On 29 October 2015, the reporting requirement contained in Section 54 of the Modern Slavery Act came into force. On the same day, the Home Office released guidance for organisations covered by the Modern Slavery Act. This guidance, Transparency in supply chains etc. a practical guide, has been produced by the UK Government with input from businesses to help organisations comply with the legislation.
Section 54 requires that a commercial organisation in any sector, which meets the following tests:-
- is a body corporate or partnership wherever incorporated
- supplies goods or services
- carries on a business or part of a business in the UK and
- has a total turnover of more than a specified amount, which has now been set as £36m
must produce a slavery and human trafficking statement for each financial year. The statement must set out what steps the organisation has taken during the financial year to ensure that modern slavery is not occurring within their organisation, or in their supply chains.
The guidance sets out how the Government expects organisations to produce a credible statement each financial year and includes advice on who needs to produce a statement, how to write a statement, and details of how the turnover threshold is calculated for franchises and group companies. It also provides advice on responding to an incidence of modern slavery. Whilst the Government is not prescriptive about the specific content that must be included in the statement, the guidance recommends that a statement is succinct but covers all relevant points and is written in simple language, in English (although it can be produced in additional languages as well).
Calculating the threshold for a franchise
In determining the total turnover of a business operating a franchise model, only the turnover of the franchisor will be considered, and not those of any franchisees operating under the franchisor’s trade mark, unless the franchisee is caught by the requirement in its own right. However, from a reputational perspective, franchisors may wish to consider reporting on the steps taken to ensure the franchise as a whole is free from modern slavery. Where the turnover of a franchisee is above the £36m threshold, they will be required to produce a slavery and human trafficking statement, independently of the franchisor.
Calculating the threshold for group companies
A parent company that meets all the tests in the Act, will have to include the steps taken in relation to any of its subsidiaries (including foreign subsidiaries), if the activities of a subsidiary forms part of the supply chain or any part of the parent company’s business. This will very much be determined on a case-by-case basis. If however, a subsidiary within a group structure meets all the tests in Section 54 in its own right, that subsidiary must also produce a statement. Where a parent company and one or more subsidiaries in the same group are required to produce a statement, the parent company may produce one statement covering the steps each of the organisations have taken, which the subsidiaries can use to meet this requirement. Alternatively, a subsidiary can produce its own independent statement but the parent company must in its statement, cover the steps taken by the subsidiary if, the activities of such subsidiary forms part of the supply chain or business of the parent company.
The guidance recommends that even where a non-UK subsidiary is not legally required to produce a statement, it would be good practice for a parent company to cover the subsidiary in its statement or ask the subsidiary to produce its own statement, particularly where the non-UK subsidiary is in a high risk industry or location. If a parent company is seen to be ignoring the behaviour of its non-UK subsidiaries, this may reflect badly on the parent company.
When to produce a statement
Transitional provisions have been issued to allow organisations sufficient time to understand the reporting requirement and produce a statement. Businesses with a financial year-end date between 29 October and 30 March 2016 will not be required to publish a statement for that financial year. Therefore, businesses with a year-end date of 31 March 2016 will be the first required to publish a statement. An organisation should produce a statement each financial year which must be approved and signed by a director, member or partner of the organisation and must be published on the organisation’s website, with a link in a prominent place on the home page. Whilst there is no stipulated timescale for publication of the statement, the guidance sets out an expectation that statements will be published within 6 months after the end of a financial year.
Supply chain transparency is becoming of increasing importance, and tackling modern slavery is beneficial to businesses as well as protecting human rights. As the government guidance states, these reporting requirements can improve strategic understanding of the risks and impacts of your core business activities in relation to the environment and human rights.
For further information regarding the Modern Slavery Act and/or assistance producing a statement, please contact Sarah Williamson by emailing [email protected] or calling 0118 9527 247.
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.