The Modern Slavery Act 2015

Commercial organisations that supply goods or services, carry on business in the UK and (together with their subsidiaries) meet the annual turnover threshold of £36m or more must publish an annual slavery and human trafficking statement.

The government has published practical guidance to assist organisations in complying with this requirement, which includes helpful case studies (the Guidance) as well as a shorter guidance note.

The legislation has extraterritorial effect, it applies to commercial organisations wherever incorporated or formed, if they carry on business in any part of the UK and meet the annual turnover threshold. Parent companies have to review their whole group structure to decide to what extent any of their subsidiaries (including overseas ones) are caught or information about their role in a group supply chain is required. Even if not caught, some parent companies may find that it would be socially prudent to include them. And, in practice and like the Bribery Act test a relatively low level of business activity can amount to carrying on business in the UK.

COVID-19 update

On 20 April 2020, the government published a statement about modern slavery reporting during the COVID-19 pandemic. It states that, during this pandemic, “it is essential that businesses continue their activity to identify and address risks of modern slavery in their operations and supply chains. As well as focusing on the health and safety of their workers, businesses will need to consider how fluctuations in demand and changes in their operating model may lead to new or increased risks of labour exploitation.” But the statement also notes that businesses that need to delay the publication of their modern slavery statement by up to 6 months due to coronavirus-related pressures will not be penalised. Any business that does delay must state the reason for that delay in their statement.

What is modern slavery?

Modern Slavery is the expression for slavery, servitude and forced or compulsory labour, and human trafficking. The Modern Slavery Act 2015 (the Act) is designed to encourage businesses to tackle modern slavery.

The focus of the legislation is on supporting and protecting victims of slavery and human trafficking, and punishing the perpetrators. Key offences under the Act are, therefore, to:

• hold another person in slavery or servitude;
• require a person to perform compulsory or forced labour (section
  1); or
• arrange or facilitate a person’s travel with a view to that person
  being exploited (section 2, with exploitation defined in section
  3).

Aiding, abetting, counselling or procuring the section 2 human trafficking offences will also be an offence. The court has the power under the Act to make slavery and trafficking reparation orders (fines and compensation payments), and confiscation orders.

What is section 54?

This section of the Act imposes a duty on UK based businesses to make transparent the action they have taken to ensure their own business and their supply chains are free of modern slavery, and the effectiveness of those actions.

Does this apply to me?

Section 54 applies to any commercial organisation which:

• supplies goods or services; and
• with its subsidiary undertakings, has a total turnover of £36m or
  more in a financial year.

Commercial organisation is defined as any corporate body (wherever incorporated) or partnership (wherever formed) which carries on a business, or part of a business, in any part of the UK.

What is carrying on business in the UK?

The Guidance states that whether a body corporate or partnership “can be said to be carrying on a business will be answered by applying a common sense approach... The organisation will be caught if it engages in commercial activities and has a total annual turnover of £36m - irrespective of the purpose for which profits are made.”

I am a foreign parent, does it apply to me?

Yes if you are carrying on business in any part of the UK and meet the turnover threshold.

The Guidance states that “As regards bodies incorporated, or partnerships formed, outside the United Kingdom, whether such bodies can properly be regarded as carrying on a business or part of a business "in any part of the United Kingdom" will again be answered by applying a common sense approach.”

However, the government anticipate that “applying a common sense approach will mean that organisations that do not have a demonstrable business presence in the United Kingdom will not be caught by the provision. Likewise, having a UK subsidiary will not, in itself, mean that a parent company is carrying on a business in the UK, since a subsidiary may act completely independently of its parent or other group companies.”

Is my turnover big enough?

As noted above, a statement has to be prepared in any financial year where an organisation has a total turnover of £36m or more. Total turnover is the aggregate of the turnover of the relevant organisation and the turnover of any of its subsidiary undertakings (including any operating wholly outside the UK).

Turnover for these purposes means the amount received from the provision of goods and services falling within the ordinary activities of the commercial organisation or its subsidiary undertakings, after deducting trade discounts; value added tax; and any other taxes based on the amounts so derived.

What do I have to publish?

Organisations must publish a slavery and human trafficking statement which is a statement of the steps the organisation took 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. Alternatively, there should be a statement that the organisation has taken no such steps.

The Guidance notes that this is intended to capture all the actions the organisation has taken - it does not mean that it has to guarantee that the entire supply chain is slavery free.

Supply chain is not defined in the Act and the Guidance notes that it should be given its everyday meaning, appearing to give flexibility for businesses to explain their supply chains. On the face of it though, a supply chain is from end to end.

Although the Act only requires a statement to be published, the Guidance states that the government encourages all businesses to develop an appropriate and effective response to modern slavery.

What does the statement have to include?

There are no specific requirements about the format or content of the statement. The Act states that the statement may include information about any or all of the following:

• the organisation’s structure, its business and its supply chains;
• its policies in relation to slavery and human trafficking;
• its due diligence processes in relation to slavery and human
  trafficking in its business and supply chains;
• 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;
• 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; and
• the training about slavery and human trafficking available to its
  staff.

The Guidance provides additional information on what could be included under each of these headings and notes that the information will be determined by the organisation’s sector, the complexity of its structure and supply chains; or the particular sectors and nations its suppliers are working in.

