Australian Modern Slavery Act to move into a new phase?

On 24 May 2023, the Australian Government tabled a report outlining recommendations for reform of the Modern Slavery Act 2018 (Cth) (Act). The report is the output of a statutory review of the Act by Professor John McMillan AO, which sought public consultation on the effectiveness of the first three years of the Act.

The Report makes 30 recommendations for the Government’s consideration, many of which seek to align the Act with overseas regulatory trends for enhanced human rights due diligence, supply chain transparency and penalties to support corporate accountability.

Key recommendations include:

1. a lowered reporting threshold (reduced to $50 million);
2. amendments to improve the effectiveness of mandatory reporting criteria;
3. the introduction of a requirement for a mandatory due diligence system;
4. flexibility to permit entities to report on a three-year cycle (with shorter updates in the intervening years);
5. the introduction of penalties for failing to report, making knowingly misleading reports or failing to have a due diligence system; and
6. a formal public complaints mechanism.

We have summarised these recommendations below.

The consultation process received wide attention, including 136 written submissions, 498 responses to the online survey for reporting entities, and 30 responses to the online questionnaire. It also involved targeted consultations and meetings with select committees and individuals.

Lowered reporting threshold

Currently, a ‘reporting entity’ under the Act is an entity with an annual consolidated revenue of $100 million or more in the reporting year. Recommendation 4 proposes to reduce the threshold to $50 million.

The Report acknowledges that since the Act’s commencement, the impact of modern slavery reporting is growing and will inevitably expand to all business sectors. It describes the first three years of the Act’s operation as the ‘first phase’ and recommends that Australia move into the ‘next phase’ to support international harmonisation of modern slavery reporting. It is suggested that lowering the threshold will help achieve this.

The Report also proposes a number of recommendations to modify reporting obligations so that it can be tailored to the size and activity of an entity (eg allowing reporting online or through a template – see Recommendations 13 – 17). Furthermore, Recommendation 5 proposes that the Guidance for Reporting Entities (Guidelines) be amended to provide tailored guidance for small and medium-sized entities which might be captured as reporting entities due to the proposed lowered reporting threshold.

Amendments to mandatory reporting criteria

Recommendation 8 proposes various amendments to the mandatory reporting criteria in s 16 of the Act, including:

• replacing the phrase ‘operations and supply chains’ with ‘operations and supply networks’; and
• adding new mandatory requirements to report on modern slavery incidents, grievance mechanisms, and internal and external consultation undertaken by a reporting entity.

The Report also proposes enhanced Guidelines to deal with sector-specific reporting on the mandatory criteria (see Recommendation 25). It is also envisaged that the proposed Anti-Slavery Commissioner would play an active role in collaborating with individual sectors to improve reporting practices, including by development of guidelines directed to entities in that sector. Funding for the purposes of establishing an Anti-Slavery Commissioner was previously allocated in the Federal Government’s FY24 Budget. Chapter 12 of the Report discusses the possible role of the Anti-Slavery Commissioner. The Report states that it is premature to make recommendations about the possible regulatory compliance powers of an Anti-Slavery Commissioner (such as coercive investigatory powers, the power to issue infringement notices, or the power to refer matters for prosecution or apply for civil penalties). The Report states that the role of the Anti-Slavery Commissioner will be determined by Parliament. However, the Report does recommend that one function of the Commissioner (or the Minister) be the power to make declarations that particular regions, locations, industries, products, suppliers or supply chains carry a high modern slavery risk. Such declarations could prescribe how entities are required to respond in preparing their modern slavery statement.

Mandatory due diligence

The Act currently imposes an obligation on reporting entities to describe their due diligence system. Recommendation 11 proposes that the Act go further and impose an affirmative obligation on entities to implement and utilise a due diligence system, and explain the activity undertaken in accordance with the system. It suggests that the elements (or minimum requirements) of the due diligence system could be specified in rules made under s 25 of the Act (which permits the Minister, by legislative instrument, to make rules prescribing certain matters required under the Act).  

