Slavery and human trafficking statements: why, who, what, where, when and what if…?

The UK’s Modern Slavery Act 2015 consolidates and extends the criminal law on slavery, servitude, forced or compulsory labour and human trafficking. It provides for a maximum penalty of life imprisonment and makes provision for an “Independent Anti-Slavery Commissioner” to encourage good practice and identify victims. The first commissioner is Kevin Hyland – former head of the Metropolitan Police Service’s Human Trafficking Unit. But it is section 54 that has perhaps received the most attention and comment. Titled “Transparency in supply chains etc”, section 54 requires commercial organisations to publish a “slavery and human trafficking statement” for each financial year. A section 54 statement must either:

• (a) set out the steps that the organisation has taken during the 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 own business; or, alternatively

• (b) say that the organisation has taken no such steps.

Time for (some) transparency on slavery (Credit: Hernán Piñera under Creative Commons)

Why?

• Well, option (b) (saying that you have done nothing) seems pretty unpalatable. The intention behind section 54 is explained in statutory guidance published by the Home Office: it is hoped that transparency will create a “race to the top” and increase competition to “drive up standards”. The guidance suggests that this information will allow investors to move capital towards more sustainable, responsible organisations.

Who?

• The obligation to publish a section 54 statement applies to “commercial organisations” carrying on business in the UK with a total (worldwide) turnover of more than £36 million. “Commercial organisation” means a body corporate or partnership, wherever incorporated or formed.

• “Carrying on business” in the UK should, according to the statutory guidance, be given its “common sense meaning”.

• The £36 million turnover threshold was set by implementing Regulations following a government consultation which estimated that 12,259 companies will be affected. This was the lowest option considered and was favoured by the overwhelming majority of responses, in part because this figure coincides with other reporting obligations for large companies under the Companies Act 2006.

• The statement must be approved and signed by an “appropriate senior person” in the business – who will therefore depend on the type of organisation, but for a corporate it should be approved by the board of directors.

What?

• There is no prescribed form that a section 54 statement must take. But section 54 and the statutory guidance outlines what the statement “may include” and how it might be structured.

• The statement should be succinct, written in English and provide links to any other relevant documents and/or policies. Where an organisation’s supply chain involves countries other than the UK, it is recommended that the statement should categorise actions by country to help readers understand the context.

• It is not appropriate to simply rely on existing policies or statements: a fresh statement, if necessary with summaries and links to other material, is the UK government’s recommended approach.

A section 54 compliant statement? (Credit: Jhayne under Creative Commons)

Where?

• A section 54 statement must be published on the organisation’s website and a link to it must be “in a prominent place on that website’s homepage.”

• There is no requirement to lodge the statement with the UK government or a regulatory body: rather the obligation is to make a public statement.

• The guidance explains that “prominent” means “directly visible on the home page” or part of “an obvious drop-down menu” on the home page. The recommended link is “Modern Slavery Act Transparency Statement “.

• Where an organisation has more than one website, the guidance recommends placing the statement on the “most appropriate website relating to the organisations [sic] business in the UK”.

When?

• Section 54 came into force on 29 October 2015, via commencement regulations. There are transitional provisions whereby section 54 does not have effect in respect of a financial year ending before 31 March 2016. In other words, the first businesses to publish a section 54 statement will be those with a financial year-end on or after 31 March 2016.

• A section 54 statement should be published “as soon as reasonably practicable” after the end of the financial year. Although the guidance recognises that organisations may choose to publish the statement alongside other reporting requirements, it “encourages” organisations to publish it within six months of their financial year-end.

What if…?

• If there is, or may be, slavery or human trafficking in a supply chain or business, then the onus is on the business to be transparent and be seen to report and tackle it. The guidance advises businesses with “at-risk” suppliers to provide training and incentivise anti-slavery policies. If that does not have the desired effect, then the ultimate remedy is to change supplier.

