According to the Home Secretary, Theresa May, modern slavery is “a despicable and inhuman crime in which women, men and children are subjected to unimaginable suffering by criminals.”
The Modern Slavery Act 2015 (the Act) is intended to tackle modern slavery by consolidating various offences relating to human trafficking and slavery. It also includes a provision for transparency in supply chains that will require all businesses with an annual turnover of £36 million or more to disclose in an annual slavery and human trafficking statement on their website what steps they have taken during the financial year to ensure their business and supply chains are slavery free. A consultation took place earlier this year on the level of the turnover threshold and the content of statutory guidance. The Government’s response to the consultation has now been published. This factsheet looks at the requirements that will apply to relevant organisations from October 2015.
Which businesses will be covered?
Commercial organisations that supply goods or services and have a minimum total turnover of £36 million will be covered. “Commercial organisations” means companies (both listed and private) and partnerships, wherever they are incorporated or formed, that carry on a business or part of a business in any part of the UK and will therefore include foreign businesses. “Business” includes a trade or profession. As the obligation applies to suppliers of goods or services, it is not limited to manufacturers and retailers; neither is it limited to any particular sector.
From October 2015, commercial organisations with a turnover of £36 million or more carrying on business in the UK will have to prepare a slavery and human trafficking statement each financial year, stating the steps they have taken to ensure their business and supply chains are slavery free. The statement will have to be published on the organisation’s website and a failure to comply can lead to an injunction.
What is meant by slavery and human trafficking?
This is defined by reference to the Act but essentially it is conduct that constitutes the offences of slavery, servitude, forced or compulsory labour and human trafficking, or would constitute an offence if the conduct took place in the UK.
Slavery is where ownership is exercised over a person; servitude involves the obligation to provide services imposed by coercion; forced or compulsory labour involves work or service exacted from any person under the menace of a penalty and for which the person has not offered himself voluntarily; and human trafficking concerns arranging or facilitating the travel of another with a view to exploiting them.
The turnover threshold for disclosure
The threshold has been set at £36 million, which will apply to global turnover, not just UK turnover, and is expected to include subsidiaries. Regulations will be published that will specify how the total turnover is to be determined. According to the consultation paper, total turnover will be the total net turnover of the commercial organisation, meaning the total amount of revenue derived from all sources, after deduction of trade discounts, VAT and any other taxes based on the amounts so derived.
The Home Office believes that larger businesses have the resources to undertake due diligence and take action on the results. They also have the purchasing power to exert real influence on supply chains.
Content of the statement
The statement will have to include an account of 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 chains or in any part of its business. Alternatively, the organisation can state that it has taken no such steps. Most businesses are unlikely to use the second option, as it may lead to scrutiny and public pressure, which could impact on their reputation and profit. In addition, it is possible that ethical investment funds will decide not to invest in organisations that do not publish a full statement.
The Act provides that the statement may include information about:
- The organisation’s structure, business and supply chains;
- Its policies in relation to slavery and human trafficking;
- Its due diligence processes regarding slavery and human trafficking in its business and supply chains;
- The parts of its business and supply chains where there is a risk of slavery and human trafficking taking place and the steps it has taken to assess and manage that risk;
- Its effectiveness in ensuring that slavery and human trafficking is not taking place in its business or supply chains, measured against such performance indicators as it considers appropriate; and
- The training about slavery and human trafficking available to its staff.
The Home Office response to the consultation suggests that relevant key performance indicators could be included in the statement and that they would be useful in demonstrating progress from one year to the next.
Due diligence will be required in relation to suppliers, both in the UK and overseas. The consultation paper and response recognise that statements will differ between businesses; for example, a company that provides services in the UK only will be very different from a retailer with suppliers all over the world.
Approval of the statement
Where the organisation is a company, the statement must be approved by the board of directors and signed by a director. In the case of limited liability partnerships (LLPs), the statement must be approved by the LLP members and signed by a designated member. A partner must sign the statement for other types of partnership.
Publication of the statement
The statement must be published on the organisation’s website and a link to it must appear in a prominent place on the homepage. The consultation paper states that, if a subsidiary also exceeds the turnover threshold, it will have to prepare a statement in its own right. If the turnover threshold applies to both the parent company and a subsidiary, they can produce one statement as long as it covers both businesses and appears on both websites.
The Act states that the Home Secretary may issue guidance on the new duty, including guidance on the kinds of information to be included in the statement and what falls within supply chains. The Home Office intends to publish guidance for businesses, which is likely to include advice on areas such as publishing a statement, when and where to publish a statement, signing of the statement, identifying slavery and good practice in relation to due diligence processes. Although there will be no legal obligation to follow the guidance, if an organisation is meeting the requirements of the guidance or taking equally effective measures, it will in all probability be regarded as compliant.
We are waiting for draft regulations and guidance to be published and will update this factsheet when they are available. The Home Office has indicated that the guidance will be published to coincide with the duty coming into force.
The Home Secretary can enforce the duty to prepare the statement by way of an injunction in the High Court, requiring the organisation to comply. It would be surprising if the Home Secretary made such an application without significant prior warning to an organisation. However, it is likely that if enforcement action is taken it will be against a high profile organisation since this will attract greater publicity, which will be regarded as helpful in securing wider compliance with the Act.
This provision of the Act is not yet in force, although the Government has indicated that it will commence in October 2015 subject to parliamentary scrutiny. The Government has stated that transitional provisions will apply so that statements are not required where the financial year end of a business is within close proximity to the date on which the duty comes into force.
If an organisation will be subject to the new requirement under the Act, it should start preparing by taking these steps:
- Appoint someone senior to be responsible for compliance;
- Consider who to consult about the statement, such as PR advisors, the Board, trade unions and employee representatives;
- Decide which parts of the business will be covered;
- Decide how much information will be given in the statement;
- Ensure that procurement teams are aware of the new law and are asking the right questions of potential suppliers;
- Review contractual provisions within the supply chain so as to ensure that its suppliers have sufficient procedures in place to avoid falling foul of the Act;
- Assess the risk to the business – this will involve identifying potential areas and jurisdictions that pose a risk and identifying appropriate control measures and “triggers” that should lead to a review of the adequacy of those control measures;
- If it does not already have a slavery and human trafficking policy, consider introducing one; and
- Think about making training available to those in supply chain management and procurement teams, as well as the rest of the organisation.