Insights

Infraread issue 11 | UK 16 Apr 2018 Modern Slavery: Corporate Accountability in the UK Construction and Infrastructure Sectors

This article looks at the application of the transparency provisions of the Modern Slavery Act 2015 to the construction and infrastructure sectors. It considers the limitations of the legislation as well as emphasising that the onus on large organisations to carry out their business activities ethically and responsibly in the context of modern slavery extends beyond the "letter of the law" requirements of the Act.

The PDF server is offline. Please try after sometime.

Responsible and ethical business practice in today's corporate world comprises many elements such as the promotion of diversity, inclusion, equality, environmental sustainability and philanthropy. Transparency and traceability are also widely considered to be key to sustainable business practice. With the introduction of section 54 of the Modern Slavery Act 2015 (the Act), the UK Government has brought corporate ethics and transparency together in the context of human rights by requiring certain large organisations to publish an annual slavery and human trafficking statement.

On its introduction, the obligation on large businesses to comply with section 54 of the Act was labelled as "world-leading" by the then Home Secretary, Theresa May. Since then the UK Government has reinforced its commitment to tackling the eradication of modern slavery and human trafficking and last year promised to double its aid spending in this area. Nevertheless, the Act has remained under scrutiny for failing to go far enough and a current Private Member's Bill in the House of Lords seeks to tighten the legislation and extend accountability. For labour-intensive sectors such as construction, which accounts for around 7 per cent of the global workforce, modern slavery and human trafficking are particular areas of concern. In this article, we look at section 54 of the Act, its extraterritorial effect for the construction sector, perceived shortcomings of the legislation and the outlook for the future.

What is modern slavery?

Despite recent legislative efforts in the UK and in other jurisdictions, the scale and manifestations of modern slavery are sobering. While it is incredibly challenging to accurately quantify the problem, the philanthropist-founded NGO, Walk Free, has attempted to do so via its Global Slavery Index. The latest Index estimated that some 45.8 million people are the victims of modern slavery. The countries identified as the worst perpetrators by proportion of their population are North Korea, Uzbekistan, Cambodia, India and Qatar. Based on sheer numbers, the majority of those living in slavery are in five countries – India, China, Pakistan, Bangladesh and Uzbekistan – but the problem is widespread: the Index identified victims in 167 countries, including the UK.

Modern slavery is a general term that applies to situations involving exploitation, often under duress of threats, violence, coercion, abuse of power or deception. This could be through slavery, human trafficking, domestic or non-domestic servitude, sexual exploitation, forced marriage, organ harvesting and, of course, forced labour. Abuses more specifically linked to forced labour – and therefore relevant to construction and infrastructure – are debt bondage, control of freedom of movement, abusive and involuntary living conditions, excessive overtime and unethical recruitment. Migrant workers are, unsurprisingly, the most common victims of modern slavery by way of forced labour, which underlines the global nature of the issue and makes the construction industry – with its often multi-tiered levels of sub-contracting and seemingly endless supply chains – particularly susceptible to abuse. Indeed, the International Labour Organisation, in conjunction with Walk Free, estimates that, after domestic workers (24 per cent), construction workers constitute the largest share of adults in forced labour (18 per cent).

The Act: who and what?

The Act was the first piece of legislation introduced in the UK specifically for the purpose of policing modern slavery and human trafficking. While section 54 sets out the requirement for large organisations to publish an annual statement, the majority of the Act is concerned with protecting victims and punishing perpetrators within the UK. The commitment of the Government to eradicating modern slavery and human trafficking has been acknowledged by the Global Slavery Index, which recognises the UK as one of the governments showing the strongest response, alongside the Netherlands, the US, Sweden, Australia, Portugal, Croatia, Spain, Belgium and Norway.

The transparency provisions of the Act are set out in section 54 and aim to make organisations which carry on a business, or part of a business, in the UK, and which are over a certain size, publicly accountable for the steps they have taken (or not taken, as the case may be) to ensure that they are not complicit in modern slavery and human trafficking.

