Forced labour and slavery are topical issues. There have recently been prominent press reports in the EU and US involving allegations that businesses in the retail, electronics and manufacturing sectors have used suppliers which use forced and trafficked labour in their operations.
The construction industry has also been affected. Within the UK, the Government has warned that contractors and sub-contractors may be falling prey to unscrupulous suppliers of illegal and underpaid migrant labourers. Further afield, reports have surrounded certain construction projects in the Middle East with allegations that migrant construction workers have been forced to work long hours in unsafe conditions. On the materials side of the industry, there are serious concerns for the employment conditions and production methods at brick kilns (particularly those in India).
The Modern Slavery Act 2015 (the “Act”) is the UK’s legislative response, a sweeping project designed to crack down on modern slavery practices 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.
THE REPORTING OBLIGATION
The Act imposes the requirement on organisations with a certain level of turnover to prepare a report in relation to slavery and human trafficking within its organisation or supply chain (the “slavery and trafficking statement”). This report will either confirm the steps taken by the organisation to ensure there is no slavery or trafficking within its organisation or supply chain or, alternatively, confirm it has taken no such steps.
The intention behind this is to encourage organisations to take more action as a result of increased pressure from stakeholders and competition between businesses. The statement must be approved by the board and signed by a director and included on the organisation’s website, with a prominent link to it on the homepage. Organisations will, in certain circumstances, be able to consolidate statements between a parent company and its subsidiaries where otherwise both would each separately be required to publish (i.e. owing to their respective levels of turnover). 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, the training offered to staff and steps taken to assess and manage the risk of slavery and human trafficking.
This part of the Act went live on 29 October 2015. Companies caught by the legislation will now need to publish a statement within six months of their year end. The statement will be retrospective and need to cover the most recent completed financial year.
There are transitional arrangements to allow businesses time to adjust to the new requirements. Those entities whose year end is on or before 30 March 2016 will not need to publish a statement for their 2015-2016 financial year. The Government recommends that those entities with a year end on or after 31 March 2016 complete and publish their first slavery and human trafficking statements no later than six months from the date of their financial year end.
THE SCOPE OF THE ACT
In a climate of increasing expectations on businesses to protect human rights, the Act is aimed at those businesses with the resources to undertake due diligence on its suppliers and which have the power to exert influence on their supply chains and in turn to impact the smaller businesses within their supply chains. The Secretary of State has set the turnover threshold at £36 million; it is only those organisations with revenues above this level and which have a business presence in the UK (this need not necessarily be a physical presence) which will need to publish the annual statement. The draft Modern Slavery Act 2015 (Transparency in Supply Chains) Regulations 2015, which also entered into force in October, has set out the method of calculating turnover for the purpose of determining whether or not the threshold has been reached. These make clear that the turnover will include the revenues from a company’s subsidiaries. This is the figure recommended by 80% of respondents to a consultation on the level of the turnover threshold.
By way of comparison, the California Transparency in Supply Chains Act 2010, which imposes a similar reporting obligation, applies to businesses with worldwide annual gross receipts over $100m. In its consultation paper, “Modern Slavery and Supply Chains”, the UK Home Office acknowledges that the reporting requirement should “ensure that large businesses cannot turn a blind eye to modern slavery simply because of their corporate status or domicile.” This section of the Act has been drafted broadly. The extent to which a company carries out a part of its business activities within the UK may be uncertain; however, it appears the Act is intended to catch as many organisations as possible.
The consequences for failure to comply with the Act are serious. The Home Office may commence injunctive proceedings to require firms to comply with the reporting obligation if this is not followed. If directors of companies fall foul of certain requirements under the Act, this could even lead to their organisations being debarred from public contracts opportunities (pursuant to the Modern Slavery Act (Consequential Amendments) Regulations 2015).
Organisations should already be considering performing further due diligence on the businesses in their supply chains, verifying whether agreements with suppliers and sub-contractors contain provisions to ensure that they do not engage in activities which would fall within the definitions of slavery and human trafficking and making training available to staff in relation to slavery and human trafficking. Thought should also be given to potential confidentiality issues that may arise as a result of disclosure requirements relating to an organisation’s supply chain.