At the end of May, the Final Report of the Independent Review of the Modern Slavery Act 2015 (the Act) was laid before Parliament. One of the Review’s key focus areas was the obligation on businesses to produce an annual modern slavery statement under section 54 of the Act. Whilst the Final Report commends section 54 as an innovative piece of legislation, it criticises its lack of clarity and “teeth”, and on that basis recommends wide-ranging reforms to the content of statements, how they are published and the sanctions for non-compliance. On 11 June, the UK Prime Minister Theresa May responded to the Report, confirming that the UK Government intends to implement some of its recommendations, and consult on broader reforms to the legislation.
Section 54 of the Modern Slavery Act 2015 requires companies carrying on a business in the UK with an annual turnover of more than £36m to prepare a slavery and human trafficking statement for each financial year. This statement must set out the steps it has taken to ensure that slavery and human trafficking is not taking place in its business or supply chains.
Section 54 came into force in October 2015, with companies obliged to produce modern slavery statements for the first financial year ending on or after 31 March 2016, and each year thereafter. Many large companies have now adjusted to the rhythm of this annual reporting requirement, and are entering their third or even fourth round of reporting.
However, calls for reform of section 54 began almost as soon as the Act was first introduced, and they are now gathering pace in the wake of an Independent Review of the Act led by Parliamentarians Frank Field MP, Maria Miller MP and Baroness Butler-Sloss, which has laid its Final Report before Parliament.
The Independent Review’s Final Report
The Review’s Final Report recognises that when the Act was introduced, it was a “world-leading” legislative measure, and section 54 broke new ground in raising awareness of modern slavery within the business community. It also commends the international impact of section 54, noting its influence on other legislatures across the world who have since taken similar action in their own jurisdictions.
However, the Final Report echoes many of the criticisms directed at section 54 by commentators and civil society in recent years, suggesting that:
- an estimated 40% of companies within the scope of section 54 are not complying with the legislation at all;
- although the Act makes provision for the Home Secretary to seek an injunction against non-compliant companies, this has not been used and there have been no penalties to date for non-compliant organisations; and
- amongst those that are complying, many companies are approaching their obligations as “a mere tick-box exercise”.
On this basis, the Final Report concludes that section 54 “is not sufficient and it is time for the Government to take tougher action to ensure companies are taking seriously their responsibilities to eradicate modern slavery from their supply chains.”
The Final Report makes a wide range of recommendations for reform of section 54. None of these are particularly novel or surprising (indeed, they are essentially the same as those set out in the Independent Review’s interim report on transparency in supply chains published at the beginning of this year); but they represent a fairly comprehensive summary of the main reforms that commentators and key players amongst civil society organisations have called for in recent years. In brief, the Final Report suggests:
- The Government should establish a list of companies falling within the scope of section 54, although companies should remain responsible for determining if they need to produce a slavery and human trafficking statement (and non-inclusion in the list should not be an excuse for non-compliance).
- The Government should set up a central repository to which companies are required to upload their modern slavery statements, which should be easily accessible to the public, free of charge.
- Regarding the content of modern slavery statements, the six areas currently presented as optional in section 54(5) should become a mandatory content requirement, and statutory guidance should be strengthened to include a template of the information organisations are expected to provide on each area (business and supply chains; modern slavery policies; relevant due diligence processes; areas of risk and steps taken to address it; effectiveness of approach; and training provided to staff). Companies should not be able to state simply that they have taken no steps to address modern slavery in their supply chains (as section 54 currently permits).
- The Act should be amended to require companies to consider the entirety of their supply chains – not just the “first tier”. If a company has not done so, it should be required to explain why it has not and what steps it is going to take in the future.
- Sanctions for non-compliance should be strengthened, and the Government should adopt a gradual approach over the coming years, progressing from initial warnings to fines (as a percentage of turnover), court summons and director disqualification. The Government should also bring forward proposals for an enforcement body to impose sanctions on non-compliant companies.
- The Independent Anti-Slavery Commissioner should play a more active role in policing section 54, monitoring business compliance and overseeing the guidance available to companies.
- The Government should extend the obligation to produce a modern slavery statement beyond commercial entities, to include public authorities with an annual budget of over £36m. It should also strengthen its public procurement processes to ensure companies not compliant with section 54 are removed from consideration.
- The Companies Act 2006 should be amended to include a requirement for companies to refer to their modern slavery statement in their annual reports.
- Businesses should have a named, designated board member who is personally accountable for the production of the modern slavery statement.
- Modern slavery statements should be dated and clearly state over which 12-month period they apply.
The Government’s Response
With her premiership drawing to a close, the UK Prime Minister Theresa May has chosen to refocus on modern slavery, which was a touchstone of her tenure in her previous Ministerial post as Home Secretary. On 11 June 2019, she gave a speech at the International Labour Organisation centenary event in Geneva, highlighting recent progress that had been made in tackling modern slavery, and calling on the national leaders assembled to accelerate collective efforts to eradicate it.
During the speech, she announced new measures on modern slavery that the UK Government plans to implement, including the creation of a free online registry of modern slavery statements. She also announced that – inspired by the Independent Review’s Final Report – the Government will consult on possible changes to section 54 of the Act, particularly to strengthen and improve business transparency and to expand the law to cover the public sector.
The Final Report notes a growing movement towards business transparency in the UK, reflected elsewhere in (for example) gender pay gap legislation, and argues that “it is only right that reporting on modern slavery should be taken equally seriously”.
Theresa May’s speech at the ILO indicated that action is imminent, but to what extent the Final Report’s recommendations are put out for consultation by the UK Government – and which might ultimately be adopted – remains to be seen. Some of the suggested reforms, particularly those surrounding the content and publication of statements, the role of the Independent Anti-Slavery Commissioner and the extension of section 54 to cover public authorities, appear relatively straightforward; and given sufficient Parliamentary will and time, it is readily foreseeable that the legislation may be amended accordingly in due course. Others, particularly the proposed sanctions for non-compliance, may prove more controversial; but they cannot be ruled out, particularly in light of apparent willingness to take such action elsewhere, including in France (the Duty of Vigilance Law), Germany (the proposed Corporate Social Responsibility law) and Australia (the New South Wales Modern Slavery Act).
The UK Government is due to respond formally to the Final Report over the summer, at which point there should be some clarity as to if, how and when the reform of Act may proceed.