Comprehensive proposals announced to address modern slavery – what you need to know
The Government’s much anticipated announcement on whether it will introduce legislation to respond to the growing concerns around modern slavery in the operations and supply chains of New Zealand businesses has been published. The Ministry of Business, Innovation and Employment (MBIE) has released a consultation paper seeking feedback from the public on a range of proposed legislative responses to modern slavery and worker exploitation, forced labour, people trafficking and slavery.
Taken together, the proposals MBIE have set out are far more comprehensive in both scope and the nature of the obligations than what is currently required in similar jurisdictions, such as Australia and the United Kingdom. If adopted, some businesses will be required to not only disclosure their modern slavery risks, but proactively undertake due diligence to investigate whether there are instances of modern slavery or worker exploitation in their operations and supply chains and take reasonable and proportionate remedial actions.
What is MBIE proposing?
In summary, MBIE’s proposals will create four new broad modern slavery and worker exploitation responsibilities on entities in New Zealand. How the responsibilities will apply to a particular entity will depend on the revenue threshold of that entity. The proposed responsibilities are:
- To take reasonable and proportionate action if you become aware of modern slavery in your international operations and supply chains, or modern slavery or worker exploitation in your domestic operations and supply chains. It is proposed that penalties could apply for failing to take appropriate action.
- To undertake due diligence to prevent, mitigate and remedy modern slavery and worker exploitation by New Zealand entities where you are the parent or holding company or have significant contractual control over another New Zealand entity. It is proposed that penalties would apply for failing to adequately undertake due diligence.
- To undertake due diligence to prevent, mitigate and remedy modern slavery in your international operations and supply chains, and modern slavery and worker exploitation in your domestic operations and supply chains. It is proposed that this responsibility will only apply to large entities and penalties would apply for failing to adequately undertake due diligence.
- To disclose the steps you are taking to address modern slavery in your international operations and supply chains, and modern slavery and worker exploitation in your domestic operations and supply chains. It is proposed that this responsibility will only apply to medium and large entities and penalties could apply for failing to prepare an annual disclosure or for providing inaccurate or misleading information.
|TABLE 1. HIGH-LEVEL SUMMARY OF PROPOSED RESPONSIBILITES|
|1. Take reasonable and proportionate action if they become aware of:
|2. Undertake due diligence to prevent, mitigate and remedy* modern slavery and worker exploitation by New Zealand entities where they are the parent or holding company or have significant contractual control.||X||X||X|
|3. Disclose the steps they are taking to address:
|4. Undertake due diligence to prevent, mitigate and remedy* modern slavery in their international operations and supply chains, and modern slavery and worker exploitation in their domestic operations and supply chains.||X|
|* MBIE are seeking views on whether entities should be required to remedy harms they have caused or contributed to.
For large entities, due diligence responsibilities (Responsibility 4) would apply across their domestic operations and supply chains. This would include any New Zealand entity they have significant control or influence over.
What entities will be covered by the proposed responsibilities?
MBIE is proposing that legislation will generally apply to all types of entities, including companies, sole traders, partnerships, state sector organisations, local government, charitable entities, trusts, incorporated societies and Māori trusts and incorporations.
How the particular responsibilities apply to those entities will be graduated and larger entities will be required to do more. It is proposed that these graduations will be based on an entity’s consolidated annual revenue. Entities that have significant control over another New Zealand entity will also be required to do more. It is proposed that a ‘New Zealand entity’ includes any entity operating in New Zealand, including any entity that is an employer which is required to comply with New Zealand minimum employment standards. The proposed definitions for the different sized entities are:
- small size entity – below NZD20 million;
- medium size entity – above NZD20 million and below NZD50 million; and
- large size entity – above NZD50 million.
Using revenue threshold aligns with international approaches to modern slavery legislation. The Australian legislation, for example, applies to entities with annual revenue above AUD100 million (approximately NZD105 million) while the UK threshold is set at GBP36 million (approximately NZD70 million). MBIE would like feedback on the appropriateness of the obligations for these revenue threshold levels.
What activities are covered by the proposed responsibilities?
Unlike the modern slavery disclosure regimes in Australia and the United Kingdom, MBIE is proposing that the responsibilities apply to not only modern slavery domestically and internationally, but also to worker exploitation in New Zealand as well. It is proposed that worker exploitation will include breaches of minimum employment standards contained in the Employment Relations Act 2000, Holidays Act 2003, Minimum Wages Act 1983, Wages Protection Act 1983, and the Equal Pay Act 1972.
In relation to modern slavery, the proposed responsibilities will apply to an entity’s operations i.e., those activities undertaken by an entity to pursue its objectives and strategy, and its supply chains. MBIE is proposing that the responsibilities should apply across the entire supply chain of an entity. This means large investment management entities, for example, may have to consider modern slavery and worker exploitation risks associated with both their internal operations and across their investment portfolios.
How will the proposed legislation work?
Different responsibilities will apply to entities of different sizes. While all entities will be required to take action if they become aware of modern slavery or worker exploitation in their operations or supply chains, disclosure obligations will only apply to medium and large entities, while direct due diligence obligations will apply to large entities (as well as any small and medium entity with significant control or influence over another New Zealand entity).
In relation to the disclosure responsibility, MBIE is proposing a ‘prescribed disclosure’ approach, where entities would be required to disclose information on specified issues. This is the approach adopted by Australia and is the approach United Kingdom is heading towards. Helpfully, MBIE has noted that aligning New Zealand’s annual disclosure requirements with Australia could help to reduce duplication in the disclosures required amongst entities subject to both sets of legislation.
However, MBIE’s proposed legislation differs from the modern slavery disclosure regimes in Australia and the United Kingdom, because it is based on a ‘due diligence approach’, that is one step further than disclosure by requiring that regulated entities undertake particular actions, in addition to making disclosures. In recent years, this type of approach has been introduced in France, Germany and Norway. France has introduced a Duty of Vigilance law, for example, that requires publication of a vigilance plan as well as the taking of certain steps to prevent human rights violations. The European Parliament is actively considering a legal framework imposing a duty on business entities to exercise due diligence for human rights and environmental harms.
Are there going to be penalties proposed for non-compliance?
MBIE has not yet decided on any specific penalties for non-compliance but indicate that the framework could be similar to the penalty frameworks of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009, Financial Markets Conduct Act 2013 and Health and Safety at Work Act 2015.
MBIE wants to know what types of non-compliance should lead to enforcement action and whether:
- offshore and onshore victims should be able to bring civil claims against an entity that has failed to meet its responsibilities;
- personal liability is appropriate for entity directors and board members that fail to meet their responsibilities;
- entities should be required to remedy any harm they cause or contributed to (where there is a clear, demonstrated link between their actions and the harm); and
- whether different types of entities should be subject to different enforcement mechanisms and penalties. This could include differentiation based on the size of the entity or other factors, such as in cases where an entity is run by volunteers.
What can you do now?
This proposed legislation will create a legal requirement for New Zealand businesses to address modern slavery risks and work exploitation in their operations and supply chains. While some New Zealand businesses will already have legal compliance obligations under foreign legislation, for others this will be a big change. We consider that this is an area that businesses should act now on, and we encourage you to give feedback to MBIE on their proposal by the 07 June 2022.
If you have any questions in relation to the consultation paper or would like assistance making a submission, please contact one of our experts.
This article was co-authored by Danielle Cooper, a Law Clerk in our Public Law team.