Modern Slavery Act 2015 - how can businesses comply?

Many UK businesses will be of the view that modern slavery and human trafficking are not relevant to them. But do you know who the people are providing goods or services which your business relies on at various points in your supply chain? And are you confident those goods and services are being provided by workers through their own free will? The UK’s Modern Slavery Act 2015 (the Act) aims to prevent all forms of labour exploitation and increase transparency of labour practices in supply chains.

Introduction

From 29 October 2015, the Act requires commercial organisations to make a public statement as to the actions they have taken to detect and deal with forced labour and trafficking in their supply chains – the Transparency in Supply Chains obligation. The much-anticipated guidance (available here) provides clarity on some areas of uncertainty. It emphasises the intention behind the Act that an organisation will commit time and resources to understanding and working to combat the issue of slavery in its supply chain. This is no tick-box obligation to be completed using a standard form. Businesses are called upon to address the issue seriously and show that they are taking real steps both within and outside their own organisational structure to produce change.

What is modern slavery?

Although we would have little difficulty in recognising a clear case of slavery in the form of a person in chains being forced to work by violence, the concept of slavery that the Act seeks to prevent is broader than this. The guidance points out that there is a “spectrum of abuse” and it is difficult to be certain at what point “poor working practices and lack of health and safety awareness seep into instances of human trafficking, slavery or forced labour in a work environment”.

The guidance highlights where the line is to be drawn. It says that where a worker chooses to work in undesirable or unsafe conditions without being forced or deceived and is able to leave freely and easily without threat to themselves or their family this may not amount to modern slavery. It can be seen from this that the degree of investigation into the supply chain that the government expects is in-depth and detailed, and the standard of satisfactory employment practice is a high one.

Who is most at risk?

Intricate global chains of contracting and sub-contracting make it easy for business to lose sight of the conditions under which their goods are produced. Sectors where there is a predominance of low paid unskilled labour and those which are dependent upon global supply chains will be particularly vulnerable.

Who is required to comply?

The Transparency in Supply Chains obligation applies to any commercial organisation (a corporate entity or partnership) in any sector that supplies goods or services, carries on a business or part of a business in the UK, and has a total annual turnover of £36 million or more.

  • Is an organisation carrying on a business within the UK?
    The government expects that a “common sense approach” should be taken in answering this question but indicates that having a “demonstrable business presence” within the UK will be required. Having a UK subsidiary does not automatically mean that a parent company is caught.

  • What about corporate groups?
    Any entity within a corporate group that meets all of the requirements for producing a statement must prepare one. But where a parent company itself must comply with the obligation, it may prepare a single statement to be published by each affected member of the group. In that case, the statement must deal with the concerns of each affected company.

    Parent companies that must themselves comply are encouraged to report on the businesses of their non-UK subsidiaries, even if those subsidiaries do not come within the criteria for compliance.

    Subsidiaries may themselves be part of a parent company’s supply chain, and if so their activities will need to be considered as for any other part of the supply chain. Further detail and a worked example are given in Annex C to the guidance.

  • Charities and educational bodies
    Charities, educational bodies, etc. are intended to be caught by the obligation if they engage in commercial activities and have a total turnover of £36 million, irrespective of the purpose for which the profits are made.

The turnover threshold

The turnover threshold has been set at £36 million. This is calculated net of trade discounts, value added tax and “any other taxes based on the amounts so derived”. Turnover is calculated for each corporate entity separately, but includes the turnover of its subsidiaries whether in the UK or elsewhere.

Where an international group has a UK subsidiary that carries on all of the group’s business in the UK, reporting is required only where that subsidiary reaches the £36 million threshold.

Specific guidance is provided for franchising operations. Essentially a franchisor will not need to aggregate its franchisees’ turnover in calculating whether it reaches the threshold.

What should the statement include?

