UK Government to Introduce Mandatory Human Rights Due Diligence Legislation – What it Means for US-based Multinationals

The UK Government announced yesterday that it plans to introduce mandatory human rights due diligence legislation. We discuss the announcement in this post, and what it means for US-based multinationals doing business in the United Kingdom.

The Government had previously committed in its Trade Strategy to an evidence-based review of the UK’s approach to promoting responsible business conduct to assess whether its current framework remains fit for purpose. In its review, it concluded that the UK’s current framework for preventing forced labor is fragmented and overly reliant on voluntary action and reporting measures (i.e., the current disclosure-only Modern Slavery Act). 

The announcement was thin on details, but here is what was said about the contours of the legislation to be proposed and other complementary action to be taken:

• Subject entities will consist of (1) UK businesses with global turnover exceeding £350 million and (2) non-UK businesses with UK-generated turnover of more than £350 million. The Government is proposing this size threshold because it believes that these businesses are best placed to manage supply chain risks, prioritize action over unnecessary paperwork and align with international standards.

  In comparison, the turnover threshold under the Modern Slavery Act is £36 million. Under the post-Omnibus I EU Corporate Sustainability Due Diligence Directive, generally the threshold for EU-based companies is more than 5,000 employees and €1.5 billion in net worldwide turnover, and for non-EU companies it is more than €1.5 billion in EU net turnover. Therefore, many US-based multinationals that escaped CSDDD when Omnibus I raised the compliance thresholds will be captured by the UK MHRDD regime.  

• In-scope businesses will be required to identify, assess and address risks of human rights abuses and labor exploitation in their own operations and supply chains. For in-scope businesses in Great Britain (England, Scotland and Wales), due diligence will cover goods and services. For businesses in Northern Ireland, only services will be picked up; in Northern Ireland, the EU Forced Labor Regulation will apply under the Windsor Framework.

  Based on the announcement, the due diligence scope is narrower than the EU Corporate Sustainability Due Diligence Directive and some national due diligence laws, since it does not include environmental harms. From the announcement, the scope sounds like it might be similar to the Norwegian Transparency Act, which addresses fundamental human rights and decent working conditions.  

• Due diligence will be risk-based and proportionate, aligning with the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct and the UN Guiding Principles on Business and Human Rights.

• The Government will have the power to remove goods made with forced labor from the Great Britain market. It is not clear from the announcement whether the legislation will create new enforcement powers for other human rights-related conduct.

  The removal power may in part be intended to mitigate US tariffs. In its recent Section 301 investigations, the US Trade Representative concluded that the UK has failed to impose and effectively enforce a forced labor import prohibition and that this burdens or restricts US commerce. The UK was put in the 10% tariff bucket, rather than the higher 12.5% category, because it was determined to have a partial regime with the effect of preventing imports of certain forced labor goods. 

• The Government will take a phased and proportionate approach, in light of its commitments on economic growth, reducing administrative burdens and maintaining the integrity of the UK internal market. The priority will be to “focus on those interventions most likely to deliver tangible improvements for workers, consumers and businesses, while ensuring reforms are practical, targeted and capable of being implemented at pace.”

• A centralized responsible business conduct guidance repository will be established, to bring together guidance, tools and templates in one place.

The Government indicated it plans to work closely with stakeholders on the design and implementation of these measures and introduce them as soon as parliamentary time allows. Therefore, for now, this development goes into the monitoring column, although some companies will want to start engaging with their trade groups to try to shape the legislation that is ultimately introduced.

A Government announcement does not necessarily mean that legislation is imminent. In 2020, the then-Government announced plans to reform the Modern Slavery Act when parliamentary time allowed and a bill was not presented until this summer (see the bill status here). However, this time action may be quicker. In a November 4 Cabinet Office Written Statement, the Minister of State indicated that the aim is for the mandatory due diligence regime to take effect alongside the EU Forced Labor Regulation, which applies starting December 14, 2027.

The Private Members’ Bill 

On June 17, Baroness Young of Hornsey introduced a Private Members’ Bill in the House of Lords that would require mandatory human rights and environmental due diligence. In addition to being broader in scope than what the Government announced yesterday, the bill has lower compliance thresholds, a reporting requirement and more stringent remedial provisions, among other differences. That bill is further discussed in this Ropes & Gray post.

Expect the June Private Members’ Bill to serve as a comparison point in the legislative process. Some civil society organizations have already criticized the Government announcement as not going far enough and drawn comparisons to the June bill. 

The US Response?

The US Government has been highly critical of the CSDDD. For example, see the comments submitted to the European Commission in August in connection with its CSDDD guidelines consultation. Expect the US also to be critical of UK MHRDD legislation, raising many of the same concerns about extraterritorial and non-tariff trade impacts.

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