Modern Slavery Act 2015 – transparency requirements
The Modern Slavery Act 2015 consolidates previous legislation on modern slavery, forced labour and domestic servitude and has introduced significantly tougher penalties and custodial sentences for those found to be involved in related crimes, including increasing the maximum sentence for human trafficking to life-imprisonment.
In addition to these increased criminal sanctions, the Act also provides for the introduction of a radical new commercial reporting obligation. Section 54 of the Modern Slavery Act requires certain organisations to publish an annual ‘slavery and human trafficking statement’. This statement must;
Set out the steps the organisation has taken during the applicable financial year to ensure that modern slavery and human trafficking is not taking place in any of its supply chains, and in any part of its own business; or
Confirm that the organisation has taken no such steps.
Few other countries have implemented such explicit commercial anti-slavery reporting provisions. Although, since 2010, the California Transparency in Supply Chains Act has required manufacturers and retailers doing business in the State of California, who have world-wide sales of over $100 million, to be ‘transparent’ (i.e. publish details) of the efforts they have made to eradicate modern slavery and human trafficking in their supply chains.
The implementation of section 54 of the Modern Slavery Act 2015 was delayed pending publication of Home Office guidance. This guidance has now been published, and section 54 and its applicable regulations will be in force with effect from 29 October 2015.
Transitional provisions are in place to ease the impact on those ‘in scope’ organisations with imminent year-end financial reporting dates. The first modern slavery and human trafficking statements will be due from businesses with a financial year end of 31st March 2016. Businesses with a financial year end before 30th March 2016 will not be required to publish statements for their 2015-2016 financial year.
There is no legislative time frame within which organisations in scope must publish their statements, but Home Office guidance envisages statements will be published as soon as is reasonably practicable after the organisation’s applicable year end, and certainly within six months of this date.
Who is ‘in scope’ and has to comply with section 54?
Any ‘commercial organisation’ (which includes body corporates and partnerships) will be in scope to comply with section 54, and required to publish a modern slavery and human trafficking statement, if:
- it carries on a business, or part of a business, in the UK;
supplies goods or services; and
has a global annual turnover of £36 million or more.
If you are a parent company, then the turnover of all your subsidiary companies is aggregated for the purpose of calculating whether you reach the £36 million turnover trigger. The provisions of the Act are extra-territorial; where an organisation is incorporated/formed is irrelevant for the purposes of deciding whether it is ‘in scope’ to comply with section 54. For example, a US firm which operated in the UK from a London office will be ‘in scope’ and need to produce a statement if its global turnover is £36 million or more as it is ‘carrying on a business, or part of a business in the UK’. There is no minimum amount of turnover required from within the UK itself.
The Home Office guidance proposes the adoption of ‘a common sense approach’ to making an assessment as to whether an organisation is ‘carrying on a business or part of a business’ in the UK, asserting that organisations that do not have a ‘demonstrable presence’ in the UK will not be captured. However, although the guidance includes the example of a company whose only UK activity is having securities traded on the London Stock Exchange as ‘not’ carrying on a business in the UK it fails to provide more meaningful worked examples. For instance, the guidance states that the foreign parent of a UK subsidiary with a global turnover exceeding £36 million will not be ‘automatically caught’ just by virtue of having a UK subsidiary, as in some circumstances such subsidiary be acting ‘completely independently’ of their parent. However, there is no guidance as to the level of control or joint/reciprocal activity necessary to establish that a foreign parent of UK subsidiary is ‘doing business in the UK’ and required to publish a modern slavery and human trafficking statement in its own right. Such a statement would potentially need to cover not just the UK subsidiary, but also all of its subsidiaries worldwide.
Irrespective of remaining uncertainty as to the exact scope of section 54, the impact of its transparency requirements will not be restricted to those organisations directly captured. In seeking to demonstrate adequate ‘anti-slavery’ safeguards for the purposes of their own statements, organisations will inevitably in turn seek to impose mirror obligations on others. This might take the form of increased supplier due diligence checks and/or requirements for stronger contractual undertakings. The effects of the Act will therefore ultimately be felt right down the supply chain - as was the intention.
What should be in a modern slavery and human trafficking statement?
The actual reporting requirement of section 54 is light touch. There is no mandatory action required, other than the production of the statement. Even then the statement is not required to follow a specific template – there is no standard length formant or content.
