Modern Slavery in the Supply Chain

Slave is defined in the Macquarie Encyclopaedic Dictionary as:

1. /sleiv/ n. someone who is the property of, and wholly subject to another 2. Someone who works for and is the prisoner of another; someone who works under duress and without payment. 3. someone entirely under the domination of some influence: a slave to cigarettes. 4. a drudge. v. (slaved, slaving) – v.i. 5. to work like a slave; drudge. – v.t 6.  To enslave.

Not a new word and (contrary to popular belief) far from being eradicated in the new world. Recent statistics reveal that there was an estimated 40.3 million people living in modern slavery in 2016.^[1]

The word ‘slave’ is taking on a new meaning both economically and legally. It is time for companies, associations and organisations alike in this era that are trading in supply and demand, to take notice.

New Legislation

New Commonwealth and New South Wales legislation has passed to deter trade-slave and illegally sourced labour from countries most commonly known to be targeted by large conglomerate companies for mass production of cheap products and services.

The Modern Slavery Act 2018 (Cth) came into effect on 1 January 2019 and the Modern Slavery Act 2018 (NSW) is yet to come into effect but goes one step further than the Commonwealth legislation as it also imposes monetary penalties. The legislative instruments are similar, so this article will focus on the Commonwealth statute at first instance.

Modern Slavery Reporting Requirement

Section 16 of the Commonwealth Act establishes a Modern Slavery Reporting Requirement. Large companies and businesses are to produce an annual modern slavery statement,^[2] and submit it within six months of the end of the relevant reporting period.^[3] (See the timeline later in the article).

Reporting requirements are mandatory for entities that have an annual turnover of $100 million under the Commonwealth Legislation and $50 million under the NSW legislation. Entities can also make voluntary statements if the organisation does not meet the turnover threshold. Voluntary statements are encouraged as good practice and social governance. 

The definition of modern slavery is broad and includes modern slavery practices which are major violations of human rights and serious crimes, trafficking in persons, slavery, slavery-like practices (including forced labour), the worst forms of child labour (including using children for prostitution or in hazardous work), removal of organs, debt bondages and forced marriage.
 

The need for transparency

The Royal Banking Commission revealed the activities and questionable trade techniques of large corporations and banks. This legislation is an example of government placing curbs on the improper practices of large entities as compared to expectations, standards, values and attitudes of modern Australians.

The Explanatory Memorandum for the Commonwealth Act recognises that:

“Over half of these victims are exploited in the Asia-Pacific region, in which the supply chains of a significant number of large businesses operating in Australia are based. Modern slavery can occur in any sector or industry, and at any point in a supply chain. Internationally, high-risk industries include agriculture, construction, electronics, extractives, fashion and hospitality.”

And that:

“There is a high risk Australian businesses are exposed to modern slavery risks and that Australian goods and services are tainted by modern slavery. This risk may be heightened for large companies and other entities with extensive, complex and/or global supply chains.”

The need for action

The Explanatory Memorandum states that the Act is to:

 “assist the business community in Australia to take proactive and effective actions to address modern slavery. This will help mitigate the risk of modern slavery practices occurring in the supply chains of goods and services in the Australian market.”

The objective of the Commonwealth Act as stated is to:

“require some entities to report on the risks of modern slavery in their operations and supply chains and actions to address those risks, and for related purposes”,

 in order to increase transparency in supply chains, specifically in commercial organisations.

The need for accountability

Under the Commonwealth Act, entities can be assured that:

“reports are kept by the Minister in a public repository known as the Modern Slavery Statements Register. Statements on the register may be accessed by the public, free of charge, on the internet.”

There is also power for the Minister to send “please explain” letters to non-complying entities, to require certain acts of remediation by non-complying entities, and to publish the list of names of entities that have not complied with the legislation.

Impact

Why does this matter to you? Even if your business is not large enough to be caught by the legislation, you may be indirectly affected if your company contracts to a large company or you have entered into or are entering into contracts with larger corporations.

Smaller entities (including non-corporate Commonwealth entities) that trade in supply of goods and or service should be aware of the risks at every level of the supply chain of organisations, people and activities that bring a services or products from inception to sale and delivery to the end user. This may involve:

1. agency, distribution or franchise;
2. procurement of goods and services, outsourcing and subcontracting;
3. suppliers, trade-unions or other bodies representing workers;
4. licencing agreements and supply contracts both nationally and internationally;
5. contract workers or seasonal workers; or
6. outsourcing of manufacturing and warehousing.

All areas may be exposed to the risks and can be caught up in the fallout of the Acts.

Smaller entities may be obliged to provide contractual warranties or to participate in audits for large organisations attesting to the “health” of the supply chain.

The penalties for an entity found to be engaging in modern and illegal slave labour hire may not present a financial burden (at first) but rather may be social or reputational. The public shaming and social impact on an entity’s reputation is considered likely to be significant and there may be consequential financial repercussions from this alone.  

Timeline

The Modern Slavery Reporting Requirements cannot be deferred.

What should you do?

You will need to identify any risks, assess the level of risk, and steps put in place to monitor and manage any risk. You or your entity may need to engage in employee training, due diligence and remediation processes.

Contracts and policies should be reviewed and updated appropriately to commit to combatting modern slavery and manage risks. This will also be reflected by:

1. revising and updating warranty and indemnity provisions; and
2.  inserting clauses to address further obligations to:
   • hold annual audits;
   • report breaches of policies and improper maintenance of records;
   • replace restrictions; and
   • have the right to terminate an agreement if an entity is engaging in modern slavery.  

Seeking assistance

There is a Guide that has been released by the Commonwealth Government to explain in plain language what entities need to do to comply with this reporting requirement. This Guide may include helpful information for your entity’s procurement, legal, compliance, and finance teams.

However, if you are concerned that your business risk being affected either legally, ethically or socially, then speak to one of our legal experts for an initial consultation and to see how you can identify and assess any risk, improve your supply due-diligence and if required, prepare an annual modern slavery statement to ensure that your new and continuing contractual obligations address the new legislative requirements.