Worker welfare in global supply chains is back on the agenda.

While historically there were voluntary initiatives in “soft law” terms such as the UN Guiding Principles, which required multinationals to give this their attention, now there is a momentum towards compulsory reporting in non-financial narratives by major corporations. This will move forward in the EU with the coming into force by December 2016 of a Directive requiring some 6,500 companies to report on their human rights position, including labour matters.

In the UK, the landmark Modern Slavery Act 2015, which requires transparency, reporting and the taking of preventative steps in supply chains relating to forced labour and human trafficking, received Royal Assent at the end of March. This gives urgent legal force to addressing these issues.

From “soft law…”

Since the ground-breaking “Protect, Respect, and Remedy” Framework was adopted by the UN in 2011, companies are expected to respect human rights throughout their business operations.  The UN Guiding Principles (UNGP) detail how companies can know and show that they respect human rights in practice.

Companies are expected not only to avoid causing or contributing to adverse human rights impacts, but to address “human rights impacts that are directly linked to their operations, products or services by their business relationships, even if they have not contributed to those impacts”.  Thus businesses have a responsibility to address adverse human rights impacts through their own activities and across the entirety of their value chain.

Suppliers represent a particular challenge for companies: adverse human rights impacts can occur at any level of a supply chain – from the bottom tier of direct or strategic suppliers, all the way through via multiple layers of sub-suppliers and sub-contractors, to those at the end of the supply chain that provide raw material inputs.

…to “hard law”

Under the Modern Slavery Act 2015, larger businesses with a certain level of turnover derived from their UK operations will be required to publish an annual slavery and human trafficking statement.  This will mean that any relevant commercial organisation in scope by virtue of the turnover definition – to be announced by the UK Government shortly -which supplies goods and services in the UK will need to report on what actions they have taken to ensure their supply chain is “slavery free”.  Businesses will need to describe the steps they have taken to ensure that slavery and human trafficking is not taking place in their supply chains or any part of their own business.  The statement will require director sign-off.

Because of the larger number of companies likely to be affected, this potentially has a much wider application than the strategic reporting requirements for quoted companies alluded to above.  The UK Home Office consultation into what size of company this new reporting requirement will affect closed in May 2015.  The outcome of that consultation will be published in advance of the commencement of the relevant sections of the Modern Slavery Act  which are expected to come into force in October 2015 (although this is yet to be confirmed by the Home Office). At that point we will know the full scale of the impact on businesses operating in the UK, with Government Guidance to follow.

The Modern Slavery Act also criminalises arranging or facilitating human trafficking or being an accessory to such offences.

For commercial organisations operating in the UK, these provisions have extraterritorial application.

Key points to note

So, what are the five key issues to know about the Act?

1.   Action will be expected

Businesses operating in the UK need to ensure their end-to-end supply chains are free from slavery. Taking its cue from Californian legislation, the Act will require businesses to provide a statement on the steps they are taking to prevent slavery and human trafficking in their supply chains and their own business.

2.  Ensuring transparency

The statement must be signed off by a director or equivalent and published on the company website to ensure senior management engagement and transparency.

3.   Embedded in law

The UK Government’s consultation as to which businesses will be in scope, using the measure of turnover, concluded on 7 May. The future Guidance is expected to cover the information to be included in such statements – including policies that are to be adopted, due diligence processes that could be used, how risk in a supply chain can be assessed and managed, training to staff, and monitoring. No longer about corporate social responsibility or brand protection, such transparency will be a legal requirement.

4.   Measuring effectiveness

Businesses should be looking at how they show they respect human rights and prevent human trafficking and modern slavery in their supply chains, the use of appropriate mechanisms to ensure adherence to human rights standards, and how they measure the effectiveness of the steps they are taking and report this back. Moreover, there is even the theoretical risk of being an accessory to criminal offences committed in the UK or overseas: this cannot be taken lightly.

5.   Integrating the law

Integrating human rights and labour issues into existing risk management processes, identifying material and salient risks, and revisiting sourcing strategy and supply chain management will be necessary. Businesses should be considering now how they plan to comply, prevent abuses, and report on their actions.