NSW introduces modern slavery reporting for business

The global movement to eradicate modern forms of slavery has taken another step forward. And, again, much of the responsibility for this progress is being placed on corporates.

On 21 June 2018, the NSW Parliament passed its Modern Slavery Act. This Act will commence on a day to be appointed.

The Act seeks to combat modern forms of slavery (serious exploitation such as slavery, forced labour and human trafficking) and provide assistance and support for victims. Importantly, a key feature of the Act for corporates concerns transparency of business supply chains. The Act requires mandatory disclosure of steps taken by commercial organisations to ensure that their goods and services are not products of supply chains in which modern slavery is taking place.

This alert explains the NSW transparency of supply chains provisions and details the chief differences between these provisions and the Australian Government’s proposed modern slavery reporting model. This alert also sets out other notable features of the NSW Act.

NSW Transparency of Supply Chains

Application

A range of commercial organisations will be captured by the NSW transparency of supply chain provisions. This includes companies, partnerships, associations and other bodies. The provisions will apply to organisations that have employees in NSW and which supply goods or services for profit, with a total annual turnover of $50 million (or more).

Reporting requirement

Commercial organisations will be required to prepare a modern slavery statement for each financial year where the revenue threshold is exceeded.

Statements must detail the steps taken to ensure that goods and services are not a product of supply chains in which modern slavery is taking place. The regulations may require statements to include information about:

  • the organisation’s structure, business and supply chains;
  • the organisation’s due diligence processes in relation to modern slavery within its business and its supply chains;
  • the parts of the business and supply chains where there is a risk of modern slavery taking place and the steps taken to assess and manage that risk; and
  • training about modern slavery available to the organisation’s employees.

Commercial organisations will need to make their statements publicly available (with further details of this requirement to be provided by regulations).

Penalties for non-compliance

The Act imposes penalties of up to $1.1 million for:

  • failure to prepare a modern slavery statement;
  • failure to make the modern slavery statement public (in the manner required) ; and
  • false or misleading information in a modern slavery statement.

Australian Government Transparency of Supply Chain

In February 2017, a Parliamentary Committee commenced its inquiry into establishing a Modern Slavery Act in Australia.  This included consideration of whether a modern slavery supply chain reporting requirement for business should be adopted in Australia.  This would require businesses to disclose publicly their actions to address modern slavery in their supply chains.

In its interim report in August 2017, the Committee expressed its strong support for the introduction of a mandatory reporting requirement for entities operating in Australia.  Following the Committee’s interim report, the Australian Government announced its support for a reporting requirement and released a proposed model.  The Committee, in its final report, responded to the Australian Government’s proposed model.  The Australian Government is currently considering the Committee’s recommendations.  Draft legislation is expected in the first half of 2018.

There are two key differences between the Australian Government’s proposed model and NSW transparency of supply chain provisions.  The Australian Government’s model has a revenue threshold of $100 million, compared to NSW’s $50 million, and does not propose to include punitive penalties for non-compliance.

Another possible point of difference is that the federal legislation is likely to provide for a public register of all statements (not just those which have disclosed that the organisation’s goods or services are or may be the product of supply chains in which modern slavery may be taking place), whereas the NSW Act provides for a register of organisations (not their statements) which have identified a supply chain modern slavery issue, along with whether those organisations have taken steps to address the identified issues.

Notably, any commercial organisation that is required to prepare a modern slavery statement under the Australian Government’s reporting requirement (when enacted) is not likely to be required to prepare a statement under the NSW provisions.

Other features of the NSW Act

Establishment of an Anti-Slavery Commissioner

The Act appoints an Anti-Slavery Commissioner. The functions of the Commissioner include advocating for and promoting action to combat modern slavery and monitoring modern slavery statements.

The Commissioner’s powers extend to consulting with the Auditor-General and the NSW Procurement Board to monitor the effectiveness of due diligence procedures in place to ensure that the procurement of goods and services by NSW government agencies are not the product of modern slavery.

The Commissioner’s powers do not extend to investigating or otherwise dealing with individual complaints.

Public register

The Act requires the Commissioner to keep a register of commercial organisations that have in a modern slavery statement disclosed that their goods or services are or may be the product of supply chains in which modern slavery may be taking place. This register can also include any organisation that has voluntarily disclosed to the Commissioner that its goods or services are or may be the product of supply chains in which modern slavery may be taking place

The register is to be publicly available and accessible free of charge.

