UK: Companies Active In UK Must Report On Steps Taken Against Modern Slavery Worldwide

A new reporting duty was recently added to the UK Modern Slavery Act 2015: companies must ensure that employees are not being exploited, that working conditions are safe, and that employment, health and safety and human rights laws are adhered to. In a healthy working relationship, employees should be able to express their views and resign from their jobs without any threat to themselves or their families. Before November 2015, companies were not required to report on the efforts taken to guarantee their employees' wellbeing. However, businesses that have a total turnover of GBP 36 million and that operate wholly or partly in the UK must now publish an annual statement on their website setting out the steps they have taken to ensure there is no modern slavery in any part of their business or in any part of their supply chains worldwide.

The Home Secretary has published guidance on the new reporting requirement, which came into force on 29 October 2015. Companies that carry on a business, or a part thereof, in the UK with an annual turnover of GBP 36 million are required to publish a statement on modern slavery for each financial year ending after 31 March 2016. The guidance does not specify when a company is deemed to carry on a business in the UK. The guidance relies on the judgement of companies and encourages a common sense approach. Subsidiary turnover is included in the calculation of turnover, regardless of whether those subsidiaries are located or carry out their business in the UK.

The report may state that efforts undertaken cover only part of the financial year; this may be relevant where a company has only just started to take steps against modern slavery. Companies whose financial year ends before 31 March 2016 do not have to publish a statement for that financial year, but should do so in the next financial year if they fully meet the requirements.

The guidance sets out what can be included in the statement. The UK government has not given any rules about the lay-out or specific content of the statement. The only substantial requirement is that the statement describe how the company has tried to ensure that slavery and human trafficking is not taking place in any part of its business or in any part of its supply chain worldwide. However, the report will not function as a guarantee that the entire supply chain is slavery-free. The aim of the statement is to increase transparency and show the public and investors which steps have been taken to tackle modern slavery. This means that a company should also report if it has not taken any steps at all. The modern slavery risk assessment could form part of more general risk assessments, such as country and sector risks.

Non-compliance with the reporting requirement could trigger the Secretary of State to seek an injunction through the High Court. Failing to comply with the injunction means the company will be in contempt of a court order, with unlimited fines as result.

Group companies

A parent company should in principle also include the steps taken in relation to its subsidiaries if subsidiary activities form part of the parent's business or supply chain. This is also the case if the subsidiary is located outside the UK or does not meet the GBP 36 million threshold. A group of companies can decide to publish a statement together or separately, though the guidance encourages a joint statement. If a subsidiary does not meet the threshold, it is not required to publish a statement itself. However, the UK government highly recommends doing so, especially if the non-UK subsidiary is based in a high-risk country. Likewise, if the subsidiary is located in the UK, but the parent company is not, the parent company is not required to report if the subsidiary is acting in a completely independent manner.

Next steps

The Government leaves room for companies to give substance to the reporting requirement. Aside from the requirement to report, there are no rules for the lay-out or specific content.

It should be kept in mind that transparency of a company's policy on modern slavery is the key aim of this provision. To be transparent, companies need to have a good understanding of their own supply chains in order to define the boundaries of the report and identify the risks. Having an effective statement can be achieved by illustrating the steps taken, setting out action taken per country, and by writing in understandable language.

Generating awareness of modern slavery starts by informing employees and business partners. Although it is not required, existing policies may be amended or new policies may be introduced. To support the company policy, a whistleblower hotline can be offered to report misconduct. The guidance sets out questions to consider when drawing up a modern slavery policy. In addition, employees that may be exposed to modern slavery could also be trained. It is advisable to target the training where it has the most effect. If business partners are located in high-risk countries, it may be wise to train their employees as well.

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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