Whistleblowing in Product Compliance

The HinSchG serves to implement Directive (EU) 2019/1937 of 2019-10-23 on the protection of persons who report infringements of Union law. Before the HinSchG came into force, whistleblowers had to fear disadvantages if they obtained information about violations of the law in the course of their professional activities and then reported or disclosed them. The HinSchG is intended to expand the hitherto incomplete and inadequate protection of whistleblowers and to recognize their contribution to the detection and punishment of wrongdoing (cf. draft bill of the Federal Ministry of Justice, p. 1). 

The detection and sanctioning of malpractices promoted in this way will lead to an increase in the reporting of violations of product law obligations and missing product conformities by their own employees to manufacturers and other economic operators. Knowledge of non-conformities may activate product safety and product liability law obligations to act. Against this background, economic operators must not close their eyes to the reported violations. 
 

I. Objective of the HinSchG

According to Sec. 1 para. 1 HinSchG, the aim of the HinSchG is to protect natural persons who have obtained information about infringements in connection with their professional activities or in the run-up to such activities. In addition, the persons who are the subject of a report or disclosure are also to be protected (Sec. 1 para. 1 HinSchG). 

Indirectly, the HinSchG also serves to detect, correct and punish malpractices and thus non-conformities under product law. Thus, the HinSchG also indirectly promotes compliance with health and safety requirements for the design and construction of machinery and associated products as defined by the Machinery Regulation 2023/1230 (so-called MR). 
 

II. Scope of application

From the perspective of machinery law, all economic actors - depending on the size of the company - can in principle be subject to the personal scope of application of the HinSchG, Sec. 12 para. 1 sentence 1 HinSchG.

The material scope of application includes the notification and disclosure of information on the violations conclusively listed in Sec. 2 para. 1 HinSchG. This includes, in particular, violations of legal standards with specifications on product safety and conformity . The material scope of application of the HinSchG thus extends to violations of product safety law in general and thus also to machinery law in particular.

The action-specific scope of application is opened with regard to economic operators if a whistleblower makes a report or disclosure of information on infringements and the economic operator must deal with this report in accordance with the provisions of the HinSchG. A whistleblower is entitled to make a report or disclosure if (1) there are reasonable grounds for suspicion or knowledge of actual or potential violations, (2) these violations are related to the professional activities of the whistleblower, and (3) they have already been committed or are very likely to be committed (cf. Sec. 3 para. 3 HinSchG). In addition, attempts to conceal violations are also covered by the scope of application of the HinSchG.

In practice, the determination of the reasonable suspicion will regularly cause difficulties. Apart from obvious breaches of regulations, the identification of non-conformities under machinery law requires knowledge of the complex regulations of the MR. Thus, a large number of only alleged non-conformities could be reported, where the suspicion is not substantiated in retrospect. In the latter case, the manufacturer incurs a not inconsiderable expense, as he must at least check the validity of the notification (Sec. 17 para. 1, 4 HinSchG).

Reported violations in the area of machinery law can be both a lack of conformity with material product requirements and a violation of merely formal information, documentation or labelling obligations. Specifically, in the scope of application of the Machinery Regulation, a reported violation may, for example, concern non-compliance with the essential health and safety requirements according to Art. 8 MR.
 

III. Obligation to establish an internal reporting office

From a certain size (usually 50 employees), the economic operator has the obligation to set up and operate at least one office for internal reports to which employees can turn (internal reporting office) in accordance with Sec. 12 para. 1 sentence 1 HinSchG. According to Sec. 13 para. 1 HinSchG, the tasks of the internal reporting office include the operation of reporting channels (Sec. 16 HinSchG), the implementation of the procedure (Sec. 17 HinSchG) and the taking of follow-up measures (Sec. 18 HinSchG). For this purpose, the economic operator may entrust either a person employed by him or by the respective organizational unit, a work unit consisting of several employees or a third party with the tasks of an internal reporting office (Sec. 14 para. 1 HinSchG).

Group companies thus have the option of setting up a joint, group-wide reporting office for all companies in the group. Furthermore, several economic operators that generally employ between 50 and 249 employees can set up and operate a joint internal reporting office (Sec. 14 para. 2 HinSchG).

