Watch out for Modern Slavery

Latham & Watkins LLP
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The Modern Slavery Act 2015 comes into force next month. The UK is at the forefront of a global move to tackle human trafficking and prevent slavery in supply chains. In June the G7 leaders declared their commitment to the issue, and as supply chains grow in complexity and pressure on production costs increases, we anticipate other countries will follow with legislation to combat forced labour. The Act follows the 2012 California Transparency in Supply Chains Act which applies to large retailers and manufacturers.

The Act introduces a requirement for businesses to report on the steps they are taking to ensure their supply chain is free from slavery and trafficking. This statement is to be prominently displayed on the homepage of the company’s website. This obligation under the Act applies across all sectors, and to businesses supplying both goods and services with a turnover in excess of £36 million, so its application is very wide.

PE houses will now need to take into account these reporting obligations when undertaking due diligence at the acquisition stage and will need to consider introducing compliance measures as part of their portfolio management. The Act does not prescribe particular policies related to slavery and human trafficking in supply chains; a company can opt to state “no steps have been taken” — although that statement may be of questionable value in the circumstances. If disclosure is made the focus is on the company’s efforts in ensuring the absence of slavery and human trafficking in the supply chain. In California, following the 2012 Act, some companies have performed site visits; others have relied on certifications of compliance from their suppliers.

If a company fails to make a statement, the Home Secretary can enforce the obligation by seeking an injunction in the High Court. No doubt the potential embarrassment around such a process, and more broadly, any deficiencies in a company’s compliance with the reporting obligations, could cause significant reputational damage to valuable brands and potentially lead to unwelcome consumer activism. Kevin Hyland, Britain’s first anti-slavery commissioner, has stated his intention to use public naming and shaming to its full effect.

Our view is that PE houses need to consider implementing procedures alongside those in place pursuant to the Bribery Act (and considering the forthcoming amendments to non-financial reporting duties under the Companies Act). These may include enhanced due diligence in key geographical areas or sectors (such as construction, agriculture, fishing, food, hospitality, textile and electrical manufacture as well as retail industries) and reporting procedures for the discovery of any suspicious behaviour. Supply contracts should also be reviewed to consider amendments to warranties, reporting requirements and audit rights.

WHO DOES THE ACT APPLY TO?

Organisations who:

  • Carry on a business or part of a business in any part of the UK
  • Have an annual turnover of £36 million or more
  • Supply goods or services

What should be in the statement?

There is no prescribed form but the suggested contents include details of:

  • The organisation’s structure, its business and supply chains
  • Policies and staff training relating to slavery and human trafficking
  • Due diligence processes relating to slavery and human trafficking in the company’s business and supply chains
  • The parts of its business and supply chains where there is a risk of slavery and human trafficking taking place and the steps taken to assess and manage that risk

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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