Statutory guidance published: Modern Slavery - Transparency in Supply Chains provision

Statutory guidance published: Modern Slavery - Transparency in Supply Chains provision

Published:

Author: Ron Reid

Applies to: UK wide

The transparency in supply chains provisions came into force on 29 October 2015. The long awaited statutory guidance has been published. This briefing sets out the key points for business.

Introduction

The objective of the Modern Slavery Act 2015 is to prevent modern slavery entering the supply chain and organisations as well as preventing more people becoming victims. The stated aim of the government is to 'require businesses to be transparent about what they are doing and... increase competition to drive up standards'.

The statutory guidance provides information and case studies about how organisations can comply with the transparency in supply chain provisions ('the provisions'). Supply chain has its 'every day' meaning but an annex to the guidance refers to all supply chains and contractual relationships.

The provisions are designed to increase transparency by requiring organisations to set out the steps they are taking to tackle modern slavery. We have previously reported on the key legal obligations set out in the provisions.

It is anticipated that the first statements could show what businesses are doing to begin to act on the issue of modern slavery in their supply chain as well as identifying what investigation or collaboration needs to happen with others to cause change.

The Modern Slavery Act 2015

The provisions seek to create a 'level playing field' between those who are caught by the requirements who already act responsibly and those who need to change policies to ensure they do so. The hope is that businesses will go beyond their legal duty and do more to tackle modern slavery in their supply chains because it is 'the right thing to do'. The underlying message is that businesses who fail to comply with the provisions risk damage to their reputation and their brand and suggest that consumers, investors and NGOs apply pressure where they perceive that organisations haven't done enough to comply.

Who is required to comply?

A commercial organisation with a turnover of £36m or more which carries on business (or part of a business) in the UK and supplies goods or services is required to produce a slavery and human trafficking statement for each financial year of the organisation. A common sense approach is to be adopted. Even if the organisation carries out charitable, public functions or educational aims, the organisation will be required to comply with the provisions if it carries out commercial activities and meets the turnover threshold. This means that certain public sector organisations will be caught if they carry out commercial activities.

Franchises

Franchisers are required to make a statement if the turnover of the franchiser meets the £36m threshold. When making the statement, the franchiser may choose to include activities of franchisees in order to protect the franchiser's brand. Such an approach will show the franchiser takes the issue of modern slavery seriously.

If the franchisee meets the turnover threshold in its own right, the franchisee is required to make its own statement.

Parents and subsidiaries

If a parent or a subsidiary (irrespective of location) meets the requirements of the provisions, they are required to make a statement in their own right even if another company in the group does so. The definition of a subsidiary has the meaning given by section 1162 of the Companies Act 2006

The guidance states that it is for individual parent organisations to determine whether or not a subsidiary forms part of its supply chain. The provisions are referred to in the guidance as 'tests in the Act'. When considering whether or not the provisions apply to parents or subsidiaries, organisations should use the provisions as tests. If all the stages of the test apply, the organisation (or part thereof) will be caught and required to comply.

It is highly recommended for parent companies to consider including the activities of foreign subsidiaries in their statement especially where that foreign subsidiary is based in high risk location or sector.

Penalties

The civil penalties of an injunction or order for specific performance of a statutory duty remain but given the propensity for naming and shaming (most recently reported in the press regarding the non-payment of the national minimum wage) it is likely that organisations can expect the Anti-Slavery Commissioner to follow suit.

The provisions are designed to create a 'race to the top' through competition to 'drive up standards'. Transitional provisions are in place giving time for organisations to formulate and implement strategies rather than adopting a hasty approach. We are already seeing large clients experiencing pressure from those they supply to give assurances or point to a statement. In practical terms this means that those who comply sooner rather than later are in a better place when winning contracts. It is likely that tender documentation will include more questions around this topic.

Writing a slavery and human trafficking statement ('the statement')

The government has not prescribed the length of or content to be included within the statement. What is required is to set out in the statement the steps that have been taken during the financial year to ensure slavery and human trafficking is not taking place in any part of its own business or in any of its supply chains capturing all the actions it has taken. However, an organisation can choose to make a statement to say that no such steps have been taken.

The guidance includes top tips for writing a statement including keeping the statement succinct but cover all the relevant points, if an organisation can provide appropriate links to relevant publications, documents or policies, do so and specifying actions by specific country will help readers to understand the context of any actions or steps taken to minimise risk.

