Modern Slavery Act 2015 – how will it affect your business?
What is the Modern Slavery Act?
The Act addresses the problem of slavery and human trafficking in the modern era, requiring greater transparency from businesses about what they are doing to tackle modern slavery, particularly in their supply chains: through purchasing decisions for materials, products and services, businesses have enormous power to drive change in the practices of their suppliers.
The Act, likely to come in to force in October of this year, places a reporting obligation on companies with UK operations and a global turnover in excess of £36M per year. These organisations will need to publish a statement in each financial year outlining the steps they have taken in the course of that financial year to ensure that there is no slavery in their supply chains.
Is it relevant to you?
Any commercial organisation meeting the turnover threshold in a particular year will be affected. Therefore, partnerships and limited liability partnerships will be caught, as well as companies. The threshold does not relate only to UK turnover: a large global organisation exceeding the threshold globally, carrying out only a very small part of its business in the UK, will still be caught by the requirement to publish a statement.
There is no need for the organisation to be resident in UK, provided it operates part of its business in the UK. The Act covers all sectors and applies to goods and services.
What information should be in the statement?
The statement must describe the steps the organisation has taken to ensure that slavery and human trafficking are not taking place in any of its supply chains and in any part of its own operations. It may also include:
- A brief description of the organisation's structure, business and supply chains
- Its policies relating to slavery and human trafficking
- its due diligence processes in relation to slavery and human trafficking in its 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 it has taken to assess and manage that risk
- Its effectiveness in ensuring slavery and human trafficking are not taking place, measured against such key performance indicators as are appropriate to the particular organisation
- What training in slavery and human trafficking is available to staff
Who is accountable?
The statement needs to be approved by the board of directors of a company and signed by a director. In the case of a limited liability partnership, the members will need to approve the statement, which will be signed by a designated member. For other types of partnership, a partner will approve and sign the statement. Companies falling within the scope of the Act will therefore need to factor this approval process into the timetabling and agenda of relevant board meetings each year.
Publication of the statement
The statement must be published on the organisation's website with a link to it on a prominent place on the homepage. If the organisation has no website, a written copy of the statement must be provided within 30 days of a request. Where a company has a subsidiary, and the subsidiary also meets the turnover threshold, the subsidiary will need to prepare its own statement. Where turnover applies to both parent and subsidiary, the Government consultation indicates that only one statement would be required, but that it would need to appear on the websites of both the subsidiary and the parent.
The Secretary of State has the power to force compliance of the publication requirement via a High Court injunction. If obtained, an organisation will be subject to a Court Order to produce the statement.
Whilst a High Court injunction is not in itself a financial penalty, an organisation may be liable for the costs of the injunction in addition to the cost of future compliance. The directors of an organisation that subsequently breaches the Court Order may find themselves held in Contempt of Court, for which the ultimate sanction is imprisonment.
The wider consequences of a breach will almost certainly include ensuing negative publicity.
It is very unusual for a High Court Injunction to be the only means of enforcement of a regulatory breach. To that end, the Government may well introduce further financial penalties by way of future secondary legislation.
The Government has indicated that it will issue guidance for businesses in October 2015, which is likely to coincide with the provisions coming into force. This guidance will be very important as it will set out what is expected of qualifying businesses. Transitional provisions will apply for companies whose financial year ends around the time the provisions coming into force. Notwithstanding the ultimate goal of protecting vulnerable workers, these are stated to include reputational benefits resulting from the promotion of ethical practices, greater staff retention and improved commercial stability from suppliers operating within the chain. The Government, in implementing this legislation, is relying on the competitive nature of businesses to continue to drive, improve and enrich modern slavery practices within their organisations.
Perhaps most importantly, the Guidance highlights the expectation that a business's statement will evolve, develop and grow in correlation with its improved practices.
What do you need to do now?
If you have UK operations and a global turnover in excess of £36M, you should start to prepare early, and consider:
- Reviewing the Government's guidance (once issued) at a senior level
- Ensuring the board and those involved in key areas, such as procurement, HR, and employee representatives, are aware of the Act and the potential effect on the business. Buyers and other parts of the business involved in dealing with suppliers need to be asking pertinent questions of their suppliers;
- Reviewing the organisation's policies to ensure they include a policy to address slavery and human trafficking
- Conducting an audit of the parts of the business or the supply chain which are at risk of slavery and human trafficking
- Reviewing internal training for staff and adapting or implementing new training where appropriate
In addition, it may be useful to appoint someone internally with overall responsibility for this area (in most large organisations this is likely to fall to the compliance officer).
Businesses with a financial year end date between 29 October 2015 and 30 March 2016 will not be required to provide a financial statement for that year but, they may opt to provide an outline of the activities they have undertaken. However, should a financial year end date fall one day later, on 31 March 2016, compliance with the Act is required by law and the mandatory statement must be published.