The Modern Slavery Act 2015 (MSA) is ultimately designed to tackle slavery and human trafficking, but a key provision introduced a requirement on organisations with a turnover of more than £36 million to produce an annual transparency statement.
This statement sets out 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 or any part of its business. This alert summarises recent guidance issued by the government, which provides further detail on the organisations who will be captured by this requirement, the expected content of the transparency statement, and the transitional measures applicable to organisations whose financial year end is imminent.
1 Transitional measures
The requirement for organisations to publish a transparency statement commenced on 29 October 2015, but the government recognises that many organisations will not have had sufficient time to understand the requirement and therefore may not be in a position to produce a statement immediately.
On that basis, there is a transitional period for businesses with a financial year-end date between 29 October and 30 March 2016, and they will not be required to publish a statement for their 2015-16 financial year. Those businesses with a year-end of 31 March 2016 will be the first businesses required to publish a statement for their 2015-16 financial year.
Going forward, the government expects organisations to publish their statements as soon as reasonably practicable after the end of each financial year, but ideally within six (6) months.
2 Government guidance on the transparency statement
The requirement to produce an annual transparency statement applies to all commercial organisations:
- which carry out any or part of a business in the UK;
- which supply goods or services;
- have an annual turnover exceeding £36 million.
We refer to this test within this note as the "MSA Test." Our Commercial, IT and Outsourcing team has developed a checklist to help organisations determine whether they meet the MSA Test, which also includes some practical points to consider when analysing the organisation's approach to combating slavery and human trafficking, and how it might report on those in its annual transparency statement.
As we explained in our previous alert Modern Slavery and Supply Chains - Legal requirements to apply in UK from October 2015 the government issued some headline guidance on their expectations regarding the content of the annual transparency statement, and the organisations that will be affected. The government has now issued further guidance to clarify its intentions which we summarise below.
The government intends to apply a "common sense approach" to determine whether a commercial organisation can be regarded as "carrying on a business or part of a business" in any part of the UK, and that unless an organisation has a "demonstrable business presence" in the UK, it will not be caught by this requirement. As such, 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.
For large multinational organisations, the guidance also clarifies their reporting requirements:
- If a foreign subsidiary is part of a UK parent company's supply chain, and the UK parent meets the MSA Test, then the UK parent company's statement should cover any actions taken in relation to that subsidiary to prevent modern slavery.
- Where a foreign parent is carrying on a business or part of a business in the UK and meets the MSA Test it will be required to produce a statement.
- If any organisation in any part of a group structure meets the MSA Test, it is legally required to produce a statement.
- However, where a parent and one or more subsidiaries in the same group meet the MSA Test and so are required to produce a statement, the parent may produce one statement that the subsidiaries can use to meet the requirements of the MSA.
Example 1 - US Parent with UK Subsidiary
- A US parent company with a global turnover of £200 million has a UK subsidiary with a turnover of £10 million.
- If the parent company carries on a business or part of a business in the UK then it will be required to produce a statement as its turnover is above the £36 million threshold.
- The UK subsidiary would not be required to produce a transparency statement in its own name, but the US parent may choose to report on the group as a whole.
Example 2 - UK Parent with UK and French Subsidiaries
- A UK parent company has a turnover of £150 million. It would be required to produce a transparency statement.
- The UK parent company's French subsidiary has a turnover of £50 million. It may not be required to produce a statement (even though its turnover is above the £36 million threshold) if it is not selling goods or services in the UK and it is not part of the parent's own business or supply chain.
- The UK parent's statement would need to include information about its own business, and the business of any subsidiary operating either in the UK, or elsewhere, where that subsidiary's business is in its supply chain or is in fact operating as a part of its own business. If the French subsidiary is part of its supply chain, then the UK parent will need to cover its activities within its statement.
- The UK subsidiary has a turnover of £42 million. It would be required to produce a statement in its own right. The UK parent may choose to produce a group statement which the UK subsidiary can then link to from its homepage.
If an organisation meets the MSA Test then it must produce:
- a statement 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
- a statement that the organisation has taken no such steps.
The MSA and the previous UK government guidance mention that a statement may include information about any 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;
- the training about slavery and human trafficking available to its staff.
The most recent guidance now explains the sorts of things that an organisation might look to cover in its statement to address each of these categories. We summarise that guidance below.
However, the government emphasises that it is not compulsory for an organisation to include any of these points in its statement, and neither does this requirement mean that the organisation in question must guarantee that the entire supply chain is slavery free. In other words, the guidance is meant to promote the ideal and best practice but it is not intended to be compulsory. Each organisation needs to decide what is appropriate for it.
The government has not been prescriptive about the layout or content of the transparency statement. It is up to each organisation to determine how they present the information in their statement and how much detail they provide. There is no standard format or length, as this will largely be determined by the organisation's size, sector and assessment of its exposure to risk.
The statement will be a public-facing document available on each organisation's home page to ensure maximum accessibility and transparency. Therefore the statement should be written in a simple, succinct, user-friendly manner and provide appropriate links to relevant publications, documents or polices for the organisation.
