German Supply Chain Act and its impact on court proceedings
Johannes R. Jeep
by Johannes R. Jeep
Starting in 2023, the Act on Corporate Due Diligence Obligations in Supply Chains (LkSG) is the German contribution to improving human rights around the world, and gives globalisation a social dimension. It applies to enterprises that have their central administration, their statutory seat or branch office, and 3,000 employees in Germany. From 2024 on the act will also apply to enterprises with 1,000 or more employees. Outside this scope business units may be affected indirectly.
In the future affected persons can authorise domestic trade unions and non-governmental organisations to bring civil proceedings in their own capacity. Special capacity to sue is a procedural tool. It is applicable when there are possible violations of very important legal positions set out in section 2 (1) of the act, such as life or limb. In such proceedings the law of the location where the damage occurred continues to apply as the rule the law of a foreign country. A violation of the supply chain act’s obligations does not give rise to any liability under civil law. This also excludes liability according to the general protection standard of section 823 paragraph 2 German Civil Code (BGB). Any liability under civil law arising independently of this act remains unaffected (cf. section 3 (3)).
Supply chain refers to all “upstream” products and services, including all physical and logical steps in Germany and abroad, such as extraction, production, transport, and storing, except where there is no causal contribution (cf. section 4 (2)). If an enterprise has actual indications that suggest a violation of a human rights-related or an environment-related obligation by itself or by (in)direct suppliers, it must take action in an appropriate way in the individual context (e.g. size, nature of business or proximity to the supplier).
If a human rights violation occurs despite all appropriate efforts, an enterprise cannot be prosecuted. “Enterprise” means all forms of affiliated entities as a nontechnical collective term, not limited to section 18 of the Stock Corporation Act. In case of influence on a foreign subsidiary (cf. section 2 (6)), companies must fulfil all due diligence obligations with respect to the subsidiary, regardless of a reference to Germany. To comply with due diligence obligations, enterprises must implement appropriate and effective risk management systems by assessing risks, prioritising them, and addressing them appropriately, e.g. by exerting influence, monitoring, or appointing a human rights officer.
While initially striving for transparency, enterprises must first identify the parts of their own business areas that pose particularly high human rights and environment-related risks. For indirect suppliers, risk analysis must be undertaken including reports on poor human rights situations.
Enterprises face fines of up to EUR 8 million or up to two percent of their annual turnover if they fail to meet their obligation. They also can be excluded from the award of public contracts.
GGI member firmFPSBerlin, Düsseldorf, Frankfurt, Hamburg, GermanyT: +49 30 88 59 27 737Law Firm Services
FPS is one of the largest fully independent German law firms, with four offices in Germany. FPS currently employs over 120 lawyers and notaries. One of the firm’s core areas of expertise is national and international litigation as well as dispute resolution.
Johannes is Managing Partner at FPS in Berlin. His areas of expertise cover the entire range of corporate, commercial, and tax law, including litigation and dispute resolution, mainly in an international, entrepreneurial context. Contact Johannes.
