On November 29, 2018, the Australian Government passed the Modern Slavery Act 2018 (the “Act”), which requires all companies operating in Australia and meeting a threshold of AU$100 million in total annual global revenue to report annually on their efforts to address modern slavery in their operations and supply chains. The Act is the latest addition to the increasing number of national laws that place obligations on certain companies to report on efforts to identify and mitigate human rights risks such as human trafficking, child labor, and other forms of forced labor from their global operations.
Currently, the Act is not in force, but will likely be effective on January 1, 2019, per Australian legislative procedure.1
Why did the Australian Government Pass this Law?
In an “Explanatory Memorandum” to the Act, the Government stated, “[t]here is a high risk Australian businesses are exposed to modern slavery risks and that Australian goods and services are tainted by modern slavery … [and] [t]his risk may be heightened for large companies and other entities with extensive, complex and/or global supply chains.”2 This document recognized that, prior to the Act, there was “no formal mechanism in Australia that directly targets modern slavery in business operations and supply chains, or supports the business community to take action to address modern slavery.”3
Thus, the Government sees the Act as filling a gap in the national laws on “modern slavery,” which encompasses slavery, servitude, forced labor, debt bondage, deceptive recruiting for labor or services, and human trafficking.4 In particular, the Act’s reporting requirement is intended to allow “investors and consumers to make more informed decisions when using, buying and selling goods and services.”5 Thus, as with laws like the UK Modern Slavery Act,6 California Transparency in Supply Chains Act,7 the New South Wales Modern Slavery Bill of 2018,8 and a proposed law in Hong Kong,9 the Act intends to place market pressure on companies to prevent, identify, and eliminate modern slavery practices in companies’ global operations.
Which Companies Are Covered Under the Act?
The Act covers a broad range of persons and bodies, including “an individual, bodies corporate, bodies politic, partnerships, unincorporated associations or bodies of persons, trusts, superannuation funds and approved deposit funds” – regardless of industry or sector or the level of risk for modern slavery.10 Any of these entities that is either headquartered in Australia or “carries on business in Australia” and meets the revenue threshold of AU $100 million in total annual “consolidated revenue,” is subject to the Act. “Consolidated revenue” means the total revenue of the entity, and the revenue of all entities that are “controlled” – as understood under accounting standards – by the subject entity.11 An entity that does not meet the revenue threshold may voluntarily comply with the reporting requirement.12
Thus, by way of illustration, a U.S.-based multinational meeting the revenue threshold with even minimal operations in Australia may be a covered entity. Indeed, the extraterritorial nature of the Act is emphasized as covering “acts, omissions, matters and things outside Australia.”13
What do Covered Entities Need to do?
The Act requires covered entities to publish a “Modern Slavery Statement.”14 This obligation, along with the general content and format of the Act, borrows largely from the UK Modern Slavery Act, which requires certain large companies operating in the UK to produce a “slavery and human trafficking statement” each financial year, disclosing their efforts (or lack thereof) to ensure that their own operations and business partners are free from slavery and human trafficking.15
What Must be Included in the Modern Slavery Statement?
The Modern Slavery Statement must, at a minimum, include information about:
- The covered entity’s structure, its operations and supply chains;
- The modern slavery risks present in the covered entity’s operations and supply chains, as well as those of any entity controlled or owned by the covered entity;
- The actions taken by the covered entity or any entity controlled or owned by the covered entity to assess and address those risks, including due diligence and remediation processes, and the effectiveness of those actions; and,
- Descriptions of the “process of consultation” with any entities the reporting entity owns or controls.16
What Constitutes Supply Chains?
The Act does not define the term “supply chains.” However, the Explanatory Memorandum states that the Government intends to publish detailed guidance on this term soon. This document also indicates that for now, a supply chain is “intended to refer to the products and services that contribute to the entity’s own products and services and is not restricted to ‘tier one’ or direct suppliers.”17
Though we await further developments, we note that the term “supply chain” is both fraught and outdated, and the ultimate scope and meaning of this term raises a host of practical challenges and concerns.
When and Where Must the Modern Slavery Statement be Published?
The Act creates a “Modern Slavery Statements Register,” maintained by the Government, and accessible to the public.18 Modern Slavery Statements submitted by covered entities will be published on this register. Covered entities may publish the statements on their own websites.
Each covered entity must produce the Modern Slavery Statement annually to the Government, within six months after the end of the entity’s financial year.19 The first modern slavery statements are due for submission on June30, 2020.
What are the Consequences for Non-Compliance?
The Act defines no penalties for covered entities that fail to comply with the reporting requirement. The potential requirement for civil penalties will be reviewed as a part of the mandated three-year review of the legislation. However, the Government may publicize on the register the non-compliant entities, after presenting those entities an opportunity to explain their non-compliance or pursue remedial action.20
How Does the Act Interact With the New South Wales Modern Slavery Bill of 2018?
New South Wales (NSW) recently passed the Modern Slavery Bill of 2018 (the “NSW Law”), which requires companies with employees in NSW and with an annual revenue of over AU $50 million to release an annual statement that details the steps taken to ensure their operations and suppliers do not engage in modern slavery.21
While the NSW Law largely mirrors the Act, it differs in at least two key respects. First, unlike the NSW Law, the Act does not include any damages for non-compliance. Indeed, the NSW Law sets out a maximum penalty of AU $1.1 million against the offending entity. Second, the Act applies to entities headquartered in Australia meeting a threshold of AU $100 million in total annual global revenue, whereas the NSW Law applies to entities with an annual revenue of AU $50 million and with employees in NSW.
Thus, companies may face overlapping obligations under the Act and the NSW Law.
However, the NSW Law appears to contemplate this eventuality by stating that the reporting requirement does not apply to an entity that “is subject to obligations under a law of the Commonwealth or another State or a Territory that is prescribed as a corresponding law ….” It is currently unclear if the Act would fall under this exemption, and the NSW Law’s imminent regulations may clarify this issue.
What Should Companies do in Preparation?
Companies should prepare for the effective date of the Act by first taking stock of their own operations and those of their suppliers and other business partners, and identifying areas in those operations where there is a high risk of forced labor and other modern slavery practices. Where such risks are identified, companies should take appropriate action to address those risks and also implement procedures to ensure that new and existing relationships remain free of such activities. Because this due diligence process can be complex, it is recommended that employers engage the services of experienced counsel.