Global supply chains and human rights: new obligations for business from October 2015

Since the Modern Slavery Act 2015 received Royal Assent before the general election campaign, the significance of the Act to business and global supply chains is starting to become better understood. One of the first measures of its kind in the world, the Modern Slavery Act not only imposes for the first time a legal obligation on business to take steps to combat forced labour and human trafficking, it represents another important step in recognising the responsibility of the global business community to ensure human rights are respected. The controversy surrounding the government’s plans to abolish the Human Rights Act and to devise a British Bill of Rights that complies with our international obligations provides an interesting backdrop to the issue. The whole issue of human rights, including labour rights, and global business has risen high on the agenda of employers over the last decade.

The Act should be a concern not just for secretive criminal gangs or small sweat shop employers ruthlessly exploiting migrant or illegal workers in the UK. Severe criminal sanctions will continue to apply to those people, with the maximum sentence being increased to life imprisonment. The Act will also be of concern to organisations going about their lawful business in a global market where enforced labour and human trafficking remain an awful but often hidden reality, especially when questions are not asked.

Estimated figures from the UN International Labour Organisation estimate 21 million people worldwide are subject to forced labour,  of whom 5.5m are children, generating US$ 150 billion in profits.

Obligations under the Modern Slavery Act

Under the Act, all larger companies doing business in the UK will have to publish a “slavery and human trafficking statement” each financial year. This is a statement of the steps the organisation has taken during the financial year to ensure that slavery and human trafficking is not taking place either in any part of its business operations worldwide or in any part of its supply chains anywhere in the world. In respect of such a serious issue, it is potentially a very onerous obligation, particularly where an organisation may have a large, complex global supply chain. It will be possible to provide a statement saying that no steps have been taken to combat slavery and human trafficking but that is very unlikely to be a viable option, given the reputational risks to the business. That would entail stating in effect that no steps have taken to assess the level of risk of slavery or human trafficking taking place in its organisation or supply chain or carry out any due diligence.

Which companies will it apply to?

It is anticipated that this obligation will come into effect from October 2015. The draft regulations providing the detail of this obligation are yet to be published. Importantly, the government is yet to decide upon the turnover threshold that will determine how many companies will be affected by the new obligation. However, based on the Home Office consultation, we know that the threshold could be £1billion or as low as £36million. If it is set at £36million, an estimated 12,000 companies would be caught.

Subject to the threshold issue, the Act will apply to any business, not just companies incorporated in the UK. Turnover will be calculated based on total global turnover, not based on the amount of business done in the UK. The Act will therefore apply equally to organisations based  in the UK but with some operations abroad and also organisations based abroad but carrying out some part of their business in the UK.

Even if you are a smaller business not affected by the Modern Slavery Act, you may be working closely with a company that will be. Hence, you may be concerned about your own reputation in being associated with a company or brand that has issues over forced labour in its supply chain.

What will a slavery and human trafficking statement look like?

The Act says that a slavery and human trafficking statement may include information about:

• 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; and
• The training about slavery and human trafficking available to its staff.

What action should businesses take?

Providing the statement is essentially a risk and reputation management issue, requiring the organisation to be able to demonstrate how the risk of enforced labour and human trafficking have been carefully thought through and steps are being taken to eliminate or reduce the risk. You are likely to need to consider:

• Ensuring your organisation has a clear understanding, in global terms, how the different parts of the business operates across the world and how and where suppliers and contractors operate
• Reviewing the practices of these parts of the business and their supply chains.
• Identifying the countries and jurisdictions where there is evidence that forced labour and human trafficking are a problem. The UN International Labour Organisation (ILO), whose annual conference we support on behalf of the CBI, provide a wealth of readily accessible information on all labour standards issues, country by country.
• Ensuring you have an understanding of what is meant by forced labour. Again, the ILO together with the CBI and the International Organisation of Employers can help [http://www.ioe-emp.org/
• Reviewing procurement procedures and how they may need to change
• Reviewing  contractual arrangements with suppliers
• Consulting with trade union organisations
• Considering implementing internationally recognised human rights standards and practices.

UN Guiding Principles on Business and Human Rights

As regards the last point above, consideration should be given certainly to the UN Guiding Principles on Business and Human Rights, endorsed in 2011 by the UN Human Rights Council.  These were developed by the former UN Secretary-General’s Special Representative on human rights and transnational corporations, John Ruggie, becoming known as the “Ruggie Principles”. There is an authoritative UN Guiding Principles Reporting Framework which may assist on corporate social responsibility issues regarding human rights.

A report published by The Economist Intelligence Unit earlier this year, with the support of the International Organisation of Employers shows that 83% of respondents to a survey believed that human rights are a matter for business as well as governments. However , 54% have no policy statement referencing human rights.

Nick Huffer is attending the 2015 UN International Labour Conference in Geneva next week as part of the CBI delegation and supporting the work of the International Organisation of Employers.