Australia: Australia: New South Wales Introduces Law Requiring Companies To Report On Modern Slavery

The Australian State of New South Wales (NSW) recently passed the Modern Slavery Bill of 2018 (the "NSW Act"),1 which requires companies with employees in NSW and with an annual turnover2 of over AU $50 million to release an annual statement that details the steps taken to ensure their operations and suppliers do not engage in modern slavery. The NSW Act has no effective date yet. Implementing regulations are expected to further define the contours of this new law.

Notably, the NSW Act comes on the heels of a similar law proposed by the Australian federal government, raising questions of overlapping responsibilities on companies. The NSW Act adds to the increasing number of supranational, national, and sub-national laws that place direct obligations on certain companies to report upon efforts to identify and mitigate human rights risks such as human trafficking, child labor, and other forms of forced labor – often collectively described as "modern slavery" – from their global operations.3

Why Did NSW Pass This Law?

The purpose behind the NSW Act is to allow consumers and the general public to scrutinize and assess the methods by which companies covered by the NSW Act are doing their part in combatting modern slavery both in their own operations and their suppliers' operations. As defined in the NSW Act, "modern slavery" includes "any conduct involving the use of any form of slavery, servitude or forced labour to exploit children or other persons taking place in the supply chains of government agencies or non-government agencies."

Who is Covered Under the NSW Act?

The NSW Act applies to commercial organizations with employees in NSW and with an annual turnover—defined under Australian tax law as the total ordinary income derived in the income year in the course of running the business—of over AU $50 million. This "turnover" appears to refer to global revenue, not just the revenue generated in NSW. Thus, as an illustration, a U.S.-based multinational with an annual turnover threshold of AU $50 million and at least one employee in NSW might be subject to the NSW Act. Indeed, the law expressly gives itself extraterritorial reach beyond NSW "to the full extent of the extraterritorial legislative capacity of the Parliament." The upcoming implementing regulations are expected to clarify the scope of covered entities.

What do Covered Entities Need to do?

Each covered entity needs to prepare a modern slavery statement for each financial year, containing information regarding the steps taken by the entity to ensure that its goods and services are not a product of modern slavery. Such information, which will be further detailed in upcoming regulations, may include the entity's:

  • Structure, businesses, and its "supply chains";4
  • Due diligence processes in relation to modern slavery within its business and its supply chains;
  • Parts of its business and supply chains where there may be a risk of modern slavery taking place, and the steps it has taken to assess and manage that risk; and,
  • Training about modern slavery provided to its employees.

The covered entity must make its annual modern slavery statement available to the public in a form and method to be detailed in the regulations.

What are the Penalties for Non-Compliance?

The NSW Act sets out a maximum penalty of AU $1.1 million against the offending entity for two specific types of acts tied to the above reporting requirement:

  • Failure to prepare the modern slavery statement in a timely manner according to the upcoming regulations; and
  • Failure to publish the modern slavery statement according to the upcoming regulations.

In addition, the NSW Act provides for individual liability for a person who supplies information in connection with this reporting requirement that the person "knows, or ought reasonably to know, is false or misleading in a material particular." Such a person may be penalized up to AU $1.1 million.

Introduction of an "Anti-Slavery Commissioner" and "Modern Slavery Committee"

The NSW Act also provides for the appointment of an Anti-Slavery Commissioner. This Commissioner will focus primarily on raising public awareness of modern slavery, and is not proposed to have investigative or enforcement powers for individual cases. The Commissioner will monitor the effectiveness of due diligence procedures to ensure that the procurement of goods and services by NSW governmental entities are not the product of modern slavery.

Notably, the NSW Act requires the Commissioner to maintain a register of entities that submitted modern slavery statements disclosing modern slavery or the risk of modern slavery in their operations. This register will be accessible to the public free of charge.

