New legislation requires companies to be transparent and report on how they are tackling modern slavery.
Worldwide, it is estimated that 21 million people are victims of forced labour, part of supply chains that become more nebulous the further one travels back from product to source. The statistic, from the International Labour Organisation, can be split between 11.4 million women and girls and 9.5 million men and boys, whose toils generate $150 billion in illegal profits a year.
Although global efforts have been made to tackle and punish human trafficking – witness the adoption in 2000 of the Palermo protocol now ratified by 169 nations and the US state department’s Trafficking in persons report last year – millions of people continue to work in appalling circumstances, exploited for the enrichment of others.
The reality is that long and complex supply chains that rely on sub-contractors impede traceability, making it difficult to verify the goods and services bought and sold. Also, the problem of human trafficking is not bound to particular countries and sectors. It exists in formal and informal labour markets and in both lawful and illicit industries. A study published last October by the London-based Ethical Trading Initiative reveals that 71% of companies believe there is a likelihood of modern slavery occurring at some point within their supply chains.
Slavery map 2014
Source: Global slavery index 2014
The UK Modern Slavery Act
The Modern Slavery Act (MSA) came into force on 26 March 2015. It sets out provisions for supply chain transparency in clause 54, which requires companies covered by the legislation – commercial organisations with a turnover of at least £36 million – to prepare a slavery and human trafficking statement for each financial year. The purpose is to ensure that major businesses are open about what they are doing to tackle modern slavery.
Commercial organisations are defined as those carrying out all or part of their business in the UK that supply goods or services. As long as companies meet the £36 million turnover threshold, the Act does not restrict the requirements to listed or large companies. Unlike the California Transparency in the Supply Chains Act 2010, which is restricted to retail and manufacturing businesses, the TISC clause is not limited by sector or product.
The Modern Slavery Act 2015 (Transparency in Supply Chain) Regulations came into force on 29 October 2015, setting out the reporting timescales. The first statements will be made by firms whose financial year ends on 31 March 2016.
Despite the MSA’s intentions, there is no single definition of either slavery or human trafficking. However, in October the home office published guidance stating that the term “modern slavery” encapsulates both offences in the act: slavery, servitude and forced or compulsory labour; and human trafficking. The guide defines:
- slavery in accordance with the 1926 convention, which is the status or condition of a person over whom all or any of the powers attaching to the right of ownership are exercised;
- servitude as the obligation to provide services. This is imposed by the use of coercion and includes the obligation for a “serf” to live on another person’s property;
- forced or compulsory labour as involving coercion, comprising either direct threats of violence or more subtle forms of compulsion; and
- the offence of human trafficking as when a person arranges or facilitates the travel of another person with a view to being exploited.
For businesses, the lack of a single, clear definition may be a concern. We know from the challenges in the environmental legal framework that trying to ascertain a uniform definition of “sustainable development”, “sustainability” or what makes a “sustainable business” has complicated matters for some companies.
The government expects the risk of suffering reputational damage to act as motivation for businesses to comply with the legislation
The slavery statement
The legislation does not prescribe what needs to be covered in the statement, which must be signed off by those responsible for the business, such as the board of directors. Section 54(5) suggests the statement may include the following:
- information about an organisation’s structure, business and supply chains;
- its policies on slavery and human rights in relation to its business and the supply chain;
- due diligence processes in relation to human trafficking and slavery in the business and supply chain;
- areas of risk and steps taken to assess and manage those risks;
- the effectiveness of policies and steps taken, including key performance indicators; and
- training to be made available and provided to staff.
The Home Office guidance provides further information on the types of activities that could be included in each heading.
It points out that the statement must be easily accessible and published where it can be clearly seen. This might seem unproblematic, but for some large companies there is the question of whether the statement has to appear on the main home page of its website. The guidance also suggests that there should be some signposting on linked pages if subsidiary companies are featured on the home page of a large business.
If a business does not have a website it must provide a copy of the statement to anyone who requests one in writing within 30 days.
Non-compliance
The difference between the legal weight of the Companies Act 2006 and the MSA is clear.
Under the former, company directors can be held liable for negligence should they provide false or misleading information. Similarly, those who fail to take steps to complete a strategic report can also be guilty of an offence. Neither of these enforcement options exists under the MSA.
The secretary of state can bring civil proceedings in the High Court for an injunction (or, in Scotland, civil proceedings for specific performance of a statutory duty under section 45 of the Court of Session Act 1988) requiring the organisation to comply. The government expects the risk of suffering reputational damage to act as motivation to comply, however. As the guide states: “A failure to comply with the provision, or a statement that an organisation has taken no steps, may damage the reputation of the business. It will be for consumers, investors and non-governmental organisations to engage and/or apply pressure where they believe a business has not taken sufficient steps.”
Issues for business
Businesses with complex group structures will have to work out whether only the parent company has to report or whether subsidiaries are also caught. There is some confusion over the extent to which subsidiaries or parent companies abroad are caught by the Act’s provisions. Arguably, if overseas operations are a critical part of an obligated UK company’s supply chain, the statement should cover the steps the business is taking to address these.
The MSA has significant implications for procurement functions. The Danish Institute for Human Rights says it is crucial that companies understand and monitor their supply chains to determine whether there is a risk of human trafficking and slavery. Each enterprise needs to ensure it does not contribute to any forced labour or bonded-labour practices. These include compelled overtime, human trafficking and denial of free movement. One mechanism to monitor and enforce good practice is the inclusion of requirements or indicators in contracts.
The reporting obligation will apply only to companies with a financial year end on or after 1 April 2016. That is not a long time for businesses to prepare for the new obligations. Larger companies and those with complex supply chains will want to start considering the requirements of the MSA now. In any case, directors will need to decide what their approach will be to compliance: to make no statement or to take steps to identify key supply chain risks.
The questions organisations need to ask
- Does the organisation have a turnover equal to or more than £36 million?
- Does the organisation have a human rights policy? If so, does it contain a reference to human trafficking, forced labour or slavery?
- Has the organisation taken steps to embed the policies and develop processes?
- Has it mapped its supply chain and identified areas of risk?
- Has it considered developing a code of conduct, especially a supplier code? Or does the code in place need to be revised in light of possible developments?
- Does the purchasing policy address trafficking and broader human rights risks?
- What training is available to managers and employees in the organisation to raise awareness of and tackle modern slavery?
- If a statement is published yearly stating that no action on the issue is required, how would this reflect on the organisation?
Next steps
- Consider whether the organisation is defined as a “commercial organisation” under the MSA.
- Consider whether a response to the legislation would fit within strategic organisational objectives, such as adopting an approach to the UN guiding principles on business and human rights.
- Understand the countries in which the organisation operates – some will pose a higher risk to slavery than others – and understand the organisation’s operations.
- Work with relevant staff to map the company’s operations and supply chain.
- Develop or update policies to address human rights issues, including slavery, forced and bonded labour, and human trafficking.
- Develop or update checklists and purchasing policies.
- Develop or update supplier codes of conduct, tender requirements or any request for proposal, and supplier contracts to account for the issue of slavery and human trafficking, including requirements on minimum labour standards in the supply chain.
- Develop or update due diligence procedures to incorporate the risk of slavery and human trafficking.
- Ensure that all employees are made aware of the policy.
- Make training on slavery and human trafficking available to staff.
