THE PROPOSED MODERN SLAVERY LEGISLATION AND NEW COMPLIANCE FOR BUSINESS

Posted by Jesvin Boparoy on June 30 2022 in News

The Ministry of Business, Innovation, and Employment (MBIE) recently released a consultation paper seeking input on a Legislative response addressing slavery and worker exploitation. The proposed legislation would create due diligence and disclosure obligations for businesses operating in New Zealand to identify and address modern slavery in their supply chains, both locally and internationally. It anticipates that all types of entities including companies, partnerships, trusts, sole traders, charitable entities, and incorporated societies will be affected by the legislation.

As production has become more globalised and supply chains have become increasingly complex and larger in size, we expect that New Zealand businesses would look for clarity on what specific measures are likely to satisfy these new duties. This has become particularly important for directors and officers of the subject entities, as the consultation paper has requested feedback on whether the governing body of the entity (such as directors) should be personally liable for any of the obligations.

Submissions on the consultation paper were due on 7 June 2022. Following the consultation period, a draft Bill is expected to be introduced into Parliament.

In this article, we look at the detail of what is being proposed and the subject of the law change that will affect New Zealand businesses and its governing bodies.

Who is affected by these new obligations?

All New Zealand business entities will be affected by the proposed legislation and would apply across the entire supply chain of that entity. This is significantly different from the legislative response in Australia which only targets companies with annual revenue of AU$100 million, for example. The only group exception from the proposal would be ‘individual consumers’ who would have no obligations under the proposed legislation to mitigate modern slavery and worker exploitation.

The proposed responsibilities would be graduated according to a business’s annual revenue:

• Small business:  below $20 million a year
• Medium business: $20 million to $50 million a year
• Large business: above $50 million a year 

Larger entities will be required to do more to identify and address modern slavery and worker exploitation in supply chains.

MBIE has defined Supply Chains as “organisations that work together to transform raw materials into finished goods and services for consumers.”  This includes all types of activities including supply chains that assist with not just the production of goods (such as those in the Construction and Retail sector) but those that are involved in assisting with technology, developing, or otherwise commercialising a good or service into the final product for end consumers.

What are the new obligations?

There are four new obligations that will apply, depending on the size of the entities.

1. All Entities would be required to take “reasonable and proportionate” action if they become aware of modern slavery in their international operations and supply chains. This will include, for example, reporting the case to an authority or working with suppliers to address the harm, or even changing suppliers.
    
2. Small and Medium Entities will need to undertake due diligence to prevent, mitigate and remedy modern slavery and worker exploitation where they are the parent or holding company or have significant contractual control.
    
3. Medium and Large Entities will need to disclose the steps they are taking to address modern slavery and worker exploitation in both their domestic and international operations and supply chains (which would be subject to mandatory reporting criteria).
    
4. Large Entities will need to undertake due diligence to prevent, mitigate and remedy modern slavery in both their domestic and international operations and supply chains. This may include regularly surveying suppliers, commissioning third-party audits, and establishing whistleblowing channels. The specific due diligence steps required would depend on the risk assessments and considerations identified as “reasonable and proportionate.” This will be influenced by the entity’s size and resources, nature of control, and influence over its supplier.

The responsibilities proposed under the new legislation do not expect entities to apply local New Zealand employment standards regarding worker exploitation to their international operations and supply chains. However, the inclusion of a due diligence duty does take the proposal further than its equivalent framework developed in Australia and overseas.

By way of comparison, the Australian legislation only requires certain large companies (earning above AU$100 million) to “disclose” their compliance activities to address modern slavery rather than to adopt policies or procedures in their supply chain, conduct due diligence, or take any remedial action. The proposal for the legislative framework in New Zealand requires businesses to take affirmative steps to address the risks, as well as reporting.

What are the penalties for a breach?

Penalties will apply for non-compliance, but the proposed enforcement regime is yet to be determined. Criminal sanctions are not being considered but there will be a mixture of civil infringement, improvement notices, enforceable undertakings, and financial penalties.

New Zealand already has a range of regulatory regimes that can be used by comparison to develop a penalties framework. It is likely that the financial penalties imposed would be closely aligned to other due diligence/disclosure legislation such as the Financial Markets Conduct Act 2013 and the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 which imposes penalties ranging from $600,000 up to $5 million for body corporates.

Given the extensive reach of the proposed legislation, and the significant consequences of breach (including potential personal liability for directors as well as financial penalties), businesses should seek advice early and proactively to carefully consider the impact of the reform on their operations.

For further information about how the proposed legislation may affect you, we suggest you contact:

Jesvin Boparoy | Senior Associate | jesvin.boparoy@shieffangland.co.nz  

Kalev Crossland | Partner | kalev.crossland@shieffangland.co.nz

This paper gives a general overview of the topics covered and is not intended to be relied upon as legal advice