Many organisations publish information on their structure via their website. Therefore in its statement an organisation may decide to provide a short description which contains a link to further detail on its group structure. Other points an organisation may want to cover in relation to its structure may include the following:
- the sector(s) the business operates in;
- the main countries it sources its goods or services from;
- where the organisation sits within a group structure;
- its business model;
- the nature of its relationships with suppliers, and how often it reviews its arrangements; and
- the complexity of the supply chain.
Having effective policies and practices in place which set out how an organisation mitigates and manages the risk of modern slavery in its supply chains is a clear way of demonstrating a commitment to the issue and ensuring that appropriate and co-ordinated action is taken throughout the business. Therefore an organisation could list out some of the policies it has in place, for example:
- supplier codes of conduct;
- procurement policies; and
- employee codes of conduct.
There is no requirement to have a standalone modern slavery policy. Many organisations may simply adapt and/or clarify how existing policies and practices address modern slavery from a different perspective such as human rights, ethical trade, Corporate Social Responsibility (CSR), responsible sourcing, and/or sustainability, etc.
Section 54(5)(c) of the MSA provides that an organisation's statement may include information about its due diligence processes in relation to slavery and human trafficking in its business and supply chains, which for example may include:
- details of the checks and/or investigations which the organisation conducts or accepts as part of a procurement process, or what assurances it will seek when entering into a contract with a new supplier; or
- information regarding how those checks/investigations are monitored and reviewed to ensure they are robust enough to identify any issues.
The due diligence procedures which an individual organisation might implement and which the public might expect to see should be proportionate to any identified modern slavery risk, the severity of that risk, and level of influence the organisation has over its supply chain.
Risk and compliance
An organisation may include information in its statement about 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. Likewise the organisation might explain why it deems the risk of modern slavery occurring to be low. Particular points that an organisation may consider reporting on include:
- Country risks - exposure to the risk of modern slavery may be greater in global supply chains extending to countries where protection against breaches of human rights is more limited.
- Sector risks - there are different risks and levels of risk in different sectors, for example forced labour is likely to be more common in the food and drink sector than professional services.
- Transaction risks - other organisations which may not have any direct links to modern slavery may still need to assess the risk of facilitating transactions for clients where this may be an issue e.g. banks and financial institutions.
- Business partnership risks - different supplier relationships and business partnerships will all carry different levels of risks, for example in some cases, existing long-term partnerships may involve less risk because the organisation will have a better knowledge of their partner's operations and policies.
Including anti-slavery and trafficking clauses within its standard contracts and imposing specific anti-slavery policies on its suppliers is one method organisations might adopt to manage risk, and is something that can be reported on in the transparency statement.
Our Commercial, IT and Outsourcing team has drafted a set of clauses which a customer may seek to flow down to its suppliers to contractually manage the risk of modern slavery occurring in its supply chain.
Effectiveness and KPIs
Section 54(5)(e) of the MSA provides that an organisation's statement may include information about 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.
For example, a business could set targets for:
- how many staff they will aim to train about modern slavery issues;
- how many suppliers they will contact to seek information about their employee rights awareness training procedures or employee contracts; or
- how many of their suppliers allow independent monitoring of their working conditions.
An organisation could also report on the nature of any slavery and human trafficking training which it makes available to its employees.
Training is an important way of raising awareness and ensuring that people understand the importance of a relevant issue and what they need to do, and how to work together internally or externally if they encounter something that raises concerns. Training may be targeted at different groups of employees within a business, including leadership, or at different businesses within a supply chain, and the training itself could take a range of different forms. It could range from detailed training courses to broader awareness-raising programmes.
We have developed a template transparency statement and accompanying guidance note which can be used as a starting point for commercial organisations which are required to publish a transparency statement.
The transparency statement needs to be signed off by senior management, and the person who must sign the organisation's transparency statement depends on is structure:
- body corporate (other than a limited liability partnership) - the statement must be approved by the board of directors and signed by a director (or equivalent).
- limited liability partnership - the statement must be approved by the members and signed by a designated member;
- limited partnership (registered under the Limited Partnerships Act 1907) - a general partner must sign it;
- any other kind of partnership - a partner must sign it.
The statement must then be published on the organisation's website and include a link in a "prominent place" on its homepage. If the organisation does not have a website, they must ensure that a copy of the statement is provided to anyone who requests a copy in writing within 30 days of receipt of the request.
The guidance states that a "prominent place" means either a modern slavery link that is directly visible on the home page or part of an obvious drop-down menu on that page. The user should not be required to 'click through' to a second page (such as a dedicated sustainability page) to find the link. The link should also be clearly and sensibly marked so that the contents are apparent. For example, the link could be 'Modern Slavery Act Transparency Statement'.
Where an organisation has more than one outward-facing website (e.g. many multinationals), then the guidance recommends that the statement is placed on the most appropriate website relating to the organisation's business in the UK. Where there is more than one relevant website, the statement or a link to the statement should be placed on each relevant website.
4 Useful resources
Modern Slavery Act 2015
Transparency in supply chains a practical guide