• If a company breaches section 54 by failing to publish a statement, it might find itself defending proceedings for an injunction brought by the UK Secretary of State seeking a court order mandating compliance. Breach of any such order would be contempt of court (which is punishable by an unlimited fine).

Comments

1. Slavery and human trafficking in supply chains are rightly receiving a good deal of press and diplomatic attention at the moment. The International Labour Organisation estimates that 21 million people are currently in some form of forced labour in global supply chains, generating enormous profits for those who abuse complex and opaque supply structures. However, a potential hurdle in the “race to the top”, is the lack of any standard format and/or central repository for section 54 statements. A significant amount of ongoing work will therefore need to be done by NGOs and campaigners to monitor and benchmark section 54 statements in order to cut through any obfuscating corporate-speak.

2. The statutory guidance describes section 54 as “truly ground breaking”. That is not quite accurate: one example sometimes given is California’s Transparency in Supply Chains Act (SB 657) which came into force in January 2012. (A similar Federal Bill is now before the US Congress.) But the UK does appear to be the first country to implement such a measure. And section 54 goes further than California’s provision in certain respects: the revenue threshold is lower (£36 million versus $100 million) and applies to goods and services. The UK’s provision has the potential to have greater impact: whereas guidance to California’s provision suggests that it affects 1,700 companies, section 54 was said during government consultations to affect seven times that number. (NB it is not clear how these numbers were estimated or how accurate they are. One E&Y report puts the number affected by California’s provision at 3,200.)

3. Some experts in this area have, however, highlighted a further gap in section 54. It has been suggested that it fails to capture overseas subsidiaries whose businesses do not directly touch the UK, one example given being overseas subsidiaries of UK construction companies building stadia for the 2022 World Cup in Qatar. The answer here will depend on corporate structures of particular construction groups. But it is worth noting that the statutory guidance states:

“[i]f a parent company is seen to be ignoring the behaviour of its non-UK subsidiaries, this may still reflect badly on the parent company. As such, seeking to cover non-UK subsidiaries in a parent company statement, or asking those non-UK subsidiaries to produce a statement themselves (if they are not legally required to do so already), would represent good practice …. This is highly recommended, especially in cases where the non-UK subsidiary is in a high-risk industry or location.”

Mind the [s.54] gap with overseas subsidiaries (Credit: Richard:Fraser under Creative Commons) 

4. Potential gaps aside, section 54 should perhaps be seen as part of a trend towards more hard law provisions requiring businesses to put in place procedures to address (and be transparent about) human rights issues. Parallels might be drawn with section 7 of the UK Bribery Act 2010, which provides a defence if corporates demonstrate that they had in place “adequate procedures” to minimise risks.

5. Turning finally to the prospects of litigation resulting from section 54. In addition to the possibility of injunction proceedings by the Secretary of State, it is worth comparing recent developments in California and also Canada.

• (a) The Californian provision has generated (somewhat creative) lawsuits whereby consumers/campaigners run misrepresentation claims – albeit wholly unsuccessfully so far – based on transparency statements made by corporates. A punchy summary of some of these claims is available here. It seems unlikely that  such claims would get far in the UK, but the possibility cannot be excluded entirely. It depends what a particular statement says.

• (b) In Canada, some claimants are now arguing that public corporate statements about working conditions in supply chains and subsidiaries indicate sufficient proximity and reasonable foreseeability between the Canadian parent company and events overseas such that the court should find there to be a duty of care between the parent and a victim – circumventing the corporate veil that might otherwise shield the parent company. Some of these cases are discussed here and here.

6. Corporates are increasingly expected to report on what they are doing to address human rights issues. The suits in California and Canada might seem to push the boundaries of corporate liability, but this could be the direction in which more business and human rights litigation is headed. If so, section 54 will be seen as one of the signposts. This is another reason why corporates should be careful and accurate when complying with section 54 of the Modern Slavery Act 2015.