New rules in force today require companies with a turnover of £36 million or more to produce a "slavery and human trafficking statement" at the end of each financial year.
The rules will apply to businesses with a year end of 31 March 2016 or later and the statement should be published as soon as possible (and in practice within six months) after the year end. The statement must be published on the organisation's website with a link "in a prominent place" on its homepage.
Slavery under the new rules is a concept covering servitude and forced or compulsory labour, which may be difficult to distinguish from exploitative working practices more generally. Generally, work exacted from a person under the menace of some penalty, for which they have not offered themselves voluntarily, will be indicative of slavery.
Which organisations must comply?
Any company which carries on a business in the UK, or part of a business in the UK, supplies goods or services and has an annual turnover of £36 million or more. A company's turnover is determined by combining the turnover of its subsidiaries with its own. Any UK subsidiary which meets this threshold must also produce its own statement.
What must the statement contain?
In short the organisation must state:
- the steps the organisation has taken during the financial year to ensure that slavery and human trafficking is not taking place in any of its supply chains any part of its own business (including its foreign subsidiaries); or
- that the organisation has taken no such steps.
There are no further compulsory requirements regarding the content of the statement. The only penalty is for failure to produce one at all, in which case the organisation can be compelled by Court order to do so.
What might the statement contain?
The new rules give non-compulsory examples of what a statement may contain information on:
- the organisation's structure, business and supply chains
- its policies in relation to slavery and human trafficking
- the due diligence undertaken across its business and supply chains in relation to slavery and human trafficking
- the parts of its business and supply chains where there is risk of modern slavery taking place and what steps have been taken to assess and manage that risk
- the effectiveness of the steps the organisation has taken, measured against performance indicators it considers appropriate
- the training on modern slavery available to staff
Additionally, the government today released guidance on the preparation of a statement, suggesting amongst other things that an organisation disclose information on:
- the sector(s) the business operates in and whether any of its work is seasonal
- group structure and relationships
- the countries it sources its goods or services from, including high risk countries where modern forms of slavery are prevalent
- the make-up and complexity of its supply chains
- the businesses operating model
- relationships with suppliers and others, including trade unions and other bodies representing workers
- what minimum labour standards it expects from suppliers, and how they align with industry standards
- its Supplier Code of Conduct, if it has one
- consequences for suppliers found to contravene the Code of Conduct
- risk assessments specific to country, sector, transaction and business partnership
- key performance indicators (KPIs) for Sourcing Directors which discourage pressuring suppliers into relying on slave labour
Should organisations follow the guidance?
The guidance is not compulsory and there is no legal penalty for non-compliance. However, it is clear that the Government expects consumers, investors and NGOs to engage and/or apply pressure where they believe the business has not taken sufficient steps. Public scrutiny will therefore provide the primary incentive for producing detailed and transparent statements.
Similar rules are in place in California where the NGO "KnowTheChain" has already engaged in public shaming exercises. The London and New York-based Business and Human Rights Resource Centre has also been active in approaching non-compliant organisations under the Californian regime and is very likely to turn its attention to businesses who fail to comply with the spirit, as well as the letter of reporting requirements under the new UK rules.
What companies should do next
Organisations subject to the reporting requirement will need to ensure their slavery and human trafficking statement is underpinned by appropriate and proportionate action that is defensible in the face of scrutiny and criticism from inside and outside of the organisation (e.g. from trade unions and whistleblowers with intimate knowledge of an organisation's approach to modern slavery on the ground). Those that already produce voluntary disclosures under the UN Guiding Principles Reporting Framework, and those quoted companies which are required to report on certain human rights, social and community issues, will likely already have material which is useful for a slavery and human trafficking statement.
There will undoubtedly be significant differences in the approaches organisations take to supply chain due diligence, management and the reporting requirement given risk profiles will vary. Procurement policies addressing modern slavery, contractual protections in supply contracts, clear labour and whistleblowing policies and consistent messaging throughout the supply chain will be important wherever organisations are operating. However, for those organisations operating in high risk jurisdictions, enhanced due diligence and the implementation of more stringent preventative measures will undoubtedly be required.
Click here to read the Government’s practical guide to transparency in supply chains.