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A Franco-German perspective on the protection of human rights and environmental regulations

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published on 20 October 2021 | reading time approx. 6 minutes

 

 

"Lieferkettengesetz": a strong law to protect human and environmental rights in the economic sphere

Germany recently adopted a new legislation on Corporate due diligence in supply chains on human rights and environmental laws (Lieferkettensorgfaltspflichtengesetz, "SDDA"[1]). According to Labour Minister Hubertus Heil, "this is the strongest law in Europe so far against worker exploitation. It is the end of companies weighing human rights against their economic interests".

 

While this law concerns groups employing more than 3000 employees in Germany as of 1/1/2023 (and 1000 employees as of 1/1/2024), it will also impact SME's as suppliers of those groups.

 

Main differences with the French "Devoir de Vigilance" Law

While France has had similar legislation ("Loi relative au devoir de Vigilance") since 2017[2], there are still some particularities that impact foreign companies and may set additional requirements on French enterprises.

 

The new German legislation requires companies to implement preventive and remedial mechanisms in order to avoid primarily human rights violations but also breaches of environmental laws.

 

While both French and German legislations aim at similar results, the German law gives comparatively detailed indications as to the different mechanisms each company must implement.

 

The key differences between France and Germany lay in:

  • the detailed description given by the German legislator on the effective content of the due diligence plan, whereas the French law is less precise.
  • the remediation measures to be taken in case of a violation or imminent risk of violation. While in France the scope only goes up until sub-contractors with whom one has an established relationship, in Germany even the indirect suppliers can be subject to a due diligence program, if there is substantiated knowledge of a potential or actual violation.
  • the implementation threshold is lower in Germany than in France, as referring to any undertaking having more than 3,000 employees (and 1,000 from 2024 onwards), vs a threshold of 5,000 employees under the French law.
  • the German law provides for administrative sanctions (up to 2 percent of global turnover for companies above 400 M€ turnover) in case of serious non-compliance, while French law only refers to judicial liability claims.

The French Vigilance plans already implemented by the French Groups through the Vigilance Plans will certainly serve as a solid basis for designing their German due diligence plans. However, such plan will have to be adapted to the scope of German operations (in Germany and foreign subsidiaries controlled by the German mother company) as well as to the direct (and sometimes indirect) suppliers.

 

The European mandatory human rights diligence Directive expected to be released in 2022

Next to the new German legislation, the European parliament issued in March, 2021 a draft of a potential corporate due diligence Directive through a Parliaments Resolution[3]. It remains to be determined how and when the European Commission will implement this request for a European solution. For now, the Parliaments' proposal is significantly stricter and sets higher standards than any of the laws implemented by the member states. As such, the current proposal suggests that high risk and publicly listed small and medium size companies with less than 250 employees[4] would be subject to this law.

 

Fears of a fragmentation on the compliance programs have risen, as companies would have to implement different compliance programs within each country if every state creates its own CSR legislation, making a European solution indispensable.

 

NGO's already actively challenging companies even before new legislative landscape is clarified

Interesting in this respect are also the human rights allegations against clothing retailers that were recently raised in Germany. An NGO initiated a lawsuit against Hugo Boss and Lidl, accusing them of being directly or indirectly involved in and profiting from alleged forced labor of Uighur minority in China.

 

While Lidl claims that they ended their working relationship with all the named producers, Hugo Boss considers that they have taken all necessary means to assure that within their production there are no human rights violations, including through internal audits and human rights protections in the code of conduct and the contractual agreements[5].

 

Since the German SDDA only applies effectively from 2023 onwards, this dispute is not subject to that regulation. None-the-less, it strongly relates to issues that are intended to be tackled by the SDDA and it remains to be seen how such allegations would be adjudicated (including with respect to indirect suppliers).

 

Similar allegations of concealed forced labor and crimes against humanity within their supply chains were raised by a French NGO´s against the companies Zara, Skecher, Sandro and Uniqlo in April this year.

 

Ultimately, the new German SDDA law will require French undertakings operating on the German market and meeting the turnover thresholds to adapt their Vigilance Plan to the German law requirements by the end of 2022.

 

As an international law firm originating from Germany with significant compliance expertise in our French office, we may assist French groups in this respect.

 

For ease of reference, a short Table comparing the French Vigilance law and the German SDDA is set out hereafter (for a better view please use desktop version)  :

 

German

Supply Chain Due Diligence Act (SDDA)

French

Loi sur le devoir de vigilance

Scope ​
Undertakings with 3.000 employees (2024 from 1.000 employees onwards). Any company that had for two consecutive years employed at least 5.000 employees[6] or 10.000 employees [7]
Area of supervision: ​
    • Own business area – including subsidiaries under direct control and activities outside of Germany
    • Direct suppliers – party to a contract and necessary for manufacturing of products or providing service.
    • Indirect suppliers may be within the scope of the law if a company has abused the direct supplier relationship or has entered into a circumvention transaction in order to circumvent the due diligence requirements with regard to the direct supplier (§5).

