Published on 15 February 2021 following an agreement between the Ministry of Economy and the Ministry of Labour, it was adopted by the Federal Cabinet on 3 March 2021: the draft bill of the Federal Ministry of Labour and Social Affairs for the law on corporate due diligence in supply chains.
In short, the draft obliges the companies concerned to take all reasonable measures to ensure compliance with human rights in the supply chain. This requires an appropriate risk management, which, in addition to a risk analysis, also includes the taking of appropriate preventive and remedial measures, not only in relation to the company’s own business, but also in relation to its direct and, under certain conditions, even its indirect suppliers. Preventive measures include the adoption and implementation of a human rights strategy and procurement processes and rules to avoid human rights risks. Compliance with human rights must also be included in the contractual relationship with direct suppliers.
Similar to the EU Directive on the protection of persons reporting on breaches of law, the planned Supply Chain Act provides for the creation of a company-internal complaints procedure, i.e. a possibility for third parties to point out human rights risks or violations.
The right of trade unions and non-governmental organizations to assert violations of rights under this law in court by way of a representative action has been and continues particularly to be the subject of criticism.
In the event of an infringement, the undertaking concerned may be excluded from the award of public contracts and fined.
The new regulations are to be mandatory for companies with a head office, main branch or registered office in Germany and initially with more than 3,000 employees; from 1 January 2024 this threshold will then be lowered to 1,000 employees.
According to the explanatory memorandum of the draft bill, “small and medium-sized enterprises […] would not be burdened by the project”. The draft bill overlooks the fact that companies are obliged to take measures if they become aware of a violation at any point in the supply chain. It is therefore to be expected that the obligations in the supply chain will be passed on to the last link and therefore also to small and medium-sized enterprises”.
All companies should therefore promptly carry out the risk analysis required by law in order to take appropriate measures in good time (we expect the approval of the law before the summer break). As a first step, it is crucial to identify the relevant risks in the first place. According to the explanatory memorandum of the draft bill, the short-term reduction of delivery dates, for example, can lead to the supplier no longer being able to deliver in accordance with the contract without violating core provisions of the International Labour Organization (ILO), which is why this short-term change in the delivery date is regarded as indirectly causing a human rights violation. A careful and comprehensive risk analysis as the basis of preventive measures is therefore indispensable for reducing the risk from the Supply Chain Act.