Long-awaited Home Office Guidance on how businesses should respond to the new modern slavery and trafficking reporting duty has now been published. Regulations have confirmed that the duty is in force from today, 29 October 2015, subject to transitional provisions. Affected organisations with a year-end date before 31 March 2016 will not be required to publish a statement for the 2015-16 financial year of the organisation. Those with a year-end of 31 March 2016 will be the first businesses required to publish a statement for their 2015-16 financial year and the Guidance expects organisations to report within six months of the financial year-end.
The Modern Slavery Act 2015 requires commercial organisations with a turnover of £36 million and above and supplying goods or services to publicly report steps they have taken to ensure their operations and supply chains are trafficking and slavery free. The duty applies to businesses that carry on business in the UK, wherever they may be incorporated. While legal penalties for breach are limited, organisations should expect campaigning pressure groups to monitor their compliance, with the associated reputational risks.
To comply, affected businesses are expected to report annually, for example, on policies, training, due diligence processes and the effectiveness of measures taken to combat modern slavery and trafficking. The annual disclosure must be signed and approved at the highest level in the organisation and made accessible on the homepage of the organisation’s website. For more information, including a roadmap on how to respond to the duty, read our briefing.
Some will criticise the Guidance for blurring the lines between legal obligations and recommendations. However, the essence of the disclosure duty under the Act is about driving up good practice, not legal compliance – as demonstrated by the fact that legal penalties for non-compliance are very weak and simply reporting zero action to combat slavery would technically comply. This novel approach of mixing “soft” and “hard” law will frustrate those looking to the Guidance for certainty, as will the failure to define “supply chains” in the Act, a key aspect of the duty.
Knowing whether an organisation falls within the scope of the disclosure duty is proving challenging for some group structures, particularly where there is a non-UK parent company or non-UK subsidiaries. While the Guidance, somewhat frustratingly, urges a “common sense” approach to deciding whether an organisation is carrying on a business in the UK, it does seek to explain the Government’s intentions. For example, it states that having a UK subsidiary will not, of itself, mean that a non-UK parent company is carrying on a business in the UK.
The Guidance is realistic in its expectations of the first annual statement, acknowledging that organisations will seek to build the content over consecutive years as they develop their response to tackling modern slavery and trafficking. It aims for a succinct statement using simple language with links provided to relevant further documentation.
The Guidance reiterates that organisations are required to set out, in their statements, the steps taken to tackle slavery and trafficking – they are not required to guarantee that they and their entire supply chains are slavery free. It provides information and case studies relating to organisational policies, due diligence, assessing and managing risk, performance indicators and training.
Usefully, the Guidance highlights how the Act’s modern slavery reporting duty sits within a wider context of human rights reporting under the Companies Act and the forthcoming EU Non-Financial Reporting Directive. It confirms that businesses subject to the Modern Slavery Act, the Companies Act and the Directive are expected to produce two statements – the modern slavery statement and any relevant information on human rights in the annual strategic report. While it acknowledges that a joint statement may be possible, it envisions that most companies will opt for two separate statements. Broadly, this affects businesses meeting the criteria for a modern slavery statement who are also UK/EU listed companies and have 500 or more employees (some non-quoted financial services companies are also included). Making two statements will clearly be a concern for organisations at a time when new reporting requirements are proliferating generally, next year’s new gender pay gap reporting duty being another example. A joined-up approach will be necessary to avoid duplication and to leverage internal knowledge, funding and support.
Despite the transitional provisions, affected organisations in high risk sectors will already be preparing their modern slavery disclosures. Many businesses not covered by the Act will also need to respond; for example, where they are part of the supply chain for organisations that do have to report, they may be asked to agree new procurement terms containing commitments to anti-slavery practices and policies as a minimum.
The Guidance reminds directors and partners who approve annual statements that they must be true and refer to actual steps undertaken or begun. This underlines how organisations, when responding to modern slavery reporting, should be realistic, show genuine engagement, take sustainable steps to improve and ensure that all public statements are correct, evidence-based and match practice on the ground. While a cautious approach may not win immediate accolades, it will pay dividends in the long run.