If an organisation has policies that are publically available and published on their website, rather than starting from scratch, the organisation may link to those policies in the statement. It is important to remember that the requirement to make a statement remains irrespective of the existence of those policies.

Information which an organisation could choose to include is set out in the guidance.

When writing a statement, there is a balance to be struck between providing sufficient detail to enable an understanding of the efforts made by the organisation and the technical or legal detail which might make the statement inaccessible.

The government expects the statement to evolve with the first statements providing details of what organisations are doing to act on the issue of modern slavery as well as their plans for the future (both in terms of due diligence and collaboration with others).

Policies

Although there is no prescriptive approach to drafting a policy, the guidance contains useful questions to consider when drawing up a policy supporting the statement.

One of the areas in which the government is keen to see improvement is in the plight of temporary workers with whom the organisation will not have a direct contractual relationship. It is recommended in the guidance that organisations should have specific policies in place to ensure that the potential risk of modern slavery is mitigated.

The guidance sets out good practice on what organisations should consider when putting policies together.

Those who have attended our seminars and receive updates on modern slavery will have heard our experts advocating ideas identified in the guidance regarding best practice for risk assessment prior to policy drafting.

Approving a statement

The statement must be approved at the highest level of the organisation (i.e. by a director or a partner as appropriate).

Senior level engagement is required. It is the responsibility of those in senior management to ensure there is a culture shift in the organisation to be aware of the risks of modern slavery. Policies must be implemented and procedures put in place to ensure those policies are followed. Organisations should ensure there is appropriate training in place for employees at all levels. It should be targeted to ensure the training has the most effect.

Publishing a statement

A link to the statement must be published in a prominent place on the home page of the organisation. The guidance recommends the link is clearly marked so it is apparent what it links to e.g. 'Modern Slavery Act Transparency Statement'. Where it forms part of a drop down menu, it should form an obvious part of that menu.

Due Diligence

The guidance recommends that due diligence procedures should be based on:

  • proportionality of the risk itself
  • the severity of the risk
  • the influence the organisation has
  • an informed risk assessment which has taken place

Examples of information which could be considered as part of due diligence is contained in the guidance.

In order to ensure the effectiveness of policies and action against perpetrators, due diligence should be conducted on an ongoing basis. Although the greatest level of engagement should be will 'first tier' suppliers, where possible, organisations should engage with 'second tier' suppliers. Integrity of investigations is key.

Assessing and managing risk

Organisations should consider the following areas when conducting risk assessments:

  • business partnership risk
  • country risk
  • sector risk
  • transaction risk

The guidance emphasises that continuous assessment and risk review is essential. The government believes collaboration between those in particular sectors will help prevent modern slavery. By way of example, the guidance cites a Seafood Ethics Common Language Group to tackle problems identified in the Thai fishing industry.

Human Rights

The guidance refers to the UN Guiding Principles (UNGPs) which are based on three pillars of human rights. They are a useful reference point for organisations which choose to implement a human rights policy.

Companies who are required to report under the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013 who must also make a statement under the Modern Slavery Act should ensure requirements of both pieces of legislation are complied with. It is anticipated that organisations will make two separate statements rather than a single statement covering all requirements.

What to do if you spot the signs of modern slavery

If an instance of modern slavery is identified, organisations should always consider what approach will result in the safest outcome for the victim(s) whilst remembering the commercial clout the organisation holds over the perpetrator. The guidance suggests that termination of supplier relationships should be a last resort which should only be considered after all efforts to work collaboratively to remedy the situation have been exhausted.

If you are in any doubt about how the provisions apply to your business or supply chain, please contact Ron Reid on 03700 86 8471 or Jos Kirkwood on 03700 86 8347.

Disclaimer

This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.

About the author

contact photo

Ronald Reid

Consultant

03700 868471

Ron is a consultant with Shoosmiths having previously headed the regulatory & compliance team advising clients on non contentious matters as well as those facing investigation or prosecution for breaches of regulatory legislation. He has considerable experience of crisis management. He has over 40 years' experience including having prosecuted complex matters on behalf of the Health and Safety Executive giving him considerable insight into the enforcement process and the major causes of prosecution.

Ron also formed part The Law Society Steering Group on the Modern Slavery Act practice note and spoke alongside Kevin Hyland, OBE, at the Law Society on the 6th December 2016.

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