Two new EU laws passed this year are poised to transform global business. By shaking up legal frameworks and corporate supply chains, the Corporate Sustainability Due Diligence Directive and the EU Forced Labour Regulation could fundamentally change how companies operate.
These laws mark a pivotal moment in the fight for a more ethical global supply chain industry and promoting human rights and environmental sustainability. General counsel and lawyers who provide an outside perspective must understand the basics of forced labor and reconsider their strategic goals and operations to ensure that human rights are no longer violated in the name of commerce.
For nearly a century, global authorities have waged a battle against forced labor, a grievous violation of human rights. Notable early efforts to eradicate the practice include the Tariff Act of 1930 in the United States and the European Convention on Human Rights (ECHR), adopted in 1950. Article 4 of the ECHR specifically bans forced or compulsory labor, establishing a crucial legal benchmark for human rights across Europe.
The International Labor Organization (ILO) defines forced labor as “all work or service which is exacted from any person under the threat of a penalty and for which the person has not offered himself or herself voluntarily.”
It encompasses a broad spectrum of activities across various industries, including the informal sector. A wide range of penalties can be used to compel someone to work. Penalties can include physical violence, imprisonment, or withholding wages. Other threats may be non-physical, such as implying harm to the victim’s family or reporting them to authorities.
Forced labor entails work performed without a worker’s free and informed consent to take a job and his or her freedom to leave at any time. This is not the case, for example, when an employer or recruiter makes false promises so that a worker accepts a job that he or she would not otherwise have done.
This definition underscores the multifaceted nature of forced labor, emphasizing that it goes beyond the mere absence of physical coercion. It highlights the importance of consent and the freedom to leave, pointing out the sophisticated methods used to trap individuals in exploitative situations. This makes it imperative for global efforts to focus not just on the overt signs of forced labor but also on the nuanced ways in which individuals are coerced into service against their will, ensuring that labor practices worldwide are fair, voluntary and dignified.
The shocking scale of forced labor has prompted governments to hold organizations accountable.”
Under this definition, the European Union formulated and enacted two significant legislative frameworks: the Corporate Sustainability Due Diligence Directive (CSDDD) and the EU Forced Labour Regulation (FLR). The CSDDD officially came into effect on July 25, 2024.
The European Commission (EC) noted the directive aims to “foster sustainable and responsible corporate behavior in companies’ operations and across their global value chains.” The new rules will ensure that companies in scope identify and address adverse human rights and environmental impacts of their actions inside and outside Europe.
The EC has said that Member States have until July 26, 2026, to transpose the directive into national law. One year later, on July 26, 2027, the rules will start to apply to companies, with a gradual phase-in between three and five years after entry into force.
After the European Parliament passed the FLR in April, adopting it with a decisive 555-6 majority, the regulation came into force this summer. The regulation aims to prohibit products made with forced labor from being placed on the EU market or exported from the EU. It applies across all industry sectors and products, regardless of origin, and includes strict enforcement mechanisms that involve investigations by national authorities and potential penalties for non-compliance. Companies are required to comply by mid-2027 or 2028.
“It is this shocking scale of forced labor that has prompted national governments, state and regional governments and the EU to legislate to hold organizations to account for exploitation in their operations and, vitally, their supply chains,” said Tim Nelson, CEO at Hope for Justice and Slave-Free Alliance, a not-for-profit enterprise, owned by the global anti-trafficking charity, Hope for Justice.
“Responses have included mandated transparency and reporting, due diligence, vigilance requirements, remediation requirements, civil penalty mechanisms or a combination of these to address this complex issue.”
A Closer Look
At the outset, the high-level objectives of CSDDD and FLR are digestible. CSDDD, for example, is alerting nearly 6,000 companies and targeting the largest game in the first phase-in periods.
In 2027, compliance is mandatory for EU companies with more than 5,000 employees and €1.5 billion in worldwide turnover, as well as non-EU companies with more than €1.5 billion turnover generated in the EU.
In 2028, compliance is mandatory for EU companies with more than 3,000 employees and €900 million worldwide turnover, as well as non-EU companies with more than €900 million turnover generated in the EU.
All other companies in scope must comply by July 2029.
Robert Spano, a partner in Gibson, Dunn & Crutcher UK LLP, said it remains to be seen if the rules go far enough to curb forced labor and provide enough clear guidance for companies to comply.
“A number of conditions and requirements for the application of the CSDDD are couched in rather vague terms, in particular those that relate to the so-called human rights due diligence obligations and the scope and contours of civil liability of in-scope companies,” said Spano, who is recognized by Best Lawyers in the United Kingdom 2025 in the areas of Human Rights and Public International Law.
Spano is also the former president of the European Court of Human Rights, the youngest judge elected to the presidency in the Court’s 60-year history. He noted that the concept of “actual” or “potential” adverse human rights impacts in the CSDDD will not be easily defined in practice.
“I have advised clients to take a strategically coherent and proactive approach to implementation in this regard,” Spano said. “It is also important to note that the CSDDD is far wider in scope than the FLR, as the former is not limited to human rights harms that result from abuse of workers although their aim is similar. Therefore, the two normative frameworks will have to be reconciled in practice.”
Violations, Enforcement and Risks
Organizations that violate the CSDDD or FLR can expect harsh consequences. From legal sanctions and civil liabilities to operational restrictions, there are more reasons to comply with the new guidance than to disregard it. McCarter & English Partner Ronald M. Leibman’s career has involved supply chain operations for decades, highlighted by experiences as a senior logistics executive at Wakefern Food Corp. for ShopRite Supermarkets and home-furnishing retailer, Fortunoff’s.
Leibman said human rights were traditionally a political issue that has evolved into a key business risk. He noted that the CSDDD in particular has board-level interest and particularly when it comes to the potential for reputational harm.