The Report acknowledges that mandatory due diligence is a ‘global norm’ and a core strategy for addressing human rights abuses and modern slavery practices. It also notes that due diligence to achieve regulatory objectives is already a key element of many Australian laws. The Report suggests that this proposal will help to ‘drive and shape business action, and to specify requirements or indicators that must be met and that can be used as benchmarks for monitoring, auditing and comparative performance assessment’.

The Report also suggests a penalty be imposed for failing to comply with this requirement (see ‘Penalties’ below). However, it proposes that entities captured by the proposed lower reporting threshold (ie with an annual consolidated revenue of between $50m - $100m) should not have to comply until two years after the entity has become subject to the reporting requirements of the Act.

Three-year reporting cycle

Recommendation 12 proposes that the Act be amended to provide that an entity has the option of:

• submitting every three years a full modern slavery statement that addresses all requirements of the Act; and
• in the intervening two years, submit a report that updates the information in the full statement.

Submissions into the review of the Act noted the tendency for modern slavery statements to ‘grow’ with each subsequent year, as companies extend and enhance their modern slavery programs. The Report suggests that providing flexibility for less frequent fulsome modern slavery statements and concise annual updates will have benefits across-the-board; for entities preparing the statements, the Government reviewing compliance, and for the public in having a clearer guide to an entity’s developments.

Introduction of penalties

Recommendation 20 proposes that penalties be introduced for:

• failing to submit a modern slavery statement by the statutory deadline without a reasonable excuse;
• giving the Minister a modern slavery statement that knowingly includes materially false information;
• failing to comply with a request given by the Minister to take specified remedial action to comply with the reporting requirements of the Act; and
• failing to have a due diligence system in place that meets the requirements set out under the Act.

The Report states that the topic of penalties ‘will not go away’ and that it is ‘incongruous’ that the Act imposes a reporting duty as a matter of fundamental human rights importance, but contains no robust procedure to ensure that a duty is performed.

The Attorney-General's announcement as part of the Federal Government’s FY24 Budget also noted that the introduction of penalties for non-compliance with the Act as part of its broader modern slavery programme (alongside establishing an Anti-Slavery Commissioner, as noted above).  This tends to suggest that the Government will adopt the relevant recommendations to introduce penalties.

Similar to the imposition of a due diligence requirement, it is recommended that the penalty regime would not apply to entities caught under the reduced reporting threshold until two years after they become subject to the reporting requirements under the Act.

The Report does not recommend penalties for failing to submit an adequate modern slavery statement or failing to conduct effective due diligence. The Report notes that there would be an ‘element of subjective judgement involved’ in deciding what was adequate or effective, and that, if such a broad penalty regime were instituted, ‘disputation would become an active feature of the regulatory landscape’.

The Report also makes no recommendation regarding debarment from government contracts as an enforcement mechanism (as presently exists in Western Australia), as this did not fall within the terms of reference for the review. 

Public complaints mechanism

Recommendation 24 proposes that a formal complaints mechanism be established to enable members of the public to make a complaint to the Department regarding reporting entities.

The Report notes that this would unavoidably lead to complaints about the content and quality of modern slavery statements. In light of this, it suggests the adoption of a two-stage process, by which such complaints would first need to be made to the reporting entity in question, before being escalated to the Department.

Next Steps

The Government has not yet confirmed its position in relation to the recommendations. However, it has previously indicated that it supports the introduction of penalties and has expressed support for a mandatory due diligence obligation (in some form). Employers should also be aware of recent proposals for the criminalisation of ‘wage theft’, increases to the maximum civil penalties for wage exploitation-related provisions, and reforms to the sham arrangements provisions, in the Fair Work Act 2009 (Cth).

The Government has also recently made modest changes to the Guidelines, to principally reflect the change of the overseeing governmental department from Border Force to the Attorney-General’s Department, and to include a ‘Supplementary Guidance’ appendix with best (and worst) practice examples of how to approach to the key mandatory reporting criteria under section 16 of the Act.

In light of the above developments, it will be important to continue to monitor this space, apply a continuous improvement approach to supply chain risk identification and management, and continue to ensure your business has in place robust payroll compliance governance processes.

We will be monitoring the Government’s response to the Report closely and will provide an update as soon as it is clear which recommendations will be supported.