Objective of the Supply Chain Act.
The aim of the draft law on corporate due diligence in supply chains is to protect the fundamental rights of people involved in the production process of goods for the German market. Human rights are understood to mean the prohibition of child labor, protection against slavery and forced labor, as well as occupational health and safety, the payment of an appropriate wage, the right to union membership, etc. The Supply Chain Act is intended to oblige manufacturing companies in Germany to better meet their global responsibilities. Companies must ensure that there are no human rights violations in their own business operations or those of their direct suppliers. The law specifies the form in which companies must fulfill their due diligence obligations for the observance of human rights. This includes that companies must analyze the potential human rights risks, take preventive and remedial measures, establish grievance mechanisms and report on their activities.
The aim of the Supply Chain Act is to ensure compliance with human rights along the entire supply chain.
For which companies is the law mandatory?
Regardless of their legal form, all companies in Germany are required to apply the new Supply Chain Act. This applies to companies that have their head office, principal place of business, administrative headquarters or registered office in Germany. From 2023, the Supply Chain Act will apply to companies with more than 3,000 employees (currently around 600 companies in Germany). Temporary workers who work for the company for at least six months will also be considered employees for the purposes of the Supply Chain Act. From 2024, it will also apply to smaller companies with more than 1,000 employees (currently around 2,900 companies in Germany).
Initially, the Supply Chain Act will apply to companies with more than 3000 employees from 2023.
Threat of fines and penalties for non-compliance with the Supply Chain Act.
Violations of the formulated due diligence requirements can be punished with up to 8 million euros or up to 2% of annual sales, depending on the severity of the administrative offense. The percentage fine applies only to those companies with more than 400 million euros in annual sales. In addition to the above sanctions, companies can be excluded from public procurement for up to three years. In order to be able to monitor supply chain management in the company, competent authorities will be given corresponding control powers.
Depending on the severity of the administrative offense, a fine of up to 8 million euros or up to 2% of annual sales may be imposed.
Outlook.
The draft law on the Supply Chain Act deals primarily with the protection of human rights along the supply chain. Companies must take appropriate measures to ensure compliance with human rights in the future. This can be secured by the following compliance measures, among others: Establishing a risk management system, conducting regular risk analyses or even adopting a policy statement.
