The Modern Slavery Act was passed in March 2015. When section 54 of the Act comes into force, large businesses will be required to report annually on their efforts to ensure the business and its supply chains are free of slavery and human trafficking. Below, we consider what businesses need to do to comply.

The obligation

Section 54 of the Act requires businesses over a certain size to publish an annual slavery and human trafficking statement. The statement must confirm either:

  1. the steps the organisation has taken to ensure that slavery and human trafficking are not taking place in any of its supply chains or in any part of its own business; or
  2. that no such steps have been taken.

A link to the statement must be published in a prominent position on the business’ website homepage and the statement must be approved and signed by a director. So, although businesses could opt to take no action as a result of the Act and simply produce a statement under option (b), the Government hopes that public pressure and scrutiny from shareholders and the media, together with the risk of reputational damage, will encourage businesses to take real steps to investigate their supply chains and publish details of their efforts. Experience in California, with similar legislation, suggests businesses will not go for option (b).

Which businesses are covered?

Section 54 applies to all commercial organisations which carry on business or part of a business in the UK and have a turnover of a certain amount. Section 54 can therefore apply to non-UK registered companies.

The Government is yet to confirm the turnover thresholds that will apply. It is clear however that the turnover of an organisation will include the turnover of all of its subsidiaries. One figure floated by the government in consultation was £36 million which would result in approximately 12,260 companies being subject to section 54.

When will section 54 come into force?

Section 54 is currently expected to come into force around October 2015. Before it does, the Government will confirm the turnover threshold and issue guidance on compliance. If section 54 comes into force in October 2015, secondary legislation may provide that the first reporting date falls later. However, large businesses should be starting to think about compliance now.

What should the statement include?

Although companies have flexibility as to what they include in the statement, the Act lists six areas that may be included:

  1. The organisation’s structure, business and its supply chains.
  2. Its policies in relation to slavery and human trafficking.
  3. Its due diligence processes in relation to slavery and human trafficking in its business and supply chains.
  4. 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.
  5. 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.
  6. The training about slavery and human trafficking available to its staff.

Although not expressly covered in the Act, the Government’s clear intention is that “supply chain” refers to a business’ global supply chain. For large businesses with supply chains across the world, this creates a very onerous obligation. Such businesses are unlikely to be able to carry out a full audit of its business and supply chains in the first year. Prioritisation of particular risk areas may therefore be key. We await Government guidance on this.

What are the consequences of non-compliance?

If a business does not produce either an “option (a)” statement or an “option (b)” statement, the Secretary of State has the power to apply to the High Court for an injunction to force the business to comply with their obligations under section 54. However, the real risk for businesses may be reputational rather than legal.

Next steps for employers

Large companies should start thinking about compliance now. Steps you may want to consider include:

  • Making sure slavery and human trafficking is covered in your human rights / CSR policy;
  • Expanding your whistleblowing policy to cover any concerns about slavery or human trafficking;
  • Auditing your practices for checking all employees are paid at least the minimum wage and have the right to work;
  • Updating template commercial agreements to include an obligation that suppliers will comply with the Act and ensure that their suppliers and sub-contractors will too;
  • Deciding who in the organisation will oversee the investigation and the production of the statement;
  • Identifying and prioritising high risk areas in the supply chain; and
  • Starting to investigate your supply chain (contractors, sub-contractors, policies, contracts etc.).

Watch this space for further advice and commentary in this area once Government guidance is published later this summer.