Corporate Social Responsibility and Employment Law

Social responsibility and sustainability of companies has increasingly become a central concern of business practice in recent years and is almost ubiquitous today.  But what exactly do we mean by this so-called corporate social responsibility and which responsibilities does it specifically impose on a company? How can this topic affect employers and their employees in particular? This article is intended to provide a brief and introductory overview with a special focus on employment law aspects.

The term corporate social responsibility has not yet been given an universally applicable definition. Rather, it describes the social responsibility of a company in terms of a sustainable management. The aspects covered by this are diverse and range from social to ecological and economic issues, with the company’s relationship to its employees in particular being a key aspect of social responsibility.

While corporate social responsibility was described as an exclusively voluntary commitment for a long time, this understanding of the term has now changed due to the implementation of the Corporate Social Responsibility Directive Implementation Act in 2017. Since its coming into force, the law – implementing a EU directive – now obliges capital market-oriented corporations , limited liability partnerships and large credit institutions as well as insurance companies with more than 500 employees  to include a so-called “non-financial statement” in their management report prepared in accordance with the German Commercial Code. This non-financial information includes in particular aspects on corporate social responsibility and the sustainability of the company. In terms of employment law, the Act prescribes that the company must – among other things – provide information on the following aspects:

• Measures taken to ensure gender equality,
• General working conditions as well as health and safety at work,
• Implementation of the core agreements of the International Labor Organization (ILO) and
• Respect for the rights of employees and trade unions.

For the purpose of drafting this declaration, companies may also make use of templates provided, e. g. by the ILO or other organizations. If the company does not pursue a concept for safeguarding employee interests, it must explain this transparently and with reasons in the non-financial statement.

This reporting obligation is particularly intended to promote not only transparency in the area of social responsibility and sustainability, but also compliance with legal regulations and recognized standards. The instrument of mandatory reporting, which originated in the US, is now also widespread in German legislation. The new German Remuneration Transparency Act, for example, also stipulates a reporting obligation comparable to the German Commercial Code.

Non-compliance with the obligation under the German Commercial Code can result in severe fines of up to 50,000 Euros and of even up to 10 million Euros for capital market-oriented companies. Particular caution is required when employing temporary workers. These also count towards the 500-employee threshold and can therefore trigger the reporting obligation.

However, the law does not address the question of the extent to which works councils have a right of co-determination with regard to the obligation to report on “non-financial matters”. Sec. 75 Para. 2 Works Constitution Act, which stipulates the principles for the treatment of employees by the employer and the works council, has a high degree of overlap with the employment law aspects of the Corporate Social Responsibility Directive Implementation Act. Within the scope of this overlap, it is generally assumed for the delimitation of competences that the works council does not have a proper right of co-determination and participation in the development of concepts within the scope of the Corporate Social Responsibility Directive Implementation Act and also cannot demand specific reporting by the employer, but is nevertheless entitled to present its own concepts for the protection of employee interests. Besides that, mandatory co-determination rights under the Works Constitution Act may also be affected by the implementation of specific measures. With regard to corporate social responsibility, co-determination rights regarding conduct in the company and health protection are particularly relevant. Finally, it should also be noted that the employer must inform and notify the works council about any concepts on employee concerns which may affect Sec. 75 Para. 2 Works Constitution Act.

In addition, it can also make sense for smaller and medium-sized companies that are not subject to the mandatory statutory regulations to address the issue of corporate social responsibility within the scope of their possibilities. This is because, in addition to the legally binding employment law regulations, the voluntary implementation of more far-reaching measures can also result in an increase in benefit for the company. It has repeatedly been shown that sustainable corporate responsibility leads to an increase in the company’s success in the medium or long term.

An important component of this corporate success is qualified employees, who must be recruited, supported and retained by the company in the long term. A well-considered corporate social responsibility strategy can help by improving the company’s own employer brand and visibly standing out from other employers. In this respect, it is important to involve the employees in the development of this strategy  so that they can actually identify with the values of the company and contribute to a positive image of the employer in the external perception. Often – especially in smaller and medium-sized companies – this does not require the implementation or change of large and costly projects. Smaller changes are often sufficient to make it clear to the existing staff and potential new employees what the company itself actually means by its stated corporate values in practice.