In February 2019, the German Federal Ministry for Economic Cooperation and Development ("Development Ministry") introduced a draft law (the "Draft Law") that seeks to mandate human rights due diligence for German companies and their global business partners, including suppliers. Specifically, the Draft Law requires German companies to monitor their own operations as well as those of their global business partners to ensure they meet certain environmental and social standards, including fair working conditions.1 This legislative development is the latest addition to the increasing number of national laws that place obligations on certain companies to report on or conduct efforts to identify and mitigate human rights risks such as human trafficking, child labor, and other forms of forced labor from their global operations. For example, France took a similar legislative step in 2017 by enacting a law that mandated comprehensive human rights due diligence requirements for certain companies.2
Why did the Development Ministry Draft this Law?
The Draft Law appears on the scene against the backdrop of Germany's recent adoption of a National Action Plan ("NAP") to implement the UN Guiding Principles for Businesses and Human Rights.3 The NAP included a provision on voluntary corporate action on effective human rights due diligence. Later this year, the German government intends to take stock of how effective this provision has been in spurring voluntary corporate compliance. Indeed, the government has committed itself to legislative measures by 2020 if fewer than 50 percent of German companies with over 500 employees have introduced an effective human rights due diligence process.4 Thus, the Draft Law appears to be an indication of the potential legislative steps the government intends to take in the event of insufficient voluntary corporate compliance.
What Companies are Covered under the Draft Law?
The Draft Law, if enacted in its current form, will apply to companies:
that have their statutory seat, headquarters or main branch in Germany; and have over 250 employees and an annual turnover of more than 40 million euros, or a balance sheet total of more than 20 million euros, or to companies in high-risk sectors - including agriculture, energy, mining, textile, leather and electronics - as well as in areas of armed conflict, weak governance, or weak security arrangements. What do Covered Entities Need to do?
The Draft Law lays out the human...