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24th February 2012

Modern Slavery Act 2015 – Transparency in Supply Chains

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What is the Modern Slavery Act (MSA)? The MSA brings together much of the law relating to human trafficking and slavery and seeks to make it relevant and enforceable in the modern world. Part of the government’s motivation for this new legislation was the widespread concern that large-scale slavery and other human rights abuses were involved in the production of many goods and services around the globe, and that these goods and services then commonly formed part of the supply chain for businesses operating in the UK market. The Act reflects the government’s view that effectively tackling modern slavery requires all businesses to take an active role to ensure that products and services sold in the UK are not the fruits of supply chains that involve slavery or other abuses of human rights. This is summarised in the Home Office Guidance: Transparency in Supply Chains etc. - a practical guide. As the title suggests, the government is striving to make business supply chains transparent so that businesses can be held accountable (both to the law and to the public) for human rights abuses in their supply chains. The government hopes that, as a result, UK businesses will exert commercial pressure on their suppliers which will incentivise those suppliers not to tolerate slavery in their own businesses. “Slavery and human trafficking” includes any conduct that constitutes the offences of slavery, servitude, forced or compulsory labour and human trafficking (contained in the MSA together with other legislation), or would constitute an offence if the conduct took place in the UK. Annex A of the Home Office Guidance has more details of what conduct is required for these offences. What impact will this have for businesses operating in the UK? Section 54 of the MSA includes a provision for large businesses to publicly state each year the action they have taken to ensure that their business and supply chains are slavery free. This applies to all organisations which: supply goods or services; carry on a business or part of a business in the UK (regardless of where the organisation is based/incorporated); and have a total turnover of not less than £36 million. There is no exemption for charitable, not-for-profit or franchisee organisations if they meet the above criteria. When does this come into force? Businesses will be required to publish slavery and human trafficking statements annually for all financial years ending on or after 31 March 2016. How is turnover calculated? The annual turnover threshold is currently set at £36 million. This is the same threshold used in the Companies Act 2006 for determining the size of a “large” organisation for the purposes of filing accounts, so any “small” or “medium” companies (as defined by the Companies Act) will not have to publish statements. Turnover is net of trade discounts, VAT and other taxes, but includes the turnover of all subsidiary undertakings (regardless of where those subsidiaries are based or carry on their business). This means that if the group turnover exceeds £36 million the parent company will be required to prepare a statement if that parent meets the above criteria. What steps should be taken to ensure compliance? The annual statement should be published within six months of year-end and should detail all steps the organisation has taken during the year to ensure that slavery and human trafficking is not taking place in any of its supply chains or in any part of its own business. The statement should be approved by the board of directors and signed by a director (or a member/partner in the case of an LLP/partnership), and published on the organisation’s website, with the link being placed in a “prominent place” on the homepage. Any organisations not having a website must instead make the statement available on written request. For group companies, each company that meets the criteria must publish a statement in its own name, or alternatively a parent company may publish a single statement to be used by the whole group. A parent company choosing to take this option must ensure that the statement covers all steps taken in the relevant financial year by each organisation using the statement. Parent companies must also be aware that, depending on the circumstances, its own subsidiaries may be deemed to be part of the parent company’s supply chains or part of the parent company’s own business and, if so, must be considered within the parent company’s published statement (regardless of whether the subsidiary meets the S.54 criteria itself). This would potentially include subsidiaries not operating in the UK. What should be included in the annual statement? The Home Office guidance recommends that the statement should be: written in simple language to ensure that it is easily accessible to everyone; succinct but cover all the relevant points and link to relevant publications, documents or policies; and written in English, but may be provided in other languages that are relevant to the supply chain. The slavery and human trafficking statement must include a statement of the steps the organisation has taken during the financial year to ensure that slavery and human trafficking is not taking place in any of its supply chains, and in any part of its own business (or a statement that the organisation has taken no such steps). The MSA suggests that information may be included about: the organisation's structure, business and its supply chains; its policies in relation 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 that slavery and human trafficking is not taking place in its business or supply chains, measured against such performance indicators as it considers appropriate; and the training about slavery and human trafficking available to its staff. Annex E to the Home Office Guidance contains further details of what should be included in the statement. Are there sanctions for non-compliance? In fact, there are very limited legal sanctions for failure to publish a statement, and none at all for publishing a statement stating that the organisation has taken no steps to ensure that slavery is not taking place. The Secretary of State may enforce the duty to prepare a statement by way of an injunction in civil proceedings, although it would be surprising if such action were taken without significant prior warning. The government hopes that the risk of damage to an organisation’s reputation and brand, together with pressure from consumers and wider stakeholders, will be sufficient to ensure wide-scale compliance with the regime. These factors should be the key concern for any organisation now reviewing its slavery and human trafficking policies and procedures. For further information or advice please contact Valerie Lambert, Employment Law Partner on 01223 532426 or click here to email Valerie. For more information please view our Accountability and the Modern Slavery Act information sheet.