From October, 2015, a new duty upon larger businesses will be implemented in UK, requiring them to publicly report steps they have taken to ensure their operations and supply chains are trafficking and slavery free.

The aim of this new legal intervention is to encourage organisations to tackle modern slavery with greater urgency by driving up transparency and raising awareness of this critical issue. Accordingly, whilst legal penalties for breach of the new requirement will be limited, businesses could face the far more costly consequence of adverse publicity and loss of reputation, with campaigning pressure groups being likely to prove increasingly high profile in their monitoring of compliance and condemnation of failure.

What is meant by “modern slavery”?

One might be forgiven for associating the term “slavery” with a by-gone era. But exploitation of others is sadly not a mere vestige of the past and the term “modern slavery” has been adopted, therefore, to encompass modern-day forms of enslavement, including forced and compulsory labour and human trafficking.

Slavery has a devastating impact on individual victims. But it also affects those businesses caught up in increasingly high profile media and online campaigns alleging slavery and human rights abuses.

Sectors frequently cited as vulnerable to forced labour practices include agriculture, construction, hospitality and manufacturing. A common scenario of where workers can become trapped in servitude is where a migrant worker takes a loan to pay for his or her travel to another country to work, or to pay fees to a recruitment company, with a view to repaying the money from their earnings. Such individuals can find themselves trapped in ‘debt bondage’ as other sums are added to the loan while they work, such as accommodation and transport costs, exceeding their capacity to make repayments. Their passports are also withheld often.

Relevance of modern slavery for the business world

While reputable businesses may be satisfied that their own operations are slavery-free, the reality is that slavery, in its various forms, permeates many aspects of the legitimate economy. Even reputable businesses, therefore, may be less clear that organisations in their supply chains or other business relationships, such as franchises, out-sourcing partners and joint-ventures, apply the same rigour to weeding out worker-exploitation.

As has been seen in recent years, ethical business-to-business procurement terms have become more prevalent, reflecting investor and customer sensitivities on human rights and giving rise to increasing demands for disclosure of corporate social responsibility performance data as part of tendering processes. Governments and stock exchanges are requiring greater corporate transparency on human rights, often leading to risks of litigation or regulatory scrutiny. Awareness amongst workers themselves is also heightened, potentially leading to labour dispute and disruption to supply-chains and with pressure groups proving ever more active and vocal. Accordingly, whether for reputational, legal, financial or operational reasons, businesses are under more pressure than ever to take action –and to be seen to be doing so.

What does the new UK duty entail?

The duty, which derives from the Modern Slavery Act, 2015, will apply to all commercial organisations supplying good or services in the UK and having a minimum total turnover of £36 million or more. Significantly, the duty will apply not only to companies incorporated in the UK but to those incorporate elsewhere, if they carry on part of their business in the country.

 To comply, businesses will be required to prepare a slavery and human trafficking statement for each financial year, setting out the steps the organisation has taken during that year to ensure slavery and human trafficking is not taking place in any part of its own business or in any of its supply chain – or alternatively, a statement that it has taken no such steps. This statement must be signed by a director or equivalent (e.g. the general partner in a limited partnership) and be published prominently on the organisation’s website.

The Act sets out areas which “may” be included in the annual statement and statutory guidance will provide more detail on these areas in due course. The suggested areas are:

• information about the organisation’s structure, its business and supply chains;
• the organisation’s policies relating to modern slavery;
• its due diligence processes in relation to slavery and trafficking in its business and supply chain;
• the parts of the business where there is a risk of modern slavery and the steps it has taken to assess and manage that risk;
• its effectiveness in ensuring that modern slavery is not taking place, measured against appropriate performance indicators;
• training available.

When do businesses need to publish a slavery and trafficking statement?

The aim of the UK government is to introduce the disclosure duty in October 2015. It also intends to implement transitional provisions to give businesses sufficient time to prepare, where the financial year end is within close proximity to October. Further details are awaited. However, all indications are that businesses should prepare now, given current timelines.

What are the penalties for failing to publish a slavery and trafficking statement?

The UK legislation imposes limited penalties for non-compliance (the disclosure duty being subject to enforcement by the Secretary of State by injunction, which seems unlikely). However, the presumption is that pressure groups will target businesses in vulnerable sectors, particularly consumer brands, and subject them to reputational campaigns to force annual disclosure. The UK government has also said that it may ‘name and shame’ businesses which drag their heels, an approach that has met with some success in other areas, such as payment of the statutory minimum wage.

How does the UK Act compare with other human rights disclosure duties?

The UK is not the first jurisdiction to adopt a more proactive approach to addressing modern slavery. A similar disclosure provision was introduced in California in 2012, albeit upon even larger organisations, with a turnover threshold of $100m. In terms of reach, however, the UK Act goes further by covering organisations carrying out any part of their business in the UK (no minimum ‘footprint’); all sectors, not just retail and manufacturing; and both goods and services (not just supply chains for goods).

It is noteworthy also that, in 2016, current corporate duties to report on human rights will be strengthened yet further once amendments to the UK Companies Act are brought into force. These amendments go beyond slavery and trafficking. Furthermore, globally, the UN Guiding Principles (‘UNGP’) expect companies to ‘know and show’, through human rights reporting, how they prevent and address salient adverse human rights impacts.

Comment

Some businesses may decide to adopt the UNGP Reporting Framework to ensure a broader, consistent approach to human rights reporting in an effort to meet a number of new stock market and national human rights transparency measures, including the Act. Even so, viewing the UK Modern Slavery Act holistically and in the context of broader focus upon human rights could prove advantageous to businesses more widely, triggering a more focused approach to demonstrating ethical values and practice. It may also facilitate a more co-ordinated method of reporting, avoiding the need for piecemeal responses or duplication.

Inevitably, legal interventions such as by the UK will render modern slavery an issue of compliance, not a voluntary ‘add-on’ but engaging top-level leadership will be instrumental to achieving progress. It will be essential, therefore, that going forwards organisations have a strategy, from identifying who will provide that top-level commitment, to assessing risk and policy approach.