German Supply Chain Act update: government guidance on complaint procedure

The German Federal Office for Economic Affairs and Export Control (Bundesamt für Wirtschaft und Ausfuhrkontrolle – the “BAFA”) has published Guidance and additional Information on complaint procedures on the German Act on Corporate Due Diligence Obligations in Supply Chains (Lieferkettensorgfaltspflichtengesetz – the “Supply Chain Act”).

An appropriate and effective complaint procedure is a core element of the due diligence obligations under the Supply Chain Act. Although companies subject to these obligations have broad discretionary powers and scope for action as to how they organise their complaint procedure, the BAFA has now explained when a complaint procedure fulfils the legal requirements in its opinion.

Please find a summary of selected topics below:

Overview

The guidance on complaint procedures uses the same structure already familiar from the guidance on risk analysis, regarding which we reported on 19 August 2022. In particular, the guidance contains a general section, requirements for the complaint procedure and help for practical implementation. The guidance also explains how companies can review the effectiveness of their complaint procedure.

Target groups

The BAFA considers an appropriate complaint procedure to be a key element of the due diligence obligations. Thus, in principle, according to the Supply Chain Act, any individual should in general be able to submit a relevant complaint to a company. According to the guidance, companies can choose a risk-based approach and concentrate on the most important target groups of the complaint procedure.

The most important target groups will be individuals in a company’s own business area or its supply chain who are potentially affected by human rights or environmental violations. These could include the company’s own employees, employees of direct or indirect suppliers or residents living around local sites. A company must identify members of this target group by means of the risk assessment required under the Supply Chain Act. This reveals once again the Supply Chain Act’s new risk perspective, on which we have already reported.

Accessibility

The complaint procedure must be accessible to the enterprise’s most important target groups. Companies are well advised not to underestimate this criterion. This applies in particular if the company is considering supplementing its existing complaint procedure or using procedures offered by external providers.

• Vulnerable groups: First, there could be various groups for whom access could be hindered by various barriers. Besides groups that immediately come to mind such as people with physical or mental disabilities, children and illiterate people, the guidance also mentions other groups as examples, particularly indigenous groups, migrant workers, religious minorities and people with different sexual orientations.
• Complaint channels: In the opinion of the BAFA, various barriers to access can make it necessary to set up several complaint channels, for example a telephone hotline, online forms and local contact persons. Discussion among legal scholars as to whether a company is obliged to have more than one complaint channel available has not reached a consensus. In any case, the Supply Chain Act does not expressly require this.

• Languages/depictions: It may also be necessary to offer a complaint procedure in more than one language. In the opinion of the BAFA, companies should include languages common in the country. Compensation for an inability to read or write could take the form of illustrated/graphic posters at locations particularly often frequented by the target groups. However, no guidance is given on how to identify such places. The question also arises as to how companies should actually implement this outside their own area of business.

• Awareness: The BAFA also recommends that companies should proactively publicize their complaint procedure. This is to be accomplished by means of clearly communicated information on the company’s website or a website specially set up for the purpose and, for example, providing regular information to and training sessions for target groups.
• Costs: The guidance does not unambiguously clarify whether the complaint procedure can incur costs. On the one hand, the guidance mentions that information is to be provided on possible costs. On the other hand, the guidance refers to access free of charge and the fact that the complaint procedure will not serve its purpose if some people cannot use it due to the costs entailed. Thus, a complaint procedure free of charge fulfils the requirements of the BAFA in any case.

Rules of procedure

The guidance also deals with rules of procedure (section 8(2) of the Supply Chain Act). Unfortunately, the guidance only sketches individual elements, some of which were already familiar from the explanatory memorandum to the Supply Chain Act. The guidance states that existing rules of procedure drawn up by industry initiatives provide inspiration for a company to draw up its own rules of procedure. More orientation would have been desirable in this context, for example in the form of one or more specific examples.

It is new that companies are apparently expected to remain in continuous contact with the reporting person. Accordingly, the rules of procedure are to designate the stage or time at which the person is to be informed of the progress made in investigating the complaint. Even after the procedure has been concluded, the guidance states that it is advisable to remain in contact to ensure that the person filing the complaint is not at risk of retaliation. The guidance does not set any time limit.

Effectiveness

According to the BAFA, a complaint procedure is effective if all target groups are familiar with it, if it is considered trustworthy and if it enables and encourages target groups to submit information or complaints even before a violation of obligation has occurred.

Companies are to refer to key performance indicators (KPIs) to determine whether their complaint procedure is effective. In practice, the challenge is precisely to define suitable KPIs. Although the guidance gives examples of KPIs, for example  the number of complaints or the satisfaction of those who submitted a complaint, whether these KPIs are suitable to reliably gauge the designated effectiveness requirements can at least be questioned.

Time is short

Companies for which the Supply Chain Act applies as of 1 January 2023 should make sure they set up a complaint procedure according to the Supply Chain Act as soon as possible if they haven’t already done so. The guidance points out that these must have a complaint procedure available as of 1 January 2023. Companies for which the Supply Chain Act will not be applicable until 1 January 2024 will still have slightly more than one year.

It cannot be denied that there is a certain amount of circular reasoning here. In the opinion of the BAFA, companies need not have conducted the first risk assessment by 1 January 2023. This begs the question as to why a complaint procedure must be available as early as 1 January 2023 although its most important target groups will only be ascertained later in the course of the risk assessment. Thus, it would be desirable for the BAFA to give companies the option of setting up their complaint procedures during the course of 2023 after a thorough risk analysis. This is all the more important due to the fact that the target groups are to be consulted on how the complaint procedures are designed.

We will continue to keep you updated.