The obligation is set out in the Modern Slavery Act 2015 (the Act), which came into force earlier this year, and in respect of which the Government has now published guidance.
What is modern slavery?
The guidance explains that this covers forced or compulsory labour with the key element being that the work or service is exacted from any person under the threat of a penalty and for which the person has not offered him/herself voluntarily. It does not cover all cases of exploitation, such as where person chooses to work for less than the national minimum wage, or in unsafe conditions, or for long hours, without being forced or deceived.
There are two tests, both of which must be satisfied for the Act’s reporting obligation to apply:
- a turnover test. Does the turnover of the commercial organisation amount to £36 million or more? The regulations which specify how the turnover is to be calculated state that the total turnover of a commercial organisation is its own turnover together with the turnover of its “subsidiary undertakings”. There is no stipulation that the turnover must derive from UK activities
- a jurisdiction test. The commercial organisation must “carry on business” (or part of its business) in the UK. It need not be incorporated in the UK. There is no de minimis exception, so that if the organisation carries on any part of its business, however small, in the UK it will be subject to the reporting requirement (subject to meeting the turnover threshold). The Government’s guidance as to whether a company incorporated outside the UK carries on business, or any part of a business, in the UK will be determined by applying a “common sense approach” (which is not very helpful). It adds: “We anticipate that applying a common sense approach will mean that organisations that do not have a demonstrable business presence in the UK will not be caught by this provision. Likewise, having a UK subsidiary will not, in itself, mean that a parent company is carrying on business in the UK, since a subsidiary may act completely independently of its parent or other group companies” [our emphasis]. This suggests that if a UK subsidiary is doing what the overseas parent is telling it, the parent will be caught. A delicate balance will need to be struck in each case. If the parent is caught it will have to include in the statement the steps taken in relation to each of its subsidiaries where those subsidiaries from part of its supply chain or part of its business (even if the subsidiaries themselves don’t meet the £36 million threshold).
The reporting obligation does not take effect in relation to financial years ending before 31 March 2016. A company with a financial year end date of 31 December will therefore need to issue its first statement for the financial year from 1 January 2016 to 31 December 2016. A company with a 30 April year end date will have to issue a statement in respect of its accounts for the 1 May 2015 to 30 April 2016 period but will only need to detail the activities undertaken since October 2015.
Form of the statement
The Government guidance acknowledges that there is no right or wrong way of presenting the compliance statement. It encourages clarity and the need to combine sufficient detail for the statement to be meaningful without overwhelming the reader with minutiae. It does state, however, that the statement must detail all the steps the company has undertaken to tackle slavery and compliance in its supply chains.
It is possible to comply with the statutory obligation by simply stating that no steps have been taken to ensure the supply chain is free from slavery and trafficking. For most businesses, this will not be a realistic option and those businesses will need to explain their policies and procedures with regard to modern slavery and trafficking.
The consequence of not providing a statement at all is that the Secretary of State may apply for an injunction requiring compliance. Failure to comply at that point will be a contempt of court, punishable by an unlimited fine.
The contents of the statement
The Act itself contains some suggestions as to the contents of the statement:
- information about the business’s structure, its business and supply chains
- the business’s policies relating to modern slavery
- its due diligence processes in relation to slavery and trafficking in its business and supply chain
- the parts of the business where there is a risk of modern slavery and the steps it has taken to assess and manage that risk
- its effectiveness in ensuring that modern slavery is not taking place, measured against appropriate performance indicators
- information about the training about slavery and human trafficking available to staff.
The recently issued guidance goes through each of these bullet points individually explaining what they mean in practice. Not all will be appropriate to every business; for example, the fifth bullet point – key performance indicators – may not be viable for many businesses.
The following are our suggestions of things to think about to ensure your business can give the statement:
- Identify the individual(s) within the business who will have responsibility for investigating and remediating the risk of modern slavery in the business and/or supply chains, and for ensuring that basic labour standards are met. Establish clear reporting lines up to that individual/those individuals. Ultimately, the compliance statement must be approved by the board and signed off by a director. This is a board level matter.
- Begin with a risk assessment. This will necessitate a global understanding of your supply chain. Key to the risk assessment will be to identify the higher risk areas:
- Geographical risk – some countries will present more of a risk than others
- Sectoral risk – some sectors are riskier than others. Construction, Hospitality, Food and Drink, Resources and Mining and Agriculture are often cited as particularly high risk sectors
- Product risk – the manufacture of cheap goods, for example, may be a high risk area. The use of some types of raw material may bring with them an enhanced risk
- Transactional risk – e.g. are there concerns about the particular individuals involved in a transaction? Do the demands of price and/or delivery time make it more likely that forced labour will be employed to do the work? Is the business relationship a new one?
- Consider how these risk assessments will be kept up to date and how often risk assessments will be updated
- Are there any representative bodies or industry associations or other bodies that can help you undertake a risk assessment or share the costs of doing so? The guidance gives the example of the Seafood Ethics Common Language Group whose purpose is to facilitate mutual consensus on issues impacting on the responsible sourcing of seafood.
Dealing with suppliers
- Meet with suppliers to discuss the challenges they face. Ideally, meet also with representatives of third parties with experience on the ground, such as NGOs and local authorities. Identify whether there are any existing stakeholder groups who are already doing this that you can join
- Prepare a supplier code of conduct covering slavery and trafficking and amend standard contracts to require contractors to comply with that code of practice (and perhaps to certify that they have done so). Ensure that contract documentation reserves appropriate rights of audit (internal and third party, if necessary) and inspection
- Request confirmation from actual and potential suppliers as to what they are doing to ensure their supply chains are free from slavery and trafficking. Back this up with site visits, as appropriate. Is independent verification of new suppliers possible?
- Establish a procedure for where a supplier is found to have violated the code of conduct; for example, give them one opportunity to improve performance to the necessary standard and, if they don’t do so, terminate the relationship
- Ensure that contract documentation confers the right to terminate for breach of the code of conduct. Ensure you have contingency plans for where a supplier is found to be involved in slavery or human trafficking
- Address supplier labour practices in tender documents, e.g. to demonstrate that they meet minimum labour standards in their own supply chain
- Identify higher risk suppliers for bespoke training, audit inspections and improvement plans
- Conduct thorough checks on agencies who supply labour
- Decide how frequently you should review the relationships with suppliers and the individuals who will be responsible for monitoring it.
- Consider what training has already been given and how this has been documented.
- Training should be to staff and, if thought fit, businesses in the supply chain (including your own subsidiaries)
- The training should have the objective of enabling staff and outsourced labour to spot the signs of modern slavery and to equip them with the knowledge of what to do when they see it
- The training should be bespoke so that, for example, staff in higher risk areas receive different training from colleagues who may be working in less risky areas.
- How frequently will the training be repeated?
- Training may need to be given in different languages and consideration must be given to who will give this training
- How is training to be audited?
Provide a mechanism for whistleblowing to staff and outsourced labour.
How we can help
Despite the publication of the guidance, the precise applicability of the Act is still uncertain and we understand that many corporate groups, particularly those with an overseas parent are unsure of how far, if at all, members of their group will be subject to the Act. We would welcome the chance to talk this through with you. We can also advise on what steps your business should be implementing now to ensure it can comply with the Act, including drafting policies, reviewing and updating standard contractual documentation and helping to deliver appropriate training.