The UK’s Modern Slavery Act 2015 (the “Act”) is intended to “stamp out modern slavery”. Modern slavery is considered to be a particularly complex crime, encompassing human trafficking, slavery, forced labour and domestic servitude.
RATIONALE FOR CHANGE
The UK’s previous legislation was no longer considered fit for purpose with modern slavery in the UK thought to be a substantial problem. As well as consolidating the existing legislation, the Act (amongst other things) from 31 July 2015 increased the maximum sentence for offences to life imprisonment and made greater provision for the protection of victims.
IMPACT ON BUSINESS – THE BUSINESS TRANSPARENCY PROVISION
During the Act’s legislative progress there was a suggestion that businesses could do more to tackle modern slavery and in particular should not turn a “blind eye” to it. Evidence was heard that UK supply chains were vulnerable to being infiltrated by modern slavery. As a result, the Act requires large businesses to disclose each financial year what, if any, steps they have taken to ensure there is no slavery or human trafficking in their business or supply chains.
WHICH BUSINESSES DOES THE PROVISION APPLY TO?
The business transparency provision has a wide application. It will apply to a “commercial organisation” (which includes a body corporate or partnership, wherever incorporated or formed), carrying on a business or part of a business in any part of the UK if it:
- supplies goods or services (the meaning of which is undefined in the Act); and
- has a total turnover of not less than £36 million (reflecting one of the thresholds set out in the Companies Act 2006 for determining the size of a large company).
Does it apply to overseas entities?
A commercial organisation need not be formed in the UK in order to be caught. The obligation applies to any commercial organisation which satisfies the statutory tests described above; there is no requirement for a minimum amount of turnover to be generated in the UK.
‘Carrying on a business in the UK’ is stated in the Government’s practical guide on the transparency in supply chains provision (the “Guidance”), to have the meaning determined by the courts, although the Guidance goes on to say that the Government expects the question to be answered by “applying a common sense approach”. It suggests that organisations that do not have a “demonstrable business presence in the United Kingdom will not be caught” and a foreign organisation with a UK subsidiary will not, in itself, mean the foreign organisation is carrying on a business in the UK since the subsidiary may act completely independently of the parent.
How does it apply to groups?
In relation to group structures it is clear that: for the purposes of the turnover test, the parent company must aggregate its turnover with that of its “subsidiary undertakings” as defined in the Companies Act 2006; and where more than one entity within a group meets the tests the parent entity may produce one statement that subsidiaries can use (provided that it fully covers the steps that each relevant organisation has taken). What is less clear is whether a parent company within scope must include in its statement the steps, if any, that each of its subsidiaries has taken, where those subsidiaries are not within scope themselves. The Guidance suggests that it will be up to each parent organisation to determine whether the activity of any subsidiary forms part of the parent’s business or supply chain and therefore should be included in its statement.
WHAT MUST BUSINESSES DO AND WHEN?
Annual slavery and human trafficking statement – obligation and timing
Businesses within scope must produce a "slavery and human trafficking statement" for each financial year. The transparency in supply chains provision was implemented in October 2015 but to give businesses sufficient time to prepare, organisations will not need to make a statement until their first financial year ending on or after 31 March 2016 i.e. those businesses with a financial year ending before that date will not need to make a statement in relation to their current financial year. The Guidance suggests that organisations publish the statement as soon as reasonably practicable, perhaps alongside their annual financial report, with a long-stop date of six months from their financial year end.
The statement must disclose steps taken to ensure the business and its supply chains are slavery free, or a statement that no such steps have been taken. The Guidance suggests that ‘supply chain’ be given “its everyday meaning”. The Guidance is clear that an organisation does not need to “guarantee that the entire supply chain is slavery free” but it must set out steps it has taken in relation to “any part of the supply chain”. The implication is, that if an organisation only takes steps in relation to its direct supply chains, it must make that clear.
The Government is clear that it wants disclosure to be meaningful and expects disclosures to differ from business to business. It does not require organisations to take any particular action, aside from producing a statement, or meet a particular standard. The Government’s intention is that by requiring businesses to be more transparent about what they have, or have not done, consumers and investors will have the information to call for more action if they consider it appropriate.
