On 28 November 2018, the Senate passed the Modern Slavery Bill with amendments. This landmark legislation requires certain business entities to disclose on an annual basis the actions they have taken to address modern slavery (exploitation such as slavery, forced labour and human trafficking) in their operations and supply chains.
The Government’s amendments to establish a non-punitive mechanism for non-compliance, strengthen oversight, and provide a pathway for the introduction of future penalties were agreed to. Amendments moved by the Labor Party to impose civil penalties for non-compliance, remove forced marriage from the definition of “modern slavery”, and introduce a requirement for the responsible Minister to provide a list of entities required to report and entities that failed to report in an annual report to Parliament, were all defeated. Australian Greens and minor parties’ amendments to appoint an Anti-Slavery Commissioner and ensure a rolling three-year review of the legislation were withdrawn to ensure the passage of the Bill in this term of the Australian Parliament.
The Bill will now return to the House of Representatives for its third reading (a formality) prior to presentation to the Governor-General for Royal Assent.
This alert explains the new laws and the actions that will be required by businesses.
Entities required to report
The reporting requirement will apply to:
- Australian entities;
- foreign entities carrying on business in Australia;
- Australian Government (on behalf of all non-corporate Commonwealth entities); and
- corporate Commonwealth entities.
Australian entities include companies, partnerships and trusts.
Foreign entities will be considered to be carrying on business in Australia if (among other things) they have a place of business in Australia; use a share transfer or registration office in Australia; or deal with property in Australia.
Entities that are not required to report can ‘opt in’ to the reporting requirement.
Entities with an annual revenue below $100 million will not be required to report. “Revenue” includes the consolidated revenue of the reporting entity and any entities it controls. The revenue threshold is calculated on the reporting entity’s own financial year or reporting period. Consolidated revenue is to be determined in accordance with the Australian Accounting Standards, even if those standards do not otherwise apply to the entity.
Modern slavery statements
Depending on their corporate structure reporting entities may prepare either single or joint modern slavery statements. These statements must identify the reporting entity and address mandatory criteria:
- the reporting entity’s structure, operations and supply chains;
- modern slavery risks in the reporting entity’s operations and supply chains (including subsidiary entity operations and supply chains);
- actions taken (including actions by subsidiary entities) to assess and address those modern slavery risks, including due diligence and remediation processes;
- how the reporting entity assesses the effectiveness of actions taken; and
- the process of consultation with subsidiary entities in preparing the modern slavery statement.
Joint statements must address the mandatory criteria for each reporting entity covered by the statement.
The Australian Government is to provide guidance on the meaning of ‘risks’, ‘operations’, ‘supply chains’, ‘due diligence’ and ‘remediation processes’. It is anticipated that these definitions will align with the UN Guiding Principles on Business and Human Rights. The expectation is that entities will initially report only on the most severe modern slavery risks, but this will not be restricted to tier 1 (direct) suppliers.
Formal guidance will also be provided on each form of exploitation that comprises ‘modern slavery’: slavery; servitude; forced labour; forced marriage; debt bondage; deceptive recruiting for labour or services; trafficking in persons; harbouring a victim; and the worst forms of child labour.
Further, a template modern slavery statement will be provided to assist businesses in reporting.
The Act enables businesses to submit revised modern slavery statements. This will allow reporting entities to correct any false or misleading statements, errors, or to revise market sensitive information.
Approval of modern slavery statements
Single reporting entities must ensure their modern slavery statement is approved by the principal governing body of the entity (e.g. a board of directors) and is signed by a responsible member (e.g. a director or trustee).
Joint reporting entities have three options for approval and signature:
- the principal governing body and a responsible member of each reporting entity;
- the principal governing body and a responsible member of the entity which is in the position to influence or control each reporting entity; or
- if the first and second options are not practicable, the principal governing body and a responsible member of at least one reporting entity, accompanied by an explanation as to why the other approval options were not practicable.