If an organisation:

(a) is a commercial organisation;
(b) supplies goods or services;
(c) carries on a business or part of its business in the UK; and 
(d) has a total turnover of at least £36 million,

then it is required under the Act to produce an annual statement setting out:

  • the steps taken during the past 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 business,
  • or, in the event no steps have been taken, a statement declaring that to be the case.

It is important to note the following:

(a) If any organisation in any part of a group structure meets the above requirements, then it is required to produce an annual statement.

(b) Where a parent or one or more subsidiaries in the same group is required to produce a statement, the parent may produce one statement that subsidiaries can also use. The statement will, however, have to fully cover the steps that each of the organisations required to produce a statement has taken.

(c) The jurisdiction in which a company is incorporated is irrelevant. The test is whether an organisation is carrying on business or part of its business in the UK.

(d) While section 54 only applies to commercial organisations turning over more than £36 million, the Home Office has highlighted that smaller organisations may also find it helpful to publish section 54 statements on a voluntary basis. Of course, SMEs may also find themselves making statements or complying with policies if they are suppliers to an organisation that is bound by the Act.

The limitations of section 54

Section 54 has broad application, but it also has limitations. The content of the statement is not prescribed although section 54(5) sets out details of what a statement "may" contain, such as:

  • details of the organisation's structure, its business and supply chains; and 
  •  details of the parts of its business or supply chains located in areas where there is a risk of modern slavery and human trafficking, and the steps taken to manage that risk.

The lack of "bite" in section 54 is evidenced by a number of factors:

  • the particulars in section 54(5) are only suggestions and not requirements;
  •  a section 54 statement does not need to be of any particular length or detail;
  • companies are not required to guarantee that abuse is not taking place, only to demonstrate the steps which have been taken to seek to ensure modern slavery and human trafficking are not taking place; and
  • the only sanction under section 54 is the ability of the Home Secretary to bring civil proceedings in the High Court for an injunction compelling the organisation to report (similar powers apply in Scotland). Only if the organisation fails to comply with the injunction would it be liable to pay a fine, which would be for contempt of court, not for failure to comply with the Act.

Case study – the problem with supply chains and visibility

With approximately US$150 billion profit annually resulting from forced economic exploitation, the incentive for the unscrupulous to exploit the vulnerable is very real. The consequence for multinational developers and contractors with long and opaque supply chains is the potential for unwitting involvement in modern slavery. While the legal bite of section 54 is limited, it has helped to set expectations in terms of acceptable standards of corporate accountability in the context of modern slavery. As the following case study demonstrates, in the current legislative and political climate, compliance with section 54 will not necessarily assist an organisation in avoiding significant ramifications if modern slavery does occur within its supply chain.

  • X Group is a large infrastructure developer specialising in the design, construction and operation of light railway networks and is responsible for many inter-city light railway systems within and outside the EU. X Group was originally founded in the UK in the 1970s as Company X, but is now a multinational organisation with a presence in 80 countries. Company A is a direct subsidiary of Company X. It is specifically responsible for the development of projects in Southeast Asia but carries out some of its work from London. It has various subsidiary entities, incorporated in several jurisdictions, which are responsible for implementation of projects in the region.
  • Company A's parent company, Company X, sits at the top of the group structure and has in place what it considers to be a robust set of modern slavery and human trafficking guidelines across various areas, including a policy on fair employment which applies to its projects within and outside the UK. Company X's policy is a group policy designed to be followed by all entities within the large group structure, as well as all members of its supply chains.
  • X Group companies are generally well perceived in the media and are listed on stock exchanges around the world. 

What issues might arise in relation to modern slavery? The following fact scenario demonstrates what can go wrong:

  • Three years ago, Company A wins a competitive bid to develop an extensive light railway system in Southeast Asia. The first of its kind in the country in question, this is a major infrastructure project requiring a substantial workforce which cannot be sourced solely from nationals of the country in question.
  • A main contractor is appointed and, at the height of construction, more than 80 sub-contractors are employed, who in turn engage many sub-sub-contractors, and so on down the supply chain. A total of 15,000 workers are involved in the project.
  • Under Company X's modern slavery policy, which Company A has also adopted, Company A's contractors and its entire supply chain are contractually obliged to comply with Company X's policy.
  • Over time, and without Company A's knowledge (or that of any other of the UK entities of the X Group), exclusions are applied down the supply chain.
  • The main driver is financial. Unscrupulous members of the supply chain find that they can increase their profits if they pay their workers little or no wage and force them to live in squalid accommodation.
  • The existence of this labour exploitation eventually makes its way into the Western media and is promulgated through an exposing documentary on UK television. In response, X Group commissions its own independent investigation which notes that X Group's modern slavery policy is "robust" and "clear" and that Company X had published a "comprehensive" section 54 statement on behalf of itself and those of its subsidiaries who are bound by the Act, including Company A. Reports from international human rights organisations find that, while X Group had a clear policy and had complied with the Act to the extent that it detailed the steps taken and the procedures it has in place, it should have done more. It did not have full visibility of the actions of subsidiaries' supply chains.
  • Treatment of workers has since improved but the reputation of X Group has suffered potentially irreparable damage. The confidence of shareholders, customers and investors has been dented and X Group has won fewer tenders than before the labour exploitation taking place in its supply chain was exposed.

Good practice

As can be seen from the case study, in the current political and cultural climate, producing an adequate statement may not be enough to demonstrate corporate responsibility. Due diligence is, of course, key and the Act provides that, in producing a statement pursuant to section 54, a company may include information regarding its due diligence processes. Indeed, Home Office guidance, issued in October 2017, goes further and suggests that a statement "should" contain information about a company's due diligence procedures, as well as addressing the other five areas set out in section 54(5).

Home Office guidance also states that human rights due diligence is "a key concept in the UN Guiding Principles on Business and Human Rights (UNGPs)". The UNGPs have been developed into sector-specific guidance by the Organisation for Economic Co-operation and Development (OECD) and suggest operational principles which should be adopted by business enterprises.

The UNGPs stress the importance of a clear policy that is embedded in the fabric of the organisation and supported by those at the top. Businesses are responsible for identifying, preventing, mitigating and accounting for how they address adverse human rights impacts. The due diligence required to achieve this should include assessing actual and potential human rights impacts, integrating and acting upon the findings, tracking responses and communicating how impacts are addressed. 

The UNGPs recognise that due diligence will vary in complexity depending on the size of a business and the risks it faces, as well as the nature and context of its operations. To take the above case study: in order to fully assess the extent of modern slavery on its light railway project, Company X – as a large multinational corporate enterprise – should have been assessing the actual and potential impacts and fully tracking all responses. The UN acknowledges that where business enterprises have large numbers of entities involved, with consequential difficulties in conducting due diligence across all entities, then general areas should be identified where the risk is seen as most significant. This could be due to the operating context or the particular operations involved. Due diligence should then be focused and prioritised accordingly. The UN emphasises that human rights situations are dynamic and that assessments should be undertaken at regular intervals; prior to a new activity; prior to making major decisions; in response to or in anticipation of changes, as well as periodically throughout the life of an activity. Liaising with key stakeholders is also recommended, as is engaging credible and independent expert resources.

Home Office guidance refers to other ways in which companies can address human rights risk. Examples include: 

(a) Sharing risks with trusted partners such as representative bodies, industry associations and working groups to deepen understanding of macro issues and support improved government legislation, which may also help sectors to prevent modern slavery and human trafficking. A good example of this type of initiative in practice is the "Construction Protocol" produced by the Gangmasters and Labour Abuse Authority (GLAA), which was launched in October 2017. The Construction Protocol is a joint agreement between the GLAA, contractors (including Sir Robert McAlpine and Willmott Dixon) and industry bodies such as the Chartered Institute of Building (CIOB). It was produced to facilitate a dialogue between the GLAA and the construction sector by committing signatories to work in partnership through the sharing of information, the raising of awareness within the supply chain, and maintaining momentum through regular communication in order to help stop or prevent exploitative work.

(b) The use of carefully designed performance indicators. This could help businesses to demonstrate very clearly whether they are making progress over time in preventing modern slavery and human trafficking, as results could be tracked and reported on.

