Since its enactment almost two years ago, speculation that the Modern Slavery Act 2018 (NSW) would be abandoned in deference to its Commonwealth counterpart has been unrelenting. The final report of the NSW Legislative Council's Standing Committee on Social Issues, released on 25 March 2020, should dispel any such conjecture. The report expresses strong support for the NSW Act, stating "it is clear that the NSW Act has essential work to do in addressing modern slavery." The report recommends that the NSW Act should commence no later than 1 January 2021.
This article discusses the findings and recommendations of the Committee. The NSW Government has 6 months to consider whether the recommendations of the Committee will be adopted. The future of modern slavery reporting obligations under the Act will be determined by the NSW Parliament and Government in the coming months. We will continue to update clients potentially impacted by the Act of any further developments.
The story so far
The NSW Act has yet to commence. Despite being lauded as introducing some of the strongest and most uncompromising anti-slavery measures in the world, doubt has attended its legality and ability to operate in tandem with the Commonwealth Modern Slavery Act 2018, which was passed some 6 months after the NSW Act.
Although there are broad similarities between the two modern slavery compliance schemes, key differences have proved to be problematic or at the very least controversial. Most notably, the Commonwealth Act relies on a "name and shame" approach to deterrence similar to that adopted in the United Kingdom, whereas the NSW Act provides for penalties of up to $1.1 million. The reporting threshold under the NSW Act is also materially lower than that under the Commonwealth Act – $50 million turnover in a financial year compared with $100 million, meaning different entities are captured under each regime and those entities with less revenue are the ones subject to significant financial penalties whereas potential reputational damage alone is the stick waved at Australia's largest and/ or most profitable entities. Issues such as these have prompted concern among stakeholders as to the regulatory compliance burden.
The Draft Modern Slavery Amendment Bill 2019 was developed with a view to resolving certain questions relating to the constitutionality and operation of the NSW Act, and the Draft Modern Slavery Regulation 2019 was prepared to clarify how commercial organisations should meet their reporting obligations.
In June last year, the NSW Act, Amendment Bill and Draft Regulation were referred to the Committee for review. The Committee's report now makes 17 "Recommendations" in respect of the NSW regime, the first being that the NSW Government should amend the NSW Act in line with the Committee's comments and recommendations and target commencement by 1 January 2021.
While noting that a standard national approach to modern slavery would be preferable, the Committee's clear message is that this imperative should not impede the implementation of a legislative regime that effectually and meaningfully addresses human rights abuses. Given the criticism of the effectiveness of the UK Modern Slavery Act (that the Commonwealth Act draws from), and in particular the poor compliance with modern slavery reporting requirements of UK companies, the Committee's position in this regard is not unreasonable, from a public policy perspective.
The report refers consistently to the "robust" character of the NSW Act, in particular the inclusion of offences and penalties to achieve supply chain transparency, and notes submissions pointing to the correlation in the UK between the lack of penalties and poor compliance.
Support for national harmonisation
To facilitate harmonisation between the NSW and Commonwealth regimes, the Committee recommends that a statutory review mechanism be incorporated in the NSW Act aligning with the three-year review period under the Commonwealth Act. The Committee proposes that the parallel operation of the NSW and Commonwealth schemes be evaluated at that point.
In the context of the Committee's inquiry, stakeholders have identified three main areas of concern in terms of the dual operation of the regimes and consistency issues:
- reporting requirements: subject to its recommendations, the Committee's position is that the reporting requirements in the Draft Regulation coupled with the ability of organisations to voluntarily report under the Commonwealth Act, substantially address concerns regarding the duplication of compliance obligations.
- reporting threshold: while acknowledging stakeholder concerns about the resourcing and capacity of some businesses to comply with the reporting requirements under the NSW Act, the Committee's view is that the existing reporting threshold "strikes a reasonable balance and is appropriate". It has therefore recommended that the NSW Government and the Interim Anti-Slavery Commissioner work with impacted businesses to ensure their reporting obligations are simple and clearly explained in guidance material. Notably, the report also recommends that the NSW and Federal Governments work together to seek harmonisation of the threshold "ideally at $50 million consolidated revenue, as a key reform for a standard national approach to modern slavery".
- penalties: again the report refers to the UK experience, stating it "clearly demonstrates the danger in relying on a reporting regime that does not include penalties for non-compliance". Noting that an independent review of the UK modern slavery legislation has now recommended the introduction of penalties, the Committee concludes that penalties are a "necessary tool for compliance" and urges the NSW Government to advocate for the inclusion of penalties under the Commonwealth Act.
Clarification as to reporting entities
- charities and not-for-profit organisations: recognising the proportionally higher compliance burden for charities and not-for-profit organisations, the Committee has endorsed an exemption for these entities as set out in the Draft Regulation (for the initial period of operation of the NSW Act until the statutory review in 2022).
- small businesses and franchises: the Committee has similarly supported the reporting exemption for small businesses set out in the Draft Regulation (subject to ongoing review by the Anti-Slavery Commissioner).
- voluntary reporting: the Committee has recommended that the NSW Government finalise the development of a voluntary reporting mechanism for businesses falling under the $50 million reporting threshold.
- State owned corporations and councils: the report notes the status of these entities suffers from uncertainty. In respect of State owned corporations, the Committee has expressed support for the Amendment Bill which clarifies that these corporations constitute commercial organisations for the purposes of the NSW Act. The position in respect of local councils is more vexed, noting their diversity in terms of size, expenditure and procurement activities. The Committee has therefore recommended that the NSW Government develop legislative amendments imposing procurement and reporting obligations on local councils equivalent to those imposed on NSW Government agencies.
- The Committee was specifically tasked to report on "the appropriateness and enforceability of Modern Slavery Risk Orders under section 29 of the NSW Act". Noting that section 29 constitutes the most "problematic" aspect of the NSW Act, the Committee has supported its repeal as set out in the Draft Amendment Bill.
- Various recommendations are also made for the purpose of better supporting victims, including the establishment of appropriately constituted working groups to protect potential victims.
Pending the NSW Government's response to the report, businesses should assess whether they will be required to report under the NSW Act (as amended by the report recommendations). The report is underscored by significant support for the important social justice reforms embodied in the NSW Act. Whether or not the reforms commence in January 2021, the business community should be readying itself for greater accountability and scrutiny.
And if the Commonwealth Act apply to you…
Separately, with the first modern slavery statements due under the Commonwealth Act in less than 6 months' time, reporting entities under the Commonwealth Act should by now be well advanced in developing modern slavery compliance frameworks and undertaking due diligence of suppliers ahead of submitting modern slavery statements to the Australian Border Force (ABF). A reminder of the key dates under the Commonwealth Act:
Entity's annual financial reporting period: 1 July to 30 June
First reporting period under the Cth Act: 1 July 2019 to 30 June 2020
Due date for statement: 31 December 2020
Entity's annual financial reporting period: 1 January to 31 December
First reporting period under the Cth Act: 1 January 2020 to 31 December 2020
Due date for statement: 30 June 2021
Entity's annual financial reporting period: 1 April 2019 to 31 March 2020
First reporting period under the Cth Act: 1 April 2019 to 31 March 2020
Due date for statement: 30 September 2020
We appreciate that organisations are busy attending to COVID-19 related work and modern slavery compliance has fallen by the wayside for many companies. ABF also recognises that COVID-19 is severely impacting the Australian business community and we understand ABF is preparing additional guidance for reporting entities under the Commonwealth Act who are impacted by the virus to clarify entities’ reporting obligations and provide practical advice about possible measures to mitigate the impact of the pandemic on vulnerable workers in global supply chains.