The Modern Slavery Act 2015 (the “Act”) is a sweeping project to crack down on modern slavery practices, both within the UK and beyond. As well as consolidating the current offences of slavery and human trafficking, introducing new civil preventative measures, establishing the office of Anti-Slavery Commissioner and introducing measures to support victims, the Act also imposes annual reporting obligations on organisations above a certain size. This will have far reaching consequences for the commercial arrangements of many businesses with activities in the UK and is expected to come into force this month.
THE REPORTING OBLIGATION
The Act imposes the requirement on organisations with a certain level of turnover to prepare a report in relation to its approach to the risk of slavery and human trafficking within its supply chain. The intention behind this is to encourage organisations to take more action as a result of increased pressure from stakeholders and competition between businesses, who are liable to suffer serious reputational damage if they are not seen to take responsibility for rooting out any reprehensible practices in their supply chains. The statement that is prepared must be approved by the board and signed by a director and included on the organisation’s webpage, with a prominent link to it. Organisations will be able to consolidate statements between a parent company and its subsidiaries.
The statement must either set out the steps the organisation has taken to ensure that there is no slavery or human trafficking in its business and supply chains, or state that no such steps have been taken. Whilst the latter, minimalist, approach is perfectly legal, it is also likely to lead to justifiable criticism from a “Corporate Social Responsibility” perspective. That will especially be the case where the subject is a larger business or an industry leader. If the former approach is to be taken, the Act suggests that the statement may include, amongst other things, information as to the organisation’s structure, business and supply chains, its policies in relation to slavery and human trafficking and the steps taken to assess and manage the risk of slavery and human trafficking. Whilst no more than a recommendation, this is a strong steer to the business community as to what it ought to be doing in order to conform with best practice.
THE SCOPE OF THE OBLIGATION
Following a consultation held by The UK Government’s Department for Business Innovation and Skills, it was determined that the obligation to publish an annual slavery and trafficking statement will apply to commercial organisations with a turnover threshold of £36 million. This is the figure recommended by 80% of the respondents to the consultation. The Modern Slavery Act 2015 (Transparency in Supply Chains) Regulations 2015 confirm that turnover will include for these purposes that of both the organisation in question and its subsidiaries.
To be clear, the £36 million turnover is not limited to UK sales and revenues generated elsewhere will need to be taken into account.
To note, also, the turnover threshold forms one element of a two-part test. The Act will apply only to those entities which (i) have all or part of their business in the UK (there is no stated minimum) and (ii) have an overall turnover in excess of the £36 million figure.
SO WHAT SHOULD BUSINESSES BE DOING?
Organisations with a turnover above £36 million must start preparing corporate policies and considering what to include in their public statements. In addition, an internal risk assessment may be required to identify those areas of operations where the presence of slavery or trafficking is most likely.
For those businesses with a turnover below the threshold, a false sense of security must be avoided. Whilst exempt from the requirement to publish a slavery and human trafficking statement, organisations that they may trade with who are subject to the obligation may request information about their labour and supply chain practices as part of their due diligence, and a failure to comply with such requests satisfactorily could lead to a concern that continued trading with that business represents a reputational risk.
The Act will therefore inevitably impact many businesses trading in the UK, notwithstanding their level of turnover. The Act appears to fasten on a potentially productive link between transparency and commercial reputation, which the Government hopes will incentivise earnest action by large corporations with a view to addressing risks of modern enslavement within their supply chains. Whilst this places an onus on business to get to know their supply chains better, it also creates an opportunity to strengthen publicly the link between their brands and ethical practices, which many believe will reap commercial rewards in the medium to long term.