Section 54 of the Act is about transparency, i.e. a business has to demonstrate what steps it is taking, but the statement is not a guarantee that supply chains are slavery-free. Indeed, the Act gives businesses the option of reporting that they have taken no steps to ensure that slavery and human trafficking is not taking place. Thus, while demonstrating adequate due diligence procedures is likely to form an important part of the statement, there is actually no penalty under section 54 for a failure to show that any such procedures are in place. Nonetheless, as the case study demonstrates, it is good business practice and good risk management to do so. That said, there will inevitably be limits to such procedures which need to be proportionate to the identified risk of modern slavery. As an example, business may have greater knowledge about its first-tier suppliers and, at this level, its stakeholders will expect greater efforts.

What next – more stringency in the future? 

As can be seen from the case study, a business bound by the Act can comply with its requirements but still be seen as culpable in the eyes of the public for human rights abuses. The question is therefore whether the Act goes far enough? Should the legal ramifications for the existence of modern slavery and human trafficking in an organisation's subsidiaries or supply chain be more onerous? Critics of the Act argue that relying on the disincentive of reputational damage is not enough.

In any event, the potential reputational damage for non-compliance with section 54 is hampered by the fact that there is currently no formal or prescribed way of tracking whether companies are actually producing the statements which they are legally required to make. "Naming and shaming" is therefore not as easy as it might otherwise be. The absence of a central database also makes it difficult to measure the impact of section 54. Nevertheless, there are organisations that are taking on the task, notably the Modern Slavery Registry, which is easily accessible online and which has, at the time of writing, collated details of section 54 statements from over 5,000 companies. The Modern Slavery Registry is sponsored by charities such as UNICEF and Anti-Slavery International and its stated aim is to analyse whether statements are in compliance with the legislation and the quality of the reporting.

These criticisms have been addressed in the Modern Slavery (Transparency in Supply Chains) Bill, which was introduced in the House of Lords last summer by Baroness Young of Hornsey and which has had its first reading. The new bill proposes that a list be published of all those required to make a transparency statement in a place and format that is easily accessible and which is categorised according to sector. The bill also proposes: (a) extending the requirements to public authorities; (b) requiring organisations that publish statements indicating that they have taken no steps to eradicate human trafficking and slavery to provide reasons for their failure to do so; (c) adding more detail on what must be included in a statement; and (d) amending the Public Contracts Regulations 2015 (SI 2015/102) so that businesses that are required to prepare a section 54 statement, and have failed to do so, are excluded from public procurement procedures.

While the transparency requirements may be strengthened in the foreseeable future, other developments indicate that, for the UK construction sector, modern slavery is increasingly on the agenda. In addition to the Construction Protocol (mentioned above), various industry initiatives have been launched including BRE's "Ethical Labour Sourcing Standard", and "Stronger Together" (a multi-stakeholder initiative to reduce modern slavery). The GLAA, mentioned above, has also begun targeting the construction sector. Although historically tasked with protecting vulnerable and exploited workers in the fresh produce and horticulture industries, because of similarities in the provision and use of labour in the construction industry, and extended powers pursuant to the Immigration Act 2016, the GLAA is increasingly involved in policing abuses in the construction sector, including offences under the Act.

Final thoughts

It is recognised that individual companies can only do so much, particularly where supply chains are very long. Nevertheless, despite both the practical limitations of policing modern slavery and the limitations of the Act, it is highly unlikely that the topic will cease to be of significant concern to big business. Future legislative changes are only likely to increase the obligations on organisations to participate in the eradication of modern slavery and human trafficking. Meanwhile, in the current climate of outspokenness on matters of fairness and justice, those in the construction and infrastructure sectors who do not demonstrate their commitment to ethical business practices will be held accountable in other ways.

Co-Author: Matt Pearson

Key Contacts

We bring together lawyers of the highest calibre with the technical knowledge, industry experience and regional know-how to provide the incisive advice our clients need.

Of related interest

next-article
employment | modern slavery update

Modern slavery: how financial institutions can help

Read Now

The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to. Readers should take legal advice before applying it to specific issues or transactions.

Get Started
WORLD MAP
  • REGION
  • OFFICE

        Forgot Password - Ashurst Account

        If you have forgotten your password, you can request a new one here.

        Login

        Forgot password? Please contact your relationship manager to find out more about our client portal.
        Ashurst Loader