Establishment of a Modern Slavery Committee

This Committee will consist of Members of the NSW Parliament (both Houses). The Committee will inquire into and report on matters relating to modern slavery.

New offences

The Act also creates some important new offences in relation to the forced marriage of children, slavery and slavery-like conduct and the administration of digital platforms dealing with child abuse material.

The Act also empowers courts to make “modern slavery risk orders” where a person has been convicted of slavery or slavery-like offences with a view to reducing the risk of that person again engaging in prohibited conduct.

Related alert: Implications for Australian businesses following release of landmark modern slavery and supply chains report, December 2017

 

Minimum wages to increase by 3.5%

The Fair Work Commission’s panel for annual wage reviews released its Annual Wage Review 2017-2018 decision on 1 June 2018.

The decision provides that minimum award wages will increase across the board by 3.5% effective 1 July 2018.

This decision will result in the following increases to the Federal minimum wage rates:

  • Weekly minimum wage: from $694.90 to $719.20 (increase of $24.30);
  • Hourly minimum rate: from $18.29 to $18.93 (increase of 64 cents).
    • The proportion of employees that are paid at the adult Federal minimum wage rate is estimated to be only around 1.9%. However, the 3.5% increase will also apply to the minimum rates of pay contained in all modern awards. Increases to minimum weekly wages will be rounded to the nearest 10 cents. The Panel determined that casual loading in modern awards will remain at 25%.
    • In fixing the increase at 3.5% (up on last years 3.3% increase), the Panel observed that modest and regular minimum wage increases do not result in dis-employment effects or inhibit workforce participation. The Panel did accept that there had been a decline in current enterprise agreement making for a number of reasons many of which are unrelated to increases in the national minimum wage and modern award minimum wages.

Employers should now start to review their employees’ existing rates of pay to ensure compliance with minimum rates when the above changes commence on 1 July 2018. It is also important for employers whose employees are covered by an existing enterprise agreement to review the actual rates of pay paid to these employees. Employers are required to ensure that agreement covered employees are paid no less than the equivalent base rate of pay that would be payable under the underlying modern award following the minimum rate of pay increase in all modern awards.

Annual Wage Review 2017-18 [2018] FWCFB 3500

Shaky ground for ‘maximum term’ contracts? Full Bench paves the way for unfair dismissal claims

Key takeaway

A recent decision by the Full Bench of the Fair Work Commission has opened access to unfair dismissal laws for workers employed on successive, maximum term contracts. Maximum term or ‘outer limit’ contracts are contracts for a specific period of time which may also be terminated before the end of that period by the giving of notice.

The Full Bench in Khayam v Navitas [2017] FWCFB 5162 (Navitas) has determined that, in the context of a dismissal, the Fair Work Commission (FWC) should not simply look at the expiry of the most recent contract, but take into account the employment relationship as a whole. Where, for example, an employee has been engaged on a succession of contracts and is not offered a fresh contract due to performance issues, the termination of employment may now be seen to give access to the unfair dismissal regime.

However, importantly for employers, where the terms of a maximum term contract (written or otherwise) reflect a genuine agreement as to the conclusion of the employment relationship on expiry of the term, the employee will remain precluded from accessing the unfair dismissal jurisdiction.

The pre-Navitas landscape

Maximum term contracts have, until now, precluded employees from accessing unfair dismissal protections. This was because the termination of the employment on expiry of such a contract was not seen as a dismissal at the employer’s initiative, but rather one occurring due to the contract reaching its agreed expiration date. This form of employment and termination had been legitimised in cases such as Department of Justice v Lunn (2006) 158 IR 410) (Lunn).

Lunn concerned an employee of the Attorney-General’s Department who had been employed on five successive maximum term contracts between 1998 and 2005. The employee was told that her final contract would not be renewed or extended. The Full Bench decided that the termination of the employment should be considered only in the context of the last maximum term contract. The Full Bench then held that the employment had simply terminated due to the expiry of the last contract and this precluded the employee from accessing the unfair dismissal regime.

