Are you complying with the Modern Anti Slavery Legislation?5th October 2016
With London Fashion Week over for another year, now is a good time to reflect on some of the legal and practical steps the fashion industry should be considering going forward.
In July 2015, the Modern Anti-Slavery Act came into force. The Act received much attention from politicians and the media, who generally viewed it as an important leap towards a more socially responsible fashion industry. However, companies’ responses to the Act have been underwhelming, with relatively little compliance across the sector.
The Act places a new duty on larger businesses to publicly report steps they have taken to ensure their operations and supply chains are trafficking and slavery free.
In our experience, in-house lawyers are increasingly being tasked with responding to this and other human rights disclosure duties, often working cross-functionally with CSR, Procurement and other stakeholders.
What is modern slavery?
Modern slavery is a broad term used to any form of slavery, forced and compulsory labour and human trafficking. Traffickers and slave-drivers coerce, deceive and force individuals against their will into a life of servitude and inhumane treatment. Modern slavery exists in both developing and developed countries, including the UK, and can involve UK citizens as well as foreign nationals. A common example arises where migrant workers take loans to pay for their travel to the UK (or another country) with a view to repaying it from their earnings on arrival. They become trapped in ‘debt bondage’ as other sums are added to the loan while they work, such as accommodation and transport costs, exceeding their capacity to make repayments. In addition, their passports are often withheld.
How does modern slavery impact reputable businesses?
While reputable employers may be satisfied that their own UK operations are slavery-free, they may be less clear whether this is also the case for their operations elsewhere, their supply chains and other business relationships such as franchises, out-sourcing partners and joint-ventures.
Businesses are under increasing pressure to take action and the threat of failing to do so can leading to serious consequences in terms of
- reputation, including ‘naming and shaming’ campaigns led by pressure groups as well as the push from governments and stock exchanges for greater corporate transparency on human rights, such as the Modern Slavery Act disclosure duty;
- legal side, including the risk of litigation, complaints to the OECD and breaching ethical procurement terms;
- financially, reflecting investor and customer sensitivities and increasing demands for CSR performance data as part of tendering processes; and
- operationally, arising from labour disputes and disruption to supply chains.
The Modern Slavery Act disclosure duty
Any commercial organisation supplying good or services and having a minimum turnover will be required to prepare a slavery and human trafficking statement for each financial year.
A ‘commercial organisation’ includes partnerships and a body corporate, wherever incorporated, which carries on a business, or part of a business, in the UK (not just UK incorporated businesses).
The statement must set out the steps the organisation has taken during the financial year to ensure that slavery and human trafficking is not taking place in any of its supply chain and in any part of its own business, or, a statement that it has taken no such steps. It must be approved by the board or equivalent management body, signed by a director or equivalent (e.g. the general partner in a limited partnership) and published prominently on the organisation’s website.
While there are limited penalties for non-compliance in practice (the disclosure duty is subject to enforcement by the Secretary of State by injunction, which seems unlikely), the assumption is that pressure groups will target businesses, particularly consumer brands, in vulnerable sectors and subject them to reputational campaigns to force annual disclosure. The government may also be tempted to ‘name and shame’ key businesses which drag their heels. The ultimate aim is that, by driving up transparency, modern slavery will be tackled with greater urgency, creating a virtuous circle of improvement.
The content of the annual slavery and human trafficking statement
The Act sets out areas which “may” be included in the annual statement and statutory guidance is expected to be issued, further to a consultation which closed in May. The suggested areas are:
- information about the organisation’s structure, its business and supply chains;
- the business’s policies relating to modern slavery;
- its due diligence processes in relation to slavery and trafficking in its business and supply chain;
- the parts of the business where there is a risk of modern slavery and the steps it has taken to assess and manage that risk;
- its effectiveness in ensuring that modern slavery is not taking place, measured against appropriate performance indicators;
- training available to its staff.
Some organisations are already very active in this area, for example, introducing policies and training as well as implementing risk analysis audits, due diligence, complaints mechanisms, stakeholder engagement and more across their business and supply chains.
For others, this topic is relatively new and it can be initially overwhelming due to the breadth of the issues. However, it would be unwise for larger business operating in vulnerable sectors to ignore it, particularly those with long and complex supply chains or with particular brand sensitivities.
If you are new to this topic, you should be aware that the Modern Slavery Act sits in a wider context. Next year, the Companies Act will be amended to strengthen current corporate duties to report on human rights, not just slavery and trafficking, in strategic reports. This will implement an EU Directive which also aims to boost transparency around the steps companies are taking to tackle their human rights impacts. Both disclosure duties are the result of the UN Guiding Principles on Business and Human Rights, which expect states and businesses to play their part in respecting human rights globally. Seeing the Modern Slavery Act holistically in this way should avoid the need for piecemeal responses that need revisiting at a later date.
Secondly, the requirement for a director to sign the annual slavery and trafficking statement is significant and marks a level of accountability which may focus the minds of business leaders, with a ripple effect for those compiling the statement.
More practically, there is guidance on UK government, police, UN, ILO and other websites on a range of steps businesses can take to combat modern slavery, for example:
- assigning clear responsibility within the organisation, preferably with accountability at the top;
- embedding a policy which communicates publicly the organisation’s position on modern slavery;
- training employees, including how to spot the signs of modern slavery such as suppliers overpromising based on unusually low worker rates, keeping their workers’ ID documents, transporting and housing workers en-masse in substandard conditions while deducting the costs from their wages, etc;
- assessing and prioritising supply chain risk, for example, vulnerable sectors, geographies and suppliers in order to focus action including procurement audits, supplier engagement and training, financial or legal incentives to improve behaviours and collaborative problem solving (e.g. where organisations need to act together to tackle systemic issues in sectors);
- conducting proper checks on agencies who supply labour (e.g. where UK work activities fall under the Gangmasters Licensing Authority, businesses should be alert to illegal gangmasters in their supply chains);
- providing whistleblowing and grievance mechanisms, including to outsourced labour, to highlight problems.
It is well recognised that addressing modern slavery and wider human rights risks is an iterative process, as companies move forwards a step at a time. Perfection may never be achieved and certainly not overnight. However, businesses able to demonstrate genuine efforts to respect human rights will be in a much stronger position if they are later embroiled in a human rights scandal or pressure group campaign. What’s more, with the government currently under pressure to restrict public sector procurement to those companies addressing their human rights impacts, the need to take this seriously may suddenly become more urgent.