Supply chain transparency: Modern Slavery Act 2015

Posted on 5 Sep 2015 by The Manufacturer

The UK Modern Slavery Act 2015 introduces a new requirement on businesses for compliance. Shoosmiths LLP partner, Ron Reid explores the issue.

Under the act, any company supplying goods or services, with a turnover of £36m or above, will have to publish an annual statement setting out what they are doing to ensure that there is no modern slavery in any of their supply chains or their organisation.

Ron Reid, partner, Shoosmiths LLP.
Ron Reid, partner, Shoosmiths LLP.

This is known as the ‘transparency in the supply chain’ provision and will come into force in October 2015.

The statement will need to be approved by the board of directors or an equivalent management body and signed by a director or equivalent.

If the organisation is a limited liability partnership it must be approved by the members and signed by a partner. Once completed, the statement must be published prominently on the company website.

Before the relevant part of the act is brought into force, the Government is committed to publishing statutory guidance to assist organisations in complying with the legislation.

The turnover calculation includes those organisations that are only carrying out part of their business in the UK, as well as including the turnover of foreign subsidiaries, so supply chains can be complex.

The majority of the legislation is already in force and introduces criminal offences concerning the holding of persons in slavery, servitude, or compulsory labour, or from arranging or facilitating the travel of another person with a view to that person being exploited.

This transparency requirement forms a key part of the Government’s modern slavery strategy with the measure being one of the first of its kind in the world.

The failure to publish the required statement can only be enforced by the Government taking out an injunction against the offending business requiring them to publish such a statement.

Failure to comply with the injunction amounts to a contempt of court and is punishable by unlimited fine. Failure to comply therefore is not a criminal offence.

Parliament building to be installed with 21st century remote monitoring systems
This transparency requirement forms a key part of the Government’s modern slavery strategy.

The Government has clearly taken this route in the expectation that enforcement will not be necessary because pressure groups and consumers will look for such statements on company websites.

Failure would therefore be a brand risk and cause damage to reputation which they believe will be sufficient for those caught by the financial threshold to comply.

Transitional provisions

Transitional provisions will be developed so that statements aren’t required for a business caught by the legislation whose financial year end falls within close proximity to the date of the requirement coming into force.

However thereafter, businesses will be required to make such a public statement for each financial year.

Reports estimate that almost 30 million people around the world are still in slavery today.

The Government has stated that it will not dictate the type of activities business should carry out for compliance, stating it is for individual businesses to decide what activities are reasonable and proportionate to carry out in order to comply with the duty.

Act now

Businesses should take practical steps now by looking at each of the six areas required by the statement and start making decisions as to how to address them:

The first step should be to carry out a risk assessment as to the likelihood of there being modern slavery within the business’ supply chain.

This can be done using widely available data as to the prevalence of slavery in different jurisdictions. Once that is done then proportionate steps can be taken.

Such steps should include amending your terms and conditions to ensure that your contractual arrangements with suppliers enables you to terminate said contracts should modern slavery be found within the supplier’s organisation.

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Organisations should carry out a risk assessment as to the likelihood of there being modern slavery within the business’ supply chain.

Without such a contractual arrangement your business may be left vulnerable to a claim for breach of contract by a supplier whose supply it terminates.

It should also be made clear that you only allow subcontracting either with the approval of your business or with companies having a zero tolerance to such practices.

If you already have an approved supplier’s list with regular audits of suppliers then compliance with these issues should be added to that audit regime.

Your buyers and those involved in procurement should be made aware of the forthcoming changes and they, together with the audit team, should be trained in spotting the signs of modern slavery.

Many companies already have a human rights/corporate social responsibility policy.

It would be sensible to ensure that your stance with regard to modern slavery and human trafficking is covered in the policy and that any whistleblowing policy is also amended so that concerns about slavery or human trafficking can be raised.

Any business which is considering making an acquisition, that may take it above the compliance threshold, should consider safeguards by obtaining warranties from the previous owner of the business. Due diligence, going forward, will need to cover this area.

The most practical step any company can take at the present time is to appoint a person within the organisation to lead the response on the behalf of the business in this area and to ensure that they start to take action now as time for compliance is likely to be short especially where supply chains are long and complex.