On Friday, June 11, 2021, the Bundestag (German Parliament) adopted by a majority the Supply Chain Act. The Bundesrat had no objections to the Act. Among other things, the Supply Chain Law also provides for the obligation to introduce whistleblower systems.
Goal: Protection of human rights and the environment
The aim of the Supply Chain Act is to improve the global human rights situation by responsibly structuring the supply chains of companies based in Germany. To this end, companies above a certain size will be required to implement further compliance measures in the future. In the future, companies affected by the Supply Chain Law will also have to meet their obligations to curb abuses such as child labor, forced labor, discrimination or environmental violations.
Who is affected by the Supply Chain Act?
The Supply Chain Law applies to all companies (regardless of their legal form) that have their head office, principal place of business, administrative headquarters or registered office in Germany and that generally employ at least 3,000 employees (Section 1 Supply Chain Act). In addition, the Supply Chain Law also applies to companies that have a branch office in Germany and employ at least 3,000 employees in Germany.
This threshold of 3,000 employees will be reduced to 1,000 employees from January 1, 2024. Within affiliated companies, the employees of all group companies are to be taken into account.
When does the supply chain law have to be observed?
The Supply Chain Act goes into effect on January 1, 2023.
What does the law mean by a “supply chain”?
The Supply Chain Act has a broad understanding of the supply chain. A supply chain refers to all of a company’s products and services. It includes all the steps in Germany and abroad that are required to manufacture the products and provide the services, starting with the extraction of raw materials and ending with delivery to the end customer. In addition, it covers not only companies in their own business area, but also the actions of direct as well as indirect suppliers (Section 2 para.5 Supply Chain Law).
According to the explanatory memorandum, the use of services required for product manufacture (e.g. transport or temporary storage of goods) is also covered.
Implementation of far-reaching compliance measures
The Supply Chain Law obliges the companies covered by its scope to implement further compliance measures. The companies concerned must observe various human rights and environmental due diligence obligations in their supply chains in an appropriate manner, which are set out in Sections 3 et seq. of the Supply Chain Act:
This includes, for example, the establishment of appropriate and effective risk management, whereby human rights and environmental risks can be identified and violations minimized or ended. To this end, the company must appoint a person to oversee risk management (Section 4 Supply Chain Act). The law cites the appointment of a human rights officer as an example.
Furthermore, the company must implement appropriate prevention measures in its own business area (Section 6 para.3 Supply Chain Act). This includes, among other things, the development and implementation of suitable procurement strategies and purchasing practices through which identified risks are avoided or mitigated. The implementation of training courses is also part of this.
If a company discovers that a violation of a protected legal position (for example, forced labor) or an environmental obligation has already occurred or is imminent in its own business or at a direct supplier, it must immediately take appropriate remedial action to prevent, end or minimize this violation (Section 7 Supply Chain Act).
Implementation of a whistleblower system
Companies are obliged to set up so-called “internal company complaints procedures“. This is intended to enable persons to point out human rights or environmental risks as well as violations of human rights or environmental obligations that have been caused by the company itself or by a direct supplier (Section 8 Supply Chain Act). If a notice is received from a directly affected person, receipt must be confirmed. In addition, the persons entrusted with the implementation of the procedure must, in particular, be impartial, independent and free of instructions. This can be an ombudsperson, for example.
In addition, the Supply Chain Law stipulates further requirements for such a whistleblowing system. For example, this must be accessible to potential users. In addition, the whistleblower system must also maintain confidentiality of identity and effectively ensure protection against disadvantage or punishment on the basis of a complaint (Section 8 para 4 Supply Chain Act).
The absence of a whistleblowing system constitutes an administrative offense and can be sanctioned with a fine of up to 800,000 € (Section 24 para 1 No. 8 Supply Chain Act).
Implementation by means of a digital whistleblowing system
With the Hintbox, companies affected by the Supply Chain Law can quickly and easily fully implement the requirements for an internal company complaints procedures. The Hintbox is always accessible to all supply chain participants. In addition, confidentiality is implemented through encryption as well as separation and authorization concepts, among other things. Furthermore, whistleblowers can also submit their reports anonymously.