Part 2 – Implications for businesses in the supply chain
In Part 1 of this article, we looked at the content of the Australian Modern Slavery in Supply Chain Reporting Requirements (Reporting Requirements) proposed by the Commonwealth Government in the near future. In Part 2, we look at some practical and commercial implications likely to arise from the introduction of the Reporting Requirements.
Being aware and considering the implications of the new Reporting Requirements is incredibly important, given the outcomes of the 'Australian Modern Slavery Survey' recently conducted by The Chartered Institute of Procurement and Supply, which showed that:
- one per cent of respondents did not think they will be able to comply with the Reporting Requirements based on current management practices
- 20 per cent did not have measures to ensure supply chains were free from modern slavery
- 80 per cent indicated that reputational risk of identifying modern slavery in supply chains was the central concern of businesses.
Businesses in the supply chain which meet the $100 million revenue threshold may be used to reporting on compliance activities in other areas. Nonetheless, there are unique features of the proposed modern slavery reporting scheme which businesses should be mindful of when the Reporting Requirements are implemented.
A bigger supply chain than first meets the eye
The term 'supply chain' is commonly used in the context of transport and road safety laws to mark out the responsibilities of drivers, prime contractors for vehicles, vehicle operators, schedulers, loaders, loading managers, consignors and consignees. In the context of a Modern Slavery Act, this term takes on vastly different meaning.
Those expected to be directly affected by the Reporting Requirements also include businesses at the end of the supply chain, businesses in labour intensive industries and businesses employing foreign labour – businesses who have not historically considered themselves part of the supply chain.
Still, there is more than meets the eye.
Undoubtedly there will be a flow-on effect from entities required to comply with the Reporting Requirements to smaller entities below the threshold.
An effective measure to avoid modern slavery in supply chains and to demonstrate positive steps towards dealing with modern slavery risks is to include terms addressing such matters in contracts with supply chain partners. Terms which identify mutual obligations to implement policies to address modern slavery risks, provide warranties that operations do not involve modern slavery and contractual mechanisms for a failure to monitor modern slavery in supply chains are expected to arise in contracts between entities of all sizes upon the introduction of the scheme. This means that the Reporting Requirements will filter through to entities below the threshold and indirectly involved in the supply chain.
Specific high risk business activities
Industries with high risks of modern slavery are the retail, agriculture, construction and transport industries. Certain business models and conditions which are common to these industries make them more prone to modern slavery and slavery-like practices. They include:
- complex supply chains with numerous subcontractors
- high flexibility and low profit margins
- reliance on low-skilled or unskilled labour
- high numbers of temporary or seasonal workers
- operating in remote locations.
- make monitoring third parties in supply chains more difficult
- tend to result in higher numbers of foreign or migrant workers being employed at low wages
- leave workers exposed to deceptive recruitment practices
- make it less likely that individuals will report incidents of slavery or slavery-like practices
- can result in remuneration arrangements whereby employees are paid by way of commodities, food and accommodation rather than wages
- make it less likely that such businesses will be monitored by regulatory bodies (CORE Coalition UK, Beyond Compliance: Effective Reporting under the Modern Slavery Act), in particular where operating in remote or multiple locations.
Businesses operating internationally and even in multiple Australian states may be required to comply with numerous reporting requirements.
Examples of divergent reporting requirements include:
- Australia and UK:
The Modern Slavery Act 2005 (UK) recommends reporting areas for Modern Slavery Statements but they are not mandatory. Australia's Modern Slavery Bill 2018 (Bill) contains mandatory reporting areas. Entities used to providing Modern Slavery Statements under the UK law may assume that the reporting areas on modern slavery in Australia are optional and therefore may not comply with the Australian requirements. Given the substantial overlap between the requirements of the UK law and proposed Australian Reporting Requirements, entities subject to both laws may choose to publish and submit one Modern Slavery Statement covering all requirements for both jurisdictions to the relevant registries and on their websites.
- Australia and NSW:
There are significant differences between the Commonwealth Bill and the New South Wales Modern Slavery Act 2018. For example, the New South Wales scheme imposes penalties for failure to prepare and publish modern slavery statements in the order of up to 10,000 penalty units or $1.1 million. The Commonwealth scheme does not propose to introduce punitive measures. There are also separate administrative bodies under each scheme.
In their current proposed form the Federal and NSW Reporting Requirements may lead to entities being required to report to separate administrative bodies and also being subject to different penalty schemes. If the requirements are not coordinated, entities subject to both schemes should be aware of the discrepancies.
The key take-away is that businesses operating in multiple jurisdictions will need to ensure that their statements comply with all statutory requirements in each jurisdiction. Where there is an overlap this may be best addressed through providing one statement. Where this is not possible, some entities may need to produce more than one statement.
The Modern Slavery Bill was introduced in Federal Parliament on 28 June 2018. While it may be subject to further amendment, it would be prudent for entities to keep their eyes peeled for the risks of modern slavery in their businesses and to start laying the ground work for their reporting obligations under the Commonwealth and, where applicable, State schemes.
To ensure that entities are prepared for the Reporting Requirements and to avoid reputational risks to their business, they should consider:
- mapping out their supply chain and identifying aspects of their supply chain that might be vulnerable to modern slavery
- how their existing codes of practice and ethics might be modified to incorporate anti-slavery policies, including statements on entities' positions in respect of modern slavery and the requirement that business partners must take responsibility to avoid and eliminate modern slavery in their supply chains
- how contracts might include terms stating that each party has a mutual duty to monitor and address risks of modern slavery in its supply chain (including subcontractors), that each party must take all steps to avoid modern slavery in its supply chain and that each party may request from the other party statements and records concerning risks and incidents of modern slavery in that party's supply chain
- requesting suppliers' and subcontractors' policies and Modern Slavery Statements, where they are available, as a part of the pre-engagement screening process
- implementing a system for complaints or comments to be made about the existence or risk of modern slavery in their supply chains
- identifying steps that can be practicably taken to manage risks or incidents of modern slavery at different levels of the organisation
- implementing an internal governance and accountability framework to address the responsibilities of each level of their organisation in monitoring risks and incidents of modern slavery
- providing training to all levels of their business and to subcontractors on building an awareness of modern slavery, identifying risks of modern slavery and undertaking appropriate due diligence to ensure their supply chain is free from modern slavery
- incorporating performance measures and KPIs to review, measure and improve their management and anti-slavery policies. These indicators can also be referenced to demonstrate the effectiveness of the above activities in any lodged Modern Slavery Statements.
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.