The Modern Slavery Act 2015: What do staffing businesses and hirers need to know?

From next month, under the new Modern Slavery Act 2015 (the MSA), most large UK businesses will need to publish an annual, board-approved statement setting out the steps that they have taken to prevent slavery, not just within their business but also within their supply chain.

This legislation is yet another example of how UK companies are being expected to know, and be responsible for, what goes on in the supply chains on which they rely. Those managed service providers (MSPs) and staffing companies able to show hirers how they comply with the MSA and Bribery Act 2010 requirements and how they police intermediaries tax risk will, we consider, gradually win market share.

Rather than approaching this as an isolated exercise, for many organisations this obligation to make an annual Transparency in Supply Chains (TISC) statement may be most effectively met by utilising their existing anti-bribery and corruption (ABC) and/or corporate social responsibility (CSR) and/or checks they carry out on tax compliance by subcontractors, umbrella companies, payroll “partners” and the like under the intermediaries legislation and other new legislation, umbrella and personal service company (PSC) arrangements. This means, incorporating anti-slavery efforts within their broader business (and supply chain) risk analysis and response. Although non-compliance with the statement obligation does not carry a legal penalty, the reputational impact of getting this obligation wrong, and generally not being seen to be “on top” of supply chain practices, may be significant.

Why do you need to be aware about the MSA?

The MSA is part of the UK’s efforts to combat the global issues of forced labour, domestic servitude and human trafficking. The MSA consolidates and develops existing law on the offences of slavery and trafficking. However, leaving aside situations where a corporate may be held criminally responsible for those offences, the key corporate obligation being imposed by the MSA is the duty to prepare an annual TISC statement. This obligation is particularly significant (and potentially onerous) because it requires businesses to look beyond their own boundaries to understand their worldwide supply chain. The expectation is that they will then, where necessary, exert influence to eradicate any use of slave labour.

The obligation to provide a TISC statement will apply to all commercial organisations that carry on all or part of their business in the UK, supply goods or services and have a total turnover of £36 million or more. A TISC statement must be approved by the Board and signed by a director, and a link to the statement must be included in a prominent place on the home page of the organisation’s website.

For staffing companies and MSPs appointed on international projects and/or involved in a chain of supply the odds are that they will be asked by hirers to confirm what steps they have taken to comply. A failure to answer may lead to a very awkward situation with any hirer who is then itself unable to confirm it has carried out checks.

What does a TISC statement need to include?

Organisations that are required to publish a TISC statement have two options. A TISC statement will need to either:

• set out the steps that the organisation has taken during the financial year to ensure that slavery and human trafficking are not taking place in either its own business or its supply chain; or
• state that the organisation has taken no such steps.

Beyond this, the MSA is not prescriptive as to what should be contained in a TISC statement, although it suggests that an organisation may want to include the following elements:

• information concerning the organisation’s structure, business and supply chains;
• its policies in relation to slavery and human trafficking;
• the due diligence it has undertaken in its business and on its supply chain (and staffing companies and MSPs may need to pay particular attention to this because a failure to be on top of MSA issues may also suggest non-compliance with ABC requirements and/or tax requirements);
• its assessment of risks and the steps it has taken to address the risks of slavery and trafficking in its business or supply chain;
• its effectiveness in ensuring slavery and human trafficking is not taking place within its business or supply chain; and
• the training that it gives to its staff.

Further guidance is expected to be published by the Government giving businesses more detail on, amongst other things, what they should be including in their TISC statements.

What happens if an organisation fails to comply?

There is no legal penalty for not complying with MSA (although the Secretary of State will have the power to seek an injunction to force a corporate to make such a statement). Obviously this makes this measure less immediately concerning than ABC issues (where a staffing company will be criminally liable for bribery by subcontractors and payroll parties in other countries) and tax issues (where the new UK legislation will make hirers, MSPs and staffing companies effectively liable for umbrella and PSC PAYE and NICs).

The real risk under the MSA is therefore reputational rather than legal and the likelihood for staffing companies of non-selection on, or deselection from, preferred supplier lists (PSLs). This will be particularly so when it comes to sectors where corporate reputation is a key part of the business model and for suppliers to the public sector. Listed entities will also be aware of the increasing importance of ethical investment, either by specific ethical investment funds, or as part of responsible investment principles for other investors.

The reputational risk presented where slavery is discovered within the supply chain has been highlighted again in recent weeks. In California (which already has anti-slavery laws similar in some respects to the MSA) Costco is facing a class-action claim, seeking an injunction to prevent it from selling prawns unless they are labelled as being tainted by slavery. The claim alleges that a part of Costco’s complex supply chain, based in Thailand, used slave labour on its boats. This type of action can cause a great deal of reputational damage regardless of the outcome of the case.

Managing supply chain risk: An integrated approach

The MSA’s approach of leaving it to individual organisations to decide what steps are reasonable and proportionate for them to take will be familiar to those who have been involved in preparing and implementing policies and procedures in response to the Bribery Act 2010 (the Bribery Act). The parallels do not end there. Many of the steps that an organisation may want to take to comply with the MSA will be similar to those that it also takes to comply with the Bribery Act and/or compliance with the Intermediaries tax legislation and/or the effective operation of a CSR programme, such as:

• establishing a clear policy;
• conducting a global a risk assessment to identify and assess potential vulnerabilities in the business and supply chain;
• taking actions and developing processes to limit and manage those risks;
• providing training to employees;
• managing risk through contractual provisions with third parties; and
• putting in place a monitoring system to track progress and compliance.

The absence of a corporate offence in the MSA, akin to the offence of failing to prevent bribery (section 7 Bribery Act), is an important distinguishing feature. Nevertheless, the desire to ensure that there is no slavery within an organisation’s supply chain, and the reputational and commercial (i.e. PSL deselection) considerations discussed above, will mean that businesses need to think carefully about how they meet this obligation. For many, the most efficient and effective course will be the co-opting of existing ABC procedures to gather this further information and understand and address their corporate exposure.

As those with experience in implementing anti-bribery policies will know, another benefit of a robust compliance and monitoring program is that it can uncover other instances of illegality, unethical conduct or civil (contractual) wrong-doing in the supply chain. For many international staffing companies the TISC statement will become one more addition to the suite of key reporting measurements derived from an integrated approach to business which enable the management to have proper oversight of the risks they face, and to market compliance to their clients (and thereby help secure PSL roles).

All businesses caught by the MSA will need to consider carefully what they will include in their TISC statement, what terms they will need to impose on subcontractors (to ensure their subcontractors co-operate), and how this will fit with their existing ABC and tax compliance and CSR programs.