Partner expulsion case offers lessons to LLP firms and their partners
The date triggering the first reporting obligations under the Modern Slavery Act 2015 (the MSA) passed a few weeks ago. Here is a brief look at some of the key questions we are being asked.
The MSA aims to incentivise businesses to tackle modern slavery (comprising slavery, servitude and forced or compulsory labour) and human trafficking in their own organisations and in their supply chains by requiring transparency to investors, consumers, employees and the wider public. Businesses that meet certain criteria must publish a slavery and human trafficking statement each financial year. This should set out the steps that they have taken, if any, to ensure that modern slavery is not taking place in their business or supply chains.
How is the MSA relevant to my business?
This will depend upon the turnover of your business. The MSA requires businesses with a turnover of £36m or more (who are carrying on a business or part of a business in the UK) to prepare and publish a slavery and human trafficking statement.
It is also likely to have an indirect impact on businesses, including those with a turnover of under £36m. The effect of the MSA’s reporting obligations are likely to filter down supply chains. This could be by way of additional due diligence requirements before entering into a contractual arrangement (for the customer to satisfy themselves that the supplier meets their standards), or because the customer requires specific contractual obligations in supply agreements. By way of example, a supplier may be asked to audit their own supply chain and report back, warrant that they are complying with applicable laws and labour standards, or be asked to comply with the customer’s own policies and requirements in relation to modern slavery and trafficking. A supplier could even be asked to ensure that they cascade these contractual provisions down their own supply chain.
UK quoted companies already have requirements to disclose certain social, community and human rights issues in their strategic reports, and so they may already have some of the material necessary to produce a slavery and human trafficking statement.
What are the reporting requirements for businesses with a turnover of £36m?
For those businesses that are required to report, the transitional arrangements mean that the first reporting obligation arises in relation to financial years ending on or after 31 March 2016. Businesses have 6 months from their year-end date to publish their statement. No doubt those organisations that have to report later in the year, or next year, will be looking at what their competitors have published.
Thereafter, a slavery and human trafficking statement must be published in relation to each financial year. The statement must be published on the organisation’s UK website (if there is one) with a link in a prominent place on the UK homepage. This positioning means that it is likely to have a real impact on the way in which the business is perceived in the market, and the PR implications of the statement should not be overlooked.
In order to ensure accountability at a senior level, companies must ensure that the statement is approved by the board or directors and signed by a director. Equivalent requirements apply to LLPs and partnerships.
What should the statement include?
Whilst compliance with the reporting obligations can be achieved by stating that you are taking no steps, this could expose the business to reputational risk.
A business is not required to guarantee that its supply chains are free of slavery. The statement should, however, set out the steps it has taken during the financial year, if any, to ensure modern slavery and trafficking is not taking place in its own business and in its supply chains. This does not just apply to its operations and supply chains located in the UK.
Statutory guidance anticipates that the first statement will be forward looking and will outline the business’s action plan for ensuring slavering and human trafficking is not taking place. It is anticipated that the statement will be updated each year in line with any progress through the action plan.
Conducting a risk assessment of the business and supply chain is a good place to start. Once you have carried out your risk assessments, you will be in a better position to work towards implementing relevant prevention strategies, which in turn can be included in the statement. The strategies will depend on the outcome of your risk assessment, but may include:
a. The performance of due diligence, where specific impacts are feared or identified;
b. The development of a responsible procurement policy, which providers are bound to adhere to;
c. A clear recruitment policy and statement; and
d. Staff training programmes.
Whilst these steps are voluntary, as mentioned above, there is a reputation risk in not engaging with the regime appropriately and modern slavery will also now be a procurement issue for a business’s clients or customers with a turnover of £36 million or more.
What if we do not comply?
Failure to comply could result in civil proceedings and an injunction requiring the business to comply with reporting requirements. Failure to comply with such an injunction could then result in being found in contempt of court and an unlimited fine.
Aside from the legal sanctions, non-compliance (or inaccurate reporting) is likely to have a significant reputational risk and could severely damage a business’s brand. There may be increasing levels of public and industry pressure to not only comply, but to be proactive in the steps taken.
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