2020-07-22
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Boohoo modern slavery allegations highlight the need to map your supply chain

Home / Knowledge base / Boohoo modern slavery allegations highlight the need to map your supply chain

Posted by Christine Jackson on 13 July 2020

Christine Jackson - Commercial Contracts Solicitor
Christine Jackson Partner

In May, we discussed the importance of mapping your supply chain to identify key risks in order to meet the challenges posed by Covid-19.

The recent story in the Sunday Times that a supplier to online fashion retailer Boohoo is allegedly paying workers less than the minimum wage highlights yet another reason why organisations should pay close attention to their supply chains.

At the time of writing, nothing has been proven in respect of Boohoo and it has been quick to order a £10m investigation into the matter. However, the reputational damage and the loss in value it has already suffered as a result of various other retailers removing its clothing from their own websites demonstrates the potential risks of failing to manage modern slavery risks within your supply chain.   

What does the law say about modern slavery?

The Modern Slavery Act 2015 is aimed at combating the crimes of slavery and human trafficking. Section 54 of the Modern Slavery Act acknowledges that “commercial organisations” have a role to play in achieving this aim, by preparing a yearly slavery and human trafficking statement which states:

  • that such crimes do not occur within their own organisations or supply chains; and
  • what steps they are taking to ensure that remains the case.

Who does section 54 apply to?

Under the Modern Slavery Act, a "commercial organisation" is defined as any partnership or body corporate that:

  • supplies goods or services; and
  • carries on all or part of its business in the UK; and
  • has an annual turnover of at least £36 million.

How is turnover calculated? 

For the Modern Slavery Act, turnover is calculated as the amount derived from the provision of goods and services falling within the ordinary activities of a commercial organisation after deduction of:

  • trade discounts;
  • VAT; and
  • any other taxes;
  • Turnover will also include the turnover of any subsidiaries of a commercial organisation, regardless of where they are based or carry on their business.

How can a commercial organisation ensure that its supply chain also complies with the Modern Slavery Act?

It is one thing for a commercial organisation to get its own affairs in order in respect of modern slavery, but how does it ensure that the members of its supply chains are also compliant, particularly when those businesses have a turnover of less than £36million and are therefore under no direct obligation to comply with the Modern Slavery Act?

The solution is often to impose a contractual obligation on each supplier to:

  • comply with the Modern Slavery Act; and
  • indemnify the customer for any losses it incurs as a result of the supplier failing to comply with such obligation.

Some contracts will also include a right for the customer to audit the supplier for compliance with the Modern Slavery Act as well interpret a breach of a supplier’s modern slavery obligations as an automatic material breach of the contract, thus entitling the customer to terminate. This provides a strong financial incentive for the supplier to comply with the Modern Slavery Act.

Further, the supplier will not want to be held liable by the customer for breaches committed by any of its subcontractors or suppliers. It is therefore likely that the supplier will seek to pass the same obligations down the supply chain into its subcontracts. This effectively creates a chain of modern slavery obligations throughout the supply chain.

If Boohoo has effectively managed its own supply chain, it will have included such provisions in its contracts with its suppliers. This will give it the option of bringing a claim for breach of contract against the supplier accused of breaching the Modern Slavery Act, which, if successful, could allow it to recoup at least some of the losses it has already suffered as a result of this story.

What should be included in the slavery and human trafficking statement?

The statement must include information about what steps a commercial organisation has taken during the financial year to ensure slavery and human trafficking is not taking place in any of its supply chains, and any part of its business. If a commercial organisation has not taken any steps, the statement must make this clear.

To assist commercial organisations with the types of information that should be included in a statement, section 54(4) of the Modern Slavery Act recommends that it may include information about:

  • a commercial organisation's:
    • structure, business and supply chains;
    • policies in relation to slavery and human trafficking;
    • due diligence processes in relation to slavery and human trafficking in its business and supply chains; and
    • 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 parts of a commercial organisation's 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;
  • the training about slavery and human trafficking available to a commercial organisation's staff.

How are parent and subsidiary undertakings dealt with?

As noted above, foreign parent companies and/or subsidiaries that meet the requirements of the Modern Slavery Act will have to comply with its provisions, and the turnover of any subsidiaries must be taken into account when assessing whether a business's turnover exceeds the £36million threshold. So what happens if section 54 applies to both a subsidiary and its parent company? The answer is that both commercial organisations have to make their own slavery and human trafficking statement. Furthermore, a parent company's statement must include the steps taken in relation to all of its subsidiaries if, depending on the particular facts, the subsidiaries' activities form part of the parent company's supply chain or business. This means there will need to be some level of communication between the parent company and subsidiaries to ensure consistency in the statements being made.

However, where a parent company and its subsidiaries are required to make a statement, the parent company may produce one statement that its subsidiaries can use. The statement would need to cover the steps taken in the relevant financial year by the parent company and each subsidiary using the statement.

What are the deadlines for compliance?

A slavery and human trafficking statement must be produced for every financial year ending on or after 31 March 2016.

The Home Office expects businesses to make their statement as soon as reasonably practicable after the end of the financial year and, in any event, within six months of such date.

Are there any formalities to be aware of?

The slavery and human trafficking statement must be approved by the board of directors and signed by a director.

If a commercial organisation has a website, then the statement must be published on the website, and there must be a link to the statement in a prominent place on the homepage.

If a commercial organisation does not have a website, it must provide a copy of the statement to anyone who makes a written request for one within 30 days of receiving the request.

What are the consequences of non-compliance?

The Secretary of State may take civil proceedings against a commercial organisation to require it to produce a statement.

Aside from this, the main consequence of not making a statement in accordance with section 54 of the Modern Slavery Act, or reporting that it has not taken any steps to prevent slavery or human trafficking from taking place, is likely to be significant damage to an organisation's reputation and brand, as can be seen with Boohoo.

If you require any assistance in determining whether you must comply with the Modern Slavery Act, the steps to take to produce a comprehensive section 54 statement or how to ensure your supply chain is compliant with the Modern Slavery Act, please feel free to contact us.

About the author

Christine helps clients manage risk and financial exposure in their day to day business dealings.

Christine Jackson

Christine helps clients manage risk and financial exposure in their day to day business dealings.

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