Modern Slavery laws in Australia – the downstream impact on suppliers

Modern Slavery laws started in Australia on 1 January 2019. The purpose is to reduce modern slavery in the supply chain of Australian businesses and to establish transparency.

The Modern Slavery Act 2018 (Cth) applies to all Australian entities, and foreign entities carrying on business in Australia with an annual turnover of at least AU$100 million (or others who opt into the regime). These entities are required to submit a Modern Slavery Statement to the Minister of Home Affairs within 6 months of the end of their financial year.

The Commonwealth must also comply with the Act, as well as any corporate Commonwealth entities and Commonwealth companies with at least $100 million revenue for the reporting period.

While the Act requires approximately 3000 entities to submit the Statement, your business could still be impacted if it is part of the structure, operations or supply chain of a reporting entity.

There are no fines or other penalties for breaches of the Act, it is a “name and shame” system of deterrence.

The Statement

The reporting entity’s Statement must include:

  • its identity;
  • its structure, operations and supply chains;
  • the risks of modern slavery practices in its operations and supply chains, and any entities that it owns or controls;
  • the actions it (and any entity that it owns or controls) has taken to assess and address those risks;
  • how it assesses the effectiveness of such actions;
  • the process of consultation with any entities that it owns or controls or is issuing a ‘joint modern slavery statement’ with; and
  • any other information that it considers relevant.

The first reporting period for many businesses will be 1 July 2019 – 30 June 2020 and must be submitted by 31 December 2020. If the business’ financial year is from 1 January – 31 December then its first reporting period will be 1 January 2020 to 31 December 2020 and the first statement will be due by 30 June 2021.

Compliance Steps and the upstream flow

Reporting entities have already started to consider the application of the Act. Their compliance steps will have significant upstream consequences on their supply chains. If your business is part of that supply chain, then you should expect to be contacted by the reporting entity. They are likely to:

  • Notify you of new legislation;
  • Ask you to map your organisation structure, businesses and supply chains;
  • Ask you to provide policies and procedures on modern slavery for their review;
  • Review agreements and seek to insert terms relating to modern slavery; and
  • Ask your help in risk assessments on operations and supply chains.

Although the ‘supply chain’ is not strictly defined in the Act, the explanatory memorandum has made clear that a risk-based approach is favoured when assessing modern slavery. This means that if there are severe risks of modern slavery, the Act requires businesses to look beyond direct suppliers to ‘tier two’ or even ‘tier three’ suppliers.

This will be reflected in the upstream supply contracts. Overseas observations suggest:

  • Reporting entities may include in their contracts that suppliers (and each of their subcontractors) must comply with the modern slavery laws and anti-slavery policies.
  • A supplier may be required to undertake that:
    • It has done its own due diligence to ensure that there is no risk of modern slavery in their businesses or supply chains;
    • Neither it, nor or anyone in its business, has been convicted of any offence of modern slavery;
    • It does not purchase resources, raw material, livestock and/or products from a specific country or manufacturer;
    • It will not subcontract its obligations but will implement its own system of due diligence, audit and training;
    • It will report any breaches, potential breaches, or suspected breaches of the Act;
    • It has a system of training in place; and
    • It implements an audit system and a grievance procedure.

Despite the Act imposing no fines or financial penalties, where a reporting entity is in breach, significant financial losses could flow from the reputational damage, including:

  • Loss of market share;
  • Shareholder activism; and
  • Cost of remediation.

If an upstream supplier is in breach of its contractual obligations on slavery then the reporting entity could recover losses from the supplier.

Examples of compromised supply chains in the Australian context

Thailand is an example of an ‘at risk’ country which requires deeper supply chain analysis. In 2015 the United States’ State Department ranked Thailand as a country which has minimal human trafficking abatement efforts, especially in the seafood export industry.

In a special investigative report, an Australian media team exposed the use of child slavery in Thai seafood providers. Anyone in the supply chain between these seafood producers and Australian shelves is at risk. For example, an Australian dumpling producer supplying a large supermarket chain could be caught in the middle if the supermarket product was traced back to modern slavery practices in Thailand. The Australian dumpling producer could be liable for breach of contract and damages under the supply agreement. Their own brand may be damaged even though they are not a reporting entity.

The Act also applies to a supply chain contained wholly in Australia. There are documented casesof exploitation of migrant workers in agriculture and farming, which could be modern slavery under the Act. Labour hire providers have often been criticised within this area and ‘wage theft’ is under increasing scrutiny by federal and state governments. Reporting entities should be diligent in vetting subcontractors and labour hire providers.

Bayston Group can help

Supply agreements with reporting entities will include clauses as described above. Bayston Group can advise on these clauses and ensure ‘back to back’ protection up your own supply chain.

Expect to see these issues when tendering for work. Bayston Group can help analyse your risk and assist with policies and procedures. This would include training of managers and staff to understand these new provisions and the impact on your business and operational risk. We also offer an audit service for compliance with employee awards.

If you have any questions or would like further information, contact us today. We will guide you to ensure that you have the measures in place to protect your business.