The Modern Slavery Act: what you need to know about the new reporting obligation
The Modern Slavery Act 2015 (the Act) came into force on 26 March 2015. At a high level it aims to improve law enforcement tools, strengthen criminal penalties and deliver better protection and support for victims.
Section 54 of the Act, which came into force on 29 October 2015, requires businesses to be transparent about what they are doing to tackle the issue of slavery and trafficking, not just within their own operations, but importantly also in their supply chains.
This note explores the key features of section 54 of the Act and what it will mean for UK companies.
The new reporting obligation - who needs to comply and what must they do?
Section 54 of the Act imposes reporting requirements on all businesses:
- which carry out any or part of a business in the UK;
- which supply goods or services; and
- which have an annual turnover exceeding £36 million.
These businesses must prepare a slavery and human trafficking statement each financial year, describing the steps they have taken during the year to ensure that their businesses and supply chains are slavery and human trafficking free.
The requirement to publish an anti-slavery statement only applies for financial years ending on or after 31 March 2016, so there is a five month period before the very first reports are legally expected.
What does the statement need to say?
The Act states that the annual statement must include:
- a brief description of the organisation’s business model and supply chain relationships;
- a description of the organisation's policies relating to slavery and trafficking;
- a description of the training on slavery and human trafficking available to its staff;
- a description of the procedures it has in place to check for slavery and human trafficking in its supply chain;
- a description of the parts of its business and supply chain where there is a risk of slavery and human trafficking and a description of how the organisation manages those risks; and
- a summary of its effectiveness in ensuring that there is no human trafficking or slavery taking place in its business or supply chain, measured against appropriate performance indicators.
- alternatively, businesses can comply with the Act by publishing a statement confirming that no steps are taken to ensure that slavery and human trafficking are not taking place within the business and supply chain. In reality, businesses are unlikely to use this option, as it could attract negative stakeholder and media attention, which could damage reputation and profit.
How should the statement be published?
The statement must be published on an organisation's website and a link to it must appear in a prominent place on the homepage. Each subsidiary within a group that exceeds the threshold referred to above must publish a statement on their website.
Who must approve the statement?
In the case of a company, the statement must be approved by the board of directors and signed by a director. In the case of a LLP, the statement must be approved by the LLP members and signed by a designated member.
Enforcement – what are the consequences of not complying?
In England and Wales, the government can enforce the requirement to prepare a statement by way of an injunction requiring the organisation to comply. The government seems unlikely to take such action without warning. However, where enforcement action is taken, it is likely that the government will "make an example" of a high-profile organisation in order to try and achieve wider compliance with the Act.
In addition to the risk of legal action, companies that do not comply with the requirements are likely to face reputational risk, as pressure groups "name and shame" companies that are non-compliant.
What should businesses do now?
- assess whether they fall within the scope of businesses that must comply with section 54 of the Act;
- identify who is responsible for developing the statement;
- consider what policies are in place within their organisation with regard to slavery and human trafficking and the extent to which those will stand up to public scrutiny;
- consider their procurement practices, including the information they collect from their contractors, the checks and audits that they carry out and the policies and procedures that they require their contractors to comply with;
- map their supply chain and identify jurisdictions or types of suppliers who present the most risk;
- consider the appropriate policies and procedures against the identified risks and start outlining what might go into a statement;
- consider how the statement might look to a visitor to their website and/or customers; and
- include appropriate contractual terms in their agreements with contractors, including appropriate warranties regarding slavery and human trafficking, appropriate audit rights and appropriate restrictions on sub-contracting and assignment. Such provisions should also be flowed down to subcontractors.
For more information on the reporting requirements under the Modern Slavery Act 2015, please contact Lara White or Patrick Brodie.