As the result of the Modern Slavery Act 2015 (“the Act”) a new duty on larger commercial organisations to publicly report steps they have taken to ensure their operations and supply chains are trafficking and slavery free came into force on 29th October 2015. By driving up transparency, the expectation is that modern slavery will be tackled with greater urgency.
The duty applies to commercial organisations incorporated inside and outside the UK, providing they carry on part of their business in the country and have an annual turnover of at least £36 million. Fee charging education providers with such a turnover are likely to be covered by the Act’s definition of “commercial organisation”.
While legal penalties for breach are limited, commercial organisations should expect campaigning pressure groups to monitor their compliance, with the associated reputational risks.
To comply, commercial organisations are expected to report annually on policies, training, due diligence processes and the effectiveness of measures taken to combat modern slavery and trafficking. The annual report must be signed and approved at the highest level in the organisation and made accessible on the company’s website.
What is slavery and trafficking?
Modern slavery is a term used to encompass slavery, forced and compulsory labour and human trafficking. A common example arises where migrant workers take loans to pay for their travel to another country to work, or to pay fees to a recruitment company, with a view to repaying the money from their earnings. 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. Agriculture, construction, hospitality and manufacturing are the sectors frequently cited as using forced labour, however the government has stressed that the Act is intended to cover all sectors of the economy.
Why is modern slavery an issue for organisations?
Slavery permeates aspects of the legitimate economy. Reputable organisations may be satisfied that their own operations are slavery-free, but are less clear about their supply chains and other business relationships such as franchises, out-sourcing partners and joint-ventures.
Why should organisations take action?
Slavery has a devastating impact on individual victims. But it also affects those organisations caught up in increasingly high profile media and online campaigns alleging slavery and human rights abuses. Organisations are under increasing pressure to take action. These pressures include:
- reputational, including the push from governments, regulators and funders for greater corporate transparency on human rights, such as the Modern Slavery Act disclosure duty;
- legal, including the risk of litigation, complaints to regulators and breaching ethical procurement terms;
- financial, reflecting funder and consumer sensitivities and increasing demands for CSR performance data as part of tendering processes; and
- operational, arising from labour disputes and disruption to supply chains.
What is the new disclosure duty under the Act?
Commercial organisations supplying good or services and having a minimum total turnover of £36 million will be required to prepare a slavery and human trafficking statement for each financial year. 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). In the light of the recently published government guidance on compliance with the Act, and as indicated in our briefing of December 2014, Eversheds consider that educational institutions which have such a turnover should assume that they will be regarded as commercial organisations for the purpose of section 54 of the Act if they charge fees for the provision of education, even if those fees are paid by others (such as the Student Loan Company, parents or employers) and even if they are charities (whether registered with the Charity Commission or exempt fom registration). This will mean that a small number of independent schools, the larger colleges and the great majority of higher education institutions are likely to be covered by the new duty. Maintained schools and academies are unlikely to be covered. A more detailed analysis of the scope of section 54 in relation to education providing organisations is available on request.
What should be included in a slavery and human trafficking statement?
The statement must set out 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 chain and in any part of its own business, or, a statement that it has taken no such steps. It should be approved by the governing body and be published prominently on the organisation’s website. The Act sets out areas which “may” be included in the annual statement and the statutory guidance accessible here:https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/471996/Transparency_in_Supply_Chains_etc__A_practical_guide__final_.pdf provides more detail on these areas. The suggested areas are:
- information about the organisation’s structure, its business and supply chains;
- the organisation’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.
When do organisations need to publish a slavery and trafficking statement?
The disclosure duty came into force on 29 October 2015. However, in order to give organisations sufficient time to prepare, transitional regulations provide that the duty only applies to financial years ending on or after 31 March 2016.
What are the penalties for failing to publish a slavery and trafficking statement?
There are limited penalties for non-compliance (the disclosure duty is subject to enforcement by the Secretary of State by injunction, which seems unlikely) and the assumption is that pressure groups will target organisations, particularly consumer brands, in vulnerable sectors and subject them to reputational campaigns to force annual disclosure. The government has said that it may ‘name and shame’ organisations which drag their heels.
How does the Act compare with other human rights disclosure duties?
A similar disclosure provision was introduced in California in 2012 with a higher threshold ($100m). The UK Act goes further, covering:
- organisations carrying out any part of their business in the UK (no minimum ‘footprint’);
- all sectors, not just retail and manufacturing; and
- both goods and services (not just supply chains for goods).
Next year, the UK Companies Act will be amended to strengthen current corporate duties to report on human rights, not just slavery and trafficking, in strategic reports. Globally, the UN Guiding Principles (‘UNGP’) expect companies to ‘know and show’, through human rights reporting, how they prevent and address salient adverse human rights impacts. Organisations, including education providers, that are subject to the public procurement rules already have to undertake due diligence on tenderers’ employment practices.
Seeing the Modern Slavery Act holistically in this way should avoid the need for piecemeal responses that need revisiting at a later date.
Moving forward: a practical roadmap for taking action
Viewing modern slavery disclosure as a compliance issue, not a voluntary ‘add-on’, and engaging governors and senior managers are instrumental to achieving progress.
Taking the first step is also important for those struggling to know where to start given the breadth of issues involved. Below is a summary roadmap to help signpost the way forward for those without prior experience of human rights or CSR reporting:
- Identify key support: top-level commitment is essential.
- Decide whether to focus on slavery and trafficking or broader human rights (see above).
- Assign responsibilities: the team may need to be cross-functional.
- Address funding, including training costs as a minimum.
- Risk assess to determine where the risk of modern slavery and trafficking lies in the organisation and supply chains and to define the area of focus. Consider, for example:
- what the organisation is already doing;
- official data on high risk geographies, activities, sectors, products and services;
- stakeholder information including employee engagement;
- the likelihood and severity of the risk.
- Develop and implement a modern slavery (or broader human rights) policy, if none exists.
- Disseminate the policy and provide targeted training.
- Act on the risk assessment: take steps to stop or prevent actual or potential modern slavery and trafficking in the organisation’s own operations. Where modern slavery is directly linked to the organisation through its supply chains, it should seek to prevent it happening or mitigate its effects.
- Some typical steps which may be appropriate when taking action, depending on the organisation:
- train employees on how to spot, and respond to, the signs of modern slavery and trafficking and the disciplinary penalties for non-compliance;
- develop a supplier code of conduct including slavery and trafficking standards, require suppliers to self-certify compliance with the code in commercial agreements, map supply chains and identify high risk suppliers for site visits, audits, improvement plans and training (or potentially ending the relationship), consider financial or legal incentives to improve supplier behaviours as well as collaborative problem solving (e.g. where organisations act together or with NGOs to tackle systemic supplier issues);
- conduct proper checks on agencies which supply labour;
- provide whistleblowing and grievance mechanisms, including to outsourced labour.
10. Track the effectiveness of steps taken to combat slavery and trafficking.