UK companies need to be aware of the incoming EU Forced Labour Regulation

For UK companies doing business in the EU, establishing good supply chain due diligence procedures should now be a priority from both a governance and a commercial perspective. The EU's Forced Labour Regulation (FLR) is now in force and comes into full effect from 14 December 2027.

The FLR reflects legislation in the US, Canada and Mexico addressing forced labour in supply chains, and could lead to products being blocked from EU markets, confiscated, or penalties for non-compliance with directions from the relevant Competent Authority.

The FLR aims to eradicate forced labour from products within the EU market. It applies to all companies doing a minimum level of business in the EU, regardless of the company’s size. This includes products made in the EU for domestic consumption, export and all imported goods. The regulation encompasses forced labour at any stage of a product’s supply chain, including components and raw materials.

Although the entry into full force of the FLR is still over two years away, the far-reaching work that may be required to achieve compliance means businesses should consider taking steps now in order to ensure minimum disruption to their trade once the FLR comes into full effect.

How does the FLR apply to UK companies?

UK companies that place or make available products on the EU market will be directly impacted by the FLR. These companies are expected to ensure that none of their products placed on an EU market or made in the EU for export – including components and raw materials – are made with forced labour.

If a product is deemed to have been manufactured using forced labour, it will be prohibited from being sold in the EU and offending products will be seized at EU borders.

Equally, UK companies doing business with EU corporate customers are likely to be indirectly affected by the FLR because if those EU companies place non-compliant products on the EU market they could face enforcement measures unless they can establish that their due diligence has mitigated, prevented and brought to an end the risk of forced labour. Consequently, for commercial reasons, UK companies would be well advised to be able to demonstrate their compliance with the FLR.

Prepare for Commission and EU state investigations

Where there is a “substantiated concern” of forced labour, the FLR outlines how EU Competent Authorities or the European Commission may investigate the issue at the preliminary and then formal investigation stages. Companies should be ready to respond promptly to information requests from authorities or corporate customers should they be subject to an investigation.

Engagement with investigations will likely involve providing requested information, cooperating with authorities, and review and appeal.

What should UK companies do to comply with the FLR?

UK companies will want to understand the forced labour risks in their supply chains and, where they find those risks, implement actions to mitigate them or, where that is not practical, identify alternative suppliers.

The starting point is mapping supply chains and then using that map to undertake a risk assessment to understand the forced labour risks in those supply chains. This is likely to include engagement with stakeholders and due diligence.

Gap analysis of current systems should also help build an understanding of where further actions are needed to prevent, mitigate or remediate actual or potential forced labour.  

Companies should document their compliance efforts, including records of supply chain audits, risk assessments, and corrective actions. If investigated, this evidence will help them demonstrate to EU authorities that any actual forced labour has been eliminated and potential forced labour risks minimised, that further investigation is not needed, and potential bans, seizure of goods and penalties are not necessary.

Transparency in Supply Chains reporting obligation

The issue of forced labour in UK supply chains has risen to prominence over the last 12 months to such an extent that, in January, the Joint Committee on Human Rights launched an inquiry into forced labour in UK supply chains.

The UK's Modern Slavery Act 2015 (MSA) requires qualifying companies to publish annual Transparency in Supply Chains (TISC) statements setting out the steps they have taken in the last financial year to ensure modern slavery and human trafficking is not occurring in any of their businesses or supply chains. Following the House of Lords Modern Slavery Act 2015 Committee report, the UK government said it was considering how to strengthen penalties for non-compliance with the MSA reporting obligation.

Businesses should be mindful that the actions they take to prepare for the FLR (and other due diligence obligations aimed at reducing modern slavery and forced labour) will then need to be referenced in the TISC statement for the relevant year.

Although the TISC obligation sets a low threshold for compliance, in March the Home Office updated its statutory guidance on TISC statements. The updated guidance goes well beyond the minimum required for compliance with the TISC obligation, outlining how businesses should comply with the "spirit" of the law.  It provides practical advice for businesses, including step-by-step guidance on addressing modern slavery, and integrating with existing frameworks like the UN Guiding Principles on Business and Human Rights and the Organisation for Economic Co-operation and Development due diligence guidance.

Conclusion

UK businesses are facing an increasing number of legal obligations, expectations and customer requests that involve supply chain forced labour due diligence. Bringing these separate pieces together, the overlap in the practical actions required should encourage businesses to take an efficient, strategic approach to supply chain due diligence.

The Commission is required to provide FLR guidance on due diligence, best practices for ending forced labour, and risk indicators.  Businesses should keep an eye out for the FLR guidance which should inform their approach to this issue.

Additionally, given recent UK case law indicating that modern slavery in overseas supply chains can give rise to potential money laundering offences for individuals and UK companies, getting on top of these issues should be a priority for UK businesses.

Osborne Clarke co-authored this Insight with Jamas Hodivala KC of Matrix Chambers.