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Due Diligence Law passed by German Parliament
After France and Norway, Germany is the third country to have passed legislation providing for corporate due diligence in the supply chains. Indeed, on June 11, 2021, the Bundestag passed the draft law on corporate due diligence in supply chains[1] ("Gesetzes über die unternehmerischen Sorgfaltspflichten in Lieferketten"), as amended by the Committee on Labor and Social Affairs ("Law").
In addition to a series of clarifications and adjustments, the adopted Law provides for a number of substantive changes to the Government Bill ("Bill")[2] commented on by NLAV[3] in March 2021. These changes relate to the scope of the Law, the duty of vigilance obligations and the civil liability regime.
Clarification of the scope of the Law
As a reminder, the Bill made all companies subject to the duty of vigilance, regardless of their legal form:
(i) if it has its registered office, principal place of business, administrative headquarters or statutory seat in Germany; and
(ii) with at least 3,000 employees.
The Law states that in order to be subject to the duty of vigilance, a company must have 3,000 employees in Germany. Employees posted abroad are to be included in this calculation. The Law also states that it will apply to foreign companies with a branch office in Germany provided they have more than 3,000 employees in Germany.
On January 1st, 2024, the scope of the Law will be extended to companies with more than 1,000 employees in Germany.
It is also clarified that for groups, all employees employed in Germany by subsidiaries over which the parent company exercises decisive influence must be taken into account in determining whether the parent company is subject to the duty of vigilance.
Duties of vigilance under the Law
Like the French Law on duty of vigilance, the German Law requires the publication of an annual due diligence report by the company specifying at least:
- identified risks of human rights and environmental violations;
- due diligence measures in place;
- actions taken to respond to and deal with alerts;
- the evaluation of the effectiveness of due diligence measures;
- the conclusions drawn from this evaluation for the implementation of new measures.
The Law recalls that the publication of this information must be done in compliance with the business secrecy.
The Law emphasizes that the duty of vigilance is an obligation of means. According to the Committee on Labor and Social Affairs, "The due diligence obligations (...) govern a due diligence, i.e. a procedural obligation: companies are not required to guarantee success, but to implement the specific measures listed in Article 3, paragraph 1. This means that companies must implement the listed measures (e.g., conduct risk mapping) to the extent that is practically feasible and appropriate, but not, for example, to prevent all human rights risks. (...) The law does not require companies to do something that is legally or factually impossible. The company fulfills its due diligence obligations even if it could not trace its entire supply chain or take certain preventive or remedial actions because it would have been impossible in fact or in law". For this reason, in principle, only "direct suppliers", i.e. first-tier suppliers, are affected by the duty of vigilance. "Indirect suppliers", presumably secondary subcontractors, only have to be subject to due diligence if the company has "precise and substantiated knowledge of human rights violations committed".
Sanctions for breach of duty of vigilance
In the event of a breach of the duty of vigilance, the Law provides that the Federal Office of Economics and Export Control ("Bundesamt für Wirschaft und Ausfuhrkontrolle") may impose financial penalties and, if a certain amount of fine is imposed, the exclusion from public procurement. This additional penalty can only be imposed if the administrative fine has been confirmed by a judge. Fines range from 100,000 euros to 2% of turnover for companies whose turnover exceeds 400 million euros.
The Law expressly provides that "Violation of the obligations arising from this law shall not give rise to civil liability"; while recalling the possibility of civil liability under the conditions of ordinary law. The Committee on Labor and Social Affairs emphasizes that "The objective of the government's bill was not to create additional risks of civil liability for companies. Instead, the new due diligence obligations established to improve respect for human rights in international supply chains must be enforced and sanctioned through administrative procedures and administrative criminal law. (...) However, as the possibility of civil liability is already provided for in ordinary law, independently of the newly created due diligence obligations, it should remain unchanged and, in particularly serious cases, it should be facilitated."
However, the Law recalls that trade unions and non-governmental organizations may act on behalf of victims of an injury directly caused by a subject corporation, subject to:
- the existence of a prior mandate from the individual concerned;
- the existence of direct damage caused by the company;
- that the NGO was not created for the purpose of the cause or does not have a commercial activity;
- the prior existence of the union or NGO.
[1] https://dserver.bundestag.de/btd/19/305/1930505.pdf.
[2] https://dserver.bundestag.de/btd/19/286/1928649.pdf.
[3] https://www.noellelenoir-avocats.com/blog/media/Vigilance-d-un-cote-du-Rhin-et-Diligence-raisonnable-de-l-autre-cote.
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