Companies doing business in the United Kingdom take note: the U.K. government just made the not-so-long-awaited announcement that businesses with an annual turnover of 36 million British pounds (£36M) will be subject to the reporting requirements of the U.K. Modern Slavery Act of 2015 (U.K. Act). The U.K. Act became law this past May—setting forth certain attributes that would require companies to report—but deferred determining the annual turnover threshold, which is the annual revenue a business receives for its goods or services. Last week, Prime Minister David Cameron announced, “From October, we will require all businesses with a turnover of £36 million or above to disclose what they are doing to ensure their business and supply chains are slavery free.”
Beginning October 2015, it is estimated that some 12,260 companies will be required to make a slavery and human trafficking statement on their websites. Significantly, the U.K. Act, when compared with the California Transparency in Supply Chains Act (California Act), broadens which businesses will be subject to the disclosure requirements.
The U.K. Act disclosure requirements extend to any company that meets all of the following criteria:
- Carries on a business, or part of a business, in any part of the United Kingdom
- Has a total turnover of no less than £36 million (compared to the California Act’s $100 million criteria)
- Supplies goods or services (which stands in contrast to the California Act that applies only to companies that are either a retail seller or manufacturer)
Interestingly, unlike the California Act’s requirement for companies to expressly address specific subject areas, the U.K. Act merely provides that each fiscal year, a covered company must make a disclosure statement setting forth what it has done to ensure that trafficking is not taking place in its business or supply chain. Alternatively, the company can make a statement that it has taken no such steps. But in any event, it is critical that, as with the California Act, the disclosure must be 100% accurate, neither overstating nor understating the company’s actual activities.
U.K. Act’s Disclosure Statement
The disclosure statement can, but does not have to, include the following items from an organization:
- The organization’s structure, business and supply chains
- Its policies in relation to slavery and human trafficking
- Its due diligence processes in relation to slavery and human trafficking in its business and supply chains
- The parts of its business and supply chains where there is a risk of slavery and human trafficking taking place, and the steps it has taken to assess and manage that risk
- Its 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
- The training about slavery and human trafficking available to its staff
To ensure accountability, the U.K. Act requires that the disclosure statement be approved and signed in a specific manner. Corporations must have the disclosure statement approved by the board of directors and signed by a director; limited liability partnerships must get member approval and signature by a designated member; limited partnerships must get a general partner’s signature; and any other partnership must get a partner’s signature.
Like the California Act, the U.K. Act also requires that any company with a website publish the entire disclosure statement on its website and have a link to the disclosure statement in a prominent place on the website homepage. In the unlikely chance that a qualifying company has no website, it must provide its disclosure statement within 30 days of receiving a written request.
Penalties for Failure to Disclose or for Inaccurate Disclosure as well as Compliance Program Guidelines
A U.K. Secretary of State may bring civil proceedings in the High Court of Justice for an injunction if a company violates the U.K. Act’s disclosure requirements. In Scotland, a proceeding may be brought for specific performance of a statutory duty under section 45 of the Court of Session Act 1988. Of course, civil litigation brought by shareholders, advocacy groups, consumer groups, etc. that focus on alleged inaccurate, incomplete or misleading reporting of a company’s efforts is, as has been the case in California, in many ways one of the most concerning potential “penalties” facing companies under the U.K. Act. Companies must, therefore, do the following:
- Take careful stock of their anti-trafficking and supply chain compliance efforts.
- Identify any shortcomings in their existing compliance programs.
- Ensure that their compliance programs’ anti-trafficking efforts parallel the “checklist” of activities set forth in the U.K. Act and California Act.
- Remedy any existing compliance gaps and strive to address the U.K. and California Acts’ checklist areas.
- Accurately disclose their anti-trafficking/supply chain compliance efforts without overstating or understating what they are actually doing.
For further background on the compliance challenge presented by existing and pending legislation in the United States and several other countries, see our previous coverage of the U.K. Act and California Act, which includes basic compliance program guidelines.
 By way of brief background, the California Transparency in Supply Chains Act of 2010 went into effect January 1, 2012. The California Act requires retail sellers and manufacturers to disclose what efforts, if any, they are taking to eliminate forced labor and human trafficking from their supply chains. The California Act is not intended to require companies to change their policies. Rather, it is designed to persuade the largest companies to disclose the efforts they are taking within their own supply chains to address the problem of forced labor and human trafficking. Supporters of the Act hope that consumers will consider the disclosed information in making decisions about the companies with which they conduct business.
Companies, regardless of where located, must comply with the California Act if it fits the following description:
- The company is a retail seller or manufacturer;
- The company does business in California, as defined by Section 23101 of the Revenue and Taxation Code; and
- The company has over $100 million in “annual worldwide gross receipts."
© 2015 Perkins Coie LLP