The Act authorises the Minister to make rules to clarify the terms ‘principal governing body’ and ‘responsible member’.
Timeframe for reporting
The timeframe for submission of modern slavery statements depends on an entity’s financial year or other annual accounting period (reporting period).
Single reporting entities will be required to submit their modern slavery statement within 6 months from the end of the entity’s reporting period.
Joint reporting entities will be required to submit their modern slavery statement within 6 months from the end of the reporting period that applies to all the reporting entities or within a period to be determined by the Minister.
Modern slavery statements register
The Act requires the Minister to establish and maintain a register of modern slavery statements. This will be in the form of a freely accessible public website. Entities can also make their statements available on their own webpages if they wish to do so.
The Minister may decline to register a modern slavery statement that does not comply with the mandatory reporting criteria or the relevant approval, signature and timeframe for reporting requirements. This discretion is not subject to a merits review. It is anticipated that the exercise of the discretion to decline registration would only apply in cases of egregious non-compliance and after reasonable attempts to work with such entities in rectifying issues.
The Act empowers the Minister to request a suspected non-compliant entity to explain why it has not complied with the reporting requirement or to require that entity to undertake specified remedial action. Remedial action is likely to be limited to giving a modern slavery statement or revising an existing statement to ensure all criteria have been addressed. Reporting entities will have 28 days to respond to any such requests, however the Minister has a discretion to extend this deadline.
If a reporting entity does not comply with a request, the Minister may then publicly identify the non-compliant entity and disclose:
- the date and details of the request made, including the period for response and any extensions given;
- the reasons why the Minister is satisfied the entity has failed to comply with the request; and
- if the request relates to the entity’s failure to provide a joint modern slavery statement, the identities covered by that joint statement.
This information could be published on the publically accessible Modern Slavery Statements Register, or in any other way the Minister considers appropriate.
A decision by the Minister to identify a non‑compliant entity can be subject to review by the Administrative Appeals Tribunal.
Annual report to Parliament
The Minister must report annually to the Parliament about the implementation of the Act. The annual report must include an overview of compliance by entities (e.g. the number of entities that have submitted modern slavery statements) and identify best practice modern slavery reporting. The latter may include identifying reporting entities that demonstrate leading business practices.
Three-year review of the Act
The Act is subject to a three‑year review. This review must evaluate the operation of the legislation generally and determine whether amendments are required, including the need for the introduction of civil penalties or other compliance mechanisms.
The Act will commence on a date to be fixed by Proclamation or six months from Royal Assent (so is currently not known). However, this will enable the reporting requirement to commence at the beginning of either a calendar year or the Australian financial year.
Entities subject to the Modern Slavery Act (NSW)
On 21 June 2018, the NSW Parliament passed its Modern Slavery Act. This Act also establishes a modern slavery reporting requirement for certain business entities.
It is anticipated that the NSW Act will not apply to entities required to prepare a modern slavery statement under the Australian Government’s reporting requirement.
Actions businesses need to take
The modern slavery reporting requirement means businesses will need to gain visibility into their local and 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 the pre-screening of suppliers and supplier assessments or audits;
- designing and implementing a strategy to respond to identified risks, which may involve a range of responses such as corrective action 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 training suppliers on how to identify and mitigate modern slavery; and
- establishing a clear chain of responsibility with senior level policy oversight and approval of modern slavery statements.
Supplier contracts should be updated to include:
- commitments to eradicate modern slavery from supply chains;
- the right to call for compliance statements;
- assessment/audit rights, including the right to undertake announced and unannounced assessments/audits, assessments/audits by third parties, and the requirement for full cooperation;
- immediate notification of actual or potential non-conformance;
- a commitment to follow corrective action plans in instances of non-conformance;
- the right to suspend or terminate the contract for failure to meet required standards, failure to cooperate with an assessment or audit process or failure to follow a corrective action plan; and
- the right to inform relevant authorities of the above.