How will the Modern Slavery Act affect SMEs?

18 April 2016

One year on from the Modern Slavery Act 2015 (the “Act”) receiving Royal Assent, businesses have recently started to publish their first Slavery and Human Trafficking Statements. Although the Act only explicitly applies to larger organisations, its effects are already being felt by small and medium sized enterprises (“SMEs”).

What does the Act require?

Section 54(1) of the Act requires businesses supplying goods or services in the UK with a turnover of £36m or more to publish an annual Slavery and Human Trafficking Statement (a “Statement”). The turnover threshold includes the turnover of any subsidiaries. The requirement is being phased in and applies for financial years ending on or after 31 March 2016.

In their Statement, organisations must set out the steps (if any) they have taken to ensure that slavery and human trafficking is not taking place in their business or in any of their supply chains. Whilst businesses are unlikely to face a penalty for failing to take any steps, it is hoped that the potential reputational damage of adopting this stance will be a significant deterrent. The exact content and details of the Statement are left to the discretion of the individual organisation.  This approach is intended to encourage ‘a race to the top’ whereby organisations are pressured to match up to the standards of their competitors.

For more information on what constitutes slavery and human trafficking, please see our Criminal Department’s blog.

Why will the Act affect SMEs?

Whilst the obligation to publish a Statement only applies to larger organisations, it will have a cascading effect down the supply chain.

In order to substantiate the claims made in their Statements, large businesses have to perform due diligence on the entities within their supply chain, who in turn have to do the same. Increasingly, large organisations are unwilling to do business with SMEs that have opaque supply chains. Indeed many businesses now require the inclusion of anti-slavery and human trafficking clauses in all of their supply contracts. These clauses can require suppliers to warrant that their business is compliant with the customer’s anti-slavery policy and even to perform extensive due diligence procedures on their own suppliers.

What steps should SMEs take?

The extent of the steps that SMEs need to take will depend on the nature and complexity of their business and supply chain. Those in high risk sectors such as agriculture, telecommunications, hospitality and the manufacturing of electronics and consumer goods should take particular care. Understandably, SMEs do not have the same resources as larger businesses but there are simple strategies that can be applied.

Businesses should review which parts of their supply chain are most at risk and ensure appropriate protective measures are put in place. Protective measures may include staff training to increase awareness of the issues, anti-slavery clauses in agreements, requesting confirmation from suppliers that their business and supply chains are free from slavery and contingency planning for when a supplier is found to fall below the required standard.  When acting as a supplier, SMEs should be wary of signing an agreement with an anti-slavery clause unless they have the resources and procedures to comply with its requirements. Blindly signing up to a large company’s ‘standard terms’ could have catastrophic financial and reputational effects.

Whilst the concept of slavery and human trafficking may not seem relevant to many SMEs, the issue should not be ignored. Businesses of all sizes should ensure that they have suitable procedures in place.

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