This case legitimised the ability of employers to not continue employment (by extending or renewing a contract), even where performance issues played a role in that decision. It is important to note that the Lunn decision was based on the unfair dismissal provisions of the old Workplace Relations Act 1996, although it has been followed numerous times by the FWC under the new legislation.

The decision of Navitas

The case of Navitas concerned an employee of an education provider engaged on successive, maximum term contracts between April 2012 and May 2016. At the conclusion of the latest employment contract, the employer determined not to provide the worker with further employment due to performance issues. The employee challenged that decision, but the FWC held that the termination was not an unfair dismissal. The employee appealed.

On appeal, the Full Bench considered a number of recent cases which had criticised the approach taken in Lunn and determined that the principles in Lunn where incorrect and did not apply to the Fair Work Act.

Rather than simply viewing the last maximum term employment contract in isolation, the Full Bench held that the proper approach was to view the dismissal in light of the entire employment relationship. That is to say, from when the period of employment with the organisation first commenced.

The primary focus of the FWC will now be whether there was a step or action on the part of the employer that was a principal contributing factor in the termination of the employment relationship.

The Full Bench referenced situations in which an employee is provided successive, maximum term contracts and an understanding arises between the employer and employee that a new contract will be forthcoming unless there is a performance or other issue. Such an example may give rise to an unfair dismissal claim if the employee is not offered a further contract.

Maximum term contracts must reflect a genuine agreement as to the conclusion of the employment contract and the employment relationship if the employer wishes to avoid an unfair dismissal claim.

Deliberate avoidance of the unfair dismissal provisions

The Full Bench also considered the operation of section 386(3) of the Fair Work Act. This anti-avoidance provision states that if an employee has been employed under a contract of employment for a specified period of time and a substantial purpose of that arrangement is to avoid the unfair dismissal regime, then the exemption from an unfair dismissal claim will not apply.

In Navitas the Full Bench agreed with the decision of the Commissioner that this provision had not been contravened by the employer. However, employers should remain wary that employees may also look to utilise this provision if their attempts to bring unfair dismissal claims are frustrated by successive, maximum term contracts.

Implications for Australian businesses following release of landmark modern slavery and supply chains report

The Parliamentary Committee inquiring into whether a Modern Slavery Act should be introduced in Australia has now released its final report.

The Committee heard that Australian business supply chains are closely linked with countries and businesses in the Asia-Pacific region, and many products sourced from that region are at high risk of being produced by modern slavery (that is, serious exploitation such as slavery, forced labour and human trafficking), particularly at lower tiers of supply chains.

The Committee recommends a mandatory global supply chain reporting requirement for certain businesses operating in Australia.

The Australian Government will now consider the Committee’s recommendations. Draft legislation is expected in the first half of 2018.

Background

In February, the Committee commenced its inquiry into establishing a Modern Slavery Act in Australia. This included consideration of whether a modern slavery supply chain reporting requirement for business should be adopted in Australia. This would require businesses to disclose publicly their actions to address modern slavery in their supply chains.

In its interim report in August, the Committee expressed its strong support for the introduction of a mandatory reporting requirement for entities operating in Australia. Following the Committee’s interim report, the Australian Government announced its support for a reporting requirement and released a proposed model.

The Committee, in its final report, has responded to the Australian Government’s proposed model.

This alert will explain the Committee’s recommendations and actions business needs to take.

Committee recommendations

Application

The Australian Government proposed that the reporting requirement apply to bodies corporate, unincorporated associations, superannuation funds and approved deposit funds.

The Committee recommends a broader range of business entities be covered by the new laws, including, sole traders, trusts, religious bodies, public bodies, Commonwealth Government agencies and the Australian Government itself.

Entities required to report

The Australian Government proposed that all entities headquartered in Australia, or entities that have any part of their operations in Australia, and which meet an annual revenue threshold, be required to report on the steps they have taken to eliminate modern slavery in both their operations and supply chains.

The Committee supports entities operating in Australia, regardless of where they are headquartered, being required to report. The Committee also agrees that reports should discuss modern slavery in both the operations and supply chains of entities.

Revenue threshold

The Australian Government proposed that the revenue threshold be at least $100 million global revenue and allow for entities below this threshold to opt in to the reporting requirement.

The Committee considers a threshold of $50 million global annual revenue would be most appropriate and provide for international consistency. The Committee also supports an opt in mechanism.

