Sanctioning Multinational Enterprises for Extraterritorial Human Rights Violations

By: Martin Metz

 A recent and recurrent legal and political issue asks whether multinational enterprises (MNEs) are legally responsible for human rights violations that take place in foreign countries. Contemporary MNEs are commonly very powerful, as they dispose of important financial resources and potentially profit from conflicting nets of national legal systems. Consequently, MNEs may gain from globalization without being held liable for damage they cause.

Even if soft law mechanisms like the United Nations Guiding Principles of Business and Human Rights are improving, there are no enforceable international law mechanisms to sanction international law violations, as an article in Berkeley Law’s Travaux recently explained. Likewise, local remedies in the country where the injury occurred are frequently ineffective, as the host state itself may be involved in the human rights violation and the local legal systems are corrupt or ineffective. The most promising way to sanction MNEs and to compensate victims, therefore, is a civil lawsuit in the court of a developed country that can assert jurisdiction over the MNE. This approach is called human rights litigation. Due to its international political implications, this approach is especially vulnerable to case specific interpretations and substantive diminution.

I. Human Rights Litigation in the United States and Europe: Intent vs. Negligence

Put simply, intentionality and negligence currently distinguish the emphases of U.S. and European human rights litigation. On one hand, U.S. courts focus on intentional corporate wrongdoings, like killings or torture, which usually occur in cooperation with foreign state action. Similar claims have not yet been litigated in European courts and, if brought there, would face significant obstacles. On the other hand, European human rights litigation addresses negligent but physically harmful corporate behavior, enabling global enforcement of labor law and environmental law. To the contrary, conventional U.S. human rights litigation does not sanction negligent behavior, however harmful.

Two typical factual scenarios highlight the significance of this difference: those of Kiobel and Rana Plaza. In the Kiobel v. Royal Dutch Petroleum constellation, Royal Dutch Shell, a Dutch petroleum producer, allegedly intentionally helped the Nigerian government to kill and torture its citizens. In this setting, the victims sued Royal Dutch for damages in U.S. courts. In the Rana Plaza incident, an eight story commercial building, including a garment factory that manufactured goods for several international garment labels, collapsed in Bangladesh. Over 1,000 employees died and over 2,500 were injured. Victims in a case like Rana Plaza might seek compensation from the garment sellers who ultimately benefit from their negligent disregard for labor law standards.

II. Trend in the United States: The End of the Extraterritorial Regulation of Foreign Corporations

U.S. courts have long been trailblazers in the field of corporate human rights litigation but are currently taking a more conservative position. Claims for intentional human rights violations have frequently been litigated against U.S. and foreign corporations under the 1789 Alien Tort Statute (ATS). Special conflict of law rules, a long statute of limitations, and the structural advantages that U.S. rules of civil procedure bestow on plaintiffs bolstered ATS remedies.

However, the Supreme Court has recently punctuated the importance of the territoriality principle and considerably narrowed the applicability of the ATS with two decisions in the last two years. In the 2013 Kiobel decision, the Court held that the presumption against extraterritoriality applies to the ATS and that an ATS claim can only be brought in U.S. courts if it “touches and concerns the territory of the U.S. with sufficient force.” And in 2014, the Court decided in Daimler AG v. Bauman that a foreign corporation cannot be tried in the United States for something unrelated to its activities, because U.S. courts lack general jurisdiction over foreign corporations. To assume general jurisdiction, a corporation must be “essentially at home in the jurisdiction” where it is sued.

In the future, then, U.S. courts will not hear ATS claims for extraterritorial behavior brought against foreign corporations, and legal alternatives to the ATS do not mitigate this gap. The Kiobel decision made clear that a claim does not sufficiently touch and concern the U.S. territory in so-called “foreign cubed cases”—those that take place in a foreign country and involve a foreign plaintiff and a foreign defendant. Other federal statutes like the Torture Victim Protection Act or the Racketeer Influenced and Corrupt Organizations Act likewise provide no remedy, because they either do not apply to corporations at all or because they too have a limited territorial reach. Litigation under state tort law is not promising in these cases, because plaintiffs still must overcome the jurisdictional threshold Daimler established and face further substantial legal disadvantages, explored here in Part V.

Nonetheless, human rights litigation still seems viable if a plaintiff initiates a claim against a corporation whose parent resides in the United States rather than in a foreign country. After the Kiobel decision, it remains unsettled whether a claim brought against a U.S. corporation acting abroad sufficiently touches and concerns the U.S. territory, and circuit courts have already split over this issue. Furthermore, the question of whether the ATS includes corporate wrongdoings at all, which indeed triggered the Court’s grant of certiorari in Kiobel, remains unanswered as the Court subsequently ordered reargument and focused on concerns of territoriality.

