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Workers at a spinning machine in Tamli Nadu

© FEMNET ⁇ Dr. Gisela Burckhardt

Can the German Supply Chain Due Diligence Act (LkSG) help workers?

In a preliminary publication of a longer article, FEMNET CEO Dr. Gisela Burckhardt analyses the current status of the German Supply Chain Due Diligence Act and the European Supply Chain Act (CSDDD) with regard to their impact on workers' rights.

Together with other 120 NGOs, FEMNET has advocated for a strong supply chain law in Germany. It is very welcome that a law has finally been in place since 1 January 2023 that obliges large companies to fulfil their corporate responsibility for respecting human rights and protecting the environment in their global supply chains. All large companies with more than 3,000 employees and since 01.01.2024 with more than 1,000 employees must carry out a risk analysis. In it, they must examine the risks of labour rights violations in their supply chain or whether their suppliers contribute to environmental damage. They must assess and prioritise risks by severity and take preventive measures accordingly. Works councils also have numerous possibilities of co-creating, for example, the introduction of a complaint mechanism or the training of employees (verdi, 2022).

However, NGOs see the following shortcomings in the German LkSG:

  1. There is no civil liability, i.e. employees cannot sue in German courts under German law, i.e. bring labour law violations before a German court.
  2. The law does not provide for compensation for those affected if they have filed a complaint, but only takes it into account when calculating possible fines.
  3. Participation of those affected on the spot in the country of production is not mandatory.
  4. It affects all companies with 1,000 employees in 2024, but not the many small and medium-sized enterprises (SMEs) that are particularly present in the apparel industry. However, they also have a negative impact on human rights and the environment. After all, human rights are universal and should not depend on the size of a company. Contrary to what business associations say, which predict that SMEs will be overwhelmed, some SMEs are already showing that this presumption is not true. On the contrary: They often have a more direct line to their producers than the big companies.
  5. The law does not cover the entire supply chain, but focuses on the direct, immediate suppliers. In the case of indirect suppliers, such as spinning mills, companies only have to act on a case-by-case basis if they acquire ‘substantiated knowledge’ of human rights violations.
  6. Nor does the German LkSG contain any reference to the ILO Convention 190 against Gender-Based Violence at Work, which has now been ratified by Germany after two years.

Even though it is gratifying that there is finally a law in Germany after long negotiations, the question arises: Why should workers file a complaint with the competent German authority if they cannot expect compensation but, on the contrary, risk their job?

FEMNET's complaint to BAFA against IKEA and Amazon

After the law came into force, the NGO FEMNET informed its partners in Asia about the German LkSG and also about the possibilities of a complaint regarding labour rights violations and environmental damage. Without support from German NGOs, it is almost impossible for those affected to complain. On 24 April 2023, FEMNET, together with the European Center for Constitutional and Human Rights (ECCHR) and on behalf of the local trade union in Bangladesh, the National Garment Workers Federation (NGWF), submitted one of the first complaints to the Federal Office of Economics and Export Control (BAFA) against IKEA and Amazon. Both are produced in Bangladesh in factories that are not reviewed by the Accord fire and building protection agreement, because the two large companies have not yet signed the Accord - in contrast to around 200 other predominantly European textile companies. This is not comprehensible, because the Accord provides the best building and fire protection and led to a better safety situation in the factories tested by the Accord. The NGWF trade union also demonstrated safety deficiencies, such as a lack of inspections, but also other labour rights violations, such as a lack of trade union freedom in the factories where Amazon and IKEA produce. Although the German competent authority examined the complaint and accepted it in August 2023, this was the first step.

But since then there has been silence. The NGOs involved and the Bangladeshi trade union were not informed in writing about BAFA's actions. Unfortunately, the law does not oblige us to do so. Formally, it can be expected that BAFA will write to the companies and ask for their comments. But then what happens? It can be presumed that the companies concerned are pulling out of the procedure and initially carrying out a social audit on the spot themselves. But the history of audits, which has not led to any significant improvement in working conditions for over 20 years, shows that non-visible aspects such as discrimination against women, anti-unionism, etc. are not recognized. How far does BAFA check the accuracy of the information on all pages? In principle, an on-site inspection is not foreseen. The trade union concerned has not yet been involved.

At present, it can only be said that the greatest effect of the LkSG is preventive. Companies take preventive action because they have a functioning complaints system and have to prepare an annual report on their risks to their immediate suppliers and measures against them. So they are forced to know at least the immediate supplier exactly. Many companies are far from doing this, especially when they shop through agencies such as the German discounters. Suddenly, companies set themselves transparency as a goal (e.g. Hugo Boss at the end of 2023), which FEMNET added a few years ago. campaigns had to be called. Because only those who know their supply chain can also learn about human rights violations at the producers and prevent or avoid them. Ideally, this damage does not occur in the first place, but is prevented preventively.

