Faced with consumers’ increasing ethical and sustainability demands with respect to the products they buy, most companies, especially multinationals, draft and publish so-called “Codes of Ethics.” Adopted by the company itself, a Corporate Code of Ethics is a self-regulation document that collects the set of social, moral and environmental values and rules that the company intends to abide by, including in liaising with its internal (employees for example) and external stakeholders (other business partners). But what happens if the company itself infringes on its own internal code?
In Italy, Codes of Ethics became increasingly frequent after the enactment of Legislative Decree No. 231 of 8 June 2001 on corporate liability for crimes committed in their interest. Such codes have therefore become a tool for preventive control of “231 crimes”. In case of violations of the Code by employees, internal disciplinary sanctions are provided. But what about violations by the company itself, are there external controls? Admittedly, failure to comply with the Code of Ethics’ provisions that implement Legislative Decree 231 will result in the liability of the company under Italian law; but what about violation of the provisions going beyond 231 crimes? The voluntary basis for adoption of Codes of Ethics raises the question their legal value. Some insights can be found abroad, especially in the French and American frameworks.
In particular, a landmark U.S. case, Nike v. Kasky, resolved for the first time the legal conundrum of noncompliance with a Corporate Code of Ethics. In this case, Nike was sued for false and misleading commercial communications regarding an advertising campaign about working conditions in its factories. In 2003, the U.S. Supreme Court issued a ruling in which it recalled that only truthful commercial speech was protected under the 1st Amendment, which was not the case here. Nike could therefore be liable for such misleading information, given that “communication [were] more likely to deceive the public than to inform it”.
In France it is also now commonly accepted that provisions on consumer protection can be invoked in such situations. By publishing its Code of Ethics, the company makes it a real marketing tool capable of guiding consumer behavior and misleading them about the social conditions under which products are manufactured. Consumers who feel that they have been misled by such advertising can institute legal proceedings for misleading commercial practice under Article L121-2 of the French Consumer Code. Such provision lists the situations that amount to misleading practices, which includes the use of false claims or claims likely to confuse about “the scope of the advertiser’s commitments.” Furthermore, taking into account the phenomenon of “greenwashing”, the French “Climate and Resilience” law included in 2021 an explicit reference to environmental commitments. In the event of a violation, Article L132-2 of the French Consumer Code provides for a fine of €300,000, or up to 10% of the average annual turnover, or 50% of the expenses incurred in carrying out such advertising (80% in case of environmental claims).
These provisions on misleading commercial practices, transposition of Directive 2005/29/EC, have also been incorporated into Italian law, in Articles 21, 22 and 23 of the Italian Consumer Code. In addition, the European Commission recently published a Proposal for a Directive to strengthen consumer protection against untrustworthy or false environmental claims, banning “greenwashing”. For more information on this Proposal, check out the official EU website at the following link: https://ec.europa.eu/commission/presscorner/detail/en/ip_22_2098.
However, in practice, the aforementioned French provisions face a number of obstacles preventing the legal actions from being admissible. While the case against Auchan following the Rana Plaza collapse in Bangladesh still remains unresolved, the case against Samsung France, accused of violating its ethical commitments in China, was recently dismissed. According to the French Court of Cassation (in a ruling dated 29 March 2022), the plaintiff, a French NGO, did not have standing to bring a consumer lawsuit. Indeed, pursuant to Article L623-1 of the French Consumer Code, only nationally registered associations can bring a class action under consumer law. Currently, only fifteen associations in the country meet such a requirement. Given the uncertain legal framework in EU Member countries (and still wary towards a widespread use of class actions), the U.S. legal system, far more favorable to class actions, may provide greater protection.
Obviously, much will depend on the attention and sensitivity of consumer associations or consumers themselves and their ability to play an active role in calling companies to fulfill their truthful obligations fairly.
For more information do not hesitate to contact us at the following e-mail address: [email protected].