08 Dec 2020
Legislation and cases

So far, Germany has not adopted any human rights due diligence legislation. The coalition agreement between the two ruling parties of 2018 made the adoption of such legislation subject to the outcome of a monitoring of the implementation of the National Action Plan for Business and Human Rights (NAP) in companies employing more than 500 employees. Two surveys, undertaken in the course of the monitoring, have shown that German companies are not fulfilling the requirements of the NAP. Therefore, the Federal Ministry for Labor and Social Affairs and the Ministry for Economic Cooperation and Development announced a draft Due Diligence Act (Act) on 14 July 2020 but they were stopped by the Chancellery and the Ministry of Economics.

After various rounds of discussion, the Cabinet passed the draft Act ("Sorgfaltspflichtengesetz") on 3 March 2021. The first hearing in the Bundestag is scheduled for April 22, the third and last hearing for May 12. Finally, the Act shall pass the Federal Council ("Bundesrat") on 25 June 2021, just before the summer break and the start of the federal election campaigning. It is very likely that the draft adopted by the cabinet will be adopted in May/June despite fierce opposition by the most important industry associations. Normally, there is a consultation period of one month to provide them the possibility to express their opinion and criticism. In this case, the period was reduced to 6,5 hours and two days later, the cabinet adopted the draft Act, ignoring the statements of more than 20 industry associations.

Key elements of the Act:

  • In the first step as of 1 January 2023, the Act shall only apply to companies domiciled in Germany which employ more than 3,000 employees (including employees in foreign affiliated companies) and where the major decisions are taken in Germany. In the second step as from 1 January 2024, companies domiciled in Germany which employ more than 1,000 employees shall be covered by the Act as well.  
  • The Act shall prevent violations of (i) human rights in particular, child and forced labor, acts of modern slavery, violations of basic work safety regulations, the freedom of association, acts of discrimination, fair wage and (ii) specific provisions for the protection of the environment.
  • To avoid such violations, the companies have to fulfill a number of due diligence obligations. The key obligations include (i) the set-up of a risk management, (ii) the appointment of a human rights officer, (iii) the regular conduct of a risk analysis, (iv) the adoption of a human rights policy by the executive board, (v) prevention measures in its own operations and vis-a-vis direct suppliers, (vi) the introduction of a grievance mechanism, (vii) measures vis-a-vis indirect suppliers, (viii) documentation (of the obligations mentioned before for seven years) and (ix) annual reporting.
  • The annual report on the fulfillment of the due diligence obligations shall be provided electronically to the Federal Office for Economic Affairs and Export Control ("BAFA") and shall be made freely accessible on the internet.
  • The BAfA shall have comprehensive investigation power to control compliance with the Act. The BAFA is entitled (i) to proceed on a risk based approach or (ii) to take actions upon request, if the person making the request makes a substantiated claim that his or her protected legal position has been infringed as a result of the non-fulfilment of a due diligence obligation.
  • Non-compliance with the Act can be fined by the BAFA with up to 2% of the average turnover of an undertaking. The order of coercive fines and the exclusion from public procurement for the period up to three years are other possible sanctions. 
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Karsten Kuehnle
+49 69 505096 304

Michael Wiedmann
+49 69 505096 226