The Government has confirmed that the new duty on businesses to publicly report steps they have taken to ensure their operations and supply chains are trafficking and slavery free will be implemented in October 2015 and will apply to all commercial organisations carrying on business in the UK with a total turnover of £36million or more. The duty derives from the Modern Slavery Act 2015 (the Act).
What is slavery and trafficking?
Modern slavery is a term used to encompass slavery, forced and compulsory labour and human trafficking. Modern slavery exists in both developing and developed countries, including the UK, and can involve UK citizens as well as foreign nationals. A common example arises where migrant workers take loans to pay for their travel to the UK or another country, with a view to repaying it from their earnings on arrival. They become trapped in ‘debt bondage’ as other sums are added to the loan while they work, such as accommodation and transport costs, exceeding their capacity to make repayments. In addition, their passports are often withheld. The agriculture, food, hospitality and construction sectors are particularly vulnerable to forced labour practices.
The impact on reputable employers
While reputable employers may be satisfied that their own UK operations are slavery-free, they may be less clear whether this is also the case for their operations elsewhere, their supply chains and other business relationships such as franchises, out-sourcing partners and joint-ventures.
Given the real risk of modern slavery in labour practices, businesses are under increasing pressure to take action. These pressures include; reputational, including ‘naming and shaming’ campaigns led by pressure groups as well as the push from governments and stock exchanges for greater corporate transparency on human rights, such as the Act’s disclosure duty; financial, reflecting investor and customer sensitivities and increasing demands for CSR performance data as part of tendering processes. With ethical business-to-business procurement terms becoming more prevalent, there are also legal and operational risks.
The £36m disclosure threshold under the Act
Commercial organisations supplying goods or services and having a total turnover of £36m or more will be required to prepare a slavery and human trafficking statement for each financial year from October (subject to transitional provisions for those with financial years ending within close proximity to October). A ‘commercial organisation’ includes partnerships and a body corporate, wherever incorporated, which carries on a business, or part of a business, in the UK (not just UK incorporated businesses). The statement must be approved by the board or equivalent management body, signed by a director or equivalent (e.g. the general partner in a limited partnership) and published prominently on the organisation’s website.
While there are limited penalties for non-compliance in practice (the disclosure duty is subject to enforcement by the Secretary of State by injunction, which seems unlikely), the assumption is that pressure groups will target businesses, particularly consumer brands, in vulnerable sectors and subject them to reputational campaigns to force annual disclosure. The government may also be tempted to ‘name and shame’ key businesses which drag their heels.
The content of the annual slavery and human trafficking statement
The Act sets out areas which “may” be included in the annual statement and statutory guidance will be published this autumn reflecting these areas, reflecting strong endorsement from consultation respondents. The suggested areas are:
- information about the organisation’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;
- training available.
In our experience, there is currently a big divide in the business world in relation to addressing modern slavery and other human rights risks. A minority of organisations are well versed in due diligence, audits, training and disclosure, particularly in high risk procurement functions, while the majority are currently unaware or beginning to engage.
In part, that reflects the range of risk factors applying, for example, a business providing services entirely based in the UK will have a much lower risk than a retailer with suppliers all over the world. However, it would be unwise for larger businesses operating in vulnerable sectors to ignore the Act, particularly those with long and complex supply chains or with particular brand sensitivities.
The challenge can be initially overwhelming due to the breadth of the issues. But, it is well recognised that perfection cannot be achieved overnight, as companies move forwards a step at a time, and businesses able to demonstrate genuine efforts to respond will be in a much stronger position if they are later embroiled in a human rights scandal or pressure group campaign.
Read the consultation response here.