Participation rights of the works council in the implementation of the Act on Corporate Due Diligence Obligations in Supply Chains

The introduction of a Code of Conduct with regard to the LkSG may give rise to a right of co-determination of the works council pursuant to Section 87 (1) No. 1 of the Works Constitution Act (Betriebsverfassungsgesetz, BetrVG). Accordingly, matters relating to the organisation of the enterprise and the conduct of the employees in the enterprise are subject to co-determination, provided that they are not prescribed by legislation or a collective agreement. A Code of Conduct is not subject to co-determination as far as only statutory provisions are reproduced therein. The content of the Code of Conduct therefore requires a careful legal analysis in order to separate the content that is not subject to co-determination from the content that is.

The establishment of a risk management system serves to identify, prevent, eliminate, or at least minimise violations of legal rights along the supply chain. The works council must be involved pursuant to Section 87 (1) No. 1 BetrVG if binding rules of conduct for the enterprise’s employees are established during the implementation of the risk management system. This is the case, for example, if the implementation of measures that enable relevant risks to be identified and minimised or due diligence obligations to be prevented, eliminated, or mitigated provides for a reporting obligation on the part of employees. However, general ethical and moral principles, voluntary commitments and the description of the corporate philosophy are not subject to co-determination.

The appointment of a human rights officer as the person responsible for monitoring risk management could possibly give rise to a right of co-determination pursuant to Section 99 (1) sentence 1 BetrVG if this involves assignment of an employee to a new pay grade or transfer of an employee. Regrading should only be relevant in exceptional cases. The question of whether a transfer is involved depends to a large extent on the scope of activity performed as a human rights officer and must therefore be decided on a case-by-case basis.

Another due diligence obligation is the performance of risk analyses in accordance with Section 3 (1) sentence 2 no. 3, Section 5 LkSG. In the context of risk analysis, co-determination rights can be established if forms are used vis-à-vis employees in which questions are aimed at revealing the employees’ own experiences with relevant grievances in the workplace, such as unequal treatment in the enterprise on the basis of national and ethnic origin, social origin, health status or lack of occupational health and safety measures. Such a standardised questionnaire is a staff questionnaire within the meaning of Section 94 (1) sentence 1 BetrVG, which gives the works council a right of co-determination pursuant to Section 94 (1) sentence 1 BetrVG. However, this does not include staff questionnaires as far as the data collected by these cannot be assigned to an individual employee. The obligation of co-determination also does not apply if the survey is carried out on a voluntary basis.

If a risk is identified as part of the risk analysis, the enterprise is required under Section 6 (1) of the LkSG to take appropriate preventive measures without undue delay. The required preventive measures also include the issuance of a policy statement by the enterprise on its human rights strategy. The policy statement must set out the human rights-related and environmental expectations placed by the enterprise on its employees, inter alia. If the policy statement is to be binding on the employees, e.g., in the form of an instruction pursuant to Section 106 of the German Industrial Code (Gewerbeordnung, GewO), the works council may have co-determination rights pursuant to Section 87 (1) No. 1 BetrVG, depending on the way the schedule of duties is designed. The economic committee must be informed of the enterprise’s required policy statement on its human rights strategy pursuant to Section 6 (2) LkSG. In addition, the right of co-determination under Section 87 (1) no. 7 BetrVG must also be respected if arrangements are made for the prevention of accidents at work and work-related illnesses and for the protection of health on the basis of legislation or safety regulations. Lastly, the works council has the right to be informed and consulted under Section 90 (1) no. 1 BetrVG concerning the planning or redesign of company premises, technical equipment, work processes and procedures as well as workplaces.

The employer must also notify the works council of any conditions imposed and instructions given by the competent authorities relating to environmental protection at the enterprise pursuant to Section 89 (2) sentence 2 BetrVG.

The complaints procedure enables persons to report human rights or environmental risks and obligations that have arisen as a result of the economic actions of an enterprise in its own field of business or of a direct supplier. The works council may have a right of co-determination both in the implementation of the complaints procedure within the enterprise and with regard to employee training measures. When implementing the complaints procedure, there is a right of co-determination pursuant to Section 87 (1) no. 1 BetrVG if the employees in the obligated enterprise shall not be free to decide whether and in what way information can be reported. In this context, it should be noted that employees are generally not permitted to keep to themselves any information concerning risks relating to human rights or the environment, or any breach of duty in this regard. Due to the threat of reputational damage, employees are regularly required to call attention to the relevant circumstances on the basis of ancillary obligations under the employment contract pursuant to Section 241 (2) of the German Civil Code (Bundesgesetzbuch, BGB).

As a rule, the implementation of the complaints procedure will also not be possible without the introduction of technical equipment. A review must therefore be carried out to determine whether a duty of co-determination pursuant to Section 87 (1) no. 6 BetrVG is triggered. Under this provision the introduction and use of technical equipment intended to monitor the conduct or performance of employees is subject to co-determination. According to established case law, the determination regarding monitoring is already affirmed if the technical device is objectively suitable for monitoring. The prerequisite for the existence of a right of co-determination is that the use of the technical monitoring device collects data that allows conclusions to be drawn about the conduct or performance of the employees. This will regularly include the implementation of an electronic complaints system that captures and stores the IP addresses of employees who report breaches of due diligence obligations. The same applies to a telephone hotline if the system records the telephone number. It must also be ensured through qualifications that the enterprise's own employees know, understand, and correctly apply the human rights strategy and relevant codes of conduct and guidelines. The introduction of training measures also requires the co-determination of the works council pursuant to Section 87 (1) no. 1 BetrVG.

Enterprises may also participate in an external complaints procedure operated by a third party under Section 8 (1) sentence 6 LkSG. However, the co-determination rights are not extinguished as a result. The last due diligence obligation includes the duty to document compliance with the due diligence obligations and the reporting obligation pursuant to Section 3 (1) sentence 2 no. 9 and Section 10 (1) and (2) LkSG, which does not establish a separate right of co-determination of the works council.

In accordance with the amended Section 106 (3) no. 5b BetrVG the economic committee must in future also be informed in a timely and comprehensive manner about "issues relating to corporate due diligence obligations in supply chains as set out in the LkSG". In view of the fact that the economic committee is to monitor the effects on the enterprise itself, the obligation to provide information should be limited to this. A general right to discussion without a specific reference to the enterprise is alien to the nature of works constitution law. However, Section 106 (3) no. 5b BetrVG does not give rise to any additional right of co-determination in addition to the right to information which could force the enterprise to implement proposals. The economic committee must also be informed of event-related updates to the risk analysis, preventive and remedial measures, and the complaints procedure if this may have an impact on the economic situation of the enterprise.

The majority of the standardised due diligence obligations laid down in the Act on Corporate Due Diligence Obligations in Supply Chains are subject to the rights of co-determination of the works council. It is therefore advisable to review the works council's rights of participation in the implementation of the respective obligations arising from the LkSG in each individual case and then to involve the works council at an early stage.