However, the Act does make suggestions as to what an organisation ‘may’ decide to include in its modern slavery and human trafficking statement in explanation of:
- its structure, business and supply chains;
- its policies in relation to modern slavery and human trafficking;
- its due diligence processes in relation to modern slavery and human trafficking in its business and supply chains;
- the parts of its business and supply chains where there is a risk of modern slavery and human trafficking taking place, and the steps that it has taken to assess and manage that risk;
- its effectiveness in ensuring that modern slavery and human trafficking is not taking place in its business or supply chains, measured against such performance indicators as it considers appropriate; and
- the training about modern slavery and human trafficking available to its staff.
The Home Office guidance expands on these suggestions. It makes reference to factoring in risks of modern slavery and human trafficking when setting an organisation's KPIs. It also considers ways in which organisations can seek to increase the scope of their due diligence activities to better reflect issues relating to human rights and improved working conditions. However, care has been taken in the guidance to clarify that its contents and the suggestions it contains are not intended to be prescriptive. It is clear that what will amount to a ‘credible and accurate’ modern slavery and human trafficking statement will differ from sector to sector and business to business. The expectation is that organisations will build on their statements year on year to hopefully demonstrate evolution and improvement over time.
Where must a statement be ‘published’?
An organisation’s modern slavery and human trafficking statement must be approved and signed off at the highest level internally. For example, approved by a company’s board of directors and signed off by a director, or approved by the members of a limited liability partnership and signed off by a designated member.
The modern slavery and human trafficking statement must be published on an organisation’s publicly accessible website. If the statement itself is not included on the organisation’s homepage, then there must be a link to the statement in a prominent place on the page. In the unlikely case of an organisation not having a website, it will be obliged to provide a copy of its statement within 30 days of any written request.
What are the consequences of failing to comply with section 54?
If an organisation which is subject to section 54 fails to produce a modern slavery and human trafficking statement for an applicable financial year, the Secretary of State can seek an injunction through the High Court requiring the organisation to comply. A subsequent failure to comply with such an injunction could lead to unlimited fines. However, in reality, such legal enforcement action will probably be rare.
Nevertheless, the government believes that the Act has an important role to play in ‘encouraging’ businesses to do more to seek to ensure that their operations, and those of their supply chains, are genuinely free from the risk of modern slavery and human trafficking. It is relying on the option of non-compliance, (or compliance by way of the production of a statement stating that an organisation has done nothing to tackle the issue of modern slavery), as being very unappealing from the perspective of shareholder/customer/public relations. It is also easy to envisage that a number of charities and NGO’s will be very willing to ‘police’ the operation of the Act by ‘naming and shaming’ those failing to comply, or seen as not doing enough to tackle the issue.
What should organisations be doing now?
How much work an organisation needs to do in order to produce a credible and accurate modern slavery and human trafficking statement will depend significantly on its existing corporate social responsibility activities, polices and compliance practices. The Companies Act 2006 already requires UK quoted companies to undertake non-financial reporting on human rights issues as part of their strategic reporting obligations. Other organisations may have voluntarily elected to deal with human rights issues by adopting the UN Guide Principles (UNGPs) reporting framework. Organisations that have already undertaken such non-financial reporting may well be in a position to draw on existing relevant activities to produce a complaint modern slavery and human trafficking statement.
Other organisations falling within the scope of section 54 may need to do more, including:
- Deciding who within the organisation will have on-going responsibility for the production of its modern slavery and human trafficking statement. (As the process will inevitably require input from various internal and external stakeholders - procurement, HR, trade unions, employee representative bodies, recruitment, customer/public relations etc. This person needs to have sufficient authority to drive matters forward. Remember, ultimate responsibility for approval lies with the Board).
- Identifying those areas of the organisation’s operations and its supply chains which are most at risk of infiltration from modern slavery and human trafficking.
- Auditing existing due diligence processes to assess whether they are adequate or whether new checks and safeguards are appropriate
- Considering if the organisation should implement a separate policy on modern slavery and human trafficking, or whether the issue can be effectively addressed via amendment to existing policies, practices and procedures, such as procurement processes, financial checks and whistle-blowing.
Assessing who within the organisation should receive training on the risks of modern slavery and human trafficking? Can this be limited to those ‘on the front line’, such as procurement/purchasing or should all staff receive such training?
Setting KPI’s to demonstrate that the organisation is taking effective steps year on year to ensure that its business and supply chains are free from modern slavery and human trafficking.
EEF is running seminars on the Modern Slavery Act 2015 transparency requirements and routes to compliance in early 2016, ahead of the first slavery and human trafficking statements falling due.
For more information or to book your place, click here.
If you are an EEF member with additional questions relating to Modern Slavery, please contact firstname.lastname@example.org.