Due dili­gence update: Does the ban on forced labour also cover SMEs?

EU Com­mis­si­on pres­ents draft regu­la­ti­on ban­ning forced labour

in 2023, the “Law on cor­po­ra­te due dili­gence in sup­p­ly chains” (LkSG) will come into force in Ger­ma­ny. Par­al­lel work is under­way at the EU level. In addi­ti­on to a draft direc­ti­ve on cor­po­ra­te due dili­gence in the sup­p­ly chain, the EU Com­mis­si­on has now also published a Draft regu­la­ti­on. This sti­pu­la­tes a com­pre­hen­si­ve ban on the mar­ke­ting, import and export of pro­ducts manu­fac­tu­red under forced labour (Artic­le 3) and pro­vi­des for natio­nal aut­ho­ri­ties to be given far-reaching inspec­tion and sanc­tio­ning powers.

Scope of the draft regulation

The defi­ni­ti­on of forced labour in the draft regu­la­ti­on (Artic­le 2 a) and b)) cor­re­sponds to that alre­a­dy used in the LkSG and the draft EU direc­ti­ve. All legal acts refer to the Inter­na­tio­nal Labour Orga­niza­ti­on (ILO) Con­ven­ti­on Nos 29 and 105.

In con­trast to the LkSG and the EU draft direc­ti­ve, howe­ver, no distinc­tion is made accor­ding to the num­ber of employees, tur­no­ver or sec­tors. The draft includes all pro­ducts and com­pa­nies wit­hout excep­ti­on. It can be infer­red from Com­mis­si­on press release that gra­da­ti­on should result sole­ly from the aut­ho­ri­ties’ risk-based approach during review. Small and medium-sized enter­pri­ses are to be pro­tec­ted by having com­pe­tent aut­ho­ri­ties con­sider “the size and resour­ces of the eco­no­mic ope­ra­tor con­cer­ned and the ext­ent of the risk of forced labour” befo­re initia­ting a for­mal inves­ti­ga­ti­on. SMEs will also “bene­fit from sup­port tools.”

Regu­la­to­ry content

As part of a pre­pa­ra­to­ry pha­se (Artic­le 4), natio­nal aut­ho­ri­ties are to iden­ti­fy pro­ducts for which the­re are reasonable grounds for suspec­ting that they are pro­du­ced using forced labour. Both exter­nal sources of infor­ma­ti­on and data alre­a­dy coll­ec­ted by other agen­ci­es are to be used. The lat­ter include, in par­ti­cu­lar, fin­dings from the assess­ment of eco­no­mic ope­ra­tors and, in par­ti­cu­lar, their actions to iden­ti­fy, pre­vent, mini­mi­se or eli­mi­na­te the risk of forced labour with respect to their acti­vi­ties and value chains. It fol­lows in par­ti­cu­lar that the fin­dings from the imple­men­ta­ti­on of the due dili­gence requi­re­ments under the LkSG are likely to play a signi­fi­cant role.

If the­re are reasonable grounds for sus­pi­ci­on, aut­ho­ri­ties should take direct action against companies.

If aut­ho­ri­ties find a vio­la­ti­on of the ban on forced labour, they are to be given com­pre­hen­si­ve powers to issue orders. The­se include pro­hi­bi­ting the import and export of affec­ted pro­ducts and orde­ring the recall of such pro­ducts that have alre­a­dy been pla­ced on the mar­ket in the EU. The recalls, on the other hand, only cover the B2B sec­tor; recalls of pro­ducts that have alre­a­dy rea­ched the end con­su­mer are express­ly excluded (Artic­le 1(2)).

In addi­ti­on to spe­ci­fy­ing accom­pany­ing obli­ga­ti­ons of aut­ho­ri­ties to set up cor­re­spon­ding data­ba­ses and moni­to­ring mecha­nisms, the draft regu­la­ti­on also regu­la­tes the link to cus­toms law.


For Ger­man com­pa­nies alre­a­dy sub­ject to the scope of the LkSG, the draft regu­la­ti­on is likely to
have only a minor impact, as the LkSG alre­a­dy sti­pu­la­tes com­pre­hen­si­ve due dili­gence
requi­re­ments, also taking forced labour into account. Howe­ver, the draft regu­la­ti­on is a fur­ther
indi­ca­ti­on that it is not only lar­ge com­pa­nies that need to pay clo­se atten­ti­on to human rights and
envi­ron­men­tal pro­tec­tion and set up appro­pria­te due dili­gence sys­tems. It is alre­a­dy fore­seeable
that cor­re­spon­ding obli­ga­ti­ons from the LkSG or the draft EU direc­ti­ve will be impo­sed on them
within the frame­work of con­trac­tu­al regu­la­ti­ons. The draft regu­la­ti­on goes a step fur­ther, as it
covers all com­pa­nies wit­hout excep­ti­on and, if adopted, would app­ly direct­ly in all mem­ber states.


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