Modern slavery clauses in commercial supply agreements

_{Co-authored by Olivia Camilleri}

Large businesses which must give public statements under the Modern Slavery Act 2018 (Cth) often require clauses in their commercial agreements that address modern slavery and human trafficking. A real risk for goods and services suppliers to these large businesses are terms in the agreements that impose the costs and compliance with addressing modern slavery in the supply chain on the supplier. Strategies are available though, that improve the balance between the supplier and buyer, and that also better promote the objects of the Modern Slavery Act.

The need for modern slavery clauses in commercial supply agreements

The policy in the Modern Slavery Act is to develop, improve and maintain responsible and transparent supply chains.[1] Notably, the Act requires that businesses subject to it report on their due diligence and remediation processes for preventing and addressing modern slavery practices in their supply chains.[2] Contracts may help businesses satisfy these obligations. Agreements with enforceable modern slavery clauses may also assist businesses with resisting litigation and reputational harm.[3] 

Typical modern slavery clauses for suppliers

In practice, the drafting approaches for addressing modern slavery in supply chains vary widely. Many contracts between buyers and suppliers include a supplier code of conduct which may address modern slavery.[4] Other drafting approaches include bringing warranties and representations into the contract, importing standards or obliging a supplier to become a member of a group with prescribed supply chain management requirements.[5]

The common feature of these approaches is that they put the onus on the supplier. Consequently, these approaches are problematic because they ignore that the buyer’s purchasing practices may significantly contribute to modern slavery and human trafficking violations.[6] These abuses include aggressive pricing, tight delivery schedules, belated changes to order quantities, late orders, inaccurate product specifications and forecasting of production needs, lack of support for the supplier, and failures to incentivise elimination of modern slavery in the supply chain.[7]

An alternative drafting solution

A good alternative to weighing obligations on the supplier requires that both the purchaser and the supplier maintain a human rights due diligence process. While this approach may still impose supplier representations and warranties, it also binds the buyer to responsible purchasing practices. This may include binding the buyer to a responsible purchasing code of conduct and providing for supplier termination if, through the purchasing, modern slavery is unavoidable in the supply chain.

A comprehensive treatment of this alternative approach has been provided by the Working Group of the Business Law Section of the American Bar Association.[8] Along with better sharing obligations between the supplier and purchaser, this approach helps reporting entities address their obligation under the Modern Slavery Act with describing their due diligence and remediation processes for preventing and addressing modern slavery practices in their supply chains.

It remains essential to screen the supply chain for risks

Section 16(1)(c) of the Modern Slavery Act requires that the reporting entity describe the risks of modern slavery practices in its operations. Therefore, the reporting entity often must do an initial scoping exercise to identify and describe the modern slavery risks.[9] It remains essential to do this scoping exercise before embarking on the actual contract negotiations and drafting. The Australian Government has published guidance on this initial scoping exercise.[10]

For more information on your business’ obligations under the Modern Slavery Act, or for assistance in drafting or reviewing a commercial supply agreement, please contact Coleman Greig’s Commercial Advice team.

_{[1] Explanatory Memorandum, Modern Slavery Bill 2018 (Cth) 2 [7]..}

_{[2] Modern Slavery Act 2018 (Cth) s 16(1)(d).}

_{[3] Jonathan Lipson, ‘Promising Justice: Contract (As) Social Responsibility’ (2019) Wisconsin Law Review 1109, 1110 and 1138-1141.}

_{[4] Bettina Braun, Avery Kelly and Charity Ryerson, ‘Worker-Enforceable Supplier Codes of Conduct as a Tool for Access to Justice in Global Supply Chains’ (2021) 1(1) Global Labour Rights Reporter 7, 8.}

_{[5] Alexandra Hyken, ‘Contracting Against Slavery: Corporate Accountability for Human Rights Supply Chain Violations’ (2022) 48(1) Brooklyn Journal of International Law 301, 322.}

_{[6] See Sarah Dadush, ‘Contracting for Human rights: Looking to Version 2.0 of the ABA Model Contract Clauses’ (2019) 68 American University Law Review 1519, 1539.}

_{[7] Ibid.}

_{[8] See David Snyder, Susan Maslow and Sarah Dadush, ‘Balancing Buyer and Supplier Responsibilities Model Contract Clauses to Protect Workers in International Supply Chains, Version 2.0 by the Working Group to Draft Model Contract Clauses to Protect Human Rights in International Supply Chains’, ABA Business Law Section (2021) 77 The Business Lawyer 115.}

_{[9] Attorney-General (Cth), Commonwealth Modern Slavery Act 2018 Guidance for Reporting Entities (May 2023) 39 [31].}

_{[10] Ibid, 43-44.}