Commonwealth Modern Slavery Act review: what can organisations do now to prepare for tougher modern slavery laws? - Employee Rights/ Labour Relations

On 25 May 2023, the Federal Government released the much-anticipated report on the statutory review of the Modern Slavery Act 2018 (Cth) (Modern Slavery Act).

If the recommendations set out in the review are adopted, more organisations will be required to submit modern slavery statements and implement due diligence systems, and there will be penalties imposed for failing to report or failing to have a due diligence system in place (amongst other things).

While we are yet to hear whether the Federal Government will adopt any, or all, of the recommendations, they have previously committed to the introduction of penalties and funding for the appointment of an Anti-Slavery Commissioner was included in the May Federal Budget. Regardless, it would be prudent for current and potential future reporting entities to review, or start implementing, governance and due diligence processes to ensure they can comply with the proposed changes if implemented.

Background

The Modern Slavery Act currently requires entities with A$100 million or more in annual consolidated revenue to prepare annual reports that identify the risks of modern slavery in their operations and supply chains, and outline the actions taken to address those risks. The aim of the Modern Slavery Act is to increase transparency of modern slavery risks in the operations and supply chains of large Australian businesses, and to encourage businesses to effectively prevent and address modern slavery.

As part of its operation, the Modern Slavery Act provides for a statutory review three years after its commencement. This review considered:

the operation of the Modern Slavery Act during its first three years of operation;
compliance with the Act's requirements during this period; and
whether any additional measures are needed to improve compliance.

We have now seen three rounds of annual reporting under the Modern Slavery Act. While we have seen significant improvements in corporate awareness and monitoring of modern slavery risks, there have been a range of observations and concerns raised by civil society. These relate to the quality of modern slavery statements, the tendency to approach the reporting obligation as a tick a box exercise, the extent to which businesses are meaningfully engaging with their supply chains and the effectiveness of a transparency regime to actually address drivers of, and combat, modern slavery. Businesses have also expressed concern about the challenges in identifying and addressing risks deep in their supply chain.

Report

The Report of the Statutory Review of the Modern Slavery Act 2018 (Cth): The First Three Years (the Report) observed that over the past three years, there has been a significant cultural change and an increased commitment to combat modern slavery, and that businesses are taking the Modern Slavery Act's reporting requirements seriously. The Report also noted that investors and procurement processes are paying closer attention to the quality of modern slavery reporting.

However, following a lengthy and wide-ranging consultation process, the Report acknowledged that a widely held view is that there is no clear evidence the Modern Slavery Act has led to meaningful change for people living in conditions of modern slavery, and that the reporting obligation resembles a tick-box exercise for many entities. In addition, it acknowledged the criticism that the underlying concept of transparency and reputational risk as a means of encouraging compliance is weak, raising awareness of a problem without requiring action to address it.

Despite its flaws, the Report found broad support for and commitment to the Modern Slavery Act across the various sectors that had engaged in the consultation process. Even critics of the effectiveness of the transparency approach in motivating action to address the drivers of modern slavery practices expressed the view that it could be improved with legislative amendments.

The Report has made 30 recommendations to improve and strengthen the Act, including the following key recommendations:

introducing penalties for specific non-compliance;
introducing a requirement that entities implement a due diligence system;
incorporating new mandatory reporting requirements, including to describe actions taken under a due diligence system and to report instances of modern slavery;
lowering the threshold for reporting entities to $50 million;
establishing a mechanism for making complaints in respect of modern slavery statements; and
the appointment of the Commonwealth Anti-Slavery Commissioner (already included in the May budget).

Key recommendation - Civil penalties

A key recommendation made in the Report is that civil penalties should be introduced. The Report found that it was "incongruous" that the Modern Slavery Act imposes a reporting duty in relation to a matter of fundamental human rights, but contains no robust procedure to ensure compliance.

The Report has recommended that the Modern Slavery Act is amended to provide that it is an offence for a reporting entity to:

fail, without reasonable excuse, to submit a modern slavery statement within a reporting period for that entity;
submit a modern slavery statement that knowingly includes materially false information;
fail to comply with a request given by the Minister to the entity to take specified remedial action to comply with the reporting requirements of the Modern Slavery Act; and
fail to have a due diligence system in place that meets the requirements of the Act.

This recommendation does not come as a surprise. Numerous stakeholders and independent studies have criticised the level of compliance with the Act and have called for financial penalties to be introduced. The Report recognised this and found that the experience in Australia to date has not shown that good faith and the potential for negative publicity are enough to ensure compliance.

However, the Report explained that these civil penalties should not extend to whether the reporting entity's procedures, practices and due diligence processes are 'best practice', nor whether the entity has acted in compliance with its own systems. At this stage, the Report does not support penalties that rely on subjective judgment as to whether a modern slavery statement is adequate or effective.

The Report noted:

"A strong feature of the Australian modern slavery reporting agenda is the collaboration and open conversation that has occurred between government, business civil society and researchers. The introduction of penalties for inadequate reporting could undermine those developments by altering the conversation (and the participants) into one about legal compliance and regulatory risk management".

Key recommendation - Due diligence requirement

The Issues Paper for the Modern Slavery Act review made it clear that the review would consider whether an obligation to conduct human rights due diligence should be placed on reporting entities. Currently, the Modern Slavery Act requires an entity to describe the actions taken to assess and address modern slavery risks, 'including due diligence and remediation processes'. However, there is no requirement to conduct due diligence, and 'due diligence' is not defined in the Act.

