Will the new German LkSG Act affect the operations of Polish entrepreneurs?

From 1 January 2023, the law on due diligence obligations of enterprises in supply chains (German: Gesetz über die unternehmerischen Sorgfaltspflichten in Lieferketten – abbreviated as LkSG), enacted by the German parliament on 16 July 2021, came into force. Although it imposes obligations only on German enterprises meeting specific criteria, it will also affect Polish entrepreneurs engaged in trade with our western neighbour.

Who does the LkSG apply to?

Until 1 January 2024, the scope of the Supply Chain Act covers German enterprises employing 3,000 or more employees. After that date, the obligations will extend to those enterprises employing 1,000 or more employees. When determining the number of employees, persons employed by affiliated entities, whether in Germany or abroad, are also taken into account.
The aim of the LkSG is to compel large German enterprises to contract only with suppliers who respect international standards concerning human rights, labour rights, and environmental protection within their business activities. The law effectively shifts responsibility for the entire supply chain onto the German entity itself — regardless of how extensive the supply chain is or in which country it begins.

These aims are implemented through a series of additional duties, primarily including the obligation to implement systems for assessing risks of violations of human rights, labour rights, and environmental standards within the supply chain, systems for preventing such violations, appointment of responsible persons, and additional reporting duties to the Federal Office for Economic Affairs and Export Control.

What does the LkSG concern?

The law explicitly addresses a range of fundamental human rights, labour rights, and environmental and working condition standards, mainly contained in the International Labour Organization conventions, directly related to the topics at hand.
These include in particular:

1. The prohibition of child labour, combating their exploitation in forms such as slavery, forced prostitution, involvement in drug trafficking, and work that poses risks to their health and life;
2. The prohibition of forced labour, especially work performed under threat or within debt bondage;
3. The right to freedom of association and collective bargaining;
4. The right to fair remuneration;
5. The prohibition of discrimination in recruitment, employment, and promotion policies;
6. The right to safe and hygienic working conditions.

Impact of the LkSG on Polish exporters and manufacturers

These restrictions and duties **will also affect Polish entrepreneurs working with German contractors** — the LkSG explicitly requires German enterprises to take adequate preventive actions towards their direct contractors, including:

1. Considering the protection of the rights specified in the Act when selecting contractors;
2. Including declarations in contracts that the contractor complies with LkSG requirements concerning the protection of human rights, labour rights, and environmental principles;
3. Obligation to conduct training and additional vocational education related to the points above;
4. Inclusion in contracts with contractors of appropriate mechanisms ensuring compliance with the standards of human rights protection, labour rights, and environmental protection as required by the LkSG.

The above new obligations mean that German contractors will require their Polish partners to incorporate appropriate mechanisms in new contracts to mitigate risks related to potential penalties. The LkSG forms the basis for imposing fines of up to €500,000 or up to 2% of turnover in the case of legal entities or partnerships with an annual turnover of €400 million or more.

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