As set out in our previous guidance note, the Modern Slavery Act 2015 consolidates the current offences of slavery and human trafficking. The Act also introduces a requirement for certain commercial organisations to disclose, on an annual basis, the steps taken to ensure that slavery and human trafficking is not taking place in their organisation or associated supply chains. This disclosure is to take the form of a slavery and human trafficking statement and should be published on the organisation’s website. This new obligation can be found at Part 6, section 54 (Transparency in Supply Chains etc.) of the Modern Slavery Act.
The Government has now published useful, practical guidance as to the application of this requirement.
Who is required to produce a slavery and human trafficking statement?
Organisations will be required to publish an annual slavery and human trafficking statement if all of the criteria below apply:
- it is a relevant commercial organisation, which is defined as:
- a body corporate (wherever incorporated) or a partnership (wherever formed),
- carries on a business, or part of a business, in any part of the United Kingdom;
- which supplies goods or services; and
- has a total turnover of not less than an amount prescribed by Regulations made by the Secretary of State (currently £36m). Turnover for these purposes includes the turnover of the organisation itself, and the turnover of any of its subsidiary undertakings.
The Act could therefore cover organisations based within the UK but operating abroad, and those operating abroad but carrying out some part of their business in the UK. The Act could also cover holding companies, provided it meets the criteria above.
What is a slavery and human trafficking statement?
It 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 its business or in its supply chains. It may also be a statement that the organisation has taken no such steps, but making such a statement would pose obvious reputational risks.
The legislation is not prescriptive as to what the statement must contain. It may include information on the following:
- the organisation’s business model and supply chain relationships;
- its policies relating to modern slavery, including its due diligence and auditing processes;
- training offered to its supply chain management and the rest of the organisation;
- the principal risks related to slavery and human trafficking, including how the organisation evaluates and manages those risks, both in the organisation and its supply chains;
- relevant key performance indicators.
How does this requirement apply to different group structures?
The concept of whether or not an organisation is carrying on a business, or part of a business, within the UK is not defined in the Act. The guidance suggests that a 'common sense' approach must be taken when considering whether or not an organisation satisfies this test.
Irrespective of overall group structure, each organisation within the corporate group needs to be considered independently of each other when determining whether or not the obligation to publish a slavery and human trafficking statement applies to the entity.
Parent and Subsidiary
The guidance states that having a UK subsidiary will not, in itself, mean that a parent company is carrying on a business in the UK, since a subsidiary may act completely independently of its parent or other group companies.
It is therefore necessary to consider whether or not a subsidiary is acting completely independently of its parent. If the subsidiary cannot be considered to be acting independently – for example if the two entities have shared management personnel – then the obligation to produce a statement would apply to the parent by virtue of its relationship with the subsidiary.
If a foreign subsidiary is part of the parent’s supply chain or own business, the parent company’s statement should cover any actions taken in relation to that subsidiary, even if it is not carrying on a business in the UK. Where a foreign parent is carrying on a business or part of a business in the UK, it will be required to produce a statement.
When considering a parent’s turnover for the purposes of meeting the criteria, every subsidiary’s turnover must also be taken into account, even if they operate entirely outside the UK.
A parent company can cover its subsidiaries with one overall group statement, if that statement is then published on the websites of the subsidiaries.
It would be good practice for parent companies, even if not legally obliged to, to cover foreign subsidiaries in their statements, or to ask those subsidiaries to complete their own statement, to demonstrate that the group is committed to preventing slavery and human trafficking.
Franchise Models
Where organisations are operating under a franchise model, it is the turnover of a franchisor that is to be considered, and the turnover of any franchisee will not be considered. If the turnover of an individual franchisee exceeds £36m, then they will be required to produce a statement.
Examples
A US parent company with a global turnover of £100m has a UK subsidiary with a turnover of £30m. The US parent company carries on no business itself in the UK and the UK subsidiary operates entirely independently of the parent company. No statement would need to be produced by either parent or subsidiary.
A US parent company with a global turnover of £30m has a UK subsidiary with a turnover of £20m. The US parent has some business interests in the UK, in addition to its UK subsidiary. The parent company would need to produce a statement, as it would need to take into account the turnover of its subsidiary, which in total would exceed £36m. The UK subsidiary would not need to produce its own statement, but the US parent may choose to include it within its statement.
A UK parent with a turnover of £100m has a German subsidiary with a turnover of £50m, a French subsidiary with a turnover of £50 million and a UK subsidiary with a turnover of £50m. The German subsidiary is part of the UK parent's supply chain, but the French subsidiary is not and has no business interests in the UK. A statement would need to be produced for the UK parent and for the German and UK subsidiaries, but these could be covered by one statement, published on the websites of the three respective organisations. No statement would need to be produced for the French subsidiary, but the parent may cover it in its statement regardless.
Previous guidance on the Modern Slavery Act: