Out-Law / Your Daily Need-To-Know

How to address modern slavery risk arising from labour shortages

Out-Law Analysis | 04 Aug 2022 | 3:31 pm | 3 min. read

The current labour shortages experienced around the world present a modern slavery risk to businesses.

In a market where labour is often short in supply, criminal gangs are profiting from practices that provide unscrupulous or unwitting companies with access to workers who are subject to slavery, forced labour, servitude or human trafficking. Often the exploited workers include migrant labourers and other vulnerable groups.

Businesses that do not have robust processes in place to identify and tackle the issue may fall short of an ethical duty to combat modern slavery and they could also face reputational risks to their brand. At a time of increasing regulation in this area, businesses should be monitoring their supply chains to spot modern slavery ‘red flags’ and ensure that they comply with legal obligations that may apply to them.

The regulatory landscape

Policymakers in various countries around the world have taken steps to increase transparency over modern slavery and, in turn, compel businesses to combat the problem.

In the UK, for example, the 2015 Modern Slavery Act requires businesses with an annual turnover of £36 million or more to publish an annual slavery and human trafficking statement – otherwise known as a modern slavery statement. This statement must outline the steps taken by the company during that financial year to ensure that slavery and human trafficking did not take place in its business or supply chains. Similar legislative requirements apply in Australia.

Large businesses operating in Germany face fines from 2023 if they fail to counter human rights abuses in their supply chains, under the country’s Supply Chain Due Diligence Act.

Eike Grunert

Dr. Eike W. Grunert

Rechtsanwalt, Partner

The proposed directive sets a further cornerstone to the ever rising international and national legislation addressing human rights and environmental risks in the supply chain, such as the UK and Australian Modern Slavery laws, and the Dutch Labor and French Duty of Vigilance Laws. The combination with climate protection requirements makes the proposed EU directive a unique piece of ESG legislation

At EU level, the European Commission has also proposed new corporate due diligence requirements which could oblige around 17,000 companies active in the EU to monitor their entire supply chains for violations of human rights, among other issues. As colleague Dr Eike W. Grunert has previously highlighted, the proposed directive sets a further cornerstone to the ever rising international and national legislation addressing human rights and environmental risks in the supply chain, such as the UK and Australian Modern Slavery laws, and the Dutch Labor and French Duty of Vigilance Laws. The combination with climate protection requirements makes the proposed EU directive a unique piece of ESG legislation.

Due diligence and supplier oversight in practice

With modern slavery risks increasing due to labour shortages and in a developing regulatory landscape, there is a need for organisations to respond.

Businesses should conduct regular modern slavery risk assessments that cover their own operations and those across their supply chains.

Businesses will want to consider whether they or their suppliers operate in high-risk jurisdictions, perhaps where there is limited regulation around employment practices and human rights. However, modern slavery can take place anywhere. Businesses active only in countries that have adequate labour protections cannot afford to be complacent. There are particular risks associated with operating in high-risk sectors, such as food processing or clothes manufacturing, and where suppliers rely on lower skilled migrant workers.

Businesses should keep due diligence procedures under regular review. They should consider what checks, assurances and investigations they will conduct or accept when entering into contracts with new suppliers or renewing existing supplier contracts. Contractual controls should be put in place to obtain undertakings from suppliers that they will comply with modern slavery laws, and contractual rights should give businesses rights to audit their suppliers in this respect.

Businesses should develop and regularly update modern slavery policies and procedures, including employment policies, and ensure there are effective modern slavery reporting channels in place.

Regular staff training is also important to ensure staff can spot the signs of modern slavery and how to respond to red flags.

Red flags and the role for corporate and forensic intelligence

Corporate and forensic intelligence experts can help businesses address modern slavery risks, both when onboarding new suppliers and in undertaking ongoing monitoring.

Open-source intelligence and data analysis can be helpful in identifying possible concerns. This can involve comprehensive media research, litigation searches, social media scoping, and targeted internet reviews, for example.

Thorne Godinho

Forensic Intelligence Associate

These red flags can precipitate a more involved process led by lawyers, accountants, and investigators, working in tandem to advise businesses

For instance, indications of forced labour include the use of a workplace for accommodation, or migrant labourers being housed in sub-standard accommodation. Open-source internet research can identify this and can be supported by on-the-ground checks to ensure that workplaces and accommodation for workers meet the appropriate standards.

Media research and litigation records could also uncover possible business relationships between a supplier and a disreputable labour broker that targets migrant labourers in distant jurisdictions.

Photographs and information on social media can also provide clues that individuals are victims of modern slavery.

These red flags can precipitate a more involved process led by lawyers, accountants, and investigators, working in tandem to advise businesses. Where possible legal, reputational, and other risks may arise from the identification of labour issues in the supply chain, it becomes important to carefully consider ways of addressing these risks, either by way of terminating a contract with an implicated party or working with all stakeholders to remediate and monitor the issues.

Co-written by Alistair Wood and Rachel Trease of Pinsent Masons.