Modern slavery reporting: coming around again amidst rising expectations
30th October 2017
Many businesses are preparing for their second modern slavery statements and need to be aware that expectations are building. In particular, well known brands and those with higher risk business models and operations such as retailers and companies in the food and beverage, and hospitality and leisure sectors, can expect targeted attention, and even investigation, as the government, consumers and others look for year on year improvements in the way that potential labour abuses are being tackled. We review recent developments below.
Year two modern slavery statements and revised government guidance
The government has updated its official guidance on the statutory duty for businesses above a certain size to report steps taken to ensure that slavery and human trafficking is not taking place in their supply chains and own operations (further information on the reporting duty here).
The changes to the guidance serve to strengthen expectations on organisations. For example:
- historic statements should be kept online to allow comparisons
- statements should be published as soon as possible after the financial year end
- the director who signs the statement, as a matter of best practice, should also sit on the board that approved the statement
- the date the board approved the statement should be included on the statement
Some businesses may be intending to repeat their first modern slavery statement, when their second statement falls due. However, new wording in the guidance warns that ‘organisations should be aware that their statement will be assessed by the public, investors, the media and other external parties. They will expect to see year-on-year improvements outlining practical progress on how they are tackling the risks and incidence of modern slavery in their operations and supply chains’.
Statements published to date suggest that there is significant room for improvement, according to recent research (here, here and here). Many statements do not meet the minimum requirements, including being signed by a director and approved by the board. While many refer to a zero tolerance of modern slavery, together with staff training and associated policies, few identify how slavery risks are assessed and managed, what those risks are and what due diligence processes are in place.
Understanding an organisation’s potential modern slavery risks is critical to taking action to addressing those risks. Therefore, as we go into the second year of reporting, businesses operating in countries and sectors that are widely known be at-risk should expect increasing scrutiny, adverse reputational pressure and even potential financial repercussions (such as negative investor, consumer or procurement responses) if they fail to meaningfully engage with their annual reporting duty. See our modern slavery e-learning here.
Increasing regulatory focus on labour exploitation in the UK and globally
As well as coming under pressure to combat modern slavery, some business models and supply chains are also under suspicion of potentially exploiting workers more generally.
This reflects a concern over the increasing use of arm’s-length or on-demand workers, such as those supplied through temporary work agencies, umbrella companies and other intermediaries as well as outsourced, sub-contracted, gig and supply chain workers. There are allegations that, in some instances, minimum labour standards (pay, holidays, health and safety etc) are not being fully applied to them.
For example, the UK’s new Director of Labour Market Enforcement (responsible for coordinating the HMRC minimum wage enforcement teams, the Gangmasters and Labour Abuse Authority and the Employment Agency Standards Inspectorate) is currently consulting on how labour rights problems in supply chains could be tackled as well as how to strengthen and target regulatory enforcement by the three bodies.
In addition, Mathew Taylor (whose government commissioned Review this Summer included recommendations on improving the rights of agency, umbrella, gig and dependent workers) told Parliament recently that large companies should be jointly liable for any labour market abuses committed further down their supply chain.
Globally, Australia is moving ahead with plans for its own modern slavery reporting duty, France has adopted a new corporate human rights due diligence law and the Dutch Parliament has also adopted a bill that would require companies to conduct child labour supply chain due diligence.
Against this context, those businesses tackling slavery risks should also consider whether to act more broadly in the context of labour rights where they are relying on labour supplied by third parties or through other arm’s length, outsourced, sub-contracted or supply chain arrangements. The risk being that, without greater oversight, businesses are unaware of the potential risks of exploitation and bad practices which they would find unacceptable for their directly employed staff. This, in turn, carries significant reputational risks, as a minimum.
Businesses should also be aware that there is a growing call from campaigners for a corporate due diligence duty in relation to indirect labour risks. For example, an expectation that business would assess and manage the risk of labour exploitation in their supply chains and other business relationships. One proposal would be to offer companies a defence to any resulting claims if they could demonstrate reasonable due diligence procedures, similar to the approach taken by the Bribery Act. Whilst it is early days for such proposals, it is foreseeable that this option might become attractive to legislators if organisations do not respond voluntarily and appropriately.
For more information please contact Thomas Player.