Content of statement – “Statements should be true and refer to actual steps undertaken or begun”
The Government has not been prescriptive about the layout or specific content of the statement. ‘Top Tips’ in the Guidance for writing the statement suggest that it be succinct (appropriate links to other documents may be included where relevant), written in plain English (but may be provided in other languages where relevant) and specify actions by country.
The Guidance does not dictate the type of activities businesses should undertake or how they should carry them out. The Government is clear that individual businesses must determine what activities they think are reasonable and proportionate. The Act notes that the statement may include information on a number of key areas each of which is covered in detail by the Guidance (Annex E):
- the organisation’s structure;
- the business’s policies on modern slavery;
- due diligence processes in relation to business and supply chains;
- the organisation’s principal risks related to modern slavery and their methods of evaluating those risks;
- key performance indicators to assist assessment of the effectiveness of the organisation’s steps to ensure their business and supply chains are slavery free; and
- the availability of staff training on modern slavery.
The Guidance notes that it is not compulsory for an organisation to include these points in its statement; they provide guidance and examples as to the type of information that may be included.
Approval of statement
The statement must be approved by the organisation’s management body. For example if the business is a company the statement must be approved by the company’s board of directors and signed by a director.
Publication of statement
If the organisation has a website it must:
- publish the slavery and human trafficking statement on that website; and
- include a link to the statement in a prominent place on the website’s homepage. The Guidance suggests that the link should be clearly marked so that the contents are apparent, such as ‘Modern Slavery Act Transparency Statement’.
If the organisation does not have a website, it must provide a copy of the slavery and human trafficking statement to anyone who makes a written request for one.
If within scope, businesses will now need to consider whether they have adequate procedures to ensure slavery and human trafficking is not taking place in any of their supply chains or in any part of their business. Businesses that will not need to comply during their current financial year (because it ends before 31 March 2016) should see the interlude as an opportunity to get their house in order before their next financial year starts.
Since 2013 UK quoted companies have had to report, in their annual strategic report, on human rights “where relevant for an understanding of the business” and many businesses’ corporate and social responsibility programmes will already consider this issue; the Guidance suggests how to respond to the obligation to produce a statement in the context of other reporting requirements which may be applicable. In addition, international businesses may be required to comply with similar provisions under another jurisdiction’s legislation, for example in California. The breadth and extra-territorial nature of the UK’s obligation, with the absence of a requirement for a certain level of turnover to be generated in the UK, will potentially have much wider resonance.
Those businesses that will need to make a statement may want to consider the practical guidance and good practice set out in the Guidance and put in place a strategy and assign responsibilities to:
- identify the organisation’s principal risks related to modern slavery and methods of evaluating those risks;
- act on the risk assessment and deal with any areas of weakness identified and implement improvements;
- ensure that there is a business policy on modern slavery and staff are trained on it, for example due diligence processes for new employees and suppliers;
- identify supply chains and require suppliers to comply with the business’s policy, adherence to which is routinely and effectively tested; and
- determine key performance indicators to assist assessment of the effectiveness of the organisation’s steps to ensure their business and supply chains are slavery free.
The prescribed penalty for non-compliance with the obligation to make a statement is that the Secretary of State may bring civil proceedings in the High Court for an injunction requiring the business to do so. If the organisation fails to comply with the injunction they may be in contempt of a court order, which is punishable by an unlimited fine. The informal penalty for businesses that fail to develop an appropriate and effective response to modern slavery could be much more costly. Consumers, investors and non- governmental organisations are expected to engage and/or apply pressure where they believe a business has not taken sufficient steps. Whilst the Government is reportedly not intending to host an online repository it recently made clear that it supported the establishment of a third party repository. The proposed central repository of statements, which also has the support of the Independent Anti-Slavery Commissioner, would make it much easier for consumers, competitors and regulators to monitor and compare businesses’ approaches and level of commitment.