New laws on corporate responsibility – Modern Slavery Legislation

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By Luke Geary, Partner

In 2017, the Australian Parliament launched an inquiry into domestic modern day slavery practices. Modern slavery is an umbrella term given to modern day occurrences of human trafficking, slavery and slavery like practices, for example, forced labour. The findings were published in a report titled ‘Hidden in Plain Sight’ which unveiled widespread modern slavery within Australia, with an estimated 4,300 slaves in the country. The key recommendations of the report were for the establishment of an Independent Anti-Slavery Commissioner and to enact Modern Slavery Legislation in Australia.

The Report illustrated a notable prevalence of slavery within Australia. Primary examples of modern slavery in Australia are being  committed on farms and in other high risk industries such as the hospitality and construction industries. Recent modern slavery matters in Western Australia involved 70 foreign workers in the agricultural industry who were underpaid and living in overcrowded housing, including sheds.

In another example, a leading supermarket group was found to be underpaying subcontracted cleaners as little as $7 – $14 per hour for work, which was clearly well below their legal entitlements. A Fair Work Ombudsman inquiry into the supermarket found that 90 percent of its Tasmanian stores were non-compliant with workplace laws.

Subcontracted employees are commonplace in Australia; the members are often referred to as the ‘hidden workforce’. The hidden workforce are vulnerable, regularly underpaid and without regulation, which unsurprisingly leads to exploitation. As with the example given earlier, supermarket giants are often not the direct employer of cleaning staff, but rather cleaning staff are subcontracted to the supermarket. The supermarket ordeal illustrates that it is vitally important to introduce supply chain auditing to ensure that businesses are active in their own corporate responsibility and to ensure staff (including especially the staff of subcontractors) are being paid and treated in accordance with all relevant workplace laws.

Australia is among a cohort of other governments such as Britain and the Netherlands who have recognised the need for action-orientated laws to tackle modern slavery in domestic and global supply chains. In 2016, there were an estimated 11,700 slaves in Britain alone. In response, during 2015 the United Kingdom enacted the Modern Slavery Act 2015 (UK) (UK Modern Slavery Act), which was the first of its kind in Europe. The UK Modern Slavery Act essentially obliges commercial organisations with an annual turnover of more than £36 million to audit their supply chain and prepare a modern slavery statement each financial year. Section 54 of the UK Modern Slavery Act requires the modern slavery statement to include steps that the organisation is taking to address modern slavery in their supply chain and must be published on the organisation’s website. The UK government envisions that doing so will create public pressure to eradicate slavery found in supply chains.

Australia has provisions under the Commonwealth Criminal Code that attempt to regulate slavery. However, according to the Federal Government, out of 604 trafficking and slavery cases reported between 2011 – 2016, only 7 convictions were made. This illustrates how inefficient our current system is, given the estimated number of slaves throughout Australia. The Australian Modern Slavery Act will act to counteract this. Since the introduction of the UK Modern Slavery Act there has been a 63% increase of victims speaking out for help.

The Australian Government has set out on the path for a Commonwealth Modern Slavery Act, by the Modern Slavery Bill 2018 (MSA) introduced into Parliament on 21 June 2018 for consideration and debate.

The MSA is intended to confront slavery and slavery-like practices such as servitude, forced labour, debt bondage, organ trafficking, deceptive recruiting, as well as forced marriage and child brides. Key features of the MSA as drafted include:

  • Application to a wide range of Australian, foreign, and Australian Government entities with an annual turnover of over $AUD100 million to ensure a far-reaching effect, impacting over 3,000 organisations nationally;
  • Reporting on all modern slavery practices criminalised under Commonwealth law, including slavery, trafficking in persons, servitude, forced labour and forced marriage. Entities will also need to report on the worst forms of child labour;
  • Mandatory reporting criteria, including reporting on business operations, supply chains, potential modern slavery risks in the entity’s operations and supply chains, actions taken to rectify these risks and an assessment as to the effectiveness of such actions;
  • A public, Commonwealth run website to publish all modern slavery statements so that they are publicly accessible (these statements must be published within six months from the end of the financial year).

The modern slavery statements will be required to be completed by the Board or responsible members of the relevant organisation. Those members are responsible for ensuring the accuracy of its content and must sign the statement. The Federal Government is making it abundantly clear that this issue is the responsibility of those responsible for the governance functions of an organisation.

Although the MSA does not impose a financial or other penalty for non-compliance, the reporting threshold will cover approximately 3,000 businesses throughout Australia. The requirements will create a robust approach to corporate responsibility and form a basis of transparency by requiring businesses to respond to modern slavery with increased levels of information which will be publicly available. Non-compliance with the reporting obligations or failure to improve workplace standards and practices may attract public and investor scrutiny.

In addition, NSW has become the first state parliament to pass a Modern Slavery Bill 2018 on 21 June 2018. The NSW law requires organisations with an annual turnover of $AUD50 million or more to produce a Modern Slavery Statement and contains financial penalties of up to 10,000 penalty units ($1.1m) for non-compliance. This legislation will commence on a date yet to be proclaimed.

Since commencing, the UK Modern Slavery Act has increased transparency with more than 6,300 statements by companies from a wide range of sectors now available on the UK Modern Slavery Registry, providing insight into business structures, operations and supply chains. The availability of so many statements demonstrates that the Act is driving action. The statements show that a large number of companies are taking steps to develop and improve policies, due diligence and risk assessment processes to identify and mitigate the risk of modern slavery. Mitigation action may also include staff training or revising supplier contracts.

Supply chains are inherently complex and difficult to track, especially in companies that source from international manufacturers and suppliers. Companies will need to navigate many suppliers and will need to know what to ask their suppliers and how to identify risks within their supply chains. They will also need to remedy risks and produce a transparency statement. Entities not caught by the reporting threshold may still decide to opt in to the reporting requirements. Organisations may also find themselves, as part of another organisation’s supply chain, being required to provide information to a reporting entity. Now is the time to consider and prepare for how these imminent reporting requirements may impact organisations’ operations and compliance obligations.

For further information, please do not hesitate to contact us.

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