The UK’s Modern Slavery Act 2015 is groundbreaking. It enables shareholders and the public to scrutinise and hold businesses better to account for what they are (or are not) doing to counter modern slavery in their business dealings. The Act also contains stronger criminal sanctions against those who illegally profit from such human rights exploitation: a strong incentive, if one was needed, to encourage business to operate in a socially responsible manner.

But theory is one thing, and practice often another. How are businesses fulfilling their new obligations under the Act, and how seriously should they take the threat of prosecution?

REPORTING REQUIREMENTS

The Act is far reaching.

Any:

  • UK or foreign companies and other commercial organisations (including partnerships and LLPs)
  • that carry out any business involving goods and/or services in the UK
  • and have a global annual turnover of £36 million or more

must prepare and publish an annual slavery and human trafficking statement “as soon as reasonably practicable after the end of each financial year”.

WHAT TO REPORT

The Act does not prescribe what information must be contained in the statement. This allows businesses to take differing approaches to a variety of human rights issues.

Businesses with a year-end of 31 March 2016 were the first required to publish a statement. Some businesses have started the complex and time consuming exercise of mapping their supply chains. This involves identifying suppliers and contractors and the locations in which they operate, and identifying those areas where the risk of modern slavery is likely to be highest. There are many different factors to include in this analysis: are there cultural differences to consider? National rule of law differences? What about language barriers?

In addition, how do you balance a proportionate, risk-based approach to your due diligence process with a need to be thorough and effective in order to maintain consumer confidence? Realistically, some suppliers may go to great lengths to cover their tracks if they are involved in modern slavery offences. How effective can a third-party audit or compliance-driven approach be, if your business is physically and culturally remote from those of your suppliers?

There is clearly no easy way of uncovering the reality of how business is conducted abroad by your agents. But the Act does at least prompt businesses to review and reflect on their existing business practices. Might their requirements to source products at the lowest cost or ship them in the fastest time themselves influence their suppliers’ behaviour, thereby (absent careful management) creating a modern slavery risk?

TRADE UNIONS

Understandably, many businesses are only just beginning to think about how to undertake risk assessments on modern slavery or indeed on other wider human rights issues. Nevertheless, as business becomes more familiar with the Act’s requirements, the general public and the trade unions, in particular, will scrutinise statements against previous years. It is reasonable to anticipate a greater pressure to make future statements more meaningful and transparent. Given the increasing collaboration between trade union and NGO networks on these issues, the risks of “naming and shaming” should not be underestimated for those that compare less favourably with other businesses in their particular sector.

PUBLIC PERCEPTION

Similarly, it is self-evident that consumer confidence in a business brand will be knocked if the brand is associated with poor working conditions of any kind. The way you deal with these issues will also impact on your reputation. Thus far the lessons learnt are it is far better to be transparent rather than secretive about the problems you have uncovered and to be proactive in trying to remedy them. Complying with the Act in a meaningful way and acting positively on what you find will be a powerful tool for a business in protecting its brand and reputation.

LEGISLATIVE CONTEXT

The Act is part of a legislative jigsaw aimed at improving working conditions and countering modern slavery.

The Government’s new Immigration Act became law earlier this year. It introduced a new director of Labour Market Enforcement, who will be responsible for bringing together three of the UK’s main labour inspection authorities: HM Revenue and Customs national minimum wage enforcement teams, the Employment Agency Standards Inspectorate and the new Gangmasters and Labour Abuse Authority. (the Authority).

The Immigration Act also proposes significant changes to the way the current Gangmasters Licensing Authority (GLA) operates. The new Authority will expand its mandate to different labour sectors (chosen by the director) according to risk, rather than working exclusively on food and food processing. The Government expects the Authority to take action when it uncovers cases of possible modern slavery, making it an important part of the broader fight against labour exploitation.

Consequently, the GLA is moving towards a labour market wide inspectorate with extra police style powers by 1 October 2016. It will be interesting to see whether the Government’s commitment to combating modern slavery manifests itself in the Authority’s budget for 2016/17...

LABOUR MARKET LEGISLATION

Existing legislation empowers enforcement bodies to impose civil penalties for minor breaches; there are criminal penalties for more serious offences such as repeated and deliberate underpayment of national minimum wage or modern slavery offences. There is however a range of seriously exploitative behaviour which falls between the two extremes.

