Modern Slavery Statements: Where to from here?

Kristy Zander, Allie Umoff and Charlotte McGowan

As the financial year end approaches, the deadline for filing this year’s Modern Slavery Statements (‘MSS’) will follow close on its heels. For reporting entities with a financial year end of 30 June 2022, their MSS are due by 31 December 2022.

For many companies, this will be their second or even third MSS. As one of the key features of the Modern Slavery Act 2018 (Cth) (‘the Act’) is the concept of continuous improvement or evolution, it is important for those companies to critically assess the commitments made and processes adopted in previous years’ MSS. This will enable them to understand the progress they have made to date and identify appropriate steps to commit to in this year’s statement.

This year is particularly significant, as a review has commenced to consider the operation of the Act over its first three years and whether any additional measures are necessary or desirable to improve compliance with and the operation of the Act. The review commenced on 31 March 2022 and is scheduled to be completed within 12 months of that date.[1] Two of the matters to be considered and reported on are whether:[2]

  1. any additional measures to improve compliance are necessary or desirable, such as civil penalties for failure to comply with the Act; and
  2. it is necessary or desirable to do anything else to improve the operation of the Act.

Furthermore, Labor went into the recent Federal election promising to “tackle modern slavery at home and abroad by strengthening the Modern Slavery Act”, criticising the Act for not going far enough and committing to a broad range of actions designed to strengthen and improve Australia’s efforts to stop modern slavery.[3] These commitments, combined with the review that is already underway, suggest that we are likely to see a more forceful approach to combatting modern slavery, including a strengthened version of the Act.

Critiques of MSS filed to date

Many of the statements filed to date have been criticised as demonstrating superficial and incomplete compliance with reporting requirements under the Act.[4] In a study of 102 companies which published a MSS in the first reporting period after the Act took effect, it was reported that most companies addressed only 59% of the mandatory criteria on average, with risk assessment, remediation, measuring effectiveness, and consultation being handled particularly poorly by the reporting entities.[5] More than half of the companies reviewed “failed to identify and disclose salient sectorial risks in their operations and supply chains, despite sourcing from sectors that have been repeatedly identified as having systemic abuses”.[6] Less than a third of companies reviewed demonstrated that they were taking some form of action against modern slavery risks which actually lifted supplier working conditions or addressed root causes.[7]

Even some ASX100 companies failed to report on specific KPIs or to examine specific risks relevant to their operations, demonstrating an unclear description of their supply chain and poor understanding of the sources of their risk exposure.[8] A number of these companies provided an incomplete picture of how they assess the effectiveness of their own actions and provided unclear descriptions of the governance structures implemented within the company to manage modern slavery risks.[9]

Statutory review

With the statutory review of the Act underway and expected to be completed by March 2023, reporting entities will be particularly interested in recommendations regarding additional measures to improve compliance with the Act, any amendments which impose more burdensome obligations on reporting entities, and the appropriateness of the $100 million reporting entity threshold, reporting periods and reporting deadlines.[10]

While an Issues Paper for public consultation is yet to be published, some are already calling for tougher penalties for companies which submit inadequate, false, or misleading MSS, including financial penalties, prohibition from participation in government tenders, and being listed on the MSA Register as a non-compliant entity.[11] There have also been calls for the legislation to impose a duty to prevent modern slavery, and require companies to show reasonable and appropriate due diligence as a defence to legal liability.[12] Alternative amendments might include the provision of a specific cause of action available to workers subjected to modern slavery, through which they can seek redress where companies have failed to undertake adequate due diligence with regard to their operations and supply chains.[13] There have also been calls to improve the timeliness of the release of the statements.[14] Many of these suggestions are consistent with Labor’s modern slavery policy and election promises, particularly the calls for tougher penalties and a strengthening of obligations to actively combat modern slavery.

Given the recent reports on the inadequacy of many companies’ MSS, the new Federal government’s election promises, and considering that some organisations (such as the Law Council of Australia[15] and the ACTU[16]) called for tougher enforcement mechanisms from the outset, it seems likely that public consultation will result in calls for the compliance and enforcement mechanisms in the Act to be strengthened. This might take the form of financial penalties for non-compliance and/or requiring evidence of effective action taken to address modern slavery risks, rather than merely reporting on the entity’s existing approach. While it is early to predict exactly what the outcome of the review will be, companies would be well-advised to start preparing now for a more exacting regime in the coming reporting periods.

Looking forward

Making aspirational statements about stamping out modern slavery without corresponding tangible or measurable commitments is unlikely to be sufficient in reporting periods to come, especially in light of the requirement for the MSS to evolve and improve year-to-year. As December draws nearer, companies will need to think about how they will evidence effective action in areas most likely to improve conditions for workers.[17] These include areas such as responsible purchasing practices, engagement with workers and their representatives, grievance mechanism accessibility, remediation of harms caused, and commitment to ensuring workers are paid a living wage.[18] Reporting entities should consider how they can evidence supply chain awareness and point to action taken to mitigate known modern slavery risks in their specific sectors.[19] There should be a clear focus on measuring the success of any action taken to date, and on process amendments that can be adopted as a result.

Reporting entities also need to give careful consideration to the time frames within which they commit to achieving improvements. They should consider the steps that can likely be achieved within the next reporting period, as well as which commitments may be better saved for future reporting periods, to ensure the entity’s ability to comply meaningfully with the Act and avoid being assessed against unrealistic goals. This is particularly the case given the possibility of amendments to the Act incorporating harsher penalties for non-compliance. In light of the review currently underway, and the recent change in government, this may be the last reporting period before the statutory regime is given more ‘teeth’.

[1] The Hon Jason Wood MP, ‘Government launches review of landmark Modern Slavery Act’ (media release, 31 March 2022).

[2] Australian Border Force, ‘Review of the Modern Slavery Act 2018 (Cth) Terms of Reference’ (5 April 2022) (‘ABF Review Terms of Reference’).

[3] Australian Labor Party, ‘Tackling Modern Slavery’.

[4] Amy Sinclair and Freya Dinshaw, ‘Paper Promises? Evaluating the early impact of Australia’s Modern Slavery Act’ (Human Rights Law Centre, 7 February 2022) (‘Paper Promises’); Nga Pham, ‘Modern Slavery Statement Disclosure Quality ASX100 Companies’ (Monash Centre for Financial Studies, 5 August 2021) (‘MSS Disclosure Quality’); Australian Border Force, ‘Modern Slavery Act Reporting Update: November 2020’.

[5] Paper Promises at 2.

[6] Ibid.

[7] Ibid.

[8] MSS Disclosure Quality at 12.

[9] Ibid.

[10] ABF Review Terms of Reference.

[11] Paper Promises at 8.

[12] Ibid.

[13] Ibid.

[14] MSS Disclosure Quality at 4.

[15] Law Council of Australia, ‘Penalties necessary for effective Modern Slavery laws’ (media release, 3 August 2018).

[16] Australian Council of Trade Unions, ‘ACTU supports changes to toughen Modern Slavery Bill’ (media release, 12 November 2018).

[17] Paper Promises at 61, 67.

[18] Ibid at 66-7. See also Cleaning Accountability Framework, ‘Cleaning Contractors Modern Slavery Guidance’ (2020) at 12.

[19] Ibid. See also Property Council of Australia, ‘Improving Modern Slavery Statements in the Property Sector’ (December 2021) at 4-5.

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