The German Act on Supply Chains Entered into Force
The German Act on Corporate Due Diligence Obligations in Supply Chains (Law), which was adopted by the German Federal Parliament (Bundestag) on June 11, 2021, entered into force on January 1, 2023. The Law will apply to German companies having at least 3,000 employees as of January 1, 2023. As of January 1, 2024, it will apply to German companies with at least 1,000 employees, thus expanding its scope of application. The Law imposes significant obligations on German companies in relation to environmental law and human rights and also covers the supply chains.
What are the Obligations Imposed by the Law on German Companies?
The main issues protected by the Law may be summarized as preventing child labor, complying with occupational health and safety rules, respecting trade union rights, complying with the prohibition of discrimination, protecting the environment in production processes and not causing environmental pollution.
What are the Consequences of Failure to Comply with the Law?
In case of violation of the Law, German companies may be imposed an administrative fine ranging from EUR 100,000 to EUR 8,000,000 for each violation. For companies with an annual turnover of EUR 400,000,000 or above, this fine may be increased up to 2% of the average annual turnover of the company. As another type of sanction, German companies may be banned from public tenders for up to three years. It is also possible to file compensation lawsuits against these companies in German courts.
Does the Law Apply to Turkish Companies?
German companies covered by the Law are liable not only for their own activities, but also for violations committed by companies directly or indirectly involved in their supply chains. Therefore, although at first glance it may seem that the Law only covers German companies, these companies are required to audit their own suppliers and take the necessary measures.
Due to the relevant due diligence obligations, Turkish companies in the supply chain of German companies which are within the scope of the Law, are also expected to be significantly affected by the Law. This is because such German companies will prefer to work with suppliers that pose the least risk to them and will include provisions in the contracts with their suppliers accordingly. In this context, it is envisaged that significant amendments are to be made to the existing commercial contracts signed with German companies, additional obligations to be introduced under the Law, and a recourse mechanism to be set out to enable German companies to claim fines from their suppliers in case of a possible violation. Therefore, it is of utmost importance for Turkish companies to act in compliance with the Law and carry out the processes set out in the Law correctly in order to maintain and develop their strength in the international arena.
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