Modern slavery: reporting threshold and statutory guidance | Practical Law

Modern slavery: reporting threshold and statutory guidance | Practical Law

The government has published its response to the public consultation on the turnover threshold and statutory guidance on the supply chain transparency provisions of the Modern Slavery Act 2015. It is now clear that, as early as October 2015, commercial organisations with a global turnover of £36 million or more and carrying on any part of their business in the UK will be required to publish on their website a slavery and human trafficking statement each financial year.

Modern slavery: reporting threshold and statutory guidance

Practical Law UK Articles 0-618-3116 (Approx. 6 pages)

Modern slavery: reporting threshold and statutory guidance

by Brett Hartley, Clyde & Co LLP
Published on 27 Aug 2015 • United Kingdom
The government has published its response to the public consultation on the turnover threshold and statutory guidance on the supply chain transparency provisions of the Modern Slavery Act 2015. It is now clear that, as early as October 2015, commercial organisations with a global turnover of £36 million or more and carrying on any part of their business in the UK will be required to publish on their website a slavery and human trafficking statement each financial year.
The government has published its response to the public consultation on the turnover threshold and statutory guidance on the supply chain transparency provisions of the Modern Slavery Act 2015 (2015 Act) (see Focus “Modern Slavery Act 2015: new reporting obligations”).
It is now clear that, as early as October 2015, commercial organisations with a global turnover of £36 million or more and carrying on any part of their business in the UK will be required to publish on their website a slavery and human trafficking statement each financial year (section 54, 2015 Act).
Those organisations caught by the unexpectedly low reporting threshold should be taking active steps now to prepare for this reporting requirement, particularly if the organisation or sector is already in the spotlight because of modern slavery-related issues (see box “Useful resources”).

Reporting threshold

The government opted for the lowest turnover threshold of £36 million proposed in its consultation. It is lower than that under the California Transparency in Supply Chains Act 2010 in the US, which set the bar at $100 million for similar reporting requirements. The government justified the £36 million threshold on the grounds that it is one of the thresholds in the Companies Act 2006 for determining the size of a large company and that it will create a level playing field for all larger organisations, rather than for only a few businesses with significant turnover.
The clear argument is that organisations with a minimum turnover of £36 million should have the buying power, resources and influence to effect positive change within their supply chains, and that maximising the reach and effectiveness of the reporting requirement will ensure that real change is made in this area.
The slavery and human trafficking statement must describe the steps taken, if any, to ensure that modern slavery is not taking place in the organisation’s business and its supply chains. The 2015 Act sets out a high-level framework for what may be included in a statement and covers five key areas:
  • A brief description of an organisation’s business model and supply chain relationships.
  • Policies relating to modern slavery, including the due diligence and auditing processes that have been implemented.
  • The training that is available and provided to those in supply chain management and the rest of the organisation.
  • The principle risks related to slavery and human trafficking, including how risks are evaluated and managed in the organisation and its supply chains.
  • Key performance indicators, which will allow third parties to assess the effectiveness of the activities described in the statement (section 54(5)).
Although the obligation to publish a slavery and human trafficking statement on an organisation’s website will start from October 2015, subject to Parliamentary clearance, there will be transitional provisions so that statements will not be required where a business’s financial year end is close to the date that the duty comes into force.

Statutory guidance

The consultation also sought views on the content of statutory guidance that will be published to coincide with the reporting requirement coming into effect. It is apparent from the government’s response that the guidance will include information covering the five key areas set out above, as well as advice on when and where statements should be published.
The government has also committed to providing guidance on how businesses can identify modern slavery and on good practice for due diligence processes. The statutory guidance is currently being drafted and the government has said that it will work with stakeholders in its development with a view to reflecting feedback from the consultation. This is likely to include details on how compliance with reporting requirements will be monitored.

Actions and next steps

Any slavery and human trafficking statement needs to be underpinned, as the government says, by appropriate and proportionate action to tackle modern slavery and must be defensible in the face of critics both inside and outside the organisation (see box “ Incentivising compliance”).
Organisations exposed to external criticism, such as from trade unions or the press, whether from within the UK or outside, would be advised to assess their risks and ensure that any statements that they make will stand up to scrutiny from those who know their businesses and the reality on the ground. There will undoubtedly be significant differences in the approaches that organisations take to supply chain due diligence and management in light of the transparency requirements, with a risk-based approach being the most sensible way forward. The adequate procedures requirements under the Bribery Act 2010 may offer some parallels as to the approach that could be taken (www.practicallaw.com/6-505-7347).
Enhanced due diligence may be appropriate in certain sectors, such as agriculture, construction, food processing, and domestic work, and in certain countries. The Global Slavery Index may perhaps play an analogous role for slavery as Transparency International’s Corruption Perceptions Index plays in relation to corruption (www.globalslaveryindex.org).
Depending on a particular organisation’s circumstances, the following steps may be required:
  • Mapping supply chains. This will be essential for many to understand risks and exposures across multiple tiers of suppliers.
  • Putting clear procurement policies in place.
  • Ensuring adequate contractual protections in supply contracts, including warranties, reporting requirements and audit rights.
  • Undertaking site inspections.
  • Delivering consistent messaging throughout the supply chain.
  • Training employees and local suppliers and agents.
  • Reviewing existing compliance policies, contractual provisions and supply chain relationships to identify gaps and risks ahead of the reporting requirement coming into effect.
Brett Hartley is a senior associate at Clyde & Co LLP.
The government’s response to the consultation “Modern slavery and supply chains” is available at www.gov.uk/government/uploads/system/uploads/attachment_data/file/448200/Consultation_Government_Response__final__2_pdf.pdf.

Useful resources

There is a substantial pool of resources, tools and guidance relating to modern slavery available on the internet. Useful points of reference include:

Incentivising compliance

Public scrutiny will provide the principal incentive for compliance with the transparency requirements of the Modern Slavery Act 2015. Legal sanctions are limited to the Secretary of State being empowered to commence proceedings to obtain an injunction requiring an organisation to prepare a slavery and human trafficking statement. Negative attention from the UK’s independent anti-slavery commissioner, shareholders, customers, trade unions and civil society, such as non-governmental organisations and human rights groups, is likely to prove an effective compliance driver, particularly if an organisation, issue or sector, is already in focus; for example, the construction, home services, and textiles and clothing sectors.
There has already been activism and public shaming exercises in California. The organisation KnowTheChain has, for example, written to and published details on its website of organisations that have not, or only partially, complied with reporting requirements under the Californian regime (www.knowthechain.org). The Business & Human Rights Resource Centre has also written separately to non-compliant companies under the Californian regime and published details on its website (http://business-humanrights.org). Similar activism will undoubtedly take place in the UK.
Some respondents to the consultation suggested that the government should establish a central platform to house all of the slavery and human trafficking statements or a website to host and monitor the list of companies required to publish statements, or both. It was suggested that this would allow the government to monitor levels of compliance and enable the public, businesses, consumer groups and potential investors to compare companies’ responses. While the government does not appear to have committed to this concept in its response to the consultation, it is possible that a central website will be established in the future.