This article was first published on June 21, 2016 on the Practical Law In-House Blog (here).
photo: Reuters, Jason Lee
At a recent panel I spoke at relating to the Modern Slavery Act (MSA), the Home Office representative was showered with questions regarding the transparency in supply chains provision (Section 54, MSA).
This provision requires companies with an annual turnover of over £36 million carrying on a business (or part of a business) in the UK to publish a slavery and human trafficking statement describing the steps it has taken in the year to ensure that slavery and human trafficking is not taking place in any of its supply chains or its own business. The audience was particularly interested in understanding how supply chain was defined, how far down the supply chain the legislation expected companies to look and the kinds of steps that would be deemed sufficient.
Analysis of the early slavery and human trafficking statements produced has, so far and with a few exceptions, suggested that companies are falling below expectations, with just nine of the 75 statements analysed meeting the requirements on information (see research by the Business & Human Rights Resource Centre and CORE Coalition).
Ordinary statutory interpretation approaches aren’t working
What I suspect is happening here is that the majority of lawyers are interpreting this provision as they would any other piece of legislation; they are analysing the legislative text and resorting to legal definitions and parliamentary debates to help inform what compliance looks like.
However, this law is different. The transparency in supply chains provision is one of the most recent and striking examples of hard law heavily inspired by soft law – international guidance on expected behaviour.
It would not have seen the light of day, in its current shape or form, without the consensus that underpins the UN Guiding Principles on Business and Human Rights (the Guiding Principles). The Guiding Principles clarify the human rights responsibilities of companies and were unanimously endorsed by the UN Human Rights Council in 2011. The Home Office recognises this close connection in its practical guide to the transparency in supply chains provision and refers companies directly to the Guiding Principles for more detailed guidance.
Lawyers need to have an understanding of the soft law that shaped the MSA if they are to advise their companies effectively on it.
This understanding flows through the whole of a company’s approach. Here are a couple of examples of situations where it can help.
Using the Guiding Principles to prioritise
The MSA asks companies to consider “the parts of its business and supply chains where there is a risk of slavery and human trafficking taking place.” In a complex multinational business, the procurement team may not even know for certain who all its company’s suppliers are on a given day, let alone assess the risks that they use slave workers. One approach might be to focus attention on those areas where the company has obvious control and information, focusing on its own operations and first tier suppliers. But this is not the expected approach under the Guiding Principles.
Under the Guiding Principles, a company is asked to consider all the negative impacts on human rights that might arise as it conducts its day-to-day business (wherever they arise in its supply chain).
Control and influence (or what the Guiding Principles call “leverage”) are only relevant when considering what a company might reasonably do to address negative impacts, but are not relevant for the company’s responsibility for those impacts.
What this means in practice is that, rather than focus on areas closest to hand, soft law tells companies to take a more risk-based approach. Companies should focus on areas where the harm to people can be most severe and where impacts are most likely to occur. By way of example, the International Labour Organisation (ILO) identifies agriculture, construction, manufacturing, entertainment and domestic work as among the sectors most concerned by modern slavery. However, the highest risk areas will depend on the company’s business and therefore the risk assessment process should entail input from both those in the business as well as external stakeholders. Because a company’s risk profile in this area varies, lawyers cannot draft this statement alone relying on templates.
Using the Guiding Principles as an interpretive touchstone
Section 54(5) MSA provides a list of the measures the statement can include. These have their origins in the Guiding Principles which state that, in order to know and show that it is respecting human rights, a company should have in place each of the following:
- A policy commitment (describing the company’s responsibility to respect human rights) which is reflected in operational policies and procedures necessary to embed it throughout the company.
- A human rights due diligence process through which a company assesses what impacts on people’s human rights could be associated with its business, takes action to prevent or mitigate those impacts, and tracks and communicates the success of these efforts. This process focuses on risk to people and requires meaningful engagement with stakeholders, including workers and communities who could be impacted.
- Processes to enable the remediation of adverse human rights impacts the company causes, or to which it contributes.
In essence, section 54(5) MSA is suggesting information on the policies and processes set forth in the Guiding Principles, but some of the suggestions overlap and others are left out. Companies should use the Guiding Principles, and guidance that elaborates on them as a touchstone to know what policies and processes to describe. For example, section 54(5)(f) MSA says that the statement may include information about staff training. However, staff training is just one way to embed a policy commitment.
By starting with the Guiding Principles, a company can ask a better starting question: does it have the right policies and procedures in place to embed its policy commitment?
The answer might be around embedding policies with business partners, rather than (or in addition to) training its own staff.
Human rights reporting isn’t a compliance exercise
Interestingly, the field of human rights reporting has changed significantly over the past five years. Research by Shift shows that readers are not expecting companies to have all the answers but instead to demonstrate a genuine journey of implementing the Guiding Principles and discuss successes, challenges and lessons learned in an open and transparent manner.
Recently, for example, a well-known NGO applauded Apple for not saying it achieved a “conflict free” status, in light of the impossible task of knowing for sure that human rights impacts are not taking place, even in the most well-managed supply chains. Several UK companies have led the charge here and been open about the challenges and the need to work with others to address these systemic human rights challenges. These include Vodafone and BT in their reports on freedom of expression and right to privacy, as well as Unilever piloting the UN Guiding Principles Reporting Framework to discuss how it addresses it salient human rights issues.
Rather than a compliance burden, the MSA should be viewed as impetus to help the company address the greatest risks to people associated with its business, which sooner or later will become risks to the company.
The MSA focuses on modern slavery because of the number of modern day slave workers in companies’ supply chains and the evolving risk. However, this does not mean that modern slavery is the only human rights risk for a company, nor necessarily the company’s most salient risk. Reflection on the company’s broader approach to human rights will stand the company in good stead to reduce harm to people, adequately manage its risks and meet future legislative requirements.
There are numerous developments on the horizon in this area. For example, a proposed private members’ bill, the Modern Slavery (Transparency in Supply Chains) Bill, proposes requiring contracting authorities to exclude companies who have not provided a slavery and human trafficking statement from the procurement of public contracts. Soon, large EU companies will be required to report publicly on their human rights policies and human rights due diligence processes as EU member states transpose the EU non-financial reporting directive. Some EU countries are even considering moving beyond transparency and requiring some form of human rights due diligence. Forward-looking lawyers will be well advised to keep an eye on developments in this field as they increasingly become reflected in hard law.