The Modern Slavery Act 2015: disclosure obligations coming soon
Following the introduction of the Modern Slavery Act 2015, large businesses will soon be required to publish an annual slavery and human trafficking…
The Modern Slavery Act 2015 consolidates and adds to existing anti slavery legislation in the UK. Its introduction follows a number of recent news items (from the UK and overseas) that make clear that slavery is not an historic issue.
Section 54 of the Act will soon require large businesses to take some action to assist in the tackling of slavery, publishing an annual slavery and human trafficking statement. It is expected that section 54 will come in to force in October 2015 (although the exact commencement date is not yet known).
Which organisations will be affected?
Section 54 will apply to “Commercial Organisations” meaning companies or partnerships which do some business in the UK.
In order for a commercial organisation to fall within section 54 it needs to have (or be part of a group which has) an annual turnover of £36 million or more. Regulations(The Modern Slavery Act 2015 (Transparency in Supply Chains) Regulation 2015) have been drafted to accompany the commencement of section 54, which set out methods of calculating turnover.
Subsidiary companies will be required to produce their own statement under the Act if their individual turnover exceeds £36 million, but they are able to replicate their parent company’s disclosure or modify it as necessary.
This £36 million threshold corresponds with the threshold under the Companies Act 2006 for determining the size of a ‘large’ company. This means that any company that qualifies as ‘small’ or ‘medium’ under the Companies Act 2006 will not have to produce a statement.
The Government’s impact assessment says that the costs of the Act for the public sector will be nil, and it was clearly not intended to apply to public sector organisations. However questions are already being asked about the wording used in the Act which imposes the requirements on commercial organisations who carry on business (suggesting public bodies are not covered), but in the definitions extends this to any body corporate who carries on business (which means they may be). This unclear drafting leaves the issue open for debate. The impact assessment does say the impact on charities or voluntary bodies will be small, but this appears to be due to the required turnover levels not because such organisations are necessarily exempt.
What should the statement include?
Section 54 requires an affected business to publish a “Slavery and human Trafficking Statement” once every financial year.
The Statement must explain the steps that the affected business has taken in that financial year, to ensure that slavery is not taking place in any part of its business or in any part of its supply chain. Alternatively, the statement must state that the affected business has not taken any such steps. However, it is expected that the vast majority of businesses will reject the latter option for reputational and commercial reasons. There is no other mandatory information that must be included in the statement.
However, Section 54(4) lists a number of items that the Statement may include, namely details of:
- 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.
When and how should the statement be published?
The statement must be published on the organisation’s website and a link to the statement must be displayed ‘in a prominent place’ on that website’s homepage (s.54 (7)).
If the business does not have a website (which would be unusual for an organisation of this size) it must provide a copy of the statement within 30 days following a written request.
The Government’s aim is to commence the disclosure duty in October 2015 (when section 24 of the Act comes into force). It is anticipated that organisations will produce and publish the report at their financial year end.
However, it is important to note that the Government intends to implement transitional provisions to give businesses time to prepare (where the financial year end for that business falls soon after the October implementation date). Government guidance giving further details on the steps a business should or might take to comply with the new requirements is also anticipated shortly.
Who must sign the statement?
Under s54(6) of the Act the statement must be approved as follows:
- Companies: The board of directors must approve the statement and it must be signed by a director.
- Limited liability partnerships (LLPs): The LLP members must approve the statement and it must be signed by a designated member.
- Limited partnerships registered under the Limited Partnerships Act 1907: A general partner must sign the statement.
- Other types of partnership: A partner must sign the statement.
Next steps – preparing for publication
To prepare to produce and publish the ‘slavery and human trafficking statement’ your business should consider:
- Adopting a policy of its own in relation to slavery and human trafficking and/or incorporating anti-slavery compliance into other policies and procedures such as codes of conduct, whistleblowing policies and standard procurement terms;
- Reviewing methods of recruitment throughout the business and ensuring transparency in recruitment methods;
- The provision of training, particularly to those employees who are engaged in recruitment and in sourcing and managing a supply chain;
- Reviewing all contractual documentation with organisations in your supply chain. What promises do those documents make as far as the suppliers and their working practices are concerned? If your business has a complex multi national supply structure, you may need simply to start ‘mapping out’ those supply chains as a first step;
- Review all “take on” procedures for new suppliers. Again, what commitments and processes do those suppliers make in terms of their own workforce and their own supply chains?
- How it might better engage with suppliers to obtain the assurances they need. For example will suppliers be audited or required to self-report/make a declaration as to compliance?
What impact will this legislation have on business?
Many businesses, particularly in ‘risk’ areas such as the retail and clothing sectors, already recognise the damage that can be caused by adverse news coverage of impoverished conditions within their supply chain. Many of those businesses will already take the types of steps that s54 anticipates.
The requirement to produce a statement and take action to comply with the wording and intention of s54 is likely to quickly filter through supply chains. It is important to start looking at your organisation’s relevant processes and policies, what you are currently able to include in your statement, and what other steps your business could and should take.
Full reporting and compliance is likely to take time. As a first step it may well be sufficient to identify any information or action gaps and to set out what your plans are to strengthen existing processes or put in place new ones. It is anticipated that many businesses will report ‘in steps’, setting out year on year the various phases in the development of compliance programme.