Overview of the German Supply Chain Law

From 1 January 2024, the German Supply Chain Act will also apply to companies with more than 1,000 employees. In our view, these are the most urgent issues for these companies:

• Identify high risk operation / sourcing countries
• Update contracts for largest / highest risk suppliers
• Publish policy statement / human rights declaration
• Implement complaint management
• Inform and train critical employee groups (e.g. procurement)

Initial reports in line with the LkSG must be submitted to the competent authority no later than four months after the end of the financial year that ends during the calendar year 2023 (for enterprises with 3,000 or more employees) or 2024 (for enterprises with 1,000 or more employees). The reporting period does begin 01.01.2023 (or 01.01.2024).

The corporate responsibility spans the entire supply chain, with corporate responsibility tiered according to the degree of influence. The human rights elements apply first to the companies themselves as well as to direct / immediate suppliers. Human rights risks at indirect suppliers, i.e. in the lower tiers of the supply chain, must be analyzed and addressed if companies become aware of them in a substantiated manner.

Starting January 1, 2023, companies with at least 3,000 employees will be affected, and starting January 1, 2024, the law will apply to companies with 1,000 employees. Employees of all domestic subsidiaries must be included in the calculation. Temporary workers must be included in the calculation, if they are employed for longer than six months.

• Prohibition to employ children under the statutory minimum age
• Prohibition of all forms of slavery and forced labor
• Prohibition to disregard applicable duties of labor protection
• Prohibition to disregard the freedom of association / trade unions
• Prohibition of unequal treatment (based on ethnic descent, social origin, age, gender, sexual orientation, religion, etc.)
• Prohibition to deprive someone of an adequate wage
• Prohibition to cause harmful soil changes, water or air pollution or excessive water consumption
• Prohibition of unlawful expropriation / eviction
• Prohibition to produce mercury-added products
• Prohibition to produce persistent organic pollutants
• Prohibition to export hazardous waste (Basel Convention)

In the future, affected parties will have the ability to have non-governmental organizations and trade unions represent them in German courts and to authorize them to take legal action if they feel that their paramount legal positions have been violated by a breach of the corporate duty of care.

The law provides for two sanctioning options under public law: A serious violation can lead to exclusion from participating in public contracts for up to three years. Furthermore, violations of the due diligence obligations can be punishable by fines of up to two percent of the average annual turnover generated worldwide.

A control authority will ensure the enforcement of the legal requirements. For this purpose, the Federal Office of Economics and Export Control (BAFA) will be given a mandate to support industries with concrete information for implementation and will at the same time be given the following rights: report review, right of investigation, right of ordinance, right of entry, right of sanction/exclusion, right to impose fines and penalty payments.