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Coronavirus - Supply chain accountability and worker protection - UK

  • United Kingdom
  • Coronavirus - Workforce issues

02-09-2020

The pandemic has highlighted longstanding concerns over worker exploitation risks, including modern slavery, in supply chains both in the UK and overseas.

Unfortunately, we expect COVID-19 will increase these risks, for example, where workers seek employment at any cost and suppliers are tempted to drop standards to stay in business or are faced with excessive demand.

With growing public and media awareness and calls for legal change, such as requiring greater corporate responsibility for supply chain workers, we review recent trends and consider how business should respond.

Background - modern slavery reporting

Over recent years, the UK government has stepped up pressure on businesses to tackle modern slavery risks in supply chains following the introduction of the annual reporting duty contained in the Modern Slavery Act 2015 (“Act”).

Under the Act, larger organisations must publicly report steps they have taken to ensure their operations and supply chains are trafficking and slavery free. This disclosure duty applies to companies and partnerships (wherever incorporated or formed) supplying goods or services with global turnovers of £36 million and above, providing they carry on business in the UK.

To comply, organisations are expected to report annually. The report must be signed by a director (or equivalent), approved by the board (or equivalent) and made accessible on the organisation’s homepage. While not prescribed, the following information may be included in the annual statement:

  • the organisation’s structure, its business and its supply chains
  • its policies in relation to slavery and human trafficking
  • its anti-slavery due diligence processes in the business and supply chains
  • where it has identified a risk of slavery and human trafficking taking place and the steps taken to assess and manage that risk
  • its effectiveness in combatting slavery and trafficking measured against performance indicators
  • relevant staff training (see our Modern Slavery Act e-learning)

However, government research has shown that some companies are failing to report or their reports are “poor in quality”.

Supply chain proposals: strengthening reporting, joint responsibility, embargoed goods

Recent allegations involving potential worker exploitation in parts of domestic supply chains have served as a reminder that illegality may exist in the UK, as well as overseas. Meanwhile, the government is under pressure to respond to previous consultations which had proposed strengthening modern slavery measures, as outlined below.

In order to accelerate progress in global supply chain accountability, the government consulted on strengthening modern slavery reporting duties, including:

  • making reporting on specific topics compulsory (i.e. the above bullet points will be mandatory)
  • requiring annual reports to be published on a new government online registry, with a view to adding indicators to aid comparison and analysis
  • introducing a single reporting deadline to support compliance monitoring
  • introducing new civil penalties for non-compliance with the reporting duty

A response to this consultation is expected imminently. All four changes would significantly increase the risk profile of the annual modern slavery report, for example, requiring many existing reports to go further in terms of mapping supply chains, specifying due diligence processes and introducing new KPIs to measure progress. The new registry would also make benchmarking and year-on-year analysis more accessible for NGOs and pressure groups increasing reputational risk and adverse publicity for those organisations failing to meet at least the minimum compliance standards.

In addition, the government consulted on two further ways to engage businesses in the protection of UK supply chain workers. In particular:

  • where UK supply chains contain non-compliant behaviour (e.g. failure to pay minimum wage, forced labour etc), the top of the supply chain should have joint responsibility to rectify the issue within a set timescale, with the risk of being publicly named if no corrective action is taken. The risk of any financial penalty would fall on the supplier, not the head of the supply chain
  • the temporary embargo of domestic goods where significant non-compliance is found (“hot goods”), as a last resort

While the government agrees with the principle that heads of supply chains should take on more responsibility for their UK supply chains, it recognises that both the above proposals present practical and logistical challenges if they are to be proportionate, fair and effective. Again, a response to the consultation is expected imminently as part of the move to create a single enforcement body in the UK, part of the forthcoming Employment Bill. In July 2020, the new Director of Labour Market Enforcement called again for joint responsibility to be established and supported a “hot goods” provision. In August, the TUC called on the government to extend joint liability laws to make "parent employers" responsible for stopping exploitation of workers in their supply chains.

How to respond

Business needs to be aware of two key themes emerging from recent supply chain developments:

  • the pandemic is increasing modern slavery and other exploitation risks in UK and global supply chains. This is not the time to divert resources away from anti-slavery training, risk assessments, due diligence and other capability-building initiatives
  • governments are beginning to play a greater role in supporting or enforcing labour standards in both domestic and global supply chains, reflecting increasing public and corporate pressure. For example, there is a growing momentum towards new mandatory corporate human rights due diligence requirements at an EU level and amongst some member states, in addition to the UK government consultations outlined above

Companies concerned to safeguard supply chain workers and their own reputations should know their modern slavery risks, show the steps they are taking in response and recognise the importance of progressive and comprehensive annual modern slavery reporting in keeping with the intention of the legislation. Increasingly, procurement processes are demanding such transparency, with suppliers required to declare their manufacturing supply chain. Furthermore, in the context of COVID-19, there are new or increased modern slavery risks which present a challenge for all responsible businesses.

A failure to act risks adverse PR and investor withdrawal as well as legal, financial and operational challenges, should modern slavery allegations surface in supply chains.

For further information on our modern slavery advice, training and consulting services, contact Tom Player.