On 12 February 2015, the UK Government launched a consultation on the supply chains clause in the Modern Slavery Bill which could have far reaching implications for suppliers of goods and services.
In November 2014 we reported on the introduction of a clause in the Modern Slavery Bill that will require large commercial organisations who carry on business in the UK, wherever they are based and in whatever sector they operate, to prepare and publish an annual statement setting out what the business has done during the financial year to ensure that slavery and human trafficking are not taking place in any part of its business or any of its supply chains.
The Bill is still subject to further debate in Parliament but is expected to receive Royal Assent by the time of the general election on 7 May 2015. Unusually at this stage of the legislative process, the Government has initiated a consultation seeking views on the supply chains clause which is open until 7 May 2015. The aim of the consultation is to gather the views of interested parties on two principal issues:
- What size of commercial organisation should be subject to the disclosure requirement?
- What statutory guidance should the Government issue to assist businesses to comply with the disclosure requirement?
Following the consultation, the Government will decide its approach to the disclosure requirement, publish a response to the consultation and then draw up regulations (for further debate in Parliament) and statutory guidance (with the benefit of further input from experts). As a result, the disclosure requirement is not expected to commence before October 2015. However, this consultation is the last opportunity in the legislative process that businesses and other stakeholders will have to state their views on these issues before the disclosure requirement becomes law and interested parties are strongly encouraged to share their views with the Government now.
The rest of this briefing looks in more detail at the specific issues on which the Government is consulting. Should you wish to discuss any of these issues with us, or how you might participate in the consultation, please contact any of the individuals whose names are listed below.
Defining Business Size
The Government considers that the disclosure requirement should apply to all large commercial organisations, including all large (not just listed) companies and partnerships.
The Government proposes to decide the size of the commercial organisation by reference to a minimum level of turnover and is consulting on what that threshold should be. In line with the Companies Act, total turnover will be defined as the total net turnover of the commercial organisation, being the total amount of revenue derived from all sources, after deduction of trade discounts, value added tax and any other taxes based on the amounts so derived. The turnover threshold of a company will include the turnover of all its subsidiaries.
The consultation contains a frame of reference setting out roughly how many UK registered companies might be subject to the disclosure requirement at different levels. For example, if the threshold was set at £36 million (the threshold for determining the size of a large company under the Companies Act), some 12,259 UK companies might be caught. A threshold of £1 billion would cover just 724 companies. These figures do not include businesses registered overseas and operating directly in the UK, which could also be caught by the legislation.
By comparison, the California Transparency in Supply Chains Act 2010, which imposes a similar disclosure requirement on retail and manufacturing businesses, includes a threshold of US$100 million (approximately £65 million at current exchange rates) linked to worldwide annual gross receipts, among other criteria. The Government does not favour referencing size by number of employees only, as is done in the EU Directive on disclosure of non-financial and diversity information by certain large undertakings and groups (see our update).
In sum, having decided that the disclosure requirement should apply by reference to turnover, the Government seeks views on the following two issues:
- What level of turnover is most appropriate to trigger the disclosure requirement?
- Should there be a higher turnover threshold to start, which would focus only on larger businesses, with a reduction in the threshold to cover more businesses over time?
Formulating Statutory Guidance
As currently drafted, the disclosure requirement will not prescribe what commercial organisations must report in their slavery and human trafficking statement. Instead, the Government intends to produce guidance setting out what kinds of information might be included.
Having discussed these issues with businesses and NGOs, the Government appears to have formed some views already on what a slavery and human trafficking statement should include and what issues its statutory guidance should address. It has indicated that its approach will also be informed by existing and future legislation.
Against that background, the consultation seeks input from interested parties on the following main issues:
- Whether the statement should include information about: (i) an organisation’s structure, business and supply chains; (ii) its policies on slavery and human trafficking; (iii) its due diligence processes (in relation to both its business and its supply chains); (iv) areas of risk and the steps taken to assess and manage that risk; (v) its effectiveness in eradicating slavery and human trafficking in its business and supply chains, measured against key performance indicators; and (vi) training made available to staff.
- Whether any other areas of activity should be included in a slavery and human trafficking statement and whether there are any sector specific areas of activity that businesses should disclose.
- What good practice looks like in each of the areas of activity identified above.
- Whether the guidance should include advice on the publishing, timing and signing of a statement and what good practice looks like in each case (and see further below).
- Whether the guidance should include advice on what to do if an organisation suspects or identifies slavery or human trafficking in its supply chain.
The full list of questions can be found here.
Signing a Slavery and Human Trafficking Statement
The Government seems anxious to avoid compliance with the disclosure requirement becoming a simple box ticking exercise and to ensure that top level decision makers take the issue seriously and understand the implications of taking little or no action in response to the legislation.
To that end, it proposes to include an additional clause in the Bill which will require those responsible for the business, e.g. a company’s board of directors, to sign any slavery and human trafficking statement that is produced.
Participating in the Consultation
It is important for all interested stakeholders, particularly businesses that could be affected by the disclosure requirement, to engage pro-actively with the issues raised by the consultation. Not only is the consultation an important means of informing Government and stakeholder expectations but it will also give affected businesses an opportunity to state clearly where they are in need of guidance.