The construction industry may come under the spotlight more than others in its response to this legislation
The main aim of the Modern Slavery Act 2015 is to consolidate offences relating to slavery and human trafficking, but this is not the only reason the act has received so much public attention, particularly in the commercial world.
The act has grabbed the attention of commentators and board rooms alike due to the introduction of a requirement upon commercial organisations that meet certain criteria to produce an annual “slavery and human trafficking statement” for every financial year.
This ominously named statement should set out what steps the organisation has taken in that financial year to tackle slavery and human trafficking in any part of its supply chain and any part of its business. This casts an extremely wide net and – importantly - the organisation’s supply chain and/or part of the business need not be based in the UK.
The construction industry may come under the spotlight more than others – in terms of its response to this legislation – due to the high profile nature of the projects it creates and the business models used (namely where risk is often passed down the supply chain). The recent CIOB report “The Dark Side of Construction” commented on this and stated that exploitation of low-skilled migrant workers is a pressing issue both in the UK and across the world. It also stated that, while risk may be passed down the supply chain to some extent, risk in relation to human rights issues ethically and morally remains the responsibility of the people at the top.
The requirement for an outward facing display of compliance programmes will be causing organisations to address or re-assess their policies and processes; and has echoes of the impact of the Bribery Act’s requirement for “adequate procedures”. Recently published government guidance even states that this obligation is intended to create a “race to the top” by encouraging businesses to be transparent about their procedures and in doing so, seek to show off best practice - as organisations will not want to be outdone by competitors.
So when will a commercial organisation have to produce a slavery and human trafficking statement? The applicable criteria are that a commercial organisation must: supply goods and services, carry out business or part of a business in the UK, and have a threshold of £36m or more.
What can we expect to see, if not already happening? Many invitations to tender already include a requirement for declarations from bidders of their compliance with “ethical” legislation; it is likely that such declarations will extend to cover the Modern Slavery Act
The government has commented that it will take a common sense approach as to whether an organisation is considered to be “carrying on business” in the UK and the turnover calculation includes the turnover of any subsidiary undertakings. The government also hopes that, even if an organisation’s turnover falls below the £36m threshold in future years, it will nonetheless continue to produce the slavery and human trafficking statement because it considers it important to do so. Thus indicative of the fact the government hopes organisations will embrace the need to stand against unethical practices as part of a change of attitude across all sectors - and not just as a tick-box exercise, because they are required to do so.
But organisations that fall short of the criteria should not simply breathe a sigh of relief and carry on with business as usual. As organisations that are required to publish their compliance steps look to their procurement processes, policies, procedures, and contractual arrangements, this in turn, will have practical knock-on effects throughout the entire supply chain.
What can we expect to see, if not already happening? Many invitations to tender already include a requirement for declarations from bidders of their compliance with “ethical” legislation; it is likely that such declarations will extend to cover the Modern Slavery Act. Further, in the way that most conditions of contract include express provisions concerning the Bribery Act, including the ability to terminate in the event of a breach; it is likely that the Modern Slavery Act will be incorporated in the same way.
Even if an organisation is not itself caught by the criteria to produce an annual slavery and human trafficking statement it will need to ensure its policies and procedures are in good shape for compliance with its contractual arrangements and to ensure it can keep up with the demands of clients to demonstrate transparency.
The obligation to produce an annual slavery and human trafficking statement came into force on 29 October 2015. There is guidance on what this should contain and requirements as to how it must be published.
The government has granted a transitional period for organisations to get their ducks in a row, and the obligation will not apply to any financial year end falling between 29 October 2015 and 30 March 2016. Practically speaking, businesses with a year end of 31 March 2016 will be the first ones required to publish a statement for their 2015/16 financial year. The government expects organisations to produce their statement within six months of their financial year end, if not sooner.
Of course, the slavery and human trafficking statement could simply say that the organisation has taken no steps to prevent unethical practices, which is permitted under the Act. However, as organisations will be judged by the public, stakeholders and NGOs on their response to the Act, most would agree that it would take a bold organisation to do this, given the inevitable inferences and risk of reputational damage.
Stephanie Canham is head of construction at law firm Trowers & Hamlins