The UK's new slavery laws explained: what do they mean for business?

What do nail bars, the fishing industry, the London house of two medical professionals and cannabis farms have in common? They have all recently been implicated in modern slavery.

This year the UK government passed the Modern Slavery Act, the first piece of UK legislation focusing on the prevention and prosecution of modern slavery and the protection of victims. After much debate, the government included a provision on transparency in supply chains, which came into force in October.

But what does this new act mean in practice for businesses, and does it have any hope of achieving its aims?

What is the scale of modern slavery?

According to the International Labour Organisation (ILO), there are 21 million people around the world trapped in some form of forced labour, the term it uses to describe all forms of modern slavery, including trafficking, debt bondage and child labour. In the UK an estimated 13,000 people are working as slaves in agriculture, hospitality, fishing, private homes, brothels, nail bars and cannabis farms. The UN says modern slavery and trafficking is now the second-largest criminal industry in the world, with the ILO putting annual profits from forced labour at $150bn.

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What is the new supply chain provision for?

The new transparency in supply chains provision in the Modern Slavery Act aims to rout out the slavery lurking in many supply chains. In the past few years investigations into commodities tainted by slavery have included prawns from Thailand, debt bondage and forced labour in the global electronics industry and claims of the trafficking of migrant workers into the Scottish and Irish fishing industries.

The new provision makes companies accountable for slavery and labour abuses occurring along their whole chain of operations. The idea is to ensure no slavery is linked to any British products or services and to show consumers, investors and employees that companies are taking a proactive stance.

What will businesses have to do?

Any business – or part of a business – that has a global turnover of £36m or more and supplies goods or services in the UK will have to produce and publish an annual slavery and trafficking statement in a “prominent” place on its website every year. The statement must set out what steps the organisation has taken to ensure there is no slavery in any part of its business, including its supply chains.

If a business fails to produce this statement, it could find itself at the sharp end of a high court injunction requiring the organisation to comply, and potentially an unlimited fine.

The Home Office has made clear that it’s not acceptable for companies to stall on this work: it expects businesses to show progress in how they are policing their own supply chains and for the statements to “evolve” year on year.

Does this extend to subsidiaries and foreign companies?

Foreign companies and subsidiaries that “carry on a business” in the UK will also have to comply with the new legislation. Any overseas subsidiary of a UK company that produces goods and services sold or used in the UK is also liable.

It gets more oblique when it comes to non-UK domiciled companies or subsidiaries that don’t do business in the UK. Some legal experts believe that the wording of the provision potentially provides a get-out clause to UK companies with wholly owned subsidiaries operating overseas that don’t provide goods or services to the British market. For example, a UK construction company with a wholly owned subsidiary in Dubai or Qatar operating exclusively in those countries could potentially argue that the provision doesn’t apply to its operations.

What should be in the statement?

There is no template to follow when producing a statement. It’s broadly up to individual organisations to decide on the layout and content, and also how much detail to provide. The only thing that must be shown is all the steps taken to ensure that supply chains are clean of slave labour. The main guidance the government gives is that the statement should be written in plain English and be succinct.

Will it work?

Although the new provision will push slave labour higher up the agenda for businesses and help increase transparency, there are concerns that it will do little to force companies to properly investigate slavery in their supply chains.

In theory a company could publish a statement saying it is doing absolutely nothing to prevent slavery in its businesses and still be fulfilling its legal obligations. Crucially, there is no legal responsibility for companies to police their own supply chains or guarantee that products or services are categorically slave-free.

California enacted a similar piece of legislation in 2010 – the California Transparency in Supply Chains Act(pdf) – on which this new provision is broadly modelled.

Hailed as a breakthrough in corporate transparency, many companies have failed to comply with the requirement to publish slavery disclosures. There are also questions over whether the steps outlined by businesses as proof of their efforts to combat slavery – such as running awareness workshops and doing factory audits – are actually achieving anything in practice.

This year a series of lawsuits have been launched by residents of California claiming that businesses that have since been linked to slave labour have deceived consumers through “inadequate” public disclosures.

The first and most visible of these cases is one launched by California resident Monica Sud against Costco, which alleges that Costco violated the California act by stating that it “has a supplier code of conduct which prohibits human rights abuses in our supply chain”, when evidence has emerged that farmed prawns sold by Costco were made with fishmeal obtained from boats using slave labour.

Several other similar class actions have been launched against Nestlé, Mars and Hershey, demonstrating that consumers are increasingly willing to take corporate accountability into their own hands.