Commissioning a third party to set up and operate the internal reporting office can relieve the burden on small and medium-sized companies in particular. Explicit mention is made in the explanatory memorandum to the law of lawyers who can assume the tasks of the internal reporting office as ombudspersons. One of the advantages of hiring a lawyer is that he or she knows the company and the regulatory context in which it operates and can classify incoming reports at an early stage. This allows the company to focus quickly on the measures that may need to be taken.
 

IV. Right to choose between internal and external reporting

Pursuant to Sec. 7 para. 1 HinSchG, the person providing the information has the right to choose whether to contact an internal or external reporting office with information about a violation. Although they should prefer to report to an internal reporting office if effective internal action can be taken against the violation and they do not have to fear reprisals, Sec. 7 para. 1 sentence 2 HinSchG does not represent an obligation. Because reporting to an external reporting office is usually associated with disadvantages for the economic operator, it should thus work towards an open error and feedback culture at an early stage and encourage its employees to use internal communication channels. In order to proactively promote internal reporting and eliminate non-conformities, reward programs (comparable to so-called bug bounty programs) are conceivable, with which the economic operator rewards whistleblowers.
 

V. Documentation requirements

Pursuant to Sec. 11 para. 1 HinSchG, the person responsible for receiving reports at a reporting office must document all incoming reports in a permanently retrievable manner, taking into account the confidentiality requirement. The documentation requirements differ depending on whether the report was received orally or in writing. In order to comply with the documentation requirements and to make the procedure following the report as efficient as possible, the use of documentation management systems can be useful.
 

VI. Procedure for Receipt of Notifications and Follow-up Actions

Sec. 17 para. 1 HinSchG regulates the procedure for internal reports. According to this, the internal reporting office must confirm receipt of the report, the opening of the scope of application of the HinSchG and then check the validity of the report received. In doing so, the reporting office must maintain contact with the person making the report and, if necessary, take follow-up measures (Sec. 18 HinSchG). The follow-up measures to be taken pursuant to Sec. 18 HinSchG include, in particular, internal investigations, referral of the person making the report to other offices, discontinuation of the proceedings or transfer of the proceedings to a competent organizational unit or to a competent authority.

Especially in product safety law, which is characterised by weighing decisions, the question arises as to how justified objections concerning the safety of machinery can be distinguished from irrelevant notifications. For companies, one of the main difficulties in implementing the obligations arising from the HinSchG will be to implement an efficient procedure for categorising the notification and the subsequent processing steps. This is especially true in cases where the report concerns a circumstance that, when viewed in the light of day, is not a violation, but is based on a conscious decision by the responsible organisational unit of the company.

Ideally, there should be a plan of procedure that defines the procedure in as much detail as possible, so that in the event of a report, the next steps are already determined and the organisational units concerned are involved at an early stage. For example, a lawyer who is involved as an internal reporting office can check the validity of the report, ask the employer questions and make suggestions for corrective measures.

Finally, it is also obvious to digitally map the process to ensure compliance with the requirements of Sec. 17, 18 HinSchG. In this way, the workflow can be integrated seamlessly and with little effort into existing processes in the company. In this context, solutions that can be used to digitize standardizable decision-making processes are particularly useful.

Depending on the results of the investigations, the economic operator is subject to the corresponding obligations under product safety and product liability law in order to remedy any non-conformities and to avert product risks by means of appropriate field measures. If, after completion of the investigation, it becomes apparent that a machine does not comply with the requirements of the MR, the manufacturer must take the necessary corrective measures in accordance with Art. 10 (9) MR.
 

VIII. Conclusion

If they have not already done so, economic operators should familiarize themselves with the obligations of the HinSchG in a timely manner and, in particular, comply with the obligation to set up an internal reporting office. Private employers with generally 50 to 249 employees have until 17.12.2023 to do so (cf. Sec. 42 para. 1 HinSchG). Otherwise, violations of certain obligations may result in fines of up to EUR 50,000 as early as 01.12.2023 (cf. Sec. 42 para. 2, 40 HinSchG).

Do you have any questions about this news or would you like to discuss it with the author? Please contact: Dr. Gerhard Wiebe