UK: UK Modern Slavery Act – Impact On GCC Employers And Operations

Last Updated: 17 May 2016
Article by Rebecca Ford, Sara Khoja and Brett Hartley

Recent years have witnessed the development of a complex and extra-territorial body of law contained in international guidelines, treaties and legislation that multinationals must take into account with regard to good governance and best practice. Much of this law is designed to promote Corporate Social Responsibility (CSR) and labour law compliance. The latest law of significance in this area is the UK Modern Slavery Act 2015 (MSA) which, whilst a UK law, will have significant implications for employers in the Middle East who also operate in the UK.

The MSA – An Overview

Supply chain transparency and accountability

A key focus of the MSA is a duty on any business operating in the UK to ensure its supply chains are clean of practices which can be classed as 'modern slavery', (a term encompassing slavery, servitude, forced and compulsory labour and human trafficking). The principal provision is section 54 which requires commercial organisations that; supply goods or services, have a global turnover of £36 million or more (including turnover from subsidiaries) and carry on business in the UK (the Reporting Organisations), to produce an "annual slavery and human trafficking statement" (the Statement).

The Statement must be approved by the Board of directors, signed by a director (or equivalent), published on the company's website and accessible by link in a prominent place on the homepage. If a Reporting Organisation does not have a website, it must provide a copy to anyone who makes a written request for the Statement within 30 days of receipt of the request.

What is to be contained in the Statement?

The Statement must be either; (1) a statement of the steps the Reporting Organisation has taken, during the financial year, to ensure that slavery and human trafficking is not taking place in any of its supply chains or in any part of its own business anywhere in the world; or (2) a statement that the Reporting Organisation has taken no such steps. "Supply chain" has its everyday meaning and includes both direct and indirect suppliers of goods or services and also extends to joint venture partners and contractors. 

The MSA is not prescriptive in terms of the Statement's content or format, but does provide that the Statement "may include":

  1. The Reporting Organisation's structure, its business and its supply chains.
  2. Information about its policies in relation to slavery and human trafficking.
  3. Its due diligence processes in relation to slavery and human trafficking in its business and supply chains.
  4. The parts of its business and supply chains where there is a risk of slavery and human trafficking taking place, and the steps taken to assess and manage that risk.
  5. The Reporting Organisation's effectiveness in ensuring that slavery and human trafficking is not taking place in its business or supply chains, measured against such performance indicators as it considers appropriate.
  6. The training about slavery and human trafficking available to its staff.

Statements will vary depending on the nature of the Reporting Organisation's business and the complexity of its supply chains.

Consequences of non-compliance

Failure to produce the Statement may result in the company being injuncted to do so and if failure to comply persists then the imposition of an unlimited fine.

Impact on GCC employers and operations

Whether a business operates in the UK is a key consideration when assessing the impact of the MSA on non UK incorporated businesses. The status of subsidiaries of UK companies or joint ventures in which they are involved is also paramount. If a non UK subsidiary or joint venture is run completely independently then it is arguably not covered by the MSA. However, such entities may be caught by acting as a contractor or supplier to a UK company that must report under the MSA.

In any case, one of the key effects of the MSA is that it empowers, and is implicitly designed to empower, NGOs and other civil society operators to monitor and report on compliance with the MSA, including in relation to the production of Statements and their content. KnowTheChain and the Business and Human Rights Resource Centre are two such organisations which have been very active in this space, together with organisations such as Amnesty International and Human Rights Watch. One can currently witness a sustained campaign in the British press regarding Middle East based employing entities linked to UK companies.

Assessing risk in GCC supply chains: Hotspots

One of the policy objectives of the MSA is to hold Reporting Organisations accountable for labour exploitation in their supply chains and to incentivise them to use their economic power and influence to tackle any issues that are identified. As part of this accountability and compliance process, Reporting Organisations are encouraged to conduct risk assessments to determine which parts of the organisation's business, including its suppliers, are most at risk of modern slavery. Given the wide definition of "supply chains", the organisations captured will be notable and will include contractors, consultants, and providers of recruitment services, or housing.

The four main areas for risk are likely to be:

  • Passport retention which is actually unlawful in the GCC without employee consent;
  • Employees paying recruitment fees (usually large amounts) to secure employment (again this practice is unlawful in the GCC);
  • Pay rates and overtime rates and hours; and
  • Workers accommodation.

Mitigating Risk and Remedial Action

The following measures can be put in place:

  • Due Diligence: every organisation should perform due diligence (including pre-screening and auditing) on its practices (and those of its suppliers) to identify potential risks and action points. Investigating practices is key with monitoring and investigation being required both locally where the employees are working and also in their home countries of recruitment to weed out bad recruitment practices in particular;
  • Charters: tying in providers of goods and services is also key and is an area where charters of rights and charters of conduct can be useful. All providers and contractors can be requested to subscribe to such charters;
  • Contractual warranties and indemnities: these can tie suppliers into contractual undertakings to comply with applicable labour laws and best practice;
  • Policies and procedures to enable internal reporting / whistle-blowing: such policies can encourage individuals to report wrongdoing on site and consideration needs to be given on how far anonymity can be maintained; and
  • Training: providing training within the business and also to suppliers on obligations, processes to be followed, any charters such as workers charters or codes of conduct and ethics will be a key indication of the steps taken to ensure compliance.

It is very important to emphasise that a key factor in ensuring compliance with MSA is ensuring compliance with GCC labour laws. This includes complying with not only the obligations under the applicable labour law, but also the decisions, orders and resolutions issued thereunder and all other laws and standards related to employment conditions. Some important areas of local compliance will be adhering to statutory obligations with respect to:

  • Workplace health and safety, for example, providing adequate training to protect employees from hazards, providing appropriate personal protection equipment and complying with the standards of medical care to be provided for labourers;
  • Maximum hours of work and overtime, including any applicable local requirements regarding hours of work under sunrays and providing employees with breaks from work;
  • Accommodation standards, including providing employees with the mandated amenities (water, water storage, pumps, gas, sanitation, telecommunication network etc.);
  • Payment of employee wages through the Wages Protection System (WPS), where applicable; and
  • Providing health insurance to employees (and the employee's spouse and dependants, if required), in accordance with local statutory requirements

UK Modern Slavery Act – Impact On GCC Employers And Operations

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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