Since the LkSG has been in force for companies with more than 3,000 employees since 2023 and for companies with more than 1000 employees only since January 2024, the period is short to really have an impact. According to BAFA, in the first year (2023) there were 40 complaints, 20 of which were rejected as not substantiated, only in six cases did the authority contact companies. It will depend heavily on the action of the BAFA, how strictly the authority reviews companies and how exactly it follows up on complaints from workers and companies also have to expect penalties. BAFA emphasizes its cooperative approach towards companies: “We demand companies, but we do not overwhelm them. ... BAFA’s cooperative approach is based on the obligation to make efforts enshrined in the law and the principles of adequacy and effectiveness.” (BAFA press release of 21.12.2023)

The law therefore does not impose an obligation to succeed, a company only has to prove that it has made an effort to comply with its due diligence obligations in an effective and appropriate manner. But what exactly does that mean? BAFA has explained the concepts of effectiveness and appropriateness in a separate guide. For example, adequacy is based, among other things, on a company's ability to influence, including the severity and likelihood of the breach in its supply chain. So there is still a lot of room for interpretation for BAFA. Torsten Safarik, at the time the chief executive of BAFA, explained what the law is all about: ‘The aim is not to put an end to the human rights violation. The aim is to try to put an end to it.’ (Tagesschau, 21.12.2023) As a conclusion so far, one must draw: The Supply Chain Due Diligence Act has so far not contributed to improving the working conditions of seamstresses in Bangladesh, not even the trade union concerned has been contacted by BAFA.

But even such a rather harmless LkSG caused a great stir in the economy, which complained about too much bureaucracy. As a result, in its July 2024 ‘growth package’, the Traffic Lights Coalition plans to align the number of companies covered with the European LkSG, the CSDDD (see below). However, this would imply that two thirds of the companies currently reporting would no longer be covered by the LkSG. Only in 2029 would companies with more than 1000 employees have to report again if they have an annual turnover of more than 450 million euros (see explanation on the CSDDD below). However, the NGOs Germanwatch and Oxfam question such an approach. A legal opinion commissioned by them concludes that the measure is illegal because an existing level of protection in an EU country cannot be lowered (Germanwatch, 2024). It remains to be seen what developments will take place in the LkSG in the foreseeable future.

The European Supply Chain Act (CSDDD)

The Corporate Sustainability Due Diligence Directive (CSDDD) was finalised in December 2023 in a compromise between the EU Council, the EU Commission and the EU Parliament. At the last minute, however, the FDP vetoed the law. Only after further dilution, especially with regard to a smaller number of affected companies, could the Belgian Presidency still achieve that the law was adopted on 15.03.2024. This became possible because France and Italy agreed, Germany continued to abstain. France achieved that only large companies with more than 1,000 employees (previously 500) and an annual turnover of more than 450 million euros are affected by the law. An annual turnover is not in German law. Presumably, only 5,500 companies will now fall under the CSDDD instead of 16,000 companies as originally. Ultimately, the CSDDD affects less than 1 percent of all businesses in the EU, as it does not cover small and medium-sized enterprises.

Nevertheless, the CSDDD is a major step forward, as it creates a level playing field for all companies, including non-European ones, with a turnover of more than EUR 450 million in the EU. In contrast to the German LkSG, which limits due diligence to the direct supplier or only includes the deeper supply chain in the case of ‘substantiated knowledge’, the CSDDD covers the entire supply chain from the outset. Especially at the beginning of the supply chain, in the cotton fields and spinning mills, numerous human rights violations often take place. The CSDDD thus strengthens the risk-based approach, as provided for in the UN Guiding Principles on Business and Human Rights. Companies need to act where they have identified the greatest risks in the supply chain.

The CSDDD enables those affected to bring an action for damages before a European court and also to obtain information from companies from the court. Cases should only become time-barred after five years – this is a significant step forward compared to the German Supply Chain Act. However, the CSDDD does not allow class actions and, in fact, it is still difficult for those affected to sue, because they must provide evidence of an infringement of labour law. However, a simple worker hardly comes close to proof documents, NGOs had therefore demanded a reversal of the burden of proof: The defendant company should prove that it has complied with its precautionary obligation.

The CSDDD also strengthens stakeholder participation. In its own article, the CSDDD regulates the mandatory and effective involvement of affected stakeholders such as NGOs and trade unions. In the German LkSG, stakeholder participation is much weaker, it is in fact at the discretion of the BAFA. As explained above, one year after submitting the complaint, BAFA has still not included the Bangladesh trade union.

Finally, according to the CSDDD, companies are obliged to draw up a climate plan. Other environmental obligations are also mentioned. Companies are obliged to prevent measurable environmental damage such as deforestation. The CSDDD Directive is particularly critical of the limited reach of companies covered by it, the absence of sanctions for non-implementation of the climate plan and the failure to take into account the activities of the financial sector.

In principle, it should be noted that a law – both in Germany and at EU level – is more effective than voluntary obligations on the part of companies. In the ten years after Rana Plaza, these have so far not led to fundamental improvements in the working conditions of the employees, as can be seen from the efforts of the German Textile Alliance. But what the current due diligence laws do not change is the excessive production of clothing, which is an immense problem.

 

This text voDr. Gisela Burckhardt iAn excerpt from an unpublished longer post titled: “The madness of overproduction to starvation wages – does a supply chain law help in Germany and Europe?” (2024)