A new offence of aggravated breach of labour market legislation is intended to fill that gap so that a criminal court can impose tougher penalties on offenders. Where there is reasonable belief that a labour market offence has been committed, the relevant enforcement bodies will have the power to require a business to undertake to take steps to prevent further offending. The enforcement bodies will be able to apply to court for an enforcement order if a business refuses to give or fails to comply with an undertaking. In addition, courts sentencing for labour market offences will be able to make orders of their own volition. Breach of an order would be a criminal offence, attracting a maximum custodial penalty of two years: something for senior directors and those signing off statements to keep firmly in mind.

CLEAR INTENTION

The Government clearly wants to facilitate enforcement against employers who seriously exploit their workers by deliberately committing breaches of labour law and failing to take remedial action.

Time will tell whether they will succeed in this aim. The main priority for those without immigration status is often to secure the right to remain in the UK so that they can send money to the families they left. The concern is that this new offence might make people so fearful of losing that right that they will be less likely to risk alerting authorities to exploitation. The new offence may also provide human traffickers with yet another way of controlling vulnerable people with few available options.

Finally, the new director and the three labour market enforcement bodies will have powers to routinely share data and intelligence. The thinking is that businesses that are prepared to breach some labour market legislation are likely to breach other such laws. By creating proportionate information sharing gateways between HMRC’s other functions, the National Crime Agency, UK police forces, the Independent Anti-Slavery Commissioner, the Health and Safety Executive, Local Authorities, and Home Office’s Immigration Enforcement, the intention is to bring such businesses out of the shadows and under the spotlight.

This pan-agency approach is not just rhetoric: in June this year the National Crime Agency’s UK Human Trafficking Centre co-ordinated Operation Hornsman, involving 33 different UK agencies. At least 23 individuals were arrested, several businesses now face charges for minimum wage offences, and 103 victims of trafficking were identified. Co-ordinated action also took place in 21 European countries.

CONSEQUENCES OF NON-COMPLIANCE

The Crown Prosecution Service also intends to work with its prosecuting partners and police forces at home and abroad in order to bring the strongest possible cases against offenders. The most recent figures show a record number of defendants being taken to court for trafficking offences, with nearly as many people prosecuted for trafficking offences between April 2015 and December 2015 as in the whole of 2014-15.

A range of sanctions have been imposed so far, from the recovery of £2 million from five members of one family, with compensation paid to victims, to imprisonment for up 6.5 years. Slavery and Trafficking Prevention Orders have also been used, amongst other things, to prohibit travel back to the UK with anyone outside the offender’s family; impose reporting requirements when in the UK; and prohibit offenders from retaining other people’s passports and/or bank cards. Quite how easy these orders will be to enforce in reality is a question for another day.

Earlier this month, the first British company was found liable for victims of modern slavery. The High Court held that the Lithuanian chicken catchers were owed compensation for the firm’s failure to pay the agricultural minimum wage, for the charging of prohibited work-finding fees, for unlawfully withholding wages, and for depriving the workers of facilities to wash, rest, eat and drink. The amount of compensation is yet to be decided, but the message is clear: businesses need to actively remove modern slavery from their supply chains.

The Act is also likely to be adapted and potentially extended over time. The Supreme Court has recently suggested that Parliament legislate to allow employment tribunals the jurisdiction to grant a remedy to workers for mistreatment they have suffered under section 8 of the Act. Currently only the criminal courts can grant such a remedy against a person convicted of an offence of slavery or human trafficking.

INTERNATIONAL CONTEXT

The need for businesses operating overseas to keep up to date with legislative developments is also increasing. In February 2016, President Obama signed the Trade Facilitation and Trade Enforcement Act (H.R. 644), section 910 of which improved restrictions on the importing of goods into the USA produced with forced labour. This shut a loophole that existed in the Tariff Act of 1930, which permitted the importing of such goods if the product was not made in sufficient quantities domestically to meet demand in the USA.

In Europe, eight national parliaments recently launched a “green card” initiative at the EU level to ensure corporate accountability for human rights abuses. The initiative calls for EU companies to have a duty to exercise adequate due diligence to prevent human rights abuses and environmental damage in the context of their own activities and also those of subsidiaries, contractors and suppliers.

HEAD IN THE SAND

There will undoubtedly be businesses out there who think that they are immune from these worries; that their business has no truck with or exposure to modern slavery. To conclude in the words of Paul Broadbent, head of the GLA, “It’s safe to assume there’s a problem in most supply chains until we take positive action to find out that’s not the case.” There is, in this day and age, simply no room for such complacency.

This article was published in New Law Journal in July 2016.