Since the German Supply Chain Due Diligence Act (LkSG) came into force on 1 January 2023, companies have needed to fulfill additional due diligence obligations to prevent human rights violations and environmental risks in the company itself and in their supply chains. For the implementation of these obligations, the LkSG provides two new functions. The Human Rights Officer and the Complaints Officer.
It is foreseeable that the LkSG will have great significance for many areas of the economy. Although the LkSG only applies to companies with 3,000 or more employees, this should not lead to the assumption that it does not have consequences for companies below this threshold. In fact, smaller companies already have to consider the regulations in the LkSG. On the one hand, the threshold will be reduced to 1,000 employees as of 1 January 2024. On the other hand, smaller and medium-sized companies are often also part of a supply chain, their contractors will also require them to implement the obligations deriving from the LkSG or will require them to do so in the future. Thus, many small and medium-sized enterprises will actually be included in the scope of the obligations under the LkSG.
New law creates new “officers”
The LkSG demands a risk management system with regard to the aspects of “human rights” and “environment” (or a corresponding expansion of an existing risk management system). In addition, the establishment of a complaints procedure to this effect is mandatory as part of the obligations.
In summary, the expansion of a risk management system consists of
- a risk analysis
- preventive measures
- corrective actions
- the establishment of a related complaints procedure
As will be shown in more detail below, these duties will need to be fulfilled partly by the company itself and partly by these two officers.
Mandatory and optional officers
To implement the relevant obligations, the appointment of a complaints officer is mandatory. The appointment of a Human Rights Officer, in contrast, is optional. However, considering the comprehensive list of duties, appointing a Human Rights Officer will, in fact, be unavoidable.
Duties of the Human Rights Officer
The Human Rights Officer’s list of duties, if a Human Rights Officer is appointed, primarily includes a risk analysis and the review of preventive measures and corrective actions. The risk analysis must cover the company’s own business area and the immediate supply chain. As a first step, the Human Rights Officer must get an overview of the company’s procurement processes as well as the structures at immediate suppliers. They must then assess and prioritize the identified risks and communicate them to the management. The analysis is carried out by the Human Rights Officer on an ad hoc basis, but at least once a year. Their duties also include submitting a report to the management. The Human Rights Officer is responsible for the organization, implementation and structure of the recurring tasks arising from sections 4 et seqq. LkSG.
Based on the risk analysis, appropriate preventive measures must be taken by the company. These include the submission of a policy statement and measures based on the human rights strategy developed in this. The company must end or minimize any realized or imminent violation of the protected legal positions with suitable corrective actions. The explanatory memorandum sets out a formula for this. The closer the connection between the company and the infringement and the more it contributes to it, the greater its efforts must be to end the infringement. In the company’s own business area, there is thus an obligation to cease to the violation immediately.
The obligation of the Human Rights Officer is to give specific recommendations or strategy options regarding preventive measures/corrective actions and process monitoring. The responsibility to fulfill the due diligence obligations and to implement the measures detailed above are primary duties of the management. Monitoring the process is in turn the responsibility of the Human Rights Officer. The company must, of course, ensure the fulfillment of the obligations of the LkSG by assigning tasks accordingly, even if it refrains from appointing a Human Rights Officer.
Duties of the Complaints Officer
The duties of the Complaints Officer are to implement an effective and impartial complaints system. Appropriate rules of the procedure must be laid down in writing and must be transparent. The Complaints Officer’s obligation is to monitor the proper implementation of the procedure and to document any information received. They must ensure that complainants do not suffer any disadvantages as a result of using the procedure. The officer must therefore ensure the necessary confidentiality of identity and data protection. In addition to this, the position of whistleblowers will be further strengthened when the German Whistleblower Protection Act (HinSchG) comes into force and must therefore be considered when setting up and structuring the complaints system. Since the HinSchG initially failed to gain a majority in the Bundesrat (German Federal Council), its ratification will be further delayed.
Organizational location of the officers
The LkSG does not specify the areas in which the newly created functions must be established. In the explanatory memorandum legislators recommend that the Human Rights Officer should be located directly below the management. It is conceivable that the Human Rights Officer could be located in the logistics or quality management department, but – depending on the company – also in the finance or strategy department. It may also make sense for the Human Rights Officer to be integrated in the compliance or legal department.
It is not permitted to outsource the tasks of the human rights officer to an external body according to the wording of the law. It states “[…] who is responsible for this within the company […]”. Unfortunately, the explanatory memorandum – which is imprecise at this point – does not contain any explicit statements in this regard. The explanatory memorandum then becomes clearer in § 8 (1) 6 of the LkSG regarding the external employment of the Complaints Officer (“The companies may instead participate in a corresponding external complaints procedure […]”). The HinSchG also contains a corresponding provision on the external arrangement.
The functions of the two officers can be performed on a full-time or part-time basis. Part-time employment is conceivable, particularly if the areas of responsibility are distributed among several people. It is also conceivable to set up a “Human Rights Officer” staff position. In any case it must be ensured that the Human Rights Officer is not hindered in the performance of their duties by the transfer of additional work. It must be ensured that no conflicts of interest arise either with the officer’s own activities or with their hierarchical position. For this reason, it may be appropriate in individual cases to grant the Human Rights Officer decision-making powers and authority to issue directives. The Human Rights Officer should not be subject to directives that would impair the effectiveness of monitoring.
The Complaints Officer must be independent and is not bound by instructions in this function. These criteria are intended to ensure that the complaints procedure is effective and impartial. In this respect, the requirement is also consistent with the possibility of outsourcing the complaints procedure externally.
Since it is part of risk management to set up a complaints system, the Human Rights Officer can also monitor the mechanism as a Complaints Officer. In this respect, both positions can be combined under the responsibility of one person.
Special protection for the officers against dismissal
The LkSG does not provide for any special protection of the Human Rights Officer or the Complaints Officer against dismissal, discrimination or termination. Nor can special protection against dismissal be construed based on other considerations. “Officers” do not need to be privileged per se by special protection against dismissal. Where legislators consider special protection against dismissal to be necessary, they have regulated this, for example for the Data Protection Officer. There is no scope for an analogous application of this special protection against dismissal to the Human Rights Officer and the Complaints Officer. It cannot be assumed that there is an unplanned regulatory gap. Moreover, sufficient protection is ensured by the organizational requirements described above and the general German Act against Unfair Dismissal.
The LkSG is not the last word, but an early piece of a development towards more sustainability in business. The EU has not been idle either, as the publication of the proposal for the Corporate Sustainability Due Diligence Directive (“CSDD”) of 23 February 2022 shows. In this framework, due diligence is no longer understood as only a careful (economic, fiscal, financial) examination of a company. It also covers the identification, termination, prevention and monitoring of negative impacts on human rights and environmental aspects. In addition, the draft of the EU guidelines provides for a significantly larger scope of application, so that companies with 250 or more employees are included. The content will be tightened by a presumption of fault, i.e., a shift in the burden of proof.