 

    • Own company
    • Subsidiary
    • Subcontractors and suppliers with whom an established commercial relationship is maintained ("fournisseurs avec lesquels est entretenue une relation commerciale établie").
Due diligence definition ​

The due diligence that is required by all German Companies consists of the following steps:

  1. Establishment of a risk management system
  2. Defining in-house Competences
  3. Performance of regulate risk analyses
  4. Issuance of policy statement
  5. Preventative measures
  6. Remedial Actions
  7. Establishment of complaint mechanisms
  8. Extension of due diligence on to indirect suppliers
  9. Documentation

 

All of the above must be implemented with an appropriate duty of care.

Companies within the scope of the Vigilance law must draw up and effectively implement a vigilance plan which shall include :

  1. a risk mapping to identify, analyze and prioritize risks
  2. Regular assessment procedures of the risk mapping of the situation of subsidiaries, subcontractors or suppliers with whom an established commercial relationship is maintained
  3. appropriate actions to mitigate risks or prevent serious harm
  4. an alert (whistleblowing) mechanism allowing collection of reports relating the existence or materialization of risks a monitoring system of the measures implemented allowing an assessment of their effectiveness

 

Obligations ​
Risk Analysis ​
  • Identify the human rights at stake and the environmental risks
  • Only within own business and direct suppliers (unless substantiated knowledge about potential violation then extended to indirect suppliers à§9)
  • Create a risk map to identify, analyze and prioritize risks
  • Procedures for regular assessment of the situation of subsidiaries, subcontractors, or suppliers with whom an established commercial relationship is maintained, with regard to risk mapping,
Preventative Measures ​
  • Create policy statement which contains general strategy
  • Prioritize human rights and environmental risks identified based on a risk analysis
  • Implement appropriate preventative measures with respect to own business area and with regard to direct supplier.
  • Take appropriate actions to mitigate risks or prevent serious harm
Whistleblower Procedure ​
  • Company must implement overview of rules of procedure (publicly available)
  • The person executing the whistleblowing procedure must be impartial, independent and not bound by instructions
  • One must maintain confidentiality of identity and effective protection against any adverse effects
  • Create a mechanism for alerting and collecting reports on the existence or occurrence of risks, established in consultation with the representative trade unions in the company
  • France already has an advance Whistleblower legislation in place that lines up with this requirement. 
Monitoring ​
  • Effectiveness of complaint procedure, remedies, risk analysis and preventative measures must be reviewed at least ones a year (if circumstance suggest an increase of risks, additional checks should be done)
  • Create a system of monitoring the measures implemented and evaluating their effectiveness
Documentation and Reporting ​
  • Public access for at least 7 years
  • Available free of charge
  • Content: identified ricks, companies approach for fulfilment of due diligence obligations, impact and effectiveness, conclusion based on gathered information
  • The due diligence plan and the report on the effective implementation shall be made public and included in the report mentioned in Art. L.225-102 (Management report "rapport de gestion prévu au deuxième alinea de l'article L:225-100")
Remedies ​
  • If a violation has already occurred or is imminent to occur, the company shall take preventive or terminative measures to end the violation or mitigate its impact.
x

  

Consequences ​
Fining Regulation ​
  • Legal person or association of persons with less than 400 million EUR of annual turnover can be fined up until 800.000 EUR.
  • Legal person or association of persons with an average annual turnover of more than 400 million EUR can be punished with a fine up to 2 percent of their global annual turnover. 
x
Civil Liability ​
  • Explicitly excludes civil liability.
  • Theoretically there is still an access to ordinary civil liability procedure. Yet to be seen how this will be applicable in practice.
  • Any damages arising from the noncompliance or improper implementation of this law, are subject to liability claims. The injured party is entitled to receive damages.
  • Any person with a legitimate interest in the subject matter can bring forward a claim for damages. That includes NGO's and individuals located outside of France.

 

    

[1] Bundesgesetzblatt (bgbl.de)

[2] Before Germany, other countries such as France, UK, Australia or the Netherlands had already implemented similar legislations.

[3] Textes adoptés - Devoir de diligence et responsabilité des entreprises - Mercredi 10 mars 2021 (europa.eu)

[4] According to the Ministry of Economy, this law should serve as an action plan for the European Directive.

[5] HUGO BOSS Group: Menschenrechte & Arbeitsbedingungen

https://group.hugoboss.com/fileadmin/media/pdf/sustainability/
company_commitments_DE/HUGO_BOSS_-_Stellungnahme_zu_Xinjiang.pdf

[6] Including in the calculations employees in direct or indirect subsidiaries whose registered office is located in France

[7] Including in the calculations the direct and indirect subsidiaries whose registered office is located also abroad.

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