ESG and labour law: What is behind the "S"?

Having dealt with the "E" in the first instalment of our series of articles on ESG and labour law (view here (in German)), we are now focusing on the "S". In the following, we would like to provide an overview of some of the topics that are particularly relevant from a labour law perspective in connection with social sustainability.  

The basic principles of the International Labour Organisation as a starting point

In the context of social sustainability and corporate social responsibility, issues relating to labour standards, occupational health and safety play a central role.

The International Labour Organisation (ILO) defines the following five basic principles for itself, which have found their expression in a series of conventions, the so-called core labour standards: 

• Freedom of association and the right to collective bargaining for employees
  
• Abolition of forced labour
  
• Abolition of child labour
  
• Prohibition of discrimination in employment and occupation
  
• Occupational health and safety, regulations to prevent accidents and incidents and to safeguard the health of employees, compliance with mandatory laws

These principles apply to all ILO member states. The underlying considerations are also reflected in many national and European regulations. Although a heightened awareness of social sustainability should go much further than compliance with minimum standards, the criteria at least provide an indication of which issues are particularly important in this context from a labour law perspective. 

Equal treatment and protection against discrimination

Labour law is characterised by the principle of equal treatment. According to the general principle of equal treatment under labour law, an employer is prohibited from treating employees unequally if there is no objective reason for this unequal treatment. In labour law consulting practice, this regularly becomes significant when granting special payments or other benefits if the employer decides to only grant these to a certain group of employees. Ultimately, however, the associated accusation of unequal treatment can come to light at various stages of a (potential) employment relationship, particularly in connection with application procedures, internal promotions, and dismissal decisions. 

According to the provisions of the General Equal Treatment Act (AGG), discrimination on the grounds of race or ethnic origin, gender, religion or belief, disability, age, or sexual identity must also be prevented or eliminated. Violations of the provisions of the AGG can result in compensation or damages payments for employers. 

Issues of equal pay across genders 

In this respect, particular attention is also paid to equal pay across genders, not least because of the latest developments in European law. 

Women and men must be paid the same pay for equal work or work of equal value. What sounds so banal in principle still entails many problems and uncertainties in practice - despite the legislator already wanted to provide a framework for enforcing this requirement with the Act on the Promotion of Transparency of Pay Structures (Entgelttransparenzgesetz “EntgTranspG”), which came into force on 6 July 2017. The EntgTranspG essentially provides three mechanisms for this, namely the individual right to information for employees, the company review procedure for checking and establishing equal pay and the standardisation of reporting obligations for employers.  All employees in companies with generally more than 200 employees at the same employer can assert their right to information. The obligation to carry out the company review procedure and to fulfil reporting obligations applies - irrespective of the other requirements - "only" to companies that generally have more than 500 employees.

The European Directive on strengthening the application of the principle of equal pay for men and women for equal work or work of equal value through pay transparency and enforcement mechanisms (Pay Transparency Directive, EntgTranspRL), which came into force on 6 June 2023, now creates new requirements that go beyond the current requirements of the Pay Transparency Act and require corresponding implementation (including pay transparency before employment, new requirements for the provision of information and reporting obligations, strengthening of enforcement instruments). The German legislator has until 7 June 2026 to transpose the directive into national law. 

Due diligence obligations within the supply chain 

However, the responsibilities of companies under the heading of social sustainability are not limited to their "own" employees but extend largely to the entire supply chain. Particular attention is therefore also paid to the working conditions of (global) suppliers and subcontractors. The German Act on Corporate Due Diligence to Prevent Human Rights Violations in Supply Chains (Lieferkettensorgfaltspflichtengesetz, LkSG), which came into force on 1 January 2023, was intended to provide companies with a clear, proportionate, and reasonable legal framework for fulfilling their responsibility to respect human rights in global supply chains. The due diligence obligations and implementation measures arising from the Act have already applied to companies that generally employ at least 1,000 people in Germany since the beginning of this year. 

Considering the latest developments at European level, the implementation of the new EU Supply Chain Directive (Corporate Sustainability Due Diligence Directive, CSDDD) is also expected to result in an amendment to the LkSG.

Health protection and occupational safety

Protecting the health and safety of employees is also of particular importance in the context of social sustainability. In addition to compliance with mandatory national law, e.g. the Working Hours Act (ArbZG), the Federal Leave Act (BUrlG), the Continued Remuneration Act (EntgFG) or the Minimum Wage Act (MiLoG), this also includes ensuring compliance with occupational health and safety regulations and standards, e.g. the Occupational Health and Safety Act (ArbSchG) and the introduction of safety training and reporting systems to prevent accidents and incidents. 

Key takeaways

Sustainable social planning structures and employee appreciation can make a decisive contribution to a company's success. They can not only promote employee satisfaction and thus commitment, but also ensure economic success. The implementation of sustainable strategies can therefore be used consciously to position the company in the market, to develop its own employer brand and thus also to differentiate it from its competitors. 

The topics behind social sustainability will also become increasingly important for companies in the future - also and especially due to the constant development at European level - and will require individual concepts for appropriate implementation, considering the legal framework and existing design options.