The UK’s Modern Slavery Act 2015 is now in force and requires large commercial organizations supplying goods or services within the UK to publish a statement on their websites making clear the steps taken during the previous financial year to ensure that slavery and human trafficking are not taking place in their own businesses or in any of their supply chains.
The first organizations required to comply will be those with a financial year ending March 31, 2016. However, all organizations caught by the new requirement are well advised to consider now what additional policies and measures they may want to put in place to be included in their statements.
The requirement will also impact smaller organizations that do not meet the threshold for publishing a Modern Slavery Act statement but form part of the supply chain for organizations that do. Larger organizations will no doubt be placing their supply chains under closer scrutiny and requiring increased contractual assurances that entities within their supply chain are themselves free from slavery and human trafficking.
Who must produce a statement?
Any commercial organization that supplies goods or services and has an annual turnover in excess of £36 million is required to produce a statement. A commercial organization for these purposes includes both corporate bodies and partnerships, and the requirement applies to organizations across all sectors.
The total turnover of an organization includes the turnover of any subsidiary, including those operating wholly outside the UK.
Where a parent and one or more subsidiaries in the same group independently satisfy the requirements, it is acceptable for the parent to produce one statement that subsidiaries can use.
Does the requirement apply only to UK incorporated organizations, or will a UK branch office also need to comply?
The requirement applies to organizations, regardless of where they are incorporated or formed, that carry on all or part of their business in the UK. Therefore, overseas organizations that meet the criteria and have a UK branch will need to produce a statement even if the turnover of the branch itself is lower than the £36 million threshold.
The guidance from the UK Government indicates that the requirement will apply to bodies incorporated and partnerships formed outside of the UK, insofar as they have a “demonstrable presence” in the UK. Therefore, in addition to UK branches, international organizations carrying on a business in the UK through a UK representative office or UK-based agent should also consider whether the presence of any such representative office or agent would also trigger a requirement to produce a statement.
What must the statement say?
The Act is not prescriptive about what must be included in an organization’s statement. Each organization’s statement will need to be tailored to its own particular business and the risks of slavery or human trafficking within it.
The Act provides that the statement may confirm that the organization has taken no steps during the preceding financial year to ensure that slavery and human trafficking are not taking place in the organization or its supply chain. There would, however, be obvious reputational issues with taking such an approach.
The Act provides that organizations may wish to include information regarding the following in their statements:
- the organization’s structure and supply chains;
- policies the organization has adopted in relation to slavery and human trafficking;
- the training available to its staff on slavery and human trafficking issues;
- due diligence processes in its business and supply chains insofar as they relate to slavery and human trafficking;
- the parts of the organization’s business and supply chains where there is a risk of slavery or human trafficking and the steps taken to manage that risk; and
- the organization’s effectiveness in ensuring its business and supply chains are free from slavery and human trafficking, measured against such performance indicators as it considers appropriate.
Where must the statement be published?
The statement must be published on an organization’s website, if it has one, with a prominent link to the statement on the home page.
If an organization does not have a website, it must provide a copy of its statement within 30 days of receiving a written request for one.
When must the statement be published?
Organizations with a financial year-end of March 31, 2016 are the first set of entities required to publish a statement for the 2015-16 financial year. Although there is no prescribed time limit within which to publish the statement, guidance from the UK Government encourages organizations to do so as soon as reasonably practicable following the financial year-end to which the statement relates and, in any event, within six months of that date.
Who must approve the statement?
For organizations, the disclosure must be approved by the board of directors and signed by a director. For limited liability partnerships, it must be approved by the members and signed by a designated member.
What happens if you do not comply?
Aside from the reputational issues, the UK Government is able to seek an injunction requiring the organization to comply. Should the organization fail to comply with the injunction, it will be in contempt of a court order, which is punishable by an unlimited fine.
What should you do now?
Even if an organization has a financial year-end falling on December 31, it should be taking steps now to prepare.
Aside from achieving the underlying goals of the Act, there are clear reputational benefits to organizations ensuring that they have robust measures in place to ensure that slavery and human trafficking are absent from their businesses and supply chains and which can be reported in their disclosure statements.
For smaller entities that already or may in the future form part of the supply chains of organizations that will need to publish Modern Slavery Act statements, it will be important to take steps to ensure that contractual undertakings regarding slavery and human trafficking can be given freely. Counterparties are likely to want to be satisfied that the entities with which they contract have robust anti-slavery and human trafficking procedures in place.
Although the needs and requirements for each organization will differ, the following steps should be considered:
- undertake a review of the organization’s structure and any supply chain to identify possible areas at risk of slavery or human trafficking;
- develop a clear anti-slavery and human trafficking policy to confirm that slavery and human trafficking are not to be tolerated and to help employees recognize and prevent the occurrence of slavery and human trafficking in their day-to-day business dealings, covering matters such as business relationships, recruitment (e.g., contracting only reputable employment agencies) and procurement practices;
- provide training for employees to raise awareness of the organization’s anti-slavery and human trafficking policy and the slavery or human trafficking issues that may arise in their day-to-day business dealings;
- conduct due diligence on suppliers and service providers to verify that they have robust measures in place to ensure that their own organizations and supply chains are free from slavery and human trafficking; and
- review contracts with suppliers and service providers to assess whether provisions should be inserted into new and/or existing contracts confirming that counterparties have taken such steps as are reasonably necessary to ensure that their organizations and supply chains are free from slavery and human trafficking.