Employment and Pensions E-Bulletin Article

Since 29 October 2015 the Modern Slavery Act 2015 (the “Act”) has introduced a new requirement for large commercial organisations undertaking business in the UK to publicly report steps they have taken to ensure their business and supply chains are trafficking and slavery free.  Large businesses are now required to complete an annual modern slavery statement for each financial year ending on, or after, 31 March 2016 in which their total turnover is above £36 million.

Which organisations are required to publish a statement?

Any commercial organisation that carries on their business or part of their business in the UK, supplies goods and services and has a minimum total turnover of £36 million per year needs to publish a modern slavery statement for each financial year ending on or after 31 March 2016.  Commercial organisations in this context mean bodies corporate and partnerships (wherever they are incorporated or formed). The Home Office has also published guidance on this new obligation (the "Guidance").

Any organisation that carries on a business, or part of a business, in the UK could be caught regardless of their purpose or if profits are made.  Ultimately the courts will determine if an organisation "carries on a business" in the UK depending on the particular facts. However, the Guidance suggests that a common sense approach should be adopted. The Guidance also references that, if they satisfy the other requirements, charities and educational institutions will need to comply with the obligations regardless of the purpose for which their profits are made.

In addition the Guidance suggests that organisations that do not have a demonstrable business presence in the UK will not be caught. Likewise, having a UK subsidiary will not, in itself, mean that a parent company is carrying on a business in the UK where the subsidiary acts completely independently of its parent or other group companies.

Both parents and subsidiaries in group structures should be looked at to see if they satisfy the requirements.  In addition, if a parent company’s subsidiaries (including foreign subsidiaries) form part of their supply chain then the statement should address this. Where parents and subsidiaries in the same group need to produce a statement, the parent may produce one statement that subsidiaries can use although this will need to cover the steps that each of the organisations have taken.  The Guidance suggests that "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 recommended where the non-UK subsidiary is in a high-risk industry or location.

The Guidance states that franchisers above the turnover threshold also need to produce a statement although only the turnover of the franchiser is used to determine this (not the turnover of franchisees using the trademarks, distributing goods or services etc).  However, franchisees who meet the turnover threshold themselves will also need to produce a statement.

How is turnover calculated?

Total turnover is determined by taking into account the global turnover of the organisation and its subsidiaries (regardless of where they are based).  For these purposes, turnover means the amount derived from the provision of goods and services falling within the ordinary activities of that organisation and its subsidiaries after deducting trade discounts and taxes (including VAT).

What is modern slavery?

Modern slavery is constituted in the Act by the offences of ‘slavery, servitude and forced or compulsory labour’ and ‘human trafficking’. It includes conduct that would constitute an offence in the UK had the conduct took place here, even if the conduct would not be considered an offence elsewhere.

What does the statement need to include?

There is no prescribed length or form of the statement but it must include a statement either:

  • Of the steps 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
  • That the organisation has taken no such steps. (It will then be open to the public and businesses to decide how this affects whether they do business with the organisation)

The slavery and human trafficking statement may include information about:

  • The organisation’s structure, 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

Depending on the type of organisation, the statement must be approved as follows: Companies - the board of directors must approve the statement and it must be signed by a director; LLPs - members must approve it and it must be signed by a designated member; Limited partnerships registered under the Limited Partnerships Act 1907: - a general partner must sign the statement; other partnerships - a partner must sign the statement.

Where does the statement need to be published?

If the business has a website it should be published there (including a link in a prominent place on its home page) and, if not, the statement must be provided to anyone who makes a request in writing within 30 days of receipt of the request.

When does the statement need to be published?

There is no prescribed time limit in which to make the statement. The Guidance provides that a commercial organisation is expected to publish its slavery and human trafficking statement as soon as reasonably practicable after the end of  the financial year and is encouraged to report within six months of the financial year end to which the statement relates.  The Guidance suggests that organisations may decide to publish the statement alongside its annual or non-financial reports.

What are the consequences for not publishing a statement?

If a statement is not provided, the Secretary of State may enforce the duty to prepare a slavery and human trafficking statement in civil proceedings, by way of injunction (although the risk of this occurring in practice remains to be seen).  Currently there are no other criminal or financial penalties. Consequently, as legal liabilities for breach are limited, the pressure to produce a statement may come more from a reputational and corporate social responsibility angle.  It may also be a requirement in tenders, particularly in the public sector.

For more information on this obligation and any further assistance, for example, in determining which companies in a group structure are caught, what steps to take next and help in producing an appropriate statement please contact James Collings, partner on (0)1872 243307 or email james.collings@footanstey.com or Helen Dallimore, senior associate on +44 (0)1392 685289 or email helen.dallimore@footanstey.com

Modern Slavery Statements

Tags: Employment and Pensions2015