The UK's ground-breaking Modern Slavery Act 2015 (the Act) is set to have a significant impact on businesses.
The Act requires businesses to be transparent with regard to the slavery and human trafficking implications of their supply chains. Specifically, certain businesses with their financial year ending on or after 31 March 2016 will be required to produce an annual Slavery and Human Trafficking statement (the "Statement").
The Statement will need to detail the steps an organisation has taken during its financial year to prevent slavery and human trafficking throughout its global supply chains.
Does the requirement for a statement apply to my business?
The Statement is required to be produced by commercial organisations (ie companies and partnerships) that:
- Supply goods or services
- Operate in the UK:
- regardless of whether registered in the UK or in non-UK jurisdictions, and
- regardless of the size of their UK operations
- Have a turnover of at least £36 million annually, judged on a worldwide basis and including subsidiary undertakings (even those operating wholly outside the UK).
It is therefore possible that both parent and subsidiary undertakings will have independent obligations to produce a Statement (in practice, a joint statement could be produced, but it would need to set out the steps that each organisation has taken).
The Home Secretary's guidance on the Statement states that organisations that pursue charitable or educational aims or purely public functions can also constitute a "commercial organisation" and may therefore be subject to the requirement to produce a Statement.
Whilst the requirement to produce a Statement was brought into force on 29 October 2015, transitional provisions state that if a commercial organisation's financial year end is before 31 March 2016, the obligation to produce a Statement will apply to the following financial year.
The Statement will need to contain details of the steps a commercial organisation has taken during the financial year to ensure that slavery and human trafficking is not taking place:
- in any part of its own business, and
- in any of its supply chains – at any level.
The Act suggests that the Statement should cover the following key points:
- A description of the business' corporate structure, a brief description of how the business operates, and a map of its supply chains.
- A description of the business' internal policies and procedures relating to slavery and human trafficking.
- A description of the business' due diligence processes to prevent slavery and human trafficking in its supply chains.
- A risk assessment of the areas of the business and its supply chains where there may be a risk of slavery and human trafficking.
- A description of the key performance indicators which the business will use to benchmark its effectiveness at preventing slavery and human trafficking. These benchmarks should be assessed year by year, and adapted to ensure effectiveness.
- A description of the training which the business offers, both to staff and potentially down the supply chain.
Furthermore, the Statement:
- Requires approval of senior management (in the case of a company, board approval and a director's signature on the Statement (or equivalents if the commercial organisation is not a company)), and
- Must be published on that business's website with a link in a "prominent place" on the website's homepage.
The annual Statement should be viewed as an iterative process, particularly with regard to measuring effectiveness year-on-year. Whilst the Statement provides a snapshot, businesses may wish to consider a proactive approach to demonstrate compliance.
The Act also permits an organisation to make a Statement that it has taken no such steps to ensure that slavery and human trafficking are not taking place. Of course, a business would carefully want to weigh up any potential adverse publicity and reputational impact that may result from such a course of action.
It should also be noted that an organisation may find its customers requesting information in respect of the steps taken to ensure that slavery and human trafficking is not taking place in order to enable them to make their Statements.
A failure to produce any such Statement can lead to the Secretary of State taking enforcement proceedings against a commercial organisation.
What impact will the Act have on the new and existing public projects and contracts?
It is our view that the Act may well influence the broader evaluation of tenders for public contracts. The Government has clearly thrown its weight behind this new regime, and the Home Secretary’s guidance envisages that the requirement for a Statement will create a "race to the top" in encouraging business transparency, and ultimately, driving up standards.
Developing and demonstrating a strong track record of producing thoughtful, thorough and targeted Statements is a clear way to stand out, add value and evidence a clear commitment to support the Government's drive to combat modern slavery and human trafficking, particularly whilst bidding for public contracts.
In addition, if you are operating in the public sector (at any level of the supply chain), you may find that the public sector entity is looking to you, as part of their supply chain, to help them produce such a Statement.
Albeit unlikely, it is worth noting the Act amended the Public Contract Regulations 2015 so that a conviction under the Act for slavery or human trafficking is a mandatory exclusion from participating in a public procurement.
Finally, the Act is seen as a model that may be adopted in other jurisdictions and over time you may find you have multiple, similar obligations across your operations.