The Supply Chain Act is coming – and includes greater participation rights for the economic committee.

 The change to works constitution law is important for HR practice.

The Supply Chain Act is coming – and includes greater participation rights for the economic committee.

Ab 2023 drohen Unternehmen Geldbußen, wenn sie Menschenrechtsverletzungen in ihren Lieferketten nicht verhindern. Der Umgang mit Risiken wie Kinderarbeit, Diskriminierung oder problematische Arbeitsbedingungen ist künftig ein Thema für den Wirtschaftsausschuss.

On 11 June, the German Bundestag passed the Supply Chain Act (LkSG). Once it enters into force on 1 January 2023, large companies in Germany will become responsible for ensuring that their direct suppliers comply with environmental and social standards. Otherwise, the companies face fines.

Risk analysis and minimization process

The new obligations include comprehensive risk analyses as well as establishing or expanding risk management to include a focus on potential violations of social and environmental standards. Are there indications of forced labor, child labor or discrimination within the supply chain? To what extent can the hiring and working conditions or violations of the Working Hours Act be problematic? Is there a risk of environmental damage? Preventive measures must be established and a complaint process implemented.

Prompt and comprehensive information about social and environmental standards

A change to the Works Constitution Act (BetrVG) has important ramifications for Human Resources departments: According to the new Section 106 (3) No. 5b BetrVG, the economic committee must be consulted in future with regard to the questions concerning due diligence in the supply chain. The economic committee has the task of discussing economic issues with the company management and the works council. Fabrication and working methods along with corporate environmental protection are already issues. The Supply Chain Act explicitly expands the participation rights. In future, HR must submit meaningful documentation to the members of the economic committee in due time to enable them to form an opinion on any human rights violations by the company or immediate suppliers so that they can inform the works council. All companies that permanently employ more than 100 employees require an economic committee.

Which companies are affected?

The new regulations come into force in 2023 and apply to corporations and middle-sized companies with 3000 employees in Germany and for companies with 1000 employees as of 2024. Temporary employees with a deployment duration exceeding six months are also included in this figure, as are group company employees employed domestically. The law also applies to foreign companies if they are represented by a branch in Germany.

HR managers need to bear in mind that the Supply Chain Act has changed the Works Constitution Act. Working together with the other departments, they should implement processes in due time to address the expanded reporting and documentation obligations.