First complaints on the basis of the German Supply Chain Due Diligence Act – will this start a wave of denigration?

Specifically, the women’s rights NGO Femnet, the European Center for Constitutional and Human Rights (ECCHR), and the Bangladeshi trade union NGWF filed a complaint with the responsible German Federal Office of Economics and Export Control (“BAFA”) against the furniture company Ikea and the online retailer Amazon. The companies are alleged to have failed to fulfill their duty of care with suppliers to the textile industry in Bangladesh. 

From the complainants’ point of view, companies would have to join the International Accord for Health and Safety in the Textile and Garment Industry (Bangladesh Accord) in order to comply with their human rights due diligence obligations resulting from the German Supply Chain Act. From the NGOs’ point of view, even the failure to sign represents a violation of companies’ due diligence obligations. 

Furthermore, freedom of association was not guaranteed in the supplier factories and there were no effective whistle blowing procedures. The due diligence violations existed regardless of whether the companies conclude individual agreements on environmental and human rights conditions with their suppliers. It is unclear whether BAFA will already consider this as a breach of due diligence obligations – in any case, it could be expected that the authority will include the fact of non-signing in its risk analysis. 

According to Art. 19 (1) LkSG, BAFA is responsible for the official control and enforcement of the due diligence obligations and, pursuant to Art. 14 (1) No. 2 LkSG, takes action upon request, if the applicant substantiates to have been harmed due to a company’s (imminent) non-compliance with a due diligence obligation. A corresponding complaint can be filed on BAFA’s website only through the respective online form. An authorization of trade unions or NGOs to assert a person’s rights is governed by the special representative action (besondere Prozessstandschaft) in Art. 11 LkSG.  

The LkSG also provides for the imposition of fines as a means of enforcing and sanctioning the prescribed due diligence obligations. The law staggers the fines depending on the violation’s gravity from EUR 800,000 to EUR 100,000 (cf. Art. 24 (2) LkSG). It should be emphasized that the Supply Chain Due Diligence Act also allows for significantly higher fines of up to 2% of a company’s annual global turnover for violating the obligations to initiate corrective measures. 

The filed complaints illustrate for the first time the dimension and consequences that can arise for companies from the LkSG: A complaint by a foreign trade union about alleged abuses at a foreign company (the supplier) and the demand to comply with a standard of care defined by such organization (in this case the Bangladesh Accord) lead to an investigation by a German authority, which in turn may impose a fine on a globally operating company’s German subsidiary.  

There is a risk that the case might have the potential to unleash a major wave of complaints. In order to be prepared accordingly, companies obliged to comply with due diligence obligations should establish a sustainable and legally compliant supplier management system. 

Teaser and link to online seminar: For help and guidance, join our online seminar on May 17, 2023 at 9 a.m. 

May 17, 2023 at 9 a.m.: Online Seminar Supply Chain Due Diligence Act