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27 Jun 2019

The future of the NSW Modern Slavery Act is unclear

By Lina Fischer, Cilla Robinson and Monique Azzopardi

Although the NSW Act has reached a roadblock and will not be commencing any time soon, this should not result in complacency amongst NSW entities.

Over 12 months ago in June 2018, NSW passed and assented to the Modern Slavery Act 2018 (NSW). It was anticipated that the NSW Act would commence by 1 July 2019. However, no commencement date has to-date been proclaimed, and as a result, the NSW Act has yet to commence operation.

Recent comments in Parliament last week suggest that the NSW Act is unlikely to commence any time soon and, if it does, it is likely to be in a different form to that which is currently drafted.

The NSW Modern Slavery Act

NSW was the first jurisdiction in Australia to pass legislation aimed at combatting modern slavery practices, such as forced labour. The Commonwealth Government separately followed suit with the enactment of the Modern Slavery Act 2018 (Cth) in December 2018, which commenced on 1 January 2019.

In brief terms, the NSW Act:

  • imposes certain reporting obligations on "commercial organisations" (excluding government agencies) to help combat modern slavery, including a requirement to produce a modern slavery statement each financial year in accordance with the regulations with respect to the steps taken by it to ensure that its goods and services are not a product of supply chains in which modern slavery is taking place (no regulations have yet to be enacted);
  • establishes an Anti-Slavery Commissioner; and
  • amends certain NSW legislation, such as the Public Works and Procurement Act 1912 (NSW), including to impose new obligations on NSW government agencies in relation to their procurement of goods and services, including a requirement that a government agency take reasonable steps to ensure that goods and services procured by it are not the product of modern slavery.

Under the NSW Act a "commercial organisation" includes any organisation with employees in NSW that supplies goods and services for profit or gain and has a total turnover of at least $50 million in a financial year.

While the NSW Act shares broad similarities with the Commonwealth Act, there are key differences. Most notably, the NSW Act provides for penalties for non-compliance with parts of the NSW Act (including financial penalties of up to $1.1 million). The Commonwealth Act does not include a similar penalty regime, instead relying on public breach reporting (and associated reputational damage) as the primary deterrent to non-compliance.

Additionally, the NSW Act and the Commonwealth Act capture different entities. For example, while both statutes impose reporting requirements on commercial entities, the NSW Act applies at a lower threshold ($50 million turnover in a financial year), compared with $100 million under the Commonwealth Act.

"Defects" and inconsistencies between the Commonwealth and NSW Modern Slavery regimes

On 19 June 2019, the Special Minister of State, Minister for the Public Service and Employee Relations, Aboriginal Affairs and the Arts, Don Harwin, stated in Parliament that he had received advice from the Department of Premier and Cabinet that the NSW Act as currently drafted contains "defects" and requires further time for review.

He further noted that:

"…The consequence of these defects are such that if left unattended they would render some provisions of the Act inoperable.

Meanwhile, other provisions are open to the risk of a constitutional challenge. As such, the Act cannot commence operation as drafted." 

Minister Harwin did not elucidate the specific "defects" in any detail, except to note that the Commonwealth Act created several inconsistencies with the NSW Act. The result was a "section 109 problem with the [NSW] Act". Section 109 of the Constitution provides that when a law of the State is inconsistent with a Commonwealth law, the Commonwealth law prevails and the State law is invalid to the extent of the inconsistency.

Minister Harwin commented that the NSW Act, a proposed amendment bill and draft regulations had recently been referred to the Standing Committee on Social Issues for its inquiry and report. The Government has provided a range of options that the Committee may wish to consider. He noted that it was open to the Committee to determine whether the Commonwealth Act renders part or all of the NSW Act unnecessary. As at the date of this publication, no date for the Committee's report has been fixed.

The interaction between the NSW Act and the Commonwealth Act has been the subject of uncertainty and conjecture. The result of the different revenue thresholds, for example, leads to the curious outcome where an entity with consolidated revenue of under $100 million in a financial year will not be subject to financial penalties under the Commonwealth Act, but under the NSW Act an entity having employees in NSW with total revenue of at least $50 million in a financial year may. These different revenue thresholds also raise practical questions for companies that operate across Australia with a number of different corporate entities. For example, a holding company with no contracts or meaningful operations to report on may be the only entity in a corporate structure that reaches the Commonwealth revenue threshold. As the regulations have not been released, we do not yet have clear guidance on such issues and the review of the NSW Act is therefore timely.

What NSW entities should do in light of the above developments?

Although the NSW Act has reached a roadblock and will not be commencing any time soon, this should not result in complacency amongst NSW entities.

In this regard, it is important to note that larger commercial entities may still be captured by the Commonwealth Act if they have a consolidated revenue of at least $100 million and are an Australian entity or carry on business in Australia.  Further, even if an entity is not under any legal obligation to comply with Australian modern slavery legislation, it is still prudent for such entities to revisit their systems and processes and consider what they can do to help combat modern slavery practices. A proactive approach of this nature will be necessary to avoid the potential adverse media attention and reputational damage that will increasingly ensue from findings of modern slavery in procurement or supply chains, as the global magnitude and severity of modern slavery becomes better understood.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.