III. Trends in Europe: Rising Awareness of the Responsibility of MNEs for Environmental and Labor Law Violations

Overseas, a new awareness of corporate responsibility has arisen, especially for negligent environmental and labor law violations that lead to physical harm. In 2013 and 2014, the European Commission and the European Parliament initiated a legislative proposal requiring corporations to publish their impacts with regard to environmental, social, employment, and human rights, as well as anti-corruption and bribery matters. Although ultimately unsuccessful, the Rana Plaza incident sparked legal proposals in Germany and France, which aimed to implement an enforceable legal duty for MNEs to prevent human rights violations worldwide. Moreover, courts in the Netherlands and in the United Kingdom already sanction MNEs for wrongdoings that occur abroad. For example, a Dutch court sanctioned Royal Dutch Shell for environmental pollution in Nigeria. The England and Wales Court of Appeals held that the asbestos mining company Cape PLC has a direct duty of care to an employee of one of its South African subsidiaries and that this duty of care was breached, because the corporation did not maintain a safe work environment. Each of these approaches focuses on negligent corporate behavior, showing a growing possibility of victims’ compensation for labor law standards and environmental law violations in Europe.

But intentional violations like killings and torture are less likely to lead to civil sanctions in European courts. This may be because it is extremely challenging to prove that subsidiaries or subcontractors intentionally violated human rights, and because it is difficult to attribute this intent it to the MNE. Even within a negligence framework, intentional human rights violations by employees are often considered to be “frolic” outside the scope of the employee’s work, and thus not attributable to the MNE. The breach of a corporate duty of care not to commit intentional human rights violations cannot easily be assumed.

Although claims of intentional human rights violations against MNEs often are unsuccessful, direct perpetrators are not necessarily spared, as European systems focus instead on criminal sanctions. The German Code of Crimes against International Law, for instance, incorporates the principle of universality and hence provides a means of punishment of natural persons who commit human rights violation anywhere in the world.

IV. Rationale for Differences Concerning the Intentional Commitment of Human Rights Violations: Procedure and Punitive Damages

Disparities in the viability of litigation in cases involving intentional human rights violations can be traced back to fundamental differences in the legal systems. The European court’s obstacles, which make it difficult to prove intentional violations, are not necessarily absent in U.S. procedures. However, procedural differences in the United States make these obstacles less important. Plaintiffs can rely on lower pleading standards, make use of pre-trial discovery and class actions, take advantage of contingency fee agreements, and avoid cost shifting. Unlike many European systems, the U.S. legal system allows for punitive damages, private attorney generals, and the combination of compensation and punishment in one procedure. This leads to a situation in which plaintiffs can more easily initiate rigorous procedures in U.S. courts, with the possibility of reaching settlement without needing to prove every element of a claim. In practice, few ATS cases end with a verdict against corporations—most are settled or dismissed. Such settlements occur with greater frequency in American rather than European forums.

V. Dogmatic Legal Differences: ATS vs. Common Torts

As American and European lawyers alike look for ways to replace the ATS as a core mechanism of transnational human rights litigation, they have focused on the use of common tort law as a legal alternative. To be sure, a regime that directly enforces human rights as well as protects the physical integrity of the victims has much more vigor than a regime that merely emphasizes the latter. However, the assertion of human rights as common tort violations—even if theoretically feasible—leads to important structural disadvantages for the plaintiffs.

First, because the ATS directly incorporates human rights as “U.S. law with international law,” U.S. courts follow a unilateral choice of law approach, which always leads to the application of U.S. law. On the contrary, the application of common tort law induces a bilateral conflict of law analysis in Europe as well as in the United States, which might lead to the application of a foreign tort regime. European courts would look to Art. 4 para 1 Rome II Regulation and apply the law of the country in which the damage occurred. As extraterritorial violations materialize in foreign countries, this rule may lead to the application of an inconvenient and possibly less protective foreign tort regime. Similarly, the multiple U.S. conflict of law approaches—at least in foreign cubed cases—leads to an application of foreign law.

Second, forum non conveniens, abolished under European law, impedes human rights proceedings in U.S. courts as the application of foreign law is a factor weighing in favor for a dismissal on forum non conveniens grounds. Third, a substantive disadvantage of common tort regime is that statutes of limitation are shorter and the rules of equitable tolling less likely to apply.

VI. Further Thoughts: Responsibility of the Home Countries

In the United States, the question is whether intentional human rights violations committed by U.S. corporations will still be sanctioned in the future and whether there has ever been sufficient awareness in cases involving corporate disregard for labor law and environmental standards. In Europe, the question is whether European corporations are unduly sheltered in cases of intentional wrongdoings. Whereas before, the U.S. legal system offered at least some recourse, European corporations can nowadays only be held liable for intentional human rights violations in rare circumstances that fit Europe’s more stringent requirements.

Overall, the issue of whether and how MNEs should be legally responsible for extraterritorial human rights violations remains an open hot topic, and we can expect further national and international developments addressing the important intersection of global business and human rights. To come to an effective and coherent process of sanctioning MNEs, home countries must assume responsibility and focus on the wrongdoings of their respective MNEs. The hope, then, is that the United States will not fully undermine the potential of the ATS and will bolster accountability mechanisms for U.S. corporate negligence. Likewise, the hope is for European countries to foster the sanctioning of intentional human rights violations committed by European corporations.

Martin Metz is a Ph.D. student at the University of Cologne and a Visiting Researcher at Berkeley Law. He is a student contributor to Travaux.

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