German Supply Chain Due Diligence Act: new guidelines on complaint procedures

With every week, German and foreign in-scope companies push ahead with their preparations for the new, far-reaching obligations under the German Supply Chain Due Diligence Act which enters into force on 1 January 2023 (read more here). As is well-known, the new law poses practical challenges and many of its provisions leave considerable room for interpretation. For in-scope companies, guidance from the competent enforcement authority, the Federal Office for Economic Affairs and Export Control (BAFA), is thus key. After the publication of FAQs (available in English here), guidelines on risk analyses as part of the companies’ risk management duties (read more here), and a questionnaire concerning the companies’ compliance with reporting obligations (read more here), BAFA has now published guidelines for the complaint procedure stipulated by the Act (available in German here).

Background

The complaint procedure is a core element of the company’s due diligence obligations under the Act. As of 1 January 2023, all in-scope companies must establish an appropriate complaint procedure that enables persons to draw attention to human rights and environmental risks and to violations of human rights-related or environmental obligations which have arisen as a result of the company’s economic activities in its own business area or that of a direct supplier (section 8 para. 1 of the Act). Section 8 paras. 2-4 of the Act set out the requirements the complaint procedure must fulfil. Most notably, companies must provide the rules of its complaint procedures in text form and make them publicly available by 1 January 2023. Moreover, section 8 para. 5 of the Act stipulates an obligation to review the procedure’s effectiveness at least once a year.

The guidelines

The guidelines state that companies can comply with their obligation to implement a complaint procedure in three different ways: they can (i) use an internal procedure, (ii) participate in an equivalent external procedure, or (iii) combine internal and external complaint procedures. Besides elaborating on the complaint procedure’s rationale, the guidelines deal with the procedure’s requirements and its implementation into practice. In particular, the guidelines address the following questions:

• For whom and where must a complaint procedure be provided?
• What requirements must the complaint procedure meet?
• How can the implementation of an adequate complaint procedure be prepared?
• How should complaints be dealt with?

The guidelines further touch upon the (optional) implementation of an amicable settlement procedure as well as the (mandatory) regular review of the complaint procedure’s effectiveness. They also include practical examples and provide references for further general as well as industry-specific assistance in implementing the Act’s requirements.

Practical impact

The publication of the guidelines is a further step towards more clarity concerning the Supply Chain Due Diligence Act’s implementation into practice. They enable companies to review and, where necessary, adapt their existing procedures or set up new procedures with a view to the Act’s requirements. Yet, given the Act’s imminent entry into force, the guidelines come at a time when many companies have already had to deal with the issues addressed.

Those companies that have already developed their complaint procedure are therefore advised to review carefully whether their mechanisms comply with the BAFA’s guidance and where they should adapt their processes. In contrast, in-scope companies that are still in the middle of implementing the requirements should take the guidance and assess what complaint procedure best suits their own corporate structure, industry and experience with human rights questions. When doing so, they should carefully review the Supply Chain Due Diligence Act’s requirements, in particular with a view to access to the complaint procedure (taking into account, inter alia, language barriers and reading deficiencies) and the impartiality of the persons conducting the complaint procedure. The guidelines also provide useful guidance on how the complaint procedure itself should be run in practice (e.g., with regard to an acknowledgement of receipt, the assessment of the complaint, or the protection of confidentiality). An important decision to be made is whether an amicable settlement procedure will be offered and if so, how it will be designed.

What’s to come?

All in all, the BAFA is increasing guidance on a more rapid pace as January 2023 is nearing – and we eagerly await what comes next and whether it will help to resolve the many uncertainties that remain, in particular regarding the principle of proportionality.