Updated guidance on modern slavery
Updated guidance issued under section 54 of the Modern Slavery Act 2015 (the Act) on transparency in supply chains etc. has now been published. The guidance, entitled "Transparency in supply chains etc. A practical guide" (the guidance) has been updated to lay out expectations for compliance with the Act and what best practice looks like.
Relevant businesses considering how they respond to the need to give the slavery and human trafficking statement (the statement) each financial year will need to consider the extent to which they want to take on board the suggestions in the updated guidance. This briefing sets out some key aspects for consideration on the Act and the guidance.
What are the key developments in the updated guidance?
Key updates to the guidance include:
- Increased encouragement of voluntary compliance by organisations who are not bound to comply by the Act.
- Stronger recommendation that organisations include in their statement information on all six of the categories suggested in the Act.
- An emphasis on year-on-year evolution and improvement of an organisation's statement.
- A requirement to publish statements "as soon as possible" after an organisation's financial year-end rather than "as soon as reasonably practicable".
Whilst the updated guidance contains the developments listed above, the guidance does not provide further details on concepts under the Act that are still unclear, such the definitions of "carries on business" or "supply chain".
To whom does section 54 apply?
An organisation is in scope and required to make the statement if it:
- Is a "commercial organisation" (which catches bodies corporate (e.g. companies and limited liability partnerships) and partnerships, wherever incorporated or formed).
- Carries on a business or part of a business in the UK.
- Supplies goods or services.
- Has an annual turnover (itself and its subsidiary undertakings) of not less than £36m.
Timing
Section 54 came into force on 29 October 2015. The statement must be prepared for each financial year by a relevant organisation. Transitional provisions provided that 31 March 2016 year-end companies were the first organisations to have to comply. The updated guidance states that statements should be published as soon as possible after the financial year end and organisations are expected to report, at most, within six months of the financial year end. It notes that organisations may wish to publish the statement at the same time as other annual accounts.
| Section 54 slavery and human trafficking statement |
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| A slavery and human trafficking statement is: a) a statement of the steps the organisation has taken during the financial year to ensure that slavery and human trafficking is not taking place: (i) in any of its supply chains; and (ii) in any part of its own business; or b) a statement that the organisation has taken no such steps. |
Aim
The Act, described as one of the first of its kind in Europe, and the world, aims to address slavery and trafficking in the 21st century. The updated guidance aims to communicate the Government's expectations on how organisations should comply with the legal requirements of the Act and to provide examples of best practice.
"The updated guidance, which explains how businesses should comply with the Modern Slavery Act, builds on our experience since the landmark Act was introduced in 2015 [...] The refreshed guidance lays out our expectations for these statements, including more explanation of what best practice looks like."
Amber Rudd, Home Secretary
While the Act is concerned with much more than just the disclosures required from relevant organisations, this briefing concentrates on that one aspect. The Government wants to support and incentivise organisations to understand the complex issue of modern slavery and how they can tackle it. It believes that once it is made clear what activity major businesses are undertaking regarding slavery and human trafficking in their business and supply chains, pressure from consumers, shareholders and campaigners and competition between businesses will encourage those who have not taken effective steps to do so. The Government wishes to "create a race to the top" to drive up standards.
Scope
As can be seen, section 54 is not limited to UK businesses or to quoted companies. It extends to bodies corporate and partnerships wherever incorporated or formed. So it can catch, for example, a private company or a foreign company, LLP or partnership that meets the above tests.
Even organisations that do not find themselves in scope to make the statement may be impacted by the new requirement if they are part of the supply chain of organisations that are required to make the statement. They may, for example, find themselves receiving more rigorous questionnaires, checks and investigations before customers will contract or renew supply contracts with them. These organisations will also need to consider the new regime and how they will respond to such increased due diligence on them.
Furthermore, the updated guidance encourages smaller organisations outside the scope of the legislation to produce a statement voluntarily. These organisations will need to consider the extent to which they wish to comply with the Act as a matter of good practice rather than legal requirement.
Parent and subsidiary organisations
In relation to group structures, there are two related questions to ask. Firstly, is a group organisation in scope and obliged to make its own statement? Second, if it is in scope, what should it say about its business and supply chains and the steps taken? The second question involves the organisation that is in scope being clear about what its business is and what its supply chains are, and, for example, whether it regards any of its subsidiaries (even if they are not themselves in scope to have to give a statement) as part of its supply chain, so that its statement should cover steps taken in relation to them.
As regards a group, it is clearly possible that more than one organisation within the group may meet the tests and each would then be required to make a statement. The guidance confirms that the parent company's statement can also cover the subsidiaries whose turnover and presence in the UK puts them within the Act's scope, so long as it covers the steps each organisation has taken.
Equally as regards a group, it is possible that there are group organisations that are not in scope and do not need to make the statement. For example, a foreign subsidiary that does not carry on a business in the UK even though it meets all the other tests, is not obliged to make the statement. Neither is a parent company obliged to report for members in its group who do not independently fulfil the criteria.
Another example that the guidance confirms is that for a foreign parent company, having a UK subsidiary will not in itself mean that the parent is carrying on a business in the UK, as the subsidiary may act completely independently of its parent or other group companies. The issue in this latter case will be down to whether, applying a common sense approach, the parent company has a demonstrable business presence in the UK. The guidance goes on to state that even if a foreign subsidiary or parent is not legally obliged to make a statement, it may do so nonetheless.
