Modern Slavery – An Update

by Latham & Watkins LLP

26 March 2017 marked two years since the introduction of the Modern Slavery Act 2015.  As the signature legislation of the then Home Secretary (Theresa May – now Prime Minister), it heralded greater focus on an issue that impacts many around the world.  The Modern Slavery Act was also a further acceleration of legislative and other requirements and drivers for large corporations to undertake heightened diligence in respect of its supply chains.

Details of the requirements of the Modern Slavery Act 2015 can be found in our previous blog.  However, put briefly, the key features for businesses are:

  • The Modern Slavery Act 2015 applies to businesses (public and private companies and partnerships) with a global turnover of over £36 million and that carry on a business or part of a business in the UK.
  • Such businesses are required to publish a statement each financial year that either: (i) explains the steps taken by a business during the financial year to ensure that slavery and human trafficking is not happening either within the business or in its supply chain; or (ii) explain that the business has taken no such steps.
  • The statement should be published on the business’ website (with a prominent link on the homepage). While the Government has provided guidance on the contents of the statement, there is no prescribed form and therefore it is up to businesses as to what they include.
  • The statement should be approved by the board of directors and signed by a director (or approved by the members and signed by a member in the case of a limited liability partnership).

The obligation commenced for all relevant businesses that had a financial year ending on or after 31 March 2016 and the modern slavery statement must be made as soon as reasonably practicable after the end of the relevant financial year. The Government has also made it clear that it prefers not to use its powers to force businesses to make a statement, but rather rely on stakeholder pressure.

The legislation was the first of its kind in Europe and the UK has been a world-wide thought leader on anti-slavery issues (for example, the Prime Minister continues to chair a taskforce on Modern Slavery issues, the UK led the campaign for the inclusion of a specific target in the UN Sustainability Development Goals relating to modern slavery and during its presidency of the UN Security Council, the UK hosted an open debate on modern slavery in conflict where over 80 countries acknowledged the need to address the crime).  This drive has led to further countries considering the issue of Modern Slavery and notably Australia is considering the adoption of similar legislation.

Further developments are now likely.  In particular, we are only just starting to see the impact of the legislation through the production of modern slavery statements.  Based on the Government’s approach to enforcement, the effectiveness of the legislation will depend on the scrutiny by shareholders, NGOs and other organisations of those statements (in a further example of the enforcement of environmental, social and governance regulation effectively being outsourced to third parties).

So far, this effort to scrutinise public statements appears to have been led by the CORE Coalition and the Business & Human Rights Resource Centre (with the Business & Human Rights Resource Centre creating a central registry of such statements).  However, their initial findings are that many of the statements made to date do not meet the requirements because they do not appear to have been signed by a director or be accessible from the website homepage, or do not appear to meet the recommended Government guidance in terms of content.

This early evidence has no doubt been a factor in the recent recommendations from the UK Parliament’s Joint Committee on Human Rights, which has urged the Government to introduce new legislation to compel large companies to report on their human rights due diligence, exclude companies from public procurement processes unless they do report on their human rights due diligence, impose a duty on all companies to prevent human rights abuses and take stronger enforcement action.

While these recommendations seem unlikely to be taken up by the Government at present, nonetheless, they do give an indication that the Modern Slavery Act is likely to be the start of regulation in this area, as opposed to the end-point.  Businesses should therefore consider the non-governmental scrutiny these statements will face on publication.  While enforcement may be low, reputational damage may be significant for non-compliance, or for weak and/or misleading statements.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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