Supply Chain Act a step closer to becoming law

8 March 2021

The German government has introduced a new draft bill that aims to make the country’s companies accountable for human rights breaches.

Ministers said that once it was in force the Supply Chain Act would represent Europe’s strongest legislation against worker exploitation.

The law will be introduced in stages, applying to firms with more than 3,000 employees from 2023 and those with more than 1,000 the year after. Companies with fewer than 1,000 employees will be exempt.

The government’s move represents the latest stage in a law first mooted in 2019, building on Germany’s 2016 National Action on Business and Human Rights.

That law encouraged firms to voluntarily disclose supply chain risks but last year labour minister Hubertus Heil said survey results found most firms were not fulfilling due diligence responsibilities.

In February agreement was reached between ministries on a way forward.

The law will mean German firms will have to analyse human rights-related risks, take measures to prevent and mitigate human rights violations, set up grievance mechanisms and report on their activities.

The Act will also cover environmental risks with the potential to cause human rights violations.

Firms with annual revenue of at least €400m that fail to comply with the Act can be fined up to 2% of average annual sales and excluded from public tenders for up to three years.

Olaf Scholz, minister of finance, tweeted: “With the #Supply Chain Act, we protect workers around the world from exploitation. ‘Made in Germany’ no longer only stand for quality. But also for respect for human rights, worldwide.”

The bill is expected to be passed before Parliament’s summer break. It would cover up to 2,500 companies.

German companies have complained the law will place them at a competitive disadvantage and called for a pan-EU approach.

Human rights groups said they were disappointed with provisions that weakened companies’ financial liability resulting from violations.

They also said victims would not be allowed to take civil action against companies under the Act.

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