The Guidance notes that the statement should be in English, in simple language that is easily understood, be succinct but cover all the relevant points and should provide appropriate links to relevant publications, documents or policies for the organisation.

The March 2019 guidance notes that best practice is for the detail and quality of information included under each of the six areas to improve in successive annual statements. The statement should be used to show how the organisation is:

• acting transparently and disclosing information about any modern
  slavery risks it has identified and what actions it has taken in
  response to them;
• targeting its actions where it can have the most impact by
  prioritising its risks; and
• making year-on-year progress to address those risks and improve
  outcomes for workers in its business and supply chains.

Does each company within a group have to prepare a statement?

Each commercial organisation which meets the turnover threshold has to prepare a statement but the Guidance provides that a parent company can produce one statement that can be used by its subsidiaries as well. But, it must cover each commercial organisation’s own activities and own supply chain; clearly state which organisations it is covering and be published on the UK websites of each organisation included in the statement.

Does a UK parent’s statement have to cover its foreign subsidiaries?

Yes, information should be given if the foreign subsidiary is part of the parent company’s supply chain or own business. Even where they are not, the Guidance states that “If 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 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 industry or location.”

How does this apply to my current financial year?

Any statement prepared within the first year of section 54 coming into force (which was on 29 October 2015) has to cover the full financial year. But, where an organisation has only recently started to carry out activities to deal with modern slavery, the statement can indicate that the activity undertaken only covers a particular part of the year.

What approval is needed for the statement?

The slavery and human trafficking statement must be approved by someone senior in the organisation.

For a body corporate (other than a limited liability partnership) it must be approved by the board of directors (or equivalent management body) and signed by a director (or equivalent).

Where the organisation is a limited liability partnership, it must be approved by the members and signed by a designated member.

For a limited partnership registered under the Limited Partnerships Act 1907, it must be signed by a general partner and if the organisation is any other kind of partnership, it must be signed by a partner.

When do I have to publish it?

A statement has to be published for each financial year when an organisation’s total turnover is £36m or more but the Guidance recommends that once an organisation has produced a statement in one financial year it continues to do so in future years even if the turnover threshold is not met.

No time limit has been set for publishing the statement but the Guidance states that the government expect these statements to be published as soon as reasonably practicable after the year end and encourage organisations to report within six months of the year end. In practice companies may publish them at the same time as they publish their annual report and accounts.

See also the government’s recent COVID-19 statement (referred to above) that notes that businesses that need to delay the publication of their modern slavery statement by up to 6 months due to coronavirus-related pressures will not be penalised.

Where do I have to publish the statement?

The slavery and human trafficking statement must be published on the organisation’s website and a link to the statement has to be included in a prominent place on that website's homepage.

The Guidance states that “A prominent place may mean a modern slavery link that is directly visible on the home page or part of an obvious drop-down menu on that page. The link should be clearly marked so that the contents are apparent”. The government recommends a link such as “Modern Slavery Act Transparency Statement”.

It is good practice to keep previous statements on the website so that progress can be monitored.

If an organisation does not have a website, it must provide a copy of the slavery and human trafficking statement to anyone who makes a written request for one, and must do so within 30 days of receiving the request.

What’s in it for me?

The Guidance notes that a slavery and human trafficking statement can bring a number of business benefits. “These include: protecting and enhancing an organisation’s reputation and brand; protecting and growing the organisation’s customer base as more consumers seek out businesses with higher ethical standards; improved investor confidence; greater staff retention and loyalty based on values and respect and developing more responsive, stable and innovative supply chains.”

What if I fail to comply?

If an organisation fails to produce a statement the Secretary of State can seek an injunction requiring compliance. Failure to comply with the injunction would be contempt of court, punishable by an unlimited fine.

Proposals for reform

As a result of continued non-compliance with the requirement to publish an annual slavery statement, the government commissioned an independent review of the Modern Slavery Act to consider whether the law should be strengthened to ensure companies take action to address forced labour in their supply chains, with specific reference to s. 54. The Final Report of that review was published in May 2019. See Modern slavery statements - a faster race to the top? for more information.

On 9 July 2019, the government published its response to the review. The government has accepted many of the recommendations, but some recommendations require further consultation to determine the best way to deliver them. And, on the same date, the Home Office published a consultation on how to make the transparency requirements and reporting process as clear and straightforward as possible.

On 22 September 2020, the government announced that 'when Parliamentary time permits' it will introduce 'an ambitious package of measures to strengthen and future-proof the Modern Slavery Act's transparency legislation' and published its response to the consultation. The proposed changes to s.54 modern slavery statements include mandating some of the content and having a single reporting deadline of 30 September (covering the period 1 April to 31 March). They will also extend s.54 to public bodies with a budget threshold of £36m or more.

In the meantime, the government will:

• publish updated guidance in 2020, including best practice approaches to reporting against the proposed new mandatory areas. The guidance will highlight the importance of transparency, risk-based action and industry level collaboration to address shared challenges; and
• consider increasing the enforcement sanctions in line with the development of a new single enforcement body for employment rights and will issue a further update in due course.

See More ‘S’ in ESG: Proposals to amend modern slavery statements for more information.