include wording along the lines of:
“Member States shall ensure that for any of the actions described above, the undertaking will ensure the involvement of trade union and workers’ representatives and ensure access to the relevant resources to exercise their rights”
The recitals may specify in depth what this would entail. In terms of involvement, this would need to include access to pertinent information, consultation and participation rights for trade unions. The resources that this would require may be elaborated further, including access to training needed to exercise this right.
Article 6 deals with the identification of actual or potential adverse impacts. The current wording is weak and limits the obligations of undertakings, falling short of the proposal’s aim to codify the UN Guiding Principles. Similarly, within the context of the extremely narrow scope of very large companies, the proposal’s ambitions are further undermined by only requiring companies to identify “severe adverse impacts”. EFBWW proposes to strengthen the wording here, requiring the identification of a greater number of adverse impacts and to remove references to “where appropriate” or “where relevant”, which create a voluntary flavour to the provisions of the article.
Article 7 on the prevention and mitigation of potential adverse impacts, as proposed, creates a major concern for the EFBWW as it introduces so-called ‘contractual assurances’, disincentivising companies from properly engaging in the due diligence process. The provision allows companies to effectively pass the buck onto partners with whom it has an indirect relationship or even outsourcing to suitable industry initiatives. Furthermore the proposal does not elaborate on what “contractual assurances, when obtained, shall be fair, reasonable and non-discriminatory” means.
Article 9 establishes a complaints procedure and is the only part of the proposal that has legal provisions for trade unions. The fact that the involvement of trade unions happens only after a complaint has been made reveals a stark picture for how the Commission views the role of trade unions in due diligence. Similarly, the proposal effectively allows Member States to decide who can represent workers. The EFBWW believes that this is an internal decision for trade unions to make.
Article 12, the Commission is tasked to adopt guidance about model contract clauses for companies to adopt to be in-line with the provisions of the due diligence directive. EFBWW calls for such guidance to be conducted in consultation with the European sectoral social partners.
ARTICLE 22 – NO LEE-WAY FOR LIABILITY
Article 22 sets out that companies are liable for damages they cause. EFBWW is concerned by how much lee-way this article allows for companies to avoid liability. The proposal sets out an exception when it refers to “indirect partners with whom it has an established business relationship”; this issue renders it almost impossible to hold companies liable for adverse impacts (serious or otherwise) caused by indirect partners and creates a near-impossible burden of proof for victims.
The apparent conflict with the 2014 Enforcement Directive is a major concern for the EFBWW. A weak due diligence, where their responsibilities are rendered into a simple tick-box exercise opens up a means for companies to circumvent their obligations to posted workers in particular. While the EFBWW will be lobbying for a robust and effective due diligence for the interests of all workers, specific protection for joint and several liability schemes within the construction sector must also be guaranteed. Article 22 (4) must also have explicit provisions not to prejudice the joint and several liability which workers currently benefit from.
 This would only be the case for workers who would a) come within the scope of the Directive (at the moment, only very large companies >500 employees), b) rely on a joint and several liability scheme and are subject to national posting rules which allow for an exemption of liability if a contractor can prove that they have performed due diligence as defined by national law.