“Fines can be effective, just like the U.S. Securities and Exchange Commission fines a bank for doing something wrong,” Leibman said. “It hurts them in the pocketbook and, maybe more importantly, reputationally. I think that unfortunately, it’s similar to what it takes to get your kids to listen—they start paying attention when you don’t give them their allowance for a week. We’ve seen criminal penalties against corporations and corporate leaders for very egregious acts, but if we get to that point, then something’s very wrong.”
CSDDD rules will be enforced through administrative supervision, in which member States will designate an authority to impose rules, including injunctive orders and effective, proportionate and dissuasive penalties (in particular fines). The EC will set up a European Network of Supervisory Authorities, which will bring together representatives of national bodies to ensure a coordinated approach.
The EC also detailed how member states will be responsible for civil liability and ensure victims receive compensation for “damages resulting from intentional or negligent failure to carry out due diligence.”
The directive’s sanctions for non-compliant companies include fines of up to 5% of their worldwide turnover and name-and-shame penalties.
“Now that the CSDDD has introduced mandatory requirements for corporates to prevent such [forced labor] in their upstream and downstream chain of activities, a direct nexus has been created at Union level between the two fields of law,” Spano said.
“There will be a number of challenges in play when it comes to litigation that arises out of allegations that corporates have not met their obligations under the CSDDD after the directive has been transposed into the national law of the 27 EU member states. Lawyers need to familiarize themselves with core elements of international human rights law to be able to advise coherently.”
Best Practices for Compliance
Incorporating compliance with the CSDDD and FLR will require many organizations to update their strategic plans. Supply chain risk dashboards are available to help map relationships and identify where and how goods are sourced. These technologies can highlight the suppliers’ reputation and the risk exposure, and ultimately enable informed decision-making.
Leibman argued that showing true commitment goes beyond mere compliance. It requires forming a transition team dedicated to executing the measures mandated by the new regulations, he said.
“Companies have to conduct a thorough review of their suppliers, not just their finances, but they need to try to find out as much as possible in these key areas that relate to sustainability,” Leibman said.
“The key here is that the act requires remediation to help suppliers improve. It’s critical to have as many people involved on the ground as possible; your salespeople or your stakeholders locally should be your eyes and ears and should be telling you what you need to do to comply. But also remember, supply chain isn’t only comprised of the people in [another] country, it’s also the people in your home office.”
Each of these laws will incrementally change the landscape and put the idea of sustainability and the importance of our world and our people top-of-mind.”
Shipping to customers or between corporate facilities is also part of the supply chain, Leibman added.
“It’s necessary to get your carriers involved. You need to have as many people involved as you can to provide you with real-time information, because the EU expects effective communication and solid reporting, including an annual report,” Leibman said. “In the United States, many companies publish ESG statements and companies do put information in their annual 10-K reports, but the CDCCC actually requires it as a part of visibility.”
To maintain corporate insurance coverage, companies will be required to implement due diligence processes and require robust supply chain mapping, visibility and reporting. Hiring independent groups like EcoVadis or the Slave-Free Alliance to conduct evaluations will help an organization identify risks in the supply chain, communicate with governments and ideally institute permanent change in a company’s decisions and conduct.
“Even if a business is not directly in the scope of the legislation—for example, if they are too small—they could still be asked what steps they are taking by a larger customer,” Nelson said. “The strong focus on supply chains and cross-border provisions means that more and more virtually all of a business’s global activities are being caught in the scope of various laws, whether as a buyer or seller of goods and services. Businesses must not ignore these developments and should be taking them into account as they negotiate with suppliers, develop their strategies and consider their operational footprint.”
Cautious Optimism and the Future of Supply Chain Regulations
The CSDDD and the FLR are the newest landmark pieces of legislation in the EU and continue the trend among several European states, in particular the UK Modern Slavery Act.
Similar strides in the fight for more ethical supply chains are being made across the Atlantic, with the U.S. promoting human rights considerations in the industry through legislation such as the Uyghur Forced Labor Prevention Act (UFLPA), which took effect in June 2022.
“Moreover, at the international level, we have the ILO’s Forced Labour Convention which has been in place for decades,” Spano said. “Together, these norms are creating a panoply of regulations which will enhance the horizontal (private-to-private) application of human rights laws with businesses having to adjust their operations, sometimes to a significant extent.”
CSDDD’s scope has been reduced to affect only 0.05% of EU companies, down from the originally proposed 1%. Despite this limitation, the CSDDD is expected to have a significant impact, especially on UK consumer goods manufacturers and industries like fashion, which are deeply intertwined with global supply chains.
The full enforcement of the FLR may be delayed until 2028, granting companies over three years to adhere to its regulations. During this period, businesses must enact systemic changes to guarantee that their operations, including the procurement, usage, or sale of goods and services, are free from forced labor and do not involve entities from sanctioned countries.
Supply chains have various levels of complexity and lawyers may consider collaborating with risk professionals and executives to avoid unwitting participation in forced labor. This ongoing process will continue to evolve in this direction, and lawyers who advise supply chain participants and stakeholders can help in strategic decision-making and create a new level of constancy.
“All you can do is make the effort, but that effort is important because without it, nothing ever changes,” Leibman said. “I do believe each of these laws, as they come along, will incrementally change the landscape, and put the idea of sustainability and the importance of our world and our people top-of-mind.”
Justin Smulison is a professional writer who proudly contributes to Best Lawyers. Credits include reporting for the New York Law Journal and leading production for ALM's Custom Projects Group. In addition to writing, he has developed global audiences by hosting and producing podcasts and video interviews for professional organizations and music sites. JustinSmulison.contently.com
