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Focus on Regulation

Current Status Supply Chain Act (Germany)

The German government is planning to introduce a national Supply Chain Act. A corresponding draft bill is expected to be submitted to the cabinet for a decision in mid-March 2021 and is expected to be passed before the end of this legislative period. That timeline could mean that the act could come into force on 1 January 2023.

Which companies would be affected?

Companies based in Germany with more than 1,000 employees are covered by the current bill. Medium-sized companies would not be affected

  • From 1 January 2023, the act would apply to companies with more than 3,000 employees.
  • For companies with more than 1,000 employees, the act would apply from 1 January 2024.

What would this mean for affected companies?

Companies affected by the bill would be obliged to ensure that their suppliers also comply with human rights, in particular forced labor, child labor, discrimination, violation of freedom of association, violation of occupational health and safety, problematic employment and working conditions (working hours, wages, vacations, etc.), violation of land rights, damage to health and soil or air pollution.

  • The act would introduce the obligation to conduct a documented risk analysis to identify risks in their supply chain. A layered level of responsibility would apply:
    • For their own business operations and direct suppliers, companies under the draft bill must ensure that human rights violations do not occur. Companies would have to demonstrate that they are fulfilling their due diligence obligations by submitting a risk report to the Federal Office of Economics and Export Control (Bundesamt für Wirtschaft und Ausfuhrkontrolle).
    • For indirect suppliers in the chain down to the raw material supplier, a risk analysis would only be required if complaints from employees of the supplier reached the German company.
  • If companies became aware of a human rights violation, they would have to take remedial actions. Such remedial actions can include the duty to conduct investigations or terminate business relationships.
  • Companies would also be subject to a reporting obligation: Companies would have to report to the Federal Office of Economics and Export Control on how they analyze supply chain risks, incorporate prevention measures into business policy and take remedial actions and establish a grievance mechanism.

Consequences for violations

The act does not plan on introducing a new or stricter concept of civil liability for companies. In that regard, the current rules of liability would continue to apply. However, companies must expect fines of up to ten percent of their turnover (although the draft bills does not include specific values in this regard) and possibly exclusion from public tenders for up to three years.