Eliminating child labour: how changes to the Modern Slavery Act can help

On World Day Against Child Labour, Oliver Holland and Anna Barr discuss recent developments in human rights due diligence legislation that may assist in combatting child labour.

Last year on World Day Against Child Labour we discussed how greater accountability in supply chains could contribute to ending child labour. An indication of companies taking accountability for their supply chains is carrying out effective due diligence and publicising the results. We have repeatedly called for a more stringent human rights due diligence (HRDD) legal framework in the UK due to companies continuously failing to identify and prevent serious human rights abuses including child labour in their supply chains (see our 2022 blogs here and here and 2021 blogs here and here).

The Modern Slavery (Amendment) Bill proposes changes to the Modern Slavery Act 2015 (MSA) which would oblige companies to investigate their supply chains, in order to identify and take steps to prevent products  products being made using child labour. This would increase transparency in supply chains and hopefully contribute to ending child labour in global supply chains where products are being made for UK consumers.

Problems with the Modern Slavery Act

Child labour affects approximately 168 million children worldwide. Several initiatives have been taken to combat child labour at national, EU and international level. Organisations such as the International Labour Organization (ILO), the Organization for Economic Co-operation and Development (OECD) and the United Nations (UN) continue to fight for the abolition of child labour. This has resulted in several conventions and guidelines, including the ILO Fundamental Conventions Nos. 138 and 182 and the ILO-IOE Child Labour Guidance Tool for Business.

In the UK, the Modern Slavery Act is legislation setting out a range of measures on how modern slavery and human trafficking (including child labour) should be dealt with in the UK. Section 54 entitled 'Transparency in supply chains'  creates a requirement for businesses operating in the UK with an annual turnover of more than £36 million to produce an annual slavery and human trafficking statement. The accompanying statutory guidance recommends the organisations cover the following six reporting categories: policies, structures, due diligence, risk assessment, training, and effectiveness.

Effective HRDD can uncover child labour risks in supply chains and has the potential to avoid or mitigate those risks. However, as many goods that involve the use of child labour make their way onto the British market (for example, see Leigh Day’s case against British American Tobacco and Imperial), the Modern Slavery Act in its current form is not achieving its purpose. This is partly a result of the lack of enforcement mechanisms. The Financial Reporting Council (FRC) recently reported on the Modern Slavery Reporting Practices in the UK and their assessment found that many companies appear not to view human rights issues in their workforce and supply chain as a principal source of risk for their business. The report suggests that for many companies the lack of disclosure may raise questions over whether sufficient attention is being paid to such issues.

The FRC found that:

• One in ten companies did not provide a modern slavery statement at all, and therefore failed to comply with the s.54 reporting requirement.
• Where companies did comply, the majority of statements were fragmented, lacking a clear focus and narrative, or were unduly complicated.
• Key performance indicators (KPIs) to measure the effectiveness of the steps taken to minimise modern slavery risks is an area where disclosure was particularly poor. Only a quarter of companies disclosed results against their KPIs and just 12% confirmed they have made informed decisions based on those KPIs.
• Within modern slavery statements, less than half of companies provided a clear and comprehensive discussion of modern slavery concerns in the context of their organisational structure, operating and supply chains.
• A similar proportion of companies (46%) described their policies on slavery and human trafficking in an informative manner.
• The vast majority of modern slavery statements were wholly backward-looking, with only a minority clearly identifying emerging issues or a long-term strategy. This finding is consistent with companies opting for a reactive, rather than proactive, approach to addressing modern slavery risks.

These findings are in stark contrast with financial due diligence where compliance rates for filing confirmation statements and annual reports have been between 96% and 99% between 2012 and 2020. The high compliance rate for financial due diligence is likely due to the enforcement regime in place where a failure to file accounts on time is a criminal offence which can result in fines of up to £7,500, companies being struck off the register, and directors being held in breach of their duty. Clearly, for companies to take HRDD seriously, there must be penalties for failure to carry out effective HRDD. Otherwise, goods involving child labour will continue to be brought into the British market.

The proposed changes

In our earlier blog, we considered the proposed amendments to the MSA, including the following key proposals:

• to make it a criminal offence to supply a false modern slavery and human trafficking statement;
• to make it a criminal offence for companies to continue to use supply chains which fail to demonstrate minimum standards of transparency; and
• to improve standards of transparency in supply chains in relation to modern slavery and human trafficking.

The UK government recently announced in the Queen’s Speech , that it was planning to introduce a Modern Slavery Bill in this Parliamentary period. The new Bill is expected to:

• strengthen the requirements on businesses with a turnover of £36 million or more to publish an annual modern slavery statement to set out steps taken to prevent modern slavery in their operations and supply chains;
• mandate the reporting areas to be covered in modern slavery statements;
• require in-scope organisations to publish their statements on a government-run registry;
• extend those requirements to public bodies; and
• introduce civil penalties for organisations that do not comply with the requirements.

The changes are a welcome step forward for British HRDD, which is in line with countries across Europe including Germany’s Supply Chain Due Diligence Act, Norway’s Transparency Act, The Netherlands’ Child Labour Due Diligence Law and the French Corporate Duty of Vigilance Law. It is hoped that with such changes, companies will recognise they owe a duty of care to actors within their supply chain to exercise effective HRDD and to ensure their supply chains are free of child labour. The additions of civil and criminal penalties would encourage companies to see human rights issues in their supply chains as a key business risk and to pay more attention to these important issues. This is bound to contribute to the prevention of child labour, as companies will be required to identify and mitigate actual or potential adverse impacts, including child labour, of their operations.

Where such abuses do occur, the requirement on companies to publicly report on their due diligence measures is likely to provide a helpful source of information for those seeking to enforce their rights including victims of human rights abuses and consumers, who would be entitled to assume that goods bought on the British market are sold by companies doing as much as is reasonably possible to prevent the use of child labour.

In the same way that financial risks are a key item on companies’ agendas at boardroom meetings, it is hoped that human rights risks will now also feature high on the agenda as companies will soon be obliged to take HRDD seriously. In turn, it is hoped that such increased scrutiny will contribute to ending child labour for good.