For any organisation that is in scope, its statement must cover the steps taken as regards its own business and its supply chains. The guidance states that whether a parent's statement should include steps taken in relation to its subsidiaries must be looked at on a case-by-case basis and depends on whether the activities of the subsidiary form part of its supply chains or part of its business. The guidance does not give a specific example, but an example might be – if a subsidiary supplies raw materials to a parent manufacturer, the parent's statement would need to cover the steps the parent has taken to investigate the subsidiary's supply chains in respect of those raw materials. The guidance states that if a parent company decides that a subsidiary is neither part of its supply chain nor part of its own business, it need not include in its statement any steps that it has taken as regards the subsidiary.
However, the guidance goes on to say that including in a parent company statement the steps that it has taken in relation to subsidiaries that are not in scope would represent good practice and would demonstrate that the company is committed to preventing modern slavery. This is highly recommended especially in cases where the non-UK subsidiary is in a high-risk location or industry. It also states that if a parent company is seen to be ignoring the behaviour of its non-UK subsidiaries, this may reflect badly on the parent. Nevertheless, "good practice" and "highly recommended" do not form part of the law.
Supply chain
The guidance does not say what is meant by "supply chain" beyond that it has its everyday meaning. It is perhaps to be inferred that since neither section 54 nor the guidance limit the phrase "supply chain" with the term "direct" or something similar, that they intend the whole supply chain going back as far as it goes, to be in scope. Indeed, the guidance in one place distinguishes between "first tier" suppliers and others. It states that while a business may have a greater knowledge of its first tier suppliers and while stakeholders may expect it to make greater efforts at its first tier, it should also engage its lower tier suppliers where possible.
That said, an organisation that is in scope only needs to set out the steps it has taken (or that it has taken no steps). In several places, in the context of due diligence to support the statement, the guidance talks of a proportionate response and the need to prioritise.
The statement
A relevant commercial organisation that is in scope must prepare a statement for each financial year. The statement should be written in simple language that is easily understood.
The statement must be published on the organisation's website by including a link to it in a prominent place on its homepage. The guidance confirms that this means the link should be directly visible or part of an obvious drop-down menu on the homepage. Organisations with no website must provide a copy of their statement to anyone who requests one in writing within 30 days of receiving that request.
An organisation is required to publish a statement for each financial year in which it meets the £36m threshold. The updated guidance strongly recommends that businesses who produce a statement, should continue to do so in future years even if their turnover falls below the £36m threshold. The updated guidance also states that organisations should keep historic statements from previous years available online even after new statements are published to allow the public to monitor the progress of the organisation over time.
The guidance notes that those organisations already taking action in this area can quickly and simply articulate work already under way and planned. They can also support the statement by linking to other relevant documents on their website, e.g. policies. The guidance suggests that organisations will need to build on what they are doing year-on-year and their statements should evolve and improve over time.
Although it is mandatory to make a statement, other than stating the steps taken (or that no steps have been taken), no specific other contents are required. Whilst the Act states that the following information "may" be included in the statement, the updated guidance states that organisations "should aim" to include the following (in contrast to the previous version of the guidance which mirrored the Act and said "may" be included):
| Suggested contents for the statement |
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The contents of the statement should "paint a detailed picture" of the steps the organisation has taken to address and remedy slavery and human trafficking and the effectiveness of those steps.
The guidance looks, in Annex E, at each of these areas in turn and makes some practical suggestions as to what information could be disclosed. For example, as regards information on organisational structure and supply chains, it suggests that this could include group relationships, the countries it sources goods or services from, including high risk countries, the complexity of the supply chain and relationships with suppliers, trade unions and bodies representing workers. As regards due diligence, it notes, for example, that human rights breaches including modern slavery are likely to be hidden and that the nature of modern slavery is continually changing. Consequently, for some organisations audits and compliance-driven approaches may be insufficient and what may be needed are investigations using independent third party and civil society stakeholders. Mention is also made of procedures for workers to make reports and of whistle-blowing procedures.
Responsibility and enforcement
For a company, the statement must be approved by the board and signed by a director. For an LLP, the statement must be approved by the members and signed by a designated member. The updated guidance states that it is best practice for the statement to include the date on which it was approved by the board or the members of the organisation. For a partnership, a partner must sign the statement.
The duties imposed by section 54 are enforceable (outside Scotland) by the Secretary of State who may bring civil proceedings in the High Court for an injunction for specific performance. Failure to comply with an injunction is contempt of court and punishable by an unlimited fine. The guidance confirms that legal compliance does not turn on how well a statement is written or presented, provided that it sets out the steps taken or that no steps have been taken.
The guidance confirms that organisations are expected to build on their statements each year and for their statements to improve and evolve over time. The guidance envisages that consumers, investors and Non-Governmental Organisations will apply pressure where they believe that a business has not taken sufficient steps.
In practice
Although technically an organisation is able to say that it has taken no steps, most will not consider this an option.
The length and complexity of the statement and the preparation that goes into it will clearly vary between organisations. As the Government response notes – "...a business which provides services, and is entirely based in the UK, may need to disclose much less information than a retailer with suppliers all over the world." On the other hand, for those organisations with complex, multi-layered and multi-jurisdictional supply chains, the disclosures in the statement are likely to be longer and more complex, as are the steps and processes it has to go through to get there.
| Some areas for relevant organisations to consider |
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| How Ashurst can assist you |
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