Bonded labor. Indentured servitude. Human trafficking. These are terms for modern slavery, essentially obtaining or holding another person in compelled service. The UN’s International Labour Organization estimates that 21 million people are enslaved around the world, generating approximately $150 billion a year in profits.
Earlier this year as part of National Slavery and Human Trafficking Prevention Month, the White House hosted a forum dedicated to combating human trafficking in supply chains. The US government recognized the unfortunate proliferation of modern slavery in not only private, but also public sector supply chains. The forum gathered representatives from various sectors to share practices and strategies they have used to combat modern slavery, and discussed the government’s efforts to eradicate human trafficking in its own supply chain.
The UK government is also at the forefront of this highly topical issue, and in March of this year, enacted the UK Modern Slavery Act 2015, which targets and consolidates current offences relating to slavery and human trafficking in private businesses and their supply chains. Provision 54 of the Act mandates transparency in supply chains of commercial organisations that supply goods or services in the UK. Businesses exceeding a certain annual revenue threshold must disclose what steps they are taking to combat modern slavery through annual disclosure statements posted on their websites. Penalties for non-compliance include civil proceedings for an injunction to force compliance. The practical significance of the Act for commercial organisations in the UK required to make such disclosures is potentially onerous.
The UK Modern Slavery Act applies to businesses with annual “turnover”, which means worldwide annual gross receipts (essentially, sales) of £36m per year (approximately $56m). The law applies to companies that “carr[y] on a business or part of a business in any part of the United Kingdom.” “Business” under the Act is defined as including any “trade or profession,” but beyond that, the Act does not explicitly state when it applies to non-UK firms. The Home Office’s Consultation Summary explains, however, that there is no requirement to be above a “certain level of ‘footprint’ in the UK,” so we presume that any sales into the UK will subject non-UK firms to the Act.
The UK Government has said that it intends to commence the legislation in October 2015, at which point all businesses that meet the threshold will be required to report the steps they have taken to eliminate slavery from their supply chains. Companies whose financial year ends “in close proximity” to October 2015 will not be required to provide a statement this year. But it is understood that there will be transitional provisions (not yet provided) for those businesses with a financial year-end close to this date.
So what exactly are the requirements? The Modern Slavery Act requires a “public statement” each year describing what actions companies have taken to ensure that slavery and human trafficking are not taking place in their own operations and in their supply chains. If no steps are being taken, that must be disclosed. The statement must be published on company websites, and a link to the disclosure statement must be put in a prominent place on a website’s home page. For companies without a website, a copy of the statement must be made available to anyone who makes a written request within 30 days of receiving the request.
If this all sounds familiar, it’s because California’s supply chain transparency law, which we’ve discussed previously on this blog, is quite similar. The California Transparency in Supply Chain Act (“CTSCA”) also requires retailers and manufacturers doing business in California to disclose what steps, if any, they have taken to eliminate slavery and human trafficking in their supply chains. Much like the UK’s Modern Slavery Act, a disclosure statement needs to be linked to the company’s website. A big difference, however, between the UK’s Act and California’s is that the UK’s Modern Slavery Act applies to sectors beyond retail and manufacturing, and in fact applies to all trades and professions.
Although the Modern Slavery Act received Royal Assent on 26 March 2015, the threshold amount was only determined last month and the statutory guidance has yet to be published. In order to balance the benefits of transparency (i.e. compliance with the Act) with the burden imposed on businesses, the Home Office launched a consultation in February through May of 2015 to gather the views of interested parties. The “Summary of consultation responses and next steps,” published 29 July 2015, includes responses from 181 businesses, trade bodies, representative organisations, and NGOs. The main points of inquiry for the Home Office were: 1) at what level should the financial threshold be set; and 2) what information should be included in the statutory guidance to be published by the Government. The Consultation Summary shows a wonderful link between businesses’ responses and what the Home Office ultimately decided.
The threshold: Per the Consultation Summary, those polled overwhelmingly responded that the turnover threshold should be set to the lowest level proposed, which was £36m, the rationale being that businesses with turnover at this level are likely to have the influence needed to create change within their supply chains. Additionally, £36m is a common figure used to define large businesses for reporting requirements in the UK Companies Act 2006. A minority of respondents said the threshold should be set at £1bn. An even smaller minority said that the threshold should be set at £60m, to align more closely with the CTSCA’s $100m threshold. The smallest minority felt the threshold should be lower than £36m.
Content of statutory guidance: The Consultation Summary details suggestions on what the disclosure statement should include, which was determined from the responses of those polled, historical business practices, and interestingly also by looking to the CTSCA. The five areas that should be included in respondents’ disclosure statements are: 1) the organisation’s structure, including business model and supply chain relationships; 2) the business’s policies relating to slavery, including any due diligence and auditing processes that they use; 3) any slavery and human trafficking training available to the business’s staff; 4) how the business evaluates and manages risks related to slavery and human trafficking; and 5) key performance indicators (KPIs) that assist in assessing the effectiveness of the business’s anti-slavery activities. Furthermore, the Home Office stated that it will provide further guidance on when annual statements should be published, where they should be published, and tips on how to detect slavery. The guidance will also contain good practices for businesses to consider in their due diligence.
However, the Home Office stresses that the guidance will not dictate exactly what content should be included in disclosure statements, the activities businesses should undertake to comply, or how to carry these activities out. The statutory guidance is simply that: a guidance. Therefore, compliance with the UK law can be tailored, at least to some extent, to companies’ unique needs.