Summary
When the Modern Slavery Act (“Act”) came into force in October 2015, it was the first legislation of its kind, aiming to tackle and eventually eliminate human trafficking and the various forms of modern slavery. It also introduced an innovative disclosure and transparency reporting requirement.
As we approach its four year anniversary, the UK Government is reviewing its position to make its stance against human trafficking and modern slavery even more robust. Next steps include a consultation on the further development of the Act and of the statutory guidance.
Companies now also need to understand and address:
- the growing global legislative trend to combat both modern slavery and broader human rights risks and, in Europe, address disclosure and transparency concerning Environmental, Social and Governance (“ESG”) issues;
- the need for companies to consider the inter-relationships between these issues, evolving regulatory trends and sources of legal risk and social accountability; and
- taking steps to future proof their legal and governance approach through holistic risk management, which accommodates such risks and ensures stakeholder engagement, social licence to operate and resilient legal risk decisions.
Current snapshot of s.54 of the Act
The recommendations of the Independent Review of the Modern Slavery Act, published in May 2019, (“Review”) focused on giving the Act more ‘teeth’, particularly in relation to the section 54 transparency and disclosure requirement. The Government responded to these recommendations in July 2019 (“Response”).
Section 54 requires commercial organisations carrying on business, or part of it, in the UK with a total annual turnover in excess of the £36M (including that of subsidiaries) to publish a Statement of the steps it has taken during the financial year to ensure that slavery and human trafficking are not taking place in its own business or in its supply chains.
The Act is not prescriptive on the content of statements but indicates they may include:
- the organisation’s structure, its business and its supply chains;
- its policies in relation to slavery and human trafficking;
- its due diligence processes in relation to slavery and human trafficking in its business and supply chains;
- 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;
- 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;
- training about slavery and human trafficking available to its staff.
It is also currently permissible to publish a statement stating no steps have been taken.
Organisations within the scope of s54
If an organisation provides goods or services and meets the turnover threshold, the key issue is whether the entity is carrying on business in the UK. At present, the Government guidance indicates that this should be assessed on a case by case basis using a common sense approach. The following factors provide a useful guide in undertaking this assessment:
- a demonstrable business presence in the UK – for example, a physical office or employee presence, key management or operational meetings, direct corporate connection/establishment via a listing; or
- a substantial level of economic engagement with the UK economy – for example, material business or supply relationships into the UK.
Entities within corporate groups may therefore be captured as part of a reporting entities’ intra-group supply chain, or where they are ‘carrying on business’ via a non-independent subsidiary.
The future direction of Modern Slavery Act Reporting
The Review focused on four key areas including strengthening the S.54 reporting requirement. Following the Review and Response, we have summarised ‘Risk Trends’ in this area to identify Key Takeaways and Actions for companies. The Risk Trends are also informed by the broad convergence of international developments, which will continue to be integrated into international standards, public policy, law and regulation, commercial agreements and guidance regarding modern slavery and human trafficking and human rights risks.
Accordingly, we encourage companies to consider these issues that have been considered as part of the Review and Government response and contact us to assist with the development and future proofing of their legal and governance risk management approaches to accommodate the likely future direction of reporting under the Act.
| KEY ISSUE |
RISK TREND |
KEY TAKEAWAYS AND ACTIONS |
| Entities subject to reporting requirements |
UK: Stable
Internationally: Increasing |
Individual organisations will remain responsible for determining applicability of the UK Act, although the Government has identified organisations it believes are within scope - Government response
ACTIONS:
- Map your business strategy and operational footprint against modern slavery, human rights or ESG due diligence, reporting, disclosure or transparency requirements or legislation (current or prospective)
- Identify where requirements aggregate and/or conflict (or are likely to do so)
- Build a time horizon into your legal and governance approaches to anticipate the scale and speed of necessary change (and align with budget cycles, accessing resource and implementation timelines)
- Carefully assess using group-wide standards as part of your overall strategic approach to shift mind-sets and culture, manage risk (operational efficiency, potential legal liability, social accountability and reputation), drive progressive change and ensure systems and resources to deliver
- Does voluntary group-wide reporting fulfil the mandatory legislative requirements, where applicable? Is it aligned with investor relations, stewardship codes, culture/values reporting and engagement?
|
| Need to improve the reporting quality and culture |
UK: Increasing
Internationally: Increasing |
Improving the quality of statements may be solely addressed in the updated statutory guidance rather than amending the legislation directly. There is a clear regulatory policy objective to ensure future statements are not merely a philanthropic ‘tick box’ exercise.