Reporting areas

The Australian Government proposed that entities report on:

  • their structure, operations and supply chains;
  • the modern slavery risks present in their operations and supply chains;
  • policies and processes to address modern slavery and their effectiveness; and
  • due diligence processes relating to modern slavery.

The Committee suggests including an additional reporting area – further action taken to eradicate modern slavery.

Further, the Committee recommends enabling smaller entities to provide modern slavery statements to other entities as evidence of them having found no modern slavery in their own supply chains.

Supply chain

The Australian Government indicated that the definition of supply chain should extend beyond tier 1 suppliers.

The Committee considers the definition of supply chain should be consistent with international standards. International standards may be found in numerous instruments, for example, the OECD Guidelines for Multinational Enterprises and the United Nations Guiding Principles on Business and Human Rights. Both instruments provide for a broader definition of supply chain that includes lower tier entities.

Due diligence

The Australian Government proposed that entities report on due diligence processes and their effectiveness.

The Committee considers a requirement for entities to report on their due diligence is an appropriate first step. The Committee recommends that any further measures, such as mandatory due diligence implementation, should be considered as part of a review after three years.

Approval

The Australian Government proposed that modern slavery statements be approved at the equivalent of board level.

The Committee supports this proposal.

Time frame for reporting

The Australian Government proposed the time frame for reporting to be within five months after the end of the Australian financial year.

The Committee agrees with this time frame. However, the Committee is also of the view that entities should have the option of making a supplementary modern slavery statement at any stage to address any changes in circumstances.

Penalties

The Australian Government did not propose to include punitive penalties for non-compliance.

The Committee recommends the introduction of penalties for entities that fail to report, applying to the second year of reporting onwards. The Committee called upon the Australian Government to consider the appropriate level of penalties and how penalties should be administered, including a possible role for the Australian Securities and Investments Commission.

Monitoring and evaluation

The Australian Government proposed that entities be required to publish modern slavery statements on their websites and that the Australian Government provide a publicly accessible and searchable central repository of such statements.

The Committee supports this approach. In the event that an entity does not have a website, the Committee recommends that the statement be available in its annual report or other public document. The Committee further recommends that the central repository contain a list of entities required to report, entities that have reported, and entities below the threshold who have reported voluntarily.

The Australian Government also proposed mechanisms for independent oversight of the reporting requirement.

The Committee supports the establishment of an Independent Anti-Slavery Commissioner to provide oversight of the reporting requirement.

Phased introduction

The Australian Government proposed a phased introduction of the reporting requirement to ensure the business community had sufficient preparation time.

The Committee supports the phased introduction of penalties, not the requirement to report.

Other recommendations

The Committee recommended that the Australian Government publish and regularly update a list of at-risk products, industries and population groups both within Australia and internationally, and consider legislated import restrictions on goods produced using modern slavery, similar to the approach taken in the United States.

Actions businesses needs to take

The proposed modern slavery supply chain reporting requirement means businesses will need to gain visibility into their global supply chains and take action to manage identified risks. This will involve a range of operational measures and updating of supplier contracts.

Operational measures include:

  • establishing a policy for responsible supply chains that articulates a commitment to responsible business conduct in its own operations and sets out expectations of suppliers;
  • undertaking due diligence, such as pre-screening of suppliers and supplier audits;
  • designing and implementing a strategy to respond to identified risks, which may involve a range of responses such as corrective actions plans, training and assistance to suppliers;
  • verifying that the actions taken have been effective, which involves the development of performance indicators and data monitoring;
  • training key personnel in the entity’s own business as well as suppliers on how to identify and mitigate modern slavery
  • establishing a clear chain of responsibility and assigning senior level approval for policy oversight and in relation to the modern slavery statement; and
  • developing a web page dedicated to the publication of the modern slavery statement.

Supplier contracts should be updated to include:

  • audit rights, including the right to undertake announced and unannounced audits, audits by third parties, and the requirement for full cooperation;
  • immediate notification of actual or potential non-conformance with policy;
  • commitment to follow corrective action plans in instances of non-compliance with policy;
  • right to suspend or terminate the contract for failure to meet policy standards, failure to cooperate with an audit process or follow a corrective action plan; and
  • right to inform relevant authorities.