Several independent studies, including the Paper Promises report and Monash University's research report on Modern Slavery Statement Disclosure Quality in ASX 100 Companies, have made it clear that entities are not currently engaging in effective or meaningful due diligence. This is the case even as there has been a trend towards mandatory human rights and environmental due diligence in other jurisdictions, including Germany, France and Norway, and potentially New Zealand and the European Union.

The Report has recommended that reporting entities should be required to:

have a due diligence system to identify and assess modern slavery risks (that meets requirements to be set out in rules made under section 25 of the Modern Slavery Act); and
explain the activity undertaken by the entity in accordance with that system in the entity's annual modern slavery statement.

It is not clear whether the Government will accept this recommendation or what the Modern Slavery Act will specifically require in terms of due diligence requirements. However, it is likely that the United Nations Guiding Principles on Business and Human Rights will provide the framework for these requirements.

The Report also makes recommendations as to further guidance material being provided in respect of due diligence requirements and assessing the effectiveness of due diligence. This could include guidance on the scope of due diligence across supply chains and sector-specific guidance.

Key recommendation - Additional mandatory reporting criteria

In addition to the due diligence requirement, the Report has recommended that the Attorney-General's Department consider amending the Modern Slavery Act to include some additional mandatory reporting criteria.

The Report recommended that an entity should be required to report on:

modern slavery incidents or risks identified by the entity during the reporting year;
grievance and complaint mechanisms made available by the entity to staff members and other people; and
internal and external consultation undertaken by the entity during the reporting year on modern slavery risk management.

These additional reporting criteria will amend and clarify existing criteria. They will also increase pressure on reporting entities to ensure they are taking meaningful action to address modern slavery risks. The Report does not discuss in detail the complexities of reporting on incidents of modern slavery but suggests that the Anti-Slavery Commissioner could work with business to address these matters.

Key recommendation - Reporting threshold

Currently, the Modern Slavery Act requires entities with an annual consolidated revenue of more than A$100 million to submit a modern slavery statement. The Report has recommended that this threshold be reduced to include any entity that has an annual consolidated revenue of at least A$50 million. This lower reporting threshold would bring Australia in line with developments in other jurisdictions, in particular the UK Modern Slavery Act.

Importantly, the proposed penalty provisions and due diligence requirements would not apply to an entity with an annual consolidated revenue between A$50-100 million until two years after the entity has become subject to the Modern Slavery Act's reporting requirements.

Key recommendation - Commonwealth Anti-Slavery Commissioner

The Federal Government has already committed to establishing the office of an independent Commonwealth Anti-Slavery Commissioner and currently has a separate project to scope options for doing so. The Report therefore considered the role of the Commonwealth Anti-Slavery Commissioner and the scope of the powers the Commissioner should have.

The Report has recommended that functions of the Commonwealth Commissioner should include a range of functions, such as:

coordinating work across government and industry sectors to eliminate modern slavery in Australian and global supply chains;
monitoring the effectiveness of federal institutions in addressing modern slavery;
collaborating with other agencies to encourage and increase information sharing;
publishing an annual list of countries, regions, industries, products, suppliers or supply chains with a high risk of modern slavery; and
capacity-building within business and government on their due diligence obligations.

How a newly appointed Commonwealth Commissioner would relate to the current NSW Anti-Slavery Commissioner and its functions was not discussed in the report.

Key recommendation - Complaints procedure

The Report also recommended that the Government should examine the practicability of establishing a procedure for the receipt and investigation of complaints from the public regarding reporting under the Modern Slavery Act. It is anticipated this would require a complainant to raise the matter directly with the reporting entity in the first instance, and it is likely such complaints would direct the attention of the Government in exercising its range of enforcement powers.

What can organisations do now to prepare for tougher modern slavery laws?

Although the Government has not indicated which of the Report's recommendations it will adopt, the actions required by organisations to meet the new standards are likely to be substantial.

Set out below are some proactive steps businesses can take now to prepare for some of the more significant proposed amendments:

Penalties. Businesses should be prepared for financial penalties to be introduced and ensure they are meeting (and are familiar with) the current requirements of the Modern Slavery Act.
Due diligence. Businesses should consider getting ahead of this requirement by developing and implementing a clear and comprehensive due diligence framework for the operations and supply chains of the business. If the business already has an established due diligence framework, consider reviewing its effectiveness at identifying and assessing risks of modern slavery and make sure it extends beyond first-tier suppliers.
New mandatory reporting criteria. Businesses should consider implementing or reviewing their grievance and remediation frameworks, and consider the extent to which they are being utilised and the capability of those receiving complaints to respond to and remediate human rights matters. In particular, businesses should consider and understand the complexities of identifying modern slavery incidents in public modern slavery statements.
Reporting threshold. Businesses with an annual consolidated revenue between A$50 and A$100 million should consider preparing for the reporting threshold to be lowered. While these businesses will not be subject to civil penalties or the due diligence requirements until their third reporting cycle, it takes time to implement the appropriate governance, due diligence and monitoring frameworks.

Taking these proactive steps will help ensure that your business is in the best position to prepare a compliant and meaningful Modern Slavery Statement should the Government adopt the measures proposed by the Report.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.