Although section 54 of the Modern Slavery Act has limited legal sanctions it does create an expectation that companies will identify issues and demonstrate positive progress year on year. The potential for reputational damage for failing to take steps to address issues of modern slavery or human trafficking could be significant. Consider the reputational damage to Jacobs Douwe Egberts as a consequence of admitting to a journalist that they could not rule out slavery in their sourcing of coffee beans. This damage will only be compounded if the FBO has made no progress the next time a journalist asks.
FBOs will ultimately need to review all stages of their business and supply chain to identify risk areas for modern slavery or human trafficking. Businesses may be tempted to focus on “high risk” jurisdictions, although, even in England there can be issues with forced labour. For example in March 2016 the police found that agricultural workers in Cambridgeshire were being subjected to forced labour and paid less than £20 a week. The perpetrators were convicted of operating without a Gangmaster’s licence. If these workers were producing food which was being sold to one of the larger FBOs this would be pertinent to any review of supply chains for the purposes of section 54 of the Modern Slavery Act.
Additional potential legal challenges are emerging. Section 54 of the UK Modern Slavery Act was modelled on the Californian Transparency in Supply Chains Act. Human rights campaigners are already using the Californian legislation as a basis for launching legal challenges against FBOs. The first cases explored the extent of the reporting requirements. FBOs will be relieved to hear that the Californian court confirmed that the obligation to report is limited and does not encompass every known instance of modern slavery.
However, Californian campaigners have become more ambitious. In the recent case of Dana v Hershey (2016) Dana argued, on behalf of the class, that the statement regarding the use of forced child labour in cocoa bean factories combined with packaging and false advertising legislation meant that Hershey should be required to declare their use of child slave labour on packaging. This claim has been rejected by the court but arguably the campaigners have already achieved their aim not only of raising the issue of child slavery but also naming and shaming Hershey. The legal cost to Hershey will be significant but the reputational damage is likely to have a greater long-term impact. If consumers reject Hershey on principled grounds the loss of income from Consumer goodwill may be irrecoverable.
Unfortunately section 54 of the Modern Slavery Act is just one example of emerging legal risks associated with food supply chains. FBOs already have reporting requirements under the Companies Act (2006) and these are going to become more extensive. BIS has just closed a consultation on the implementation of the new EU law on expanded Diversity reporting. (click here)
In addition to new legal risks the potential sanctions on FBOs for breach of their responsibilities are also increasing. Last month saw the introduction of new sentencing Guidelines specifically directed at increasing the levels of financial penalties imposed on FBOs for breach of food safety standards.
The financial implications can be particularly significant for certain types of breach. 2016 saw the first conviction of a company for the offence of “failing to prevent bribery by an associated person” under the Bribery Act 2010 (click here). The fine and order for costs reached £2.35 million. FBOs with long international supply chains are vulnerable to bribery and FBOs should be actively mitigating against this risk.