Demystifying the Modern Slavery Act 2015 for corporate lawyers

Corporate lawyers are trained to ask questions about a company's exposure to new laws. For example:

It is the quantifiable risk associated with non-compliance that helps the lawyer make the case for the company to pay attention to a new law. However, the MSA does not have a quantifiable penalty for non-compliance. The Home Office initially made it clear that the market (investors, consumers and civil society) would drive compliance with the law. For example, a report produced by CORE, a civil society organisation, highlighted how companies sourcing cocoa from West Africa, mica from India and palm oil from Indonesia are falling short by comparing what companies are disclosing in their MSA statements with what companies are telling investors in their annual reports.

It can be challenging to quantify the risk of reputational damage. The Home Office has written to companies stating that it will "name and shame" companies that fail to comply with the MSA and commissioned an independent review that recommended several changes to strengthen the law (see Legal updates, Home Office responds to review of Modern Slavery Act and consults on supply chain transparency and Modern slavery annual report 2019). Discussions in the UK have also intensified about legislation that would impose a corporate duty to prevent human rights harms after this approach was recommended by the Parliamentary Joint Committee on Human Rights in 2017.

Corporate lawyers are trained to evaluate a company's potential legal liability, based on the contracts that the company has signed and the laws that it is subject to. An effective corporate lawyer will try to reduce this liability by either:

The MSA can be confusing for lawyers because it places responsibility for modern slavery issues on a company, including where the company has contractually allocated liability for modern slavery to its business partner. Even more confusingly, the MSA places responsibility on a company for any impact throughout its full value chain, including those occurring several tiers removed from it, and with suppliers that the company does not even have a contractual relationship with.

It can be challenging for lawyers to appreciate that companies have a responsibility for human rights based on soft law that was endorsed by governments at UN level. A company can be held to account via quasi-judicial mechanisms for not meeting its responsibility, which is broader than its liability under the law. That said, a company's responsibility (under soft law) and its liability (under hard law) are starting to merge as laws evolve beyond disclosure to integrate a duty of care for human rights impacts.

Corporate lawyers are trained to prioritise supplier risks based on where the risks to business are the most material (that is, where a company faces the highest financial repercussions). This typically leads companies to focus on:

The MSA asks lawyers to prioritise suppliers differently to those identified in a standard third-party risk assessment. Suppliers where modern slavery is most likely to occur tend not to have an ongoing relationship with the company (for example, they may only help the company during peak periods). Modern slavery may be more common in low-spend suppliers, as well as those that are several tiers removed from the company, where it lacks both leverage and visibility. Prioritising business partners based on risks to the business, as corporate lawyers are trained to do, and risks to people, which the MSA expects, is not a theoretical distinction: it leads to different categories of suppliers being prioritised.

Corporate lawyers are trained to use certain contractual tools to find out about issues. For example, a lawyer may:

Unfortunately, these contractual mechanisms do not help companies to identify modern slavery. Suppliers can themselves be unaware that modern slavery is occurring in their organisation and are therefore unable to inform buyers about it. For example, retaining passports or charging high recruitment fees may simply be perceived as a standard business practice. Audits typically fail to identify modern slavery, as Next and John Lewis will attest after their audits missed it in a first-tier mattress supplier in the UK.

Trapped workers typically wouldn't use a whistleblower hotline due to fear of retaliation, lack of confidence in the mechanism or lack of knowledge that their experiences should be reported. Consider the example of VINCI in Qatar. The company asked recruited migrant workers if they had paid fees to get work and only a few replied that they had. However, six months later, and once the workers had settled in and felt more confident, the company asked the same question and 90% replied that they had paid a fee and were in a situation of financial bondage.

Corporate lawyers are trained to consider a range of contractual measures to tackle an issue. For example, a lawyer may:

The MSA can be confusing for lawyers because these contractual actions fail to tackle modern slavery. The existence of a modern slavery policy does little to reduce the risk of modern slavery; what matters is how the company puts the policy into practice. A zero-tolerance clause in a contract fails to recognise the reality of how migrant workers are recruited in several countries. Terminating a contract when modern slavery is found will not improve the situation of trapped workers (the very reason the MSA exists).

Rather than walking away, the MSA expects companies to "lean in" and tackle the issues identified. When Nestlé, Marks & Spencer and Tesco discovered modern slavery in their seafood supply chains in Thailand, they worked with other companies, civil society, the Thai government, local ports and workers on the boats to tackle the root cause of the issue (see Issara Institute's Strategic Partners Program). The corporate members of the Leadership Group for Responsible Recruitment recognise the need to work pro-actively with suppliers to eliminate recruitment fees being charged to workers. The MSA also expects companies to consider providing remedies for those impacted, including where a company may not be legally required to do so. For example, Cal-Comp Electronics in Thailand reimbursed the average $660 paid by each of its over 10,000 workers to access their jobs (see Thai electronics firm compensates exploited workers in rare award).

Corporate lawyers are trained to protect their company from legal liability. This typically means safeguarding the company's reputation and not disclosing issues that could be damaging or used in court. Issues can possibly be disclosed once the company is able to report progress on addressing them. However, the MSA asks that lawyers be willing to publicly disclose modern slavery risks and issues, including where a solution may not have yet been found. MSA statements are evolving over time as lawyers become more comfortable with disclosing specific issues and findings. For example:

A growing number of companies are openly disclosing instances of modern slavery, acknowledging the challenge of addressing it and sharing lessons learned in the process.

Most indicators of modern slavery, such as psychological coercion or financial bondage, are hidden from view. Modern slavery occurs in several workplaces reliant on a migrant workforce simply by virtue of the existing power imbalances and recruitment practices. A range of helpful and practical resources exist on this topic, including Managing Risks Associated with Modern Slavery, A Good Practice Note for the Private Sector. Lawyers can also leverage internal insights from their company's sustainability, human rights, corporate responsibility or procurement functions, with an eye to understanding how modern slavery risks are evolving in the face of COVID-19.

In some countries the legal framework significantly increases the vulnerability of migrant workers, increasing the likelihood that they are unable to advocate for their rights or leave their employers. Identifying these jurisdictions will go a long way in supporting the company's human rights due diligence.

Modern slavery is at one end of a continuum of labour exploitation, but there are other severe human rights risks that are also likely to be occurring in the company's supply chain. Strengthening the company's overarching governance, as well as its approach to human rights due diligence, will equip the company to meet the MSA and other upcoming laws too.

We are seeing forward-looking lawyers use contracts as a tool to enable meaningful dialogue between buyers and suppliers about modern slavery-related challenges. We are also seeing lawyers recognise the limitations of contracts and work with their procurement and sustainability functions to complement contractual provisions with helpful and practical guidance for suppliers (see Practice note, Working effectively with the procurement team). Lawyers are recognising the limitations of cascading obligations down the supply chain and are instead working with their companies to conduct enhanced supply chain mapping that feeds into the development of meaningful actions for suppliers beyond tier one.

Before the UN Guiding Principles on Business and Human Rights were endorsed at the UN level in 2011, work related to managing companies' human rights impacts could be perceived as an additional activity. My own work in this field as a corporate lawyer started out on a pro bono basis. Today corporate lawyers are operating in a different environment where companies are expected by regulators, investors, business partners and consumers to demonstrate their respect for human rights, and in which lawyers are asked to consider their role in helping business achieve this. COVID-19 has highlighted the vulnerability of workers operating in many company supply chains, and forward-looking lawyers are using this as an opportunity to equip their companies with relevant human rights risk management processes that support them now and into the uncertain future.