UK: Government Publishes Guidance On The Reporting Obligation In The Modern Slavery Act

Section 54 of the Modern Slavery Act (MSA) requires certain businesses to publish an annual statement explaining what steps they are taking to ensure there is no modern slavery within their own business and their supply chains. During consultation on this measure, businesses repeatedly called for effective and practical guidance on what a modern slavery statement should look like. That long awaited guidance was published today. Below, we look through the typos and duplications contained in the guidance to report on the good bits and the bad, and consider what businesses should be doing now.

For background on the reporting requirement in the MSA, please see our blog posts of 22 July and 29 July, and listen to our  podcast.

Helpful guidance & clarification

Businesses with a year-end of 31 March 2016 will be the first required to publish a statement. Those businesses must publish statements for the 2015-16 financial year. Businesses with a financial year-end date between 29 October 2015 and 30 March 2016 will not be required to publish a statement for the current financial year. Statements should be published "as soon as reasonably practicable" after the end of the relevant financial year. The guidance encourages publication within six months of the end of the financial year, which seems to us to be a realistic and achievable timescale for most businesses.

Helpfully, the guidance makes clear that businesses are not required to guarantee that their entire supply chain is slavery free. The obligation is limited to setting out the steps (if any) the business is taking to achieve this. The guidance provides examples of the steps businesses may want to consider, making clear that carrying out due diligence is not a legal requirement. The focus is on the production of succinct, easily understandable statements. Long statements and technical language should be avoided. Providing links to other relevant documents and policies, rather than including them in the body of the statement, is encouraged.

We already knew that the obligation to publish a statement only applies to organisations with a turnover of Ł36 million. As expected, the guidance confirms that "turnover" means the turnover of that organisation and the turnover of any of its subsidiaries (including those outside the UK).

The guidance acknowledges that many businesses will already be taking steps to tackle modern slavery and, possibly, reporting on those steps in accordance with other legislation (for example, the obligation to provide human rights information in strategic reports under the Companies Act 2006). This is a helpful reminder that steps reported on do not all have to be new steps. Annex D provides an informative explanation of how section 54 sits within the wider framework of legislation on slavery and human rights.

Outstanding issues

The concept of "supply chain" is crucial to the reporting obligation but, disappointingly, the guidance does not provide a definition– simply stating that the phrase has its "everyday meaning". Nevertheless, it seems clear from parliamentary debates that businesses should interpret the phrase widely, to include all direct and indirect suppliers both within and outside of the UK. Put simply, in order to be an effective measure in the fight against modern slavery, it is imperative the legislation covers all suppliers in all jurisdictions.

Perhaps more frustrating is the advice that businesses take a "common sense" approach to determining whether they "carry on business in the UK", one of the key qualifying criteria for compliance.  Of course, what is considered "common sense" may often differ, but the guidance does explain that where an organisation engages in commercial activities in the UK, it will "carry on business" irrespective of the purpose for which profits are made. Helpful for companies with a global network, is the confirmation that having a UK subsidiary will not, in itself, mean that a parent company is carrying on a business in the UK. A subsidiary may act completely independently of its parent or other group companies.

The major criticism on the guidance is likely to be that it blurs the distinction between legal obligation and good practice. Section 54 is very clear that in order to comply, all a business needs to do is publish a statement on its website either setting out the steps the organisation has taken during the financial year to ensure that modern slavery is not taking place, or stating that no steps have taken place. Yet the guidance provides that "organisations will need to build on what they are doing year on year". Of course, there is no need or legal obligation to do so. A statement which repeats annually that the business is taking no steps, or repeats that the same steps are being taken, will be legally compliant.

The guidance also states that if a company decides to publish a substantive statement, it must set out all of the steps the business is taking to tackle modern slavery. This raises the still unanswered question of whether the Government will look to take action where statements are inaccurate or incomplete. The guidance clearly encourages accurate, comprehensive reporting but the legislation does not seem to provide the Government with a mechanism for enforcing these principles. Ultimately, this reflects the fact that the Government hopes public pressure and reputational risk will be the enforcer of this legislation instead of hard law.

Also important is the requirement that statements are approved by the board and signed by a director. The guidance points out that the board will want to be satisfied that the statement is accurate. In practice, this, along with public pressure, is likely to have the biggest impact on the content of a business' statement.

What now?

Start preparing your statement! If your business is caught by the MSA, it is time to work out when your first statement needs to be published, what new steps (if any) you are going to introduce to tackle modern slavery, and what your statement will look like.

Even if you are not required to publish a statement, you may be part of a supply chain for organisations which are. This means that, at a minimum, you are likely to receive requests for information regarding your anti-slavery practices and policies. It is a good idea to start collating information now to assist with answering such requests.

Annex E provides must-read guidance on the types of steps organisations may wish to take in their efforts to tackle modern slavery.

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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