Government guidance on new requirements is not prescriptive
At the end of October the Home Office published statutory guidance on the new requirement under section 54 of the Modern Slavery Act 2015 for larger commercial organisations to produce an annual 'transparency in supply chains' statement. On the same day regulations came into force specifying enforcement dates for the new rules.
Businesses with a year end of 31 March 2015 will need to produce a statement for their current financial year ending 31 March 2016 (catching many businesses whose financial year follows the tax year) but organisations with a year-end on 30 March 2016 will not need to produce the statement until the financial year-end in March 2017. The guidance says the statement must be published 'as soon as practicable' after the financial year-end and indicates that six months would be acceptable. This means the first statements, technically due from 31 March 2016, may not need to be published until around September next year.
The new rules apply to organisations that are a 'body corporate' or a partnership, carrying on a business, or part of a business, in the UK which supplies goods and services, and which has an annual turnover of £36m or more - the regulations confirm this includes the turnover of the organisation and its subsidiaries whether or not these are in the UK. So a UK parent company with a turnover of less than £36m could still be caught by its overseas subsidiaries. The guidance also specifies which company within a group of companies must prepare the statement and how associated companies may make use of it.
It seems that an incorporated charity, or organisation that pursues primarily charitable, educational or purely public functions, could be covered by the new rules. The crucial question is whether it ‘engages in commercial activities and has a total turnover of £36m – irrespective of the purpose for which profits are made’.
The guidance says the statement should be succinct and accessible, and should not contain mostly legal language. If the organisation has policies that are relevant, such as corporate social responsibility or ethical polices, they should be included in the statement or referenced. It notes that the statement must refer to actual steps undertaken or begun – but, of course, it could simply state that no steps have been taken.
The guidance is not prescriptive on what a statement should contain, but Annex E sets out some examples, suggesting a policy to protect against slavery and human trafficking might be included in the statement. This could specify:
- minimum labour standards for the business and its suppliers
- who is responsible for maintaining these standards
- how the business factors full labour costs into sourcing and production to avoid the need for slave or bonded labour
- what the organisation will do where a supplier is found to have been involved in modern slavery
- what questions are asked and checks made when entering into new, or extending existing, procurement contracts
- what due diligence the organisation commits to
- what policies and procedures are in place to support whistleblowing.
All employees and suppliers should know how to identify or prevent exploitation.
The guidance does not specify how far down the supply chain the organisation should look, and considerable discretion is left to the company. This may leave some employers struggling to understand where to draw the line. Each organisation will have to decide for itself, but the type of industry and location of suppliers will be relevant. For example, a professional services organisation based only in the UK may decide to stop at its first tier suppliers, whereas a retail business buying goods from countries such as China, or south east Asia and Africa, may wish to go much further down the supply chain.
It is clear the government expects the annual statement to be peer- and consumer-led rather than merely a legal requirement. However, rather like the Bribery Act 2010, compliance will require a business-wide assessment of risk, commercial practices and supply chains, that is supported from the top. Employers need to start thinking now about how they intend to comply.
Allan Briddock is a partner and Ruth Christy a professional support lawyer in the employment, pensions, benefits and immigration team at Blake Morgan LLP
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