The Act also creates a Modern Slavery Committee, which makes inquiries into and reports to the NSW Parliament on matters regarding modern slavery. However, like the Commissioner, this Committee also does not have any investigative powers.

How is this Law Different from the Proposed New Federal Law?

As we have reported recently,5 the Australian federal government is currently considering draft legislation proposing the introduction of a "modern slavery in supply chains" reporting requirement. The NSW Act largely mirrors the federal government's plan, but differs in at least two key respects. First, unlike the NSW Act, the proposed federal law does not include any damages for non-compliance. Second, the federal plan applies to entities headquartered in Australia meeting a threshold of AU $100 million in total annual global revenue, whereas the NSW Act applies to entities with an annual turnover of AU $50 million and with employees in NSW.

Thus, if the federal bill passes, companies may face overlapping obligations under that law and the NSW Act.

However, the NSW Act appears to contemplate this eventuality by stating that the reporting requirement does not apply to an entity that "is subject to obligations under a law of the Commonwealth or another State or a Territory that is prescribed as a corresponding law ...." It is currently unclear if the expected federal law would fall under this exemption, and the NSW Act's imminent regulations may clarify this issue.

Ultimately, the NSW Act, which passed with broad support from both legislative assemblies, appears to be a legislative reaction to dissatisfaction with the federal plan, especially with the latter's lack of punitive measures for non-compliant companies. Indeed, the legislative debates in NSW indicate a belief that even if the federal government passes a national law, the final iteration will be less comprehensive than the NSW Act.

What Should Companies do Now to Prepare?

Companies should prepare for the implementation of the NSW Act by first taking stock of their own operations and those of their suppliers and other business partners, and identifying areas in those operations where there is a high risk of forced labor and other "modern slavery" practices. Where such risks are identified, companies should take appropriate action to address those risks and also implement procedures to ensure that new and existing relationships remain free of such activities. This due diligence process can be complex, so we recommend engaging the services of experienced counsel.

Footnotes

* Summer Associate Daniel Kim assisted in the preparation of this ASAP.

1https://www.parliament.nsw.gov.au/bill/files/3488/Passed%20by%20both%20Houses.pdf.

2 The term "turnover" is defined under Australian tax law as "the total ordinary income that you derive in the income year in the course of running your business." See https://www.ato.gov.au/Business/Small-business-entity-concessions/Eligibility/Definitions/.

3 See Dominic Hui, Lavanga V. Wijekoon, Michael G. Congiu, and Stefan Marculewicz, Hong Kong Considers Draft Law Requiring Companies to Report on Modern Slavery, Littler Insight (Apr. 16, 2018); John Kloosterman, Lavanga V. Wijekoon, Michael G. Congiu, and Stefan Marculewicz, Canada Announces Two New Initiatives To Hold Companies Accountable For Human Rights Violations Abroad, Littler Insight (Feb. 13, 2018); Lavanga Wijekoon, Michael Congiu, Stefan Marculewicz, and John Kloosterman, United Nations Continues its Development of a Treaty Imposing Liability on Companies for Human Rights Abuses, Littler Insight (Nov. 9, 2017); Michael Congiu, Stefan Marculewicz, John Kloosterman, Stephan Swinkels, Aaron Saltzman, and Lavanga Wijekoon, Dutch and French Legislatures Introduce New Human Rights Due Diligence Reporting Requirements, Littler Insight (Mar. 13, 2017).

4 The term "supply chains" is used throughout the NSW Act but, as discussed and utilized in this article, has not yet been defined.

5 See Naomi Seddon, Lavanga V. Wijekoon, Michael G. Congiu, Stefan Marculewicz, and John Kloosterman, Proposed Act Seeks to Require Large Companies Operating in Australia to Report on Modern Slavery, Littler Insight (Feb. 6, 2018). After being introduced in the House of Representatives, on June 28, 2018, the Senate referred this draft law to the Legal and Constitutional Affairs Legislation Committee for inquiry and report by August 24, 2018.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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