Although the scope of the obligation is simply to state the steps an organisation has taken (or that no steps have been taken), the guidance encourages complete disclosure of all relevant matters. Because the statement is intended for the public, and will be made available through the home page of the organisation’s website, it should use plain English and succinct points, with cross referencing to other materials such as the organisation’s corporate social responsibility and ethical trading policies. The areas covered may include the following:

  1. The organisation’s structure, its business and its supply chains.

  2. Its policies in relation to slavery and human trafficking.

  3. Its due diligence processes in relation to slavery and human trafficking in its business and supply chains.

  4. The parts of its business and supply chains where there is a risk of slavery and human trafficking taking place, and the steps it has taken to assess and manage that risk.

  5. Its effectiveness in ensuring that slavery and human trafficking is not taking place in its business or supply chains, measured against such performance indicators as it considers appropriate.

  6. The training about slavery and human trafficking available to its staff.

There is further detail in Annex E to the guidance, with case studies, to assist in the preparation of an organisation’s statement.

The guidance envisages that an organisation’s statement will evolve year on year. Initially it may say that the organisation is just beginning its investigations. But in subsequent years, more detail would be expected.

Reporting of incidents

The guidance sets out appropriate action should an organisation uncover incidents of human trafficking or slavery. Within the UK reporting to the police and referral of victims to specialist services is advised. Outside the UK, the recommended course of action might be to work with a supplier to improve the situation for workers. This presents a challenge to a business which might consider that it lacks the skills and expertise to influence suppliers or take appropriate steps to improve matters on the ground.

When does the first statement need to be published?

The requirements to publish a statement came into effect on 29 October 2015, but businesses with a financial year-end between 29 October 2015 and 30 March 2016 are not required to publish a statement for their current financial year. Businesses with a year-end of 31 March 2016 are the first to be required to publish a statement.

 Year end:     First transparency statement due: 

 29 October 2015-30 March 2016    

   Within 6 months of next (not current) year end            

 31 March 2016 onwards 

   Within 6 months of current year end

Statement sign-off

The statement should be approved at board level and should be signed by:

  • for a company, a director or equivalent;
  • for a limited liability partnership, a designated member;
  • for a limited partnership, a general partner; and
  • for another partnership, a partner.

What are the consequences of failing to issue an annual statement?

The UK Home Secretary can force an organisation (by way of proceedings for an injunction) to issue an annual statement. In reality, protecting your brand and reputation will be a much more compelling reason to comply. With the issue’s increasing visibility, media and public scrutiny on people and supply chains may well increase. The risk to brand and reputation for non-compliance should not be ignored. While the government has resisted proposals to create an official repository for slavery and human trafficking statements, it is encouraging NGOs, the press and other interested organisations to monitor compliance.

What steps can you start to take now?

If your organisation falls within the scope of the Act we recommend that you:

  • Determine the date on which your first slavery and human trafficking statement will be due, and establish a plan for drafting and approval of the statement.

  • Review existing corporate responsibility policies and consider whether they already address the issues that are required by the Act. If not, consider what additional policies you may need. 

  • Ensure that all UK workers are in receipt of the minimum wage and that you have robust immigration checks in place. 

  • Review both your national and international supply chain and identify risk areas. Identify whether additional due diligence is required and plan steps to implement this.

  • Where appropriate, seek assurances from your suppliers that they comply with the Act. 

  • Review your supplier contracts and consider inclusion of obligations to comply with the requirements of the Act. 

  • Make use of resources provided by bodies such as Stronger Together. Consider the merits of joining.

How can Mills & Reeve help you?

  • Carrying out appropriate risk assessments and due diligence on your supply chain is a necessary ingredient for a fully informed statement. We can help you plan and execute your risk assessments and due diligence processes, for example, by supporting you in framing the appropriate points to address. As your legal advisers, we would advise on any issues we identify during this process on a confidential and legally privileged basis. 

  • We can support you in putting in place policies and procedures that ensure you follow “best practice” and keep you compliant. We can review and amend your supply contracts to promote compliance within your supply chain. This will ensure your supply chain doesn’t let you down and not only protects your brand, but also potentially enhances it.

  • We can advise you on appropriate training for your staff.

  • We can support you in drafting an annual statement that you and your directors can be confident satisfies the requirement that all reasonable checks have been carried out.

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