The transparency provisions of the U.K. Modern Slavery Act went into effect this past fall and the fashion industry needs to take notice. The legislation, which was passed by the Parliament of the United Kingdom, requires companies to report annually on the steps that they have taken during the financial year to ensure that slavery and human trafficking are not taking place in their own business or in their supply chains. And it is not just limited to companies that are headquartered in the UK. In fact, it applies to all companies, regardless of their origin, with an annual turnover above £36 million (or $51 million). Aimed to serve, in part, as a deterrent against fast fashion manufacturing abuses, the Modern Slavery Act requires that companies take steps to minimize modern slavery practices within their own business, and maybe more importantly, in their supply chains.
Companies subject to the Act will be required to publish an annual “slavery and human trafficking statement.” The statement should reflect what efforts, if any, a company has made during the previous financial year to ensure that its business operations, and its supply chain, are free from slavery and human trafficking.
Per Foley Hoag LLP, here are five key takeaways from the new statutory guidance:
(1) When must the first disclosures be published?
Companies with financial years ending on March 31, 2016 will be the first companies required to publish a statement. Companies are expected to publish their statement “as soon as reasonably practicable after the end of their financial year” and are encouraged to do so within six months.
Statements are expected to cover a company’s activities during the previous financial year. The guidance notes that where an organisation has only recently undertaken activities relevant to the Act, they may choose to produce a statement that indicates that the activities described only cover a particular part of a financial year.
(2) What are the penalties for non-compliance?
The exclusive remedy for failure to comply with the transparency provisions is an action by the Secretary of State seeking injunctive relief through the courts. If an organization fails to comply with an injunction, it will be in contempt of court “which is punishable by an unlimited fine.”
(3) Does the legislation define “doing business in the United Kingdom”?
No. The guidance states that “the courts will be the final arbiter” as to whether an company is conducting business in the United Kingdom “taking into account the particular facts in individual cases.” The guidance notes that “a common sense approach” should be applied in determining whether an organization is doing business in the United Kingdom.
Notably, the guidance does state 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.”
(4) If a parent company has subsidiaries, which entity or entities need to produce the required statement?
The guidance clarifies that each part of a company that meets the statutory threshold (annual gross worldwide revenues of £36 million, supplying goods or services, and carrying on business in the United Kingdom) must produce the required statement. A parent company and its subsidiaries may each be required to produce a statement if they individually meet the threshold requirements. The guidance states that a parent company may produce one statement that subsidiaries can use to meet the requirement if the statement covers the steps undertaken by the subsidiaries.
(5) What if a company has not taken any steps to address the risks of slavery and human trafficking in the context of its operations and its supply chain?
A company must still publish statement even if it has not taken any steps to address the risks of slavery and human trafficking in connection with its operations. The statement should clarify that no steps have been taken. Such a disclosure will be compliant with the Act, but, as the guidance notes, “may damage the reputation of the business.”