Modern slavery: contractual considerations for reporting entities and their suppliers

By Martin Ross, Mark Lebbon and Alison Baker

Australia’s landmark modern slavery legislation – the Modern Slavery Act 2018 (Cth) – requires certain organisations and public authorities (referred to in the Act as ‘reporting entities’^[1]) to report annually on the risks of modern slavery in their operations and supply chains, and the measures they are taking to address those risks. Reporting entities must submit an annual modern slavery statement to the Commonwealth which describes, among other things:

• the risks of modern slavery in the operations and supply chains of the reporting entity, and any entities owned or controlled by that entity; and
• the actions taken by the reporting entity and any entity that the reporting entity owns or controls, to assess and address those risks, including due diligence and remediation processes^[2]

One action undertaken by many reporting entities to address modern slavery risks involves assessing their contractual relationships with suppliers to ensure they contain appropriate contractual provisions relating to modern slavery.

This article identifies the different concepts that can be included in supply agreements to address modern slavery issues.

Relevant supply chain contractual considerations for modern slavery

It is important that the obligations contained in supply agreements relating to modern slavery reflect the degree of risk of modern slavery practices in relation to the particular arrangement or industry.

Whether the risk involved in a particular arrangement or industry is ‘low’, ‘standard’ or ‘high’ will depend on a variety of factors, including how complex and layered the supply chain is, overseas regulatory environments, and the conditions and practices in the relevant industries.

Examples of key industries that have been identified by the Federal Government as ‘high-risk industries’ include the agriculture, construction, electronics, fashion, hospitality and extractives industries.^[3]

The table below sets out a summary of modern slavery-related concepts that may be appropriate to include in an agreement for the supply of goods or services depending on the likelihood of modern slavery arising in the relevant supply chain.

The obligations below are non-exhaustive, and the relevance of each to a particular supplier arrangement should be considered on a case-by-case basis.

Relevant concepts	Low risk	Medium risk	High risk
Obligation to identify, assess and address modern slavery practices An obligation on the supplier to take reasonable steps to identify, assess and address risks of modern slavery practices.	✓	✓	✓
Obligation to take action in relation to modern slavery practices An obligation on the supplier if it becomes aware of any modern slavery practices in its operations or supply chain to:
take all reasonable action to address or remove these practices, including – where relevant – by addressing any practices of other entities in its supply chains;	✓	✓	✓
consult with the customer about its actions and the steps taken above;			✓
provide updates to the customer of its progress to address or remove these practices and remediate the adverse impacts on a regular basis and as otherwise requested by the customer.			✓
Obligation to assist compliance of customer with modern slavery laws An obligation on the supplier to provide all reasonable assistance to the customer to satisfy the reporting obligations of the customer and/or any entities owned or controlled by the customer.	✓	✓	✓
Warranties and representations Warranties or representations by the supplier that:
it complies and will continue to comply with all laws prohibiting or criminalising modern slavery (as it is defined in the Act);	✓	✓	✓
any information provided by the supplier can be relied upon for the purposes of demonstrating compliance with the Act;		✓	✓
Obligation to undertake modern slavery training An obligation on the supplier to conduct employee training to improve staff and management awareness of modern slavery risks.		✓	✓
Right to undertake a modern slavery audit A right for the customer (or a third party nominated by the customer) to conduct an audit in relation to the supplier’s modern slavery practices if the customer reasonably believes the supplier is not complying with its obligations in the supply agreement relating to modern slavery, or the information provided by the supplier is incomplete, inaccurate or incorrect.			✓
Obligation to comply with customer’s policies and procedures An obligation on the supplier to comply with modern slavery provisions contained in the customer’s Code of Conduct and/or policies and procedures.	✓	✓	✓
Indemnity by supplier An obligation on the supplier to indemnify the customer for any loss or damage incurred by the customer arising out of or in connection with a breach of the supplier’s obligations in the supply agreement relating to modern slavery.		✓	✓
Modern slavery risk management plan An obligation on the supplier to prepare and implement a modern slavery risk management plan which outlines at a minimum: the steps that it will take to identify and assess risks of modern slavery practices; the processes it has in place to address any identified risks; the content and timing of training; and any grievance mechanisms for handling complaints about modern slavery practices.			✓

 

Suppliers should be aware that some of the obligations identified above may be onerous and if breached, may give rise to significant rights for the customer, including a right to terminate the agreement.

Suppliers should ensure that the obligations of its upstream suppliers reflect, or are not inconsistent with, the obligations imposed on the supplier in supply agreements. For example, the timeframe by which upstream suppliers are required to notify the supplier of modern slavery issues should be less than the notification timeframe required of the supplier in its supply agreements.

Hall & Wilcox has assisted organisations review supplier terms to identify and appropriately respond to modern slavery risks. Please contact us if you require further assistance or advice.

This article was written with the assistance of Ben McIver, Lawyer.

^[1] A reporting entity is defined in section 5 of the Act to mean:

(i) an entity that which has a consolidated revenue of at least $100 million for the reporting period (and carries on business in Australia or is an Australian entity during that reporting period);
(ii) the Commonwealth;
(iii) a corporate Commonwealth entity, or a Commonwealth company with annual consolidated revenue of at least AU$100 million; and
(iv) an entity which has volunteered to comply with the Act. ^[2] Section 16(1) of the Act
^[3] Explanatory Memorandum to the Modern Slavery Bill 2018, paragraph 3