It is likely future guidance will be a lever to achieve this by stipulating: i) the need for human rights due diligence beyond first and second tier suppliers; and ii) the need to report on specific due diligence steps taken. These issues and making the existing reporting criteria mandatory will be the subject of Government consultation - Government response and subject to further consultation
ACTIONS:
- Engage, train and empower staff across key areas of the business and your value chain (suppliers and business partners) about why modern slavery risks need to be addressed and your progress
- Brief your board on their obligations (and linkage to ESG standards influencing legal fiduciary standards of care and regulatory obligations) and identify a Board level champion (and investor support)
- Understand and map potential exposure to modern slavery risks using the authoritative UN Guiding Principles on Business and Human Rights due diligence and ‘cause, contribute, directly linked’ framework
- Map and assess how to pivot and realign existing legal and governance risk approaches and systems to: i) integrate a “risks to people” perspective; ii) identify resulting risk to your business (potential legal liability, reputation, culture risk); and iii) opportunities for long term value creation, building a resilient and ethical corporate culture, creating new business and business performance standards.
- Break down and build up understanding of modern slavery risks across – geographies, sector, and product or service (and areas of strategic expansion and R&D)
- How can modern slavery be integrated into your broader response to human rights and linked legal risk issues, such as child labour, climate and environmental management or harm, corruption and financial crime risks (AML)?
- Volume and value of procurement spend does not necessarily correlate to modern slavery or human trafficking risks (nor identify salient human rights risks) – BUT
- It is important from a financial and business operations/continuity perspective; and
- provides an opportunity to build internal awareness and strategic external collaboration and partnership often with large businesses that are likely to have common objectives and valuable leverage.
- Stakeholder engagement is critical to understanding, aligning expectations and identifying issues before they escalate or cannot be remediated and/or create legal liability risk.
- Access and scale learning opportunities, innovation and leverage impact by building collaboration and partnerships with business partners and civil society
- An aligned focus (with collaboration/partnerships) to support or further the rule of law can create and build leverage where a business is ‘linked’ to potential adverse human rights or modern slavery impacts.
- Organisations should expect demonstrable annual improvement in reporting quality will increasingly scrutinised and benchmarked by stakeholders, assisted by increasingly sophisticated automated assessment and reporting tools – so engage critical friends as key part of testing your approach (and the effectiveness of your stakeholder engagement).
|
| Greater reporting transparency required |
UK: Increasing
Internationally: Increasing |
The Government intends to establish a central registry and will consult on a uniform reporting deadline to facilitate monitoring timely reporting by organisations and update the statutory guidance to ensure statements clearly state the relevant 12 month period covered.
This will align with other Government initiatives, such as in Australia. |
| Enforcing Compliance |
UK: Stable/Increasing
Internationally: Increasing |
The Act currently relies on public scrutiny as the main enforcement tool as the Secretary of State has not relied on the power to issue an injunction to enforce compliance. Accordingly, consultation on potential enforcement actions that might improve compliance and timeframes will be undertaken - Government response
Other national legislation (including in France, Australia and the Netherlands) on modern slavery and child labour includes varying enforcement mechanisms, some including monetary sanctions.
ACTIONS:
- Track areas of increasing exposure
- Use grievance and worker voice mechanisms as engagement and “early warning systems” and to inform understanding of salient risks.
- Use this information to adapt and flex your progressive improvement efforts accordingly
|
| The role of public sector procurement |
UK: Increasing
Internationally: Increasing |
The Review recommended s.54 be extended to the public sector, aligning the UK Act with the Australian legislation. The Government will voluntarily publish a statement and from 2020/21, individual UK Government ministerial departments will be required to annually publish their own modern slavery statements.
The Government’s Supplier Code of Conduct was updated in February 2019 to include a requirement to comply with all human rights and employment laws, including the Act. The Public Contracts Regulations 2015 allow public sector organisations to exclude non-compliant bidders from a tender process where this is anticipated in their procurement documents and they consider exclusion to be appropriate. Crown Commercial Service has used this discretionary power to exclude bidders that were non-compliant with s.54 of the Act - Government response
ACTIONS:Given this position, organisations that
- are a public sector organisation; and/or
- form part of a public organisation’s supply chain (or procurement processes more generally),
should expect compliance with the Act will become an access /contractual requirement of the government procurement process, regardless of whether this is (or becomes) a legal requirement for the organisation and prepare accordingly (particularly given the UK Government has developed, alongside the US, Australia, Canada and NZ principles for nations to adopt to tackle modern slavery in global supply chains. |
This article was co-written with Trainee Solicitor Jessica Hanley.
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