SMEs not immune from Modern Slavery Act

SMEs not immune from Modern Slavery Act

While slavery may be the last thing on the minds of most business owners, a legal professional has said that SMEs would not be immune to the effects of any new slavery legislation that comes into force.

Anecdotal evidence suggests there are more slaves today than at any time in history. In Australia, it is estimated that almost 4,500 people are trapped in some form of slavery and, worldwide, that number jumps closer to 45 million people.

Australia is currently considering anti-slavery legislation similar to that already in place in the United Kingdom, where it is widely considered to have been successful in getting the issue on the corporate agenda.

The legislation would target companies earning more than $100 million per year and is intended to encourage Australian companies to do more to investigate and put in place measures to prevent transactions for goods or services that benefit from forced labour at any point in the supply chain.

While this may seem like it doesn’t apply to SMEs, businesses of this size tend to make up most of the supply chain for Australia’s large enterprises. And these enterprises are now likely to start paying more attention to how their supply chains stack up in terms of slavery and forced labour.

Businesses subject to the proposed Modern Slavery Act would be required to publish a Modern Slavery Statement annually, which sets out the slavery risks the business faces along with its response. In higher-risk industries, like construction, resources or fashion, companies will need to show they’re doing more.

Board members will be responsible for signing off on the statement, so the push for compliance will come from the top and be aggressively pursued in most companies. The government will be monitoring and reporting on compliance, leaving those that dont comply open to public criticism.

Therefore, Australia’s larger businesses are likely to start looking very closely at the organisations in their supply chain, and undertaking more audits to establish that those organisations don’t engage in forced labour or transact with other organisations that engage in forced labour.

These businesses might require SMEs to provide proof-of-origin of products and materials. If, at any point, it can be proven that slaves have been used in the production of those products or materials, the SME will likely have its contract terminated and potentially suffer a badly tarnished reputation.

Because large organisations will need to report annually on the state of their supply chains, the SMEs in those supply chains will also need to report at least annually. Large organisations may put the onus of investigations on to their supply chain partners, so SMEs need to set aside resources to conduct due diligence.

This can be made more difficult by the fact that slavery often occurs in developing countries where investigation and enforcement resources are stretched and corruption is common.

The idea of the proposed law is to give consumers, investors and charities the facts, so they can put pressure on companies that are perceived to be not doing enough.

As large companies try to safeguard their supply chain, they still must be careful about putting any new requirements into their standard form purchasing agreements that might be onerous for a small supplier (less than 20 employees) to comply with.

Any unfair contract terms, which might cause detriment to the supplier, may not be enforceable. Large companies should consult with their suppliers and be willing to negotiate if new terms might cause problems.

Given an Anti-Slavery Act would increase public and corporate focus on this global problem, it is important for Australian businesses to start preparing now for how they would comply.

The proposed act is designed to spur a ‘race to the top’ with businesses competing on how well they tackle risks in their supply chain.
Even in the absence of legal requirements, it still makes good business sense to avoid the risks that come with business relationships that benefit from slavery.

Michael Milnes is the head of commercial law – Practical Law Australia, Thomson Reuters Legal Australia.

SMEs not immune from Modern Slavery Act
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