Under review: Modern Slavery Act and Fair Work Act

Directors should be across changes recommended on modern slavery and wage underpayment laws, writes Louise Petschler GAICD. The AICD is also engaging closely with the development of mandatory climate reporting standards.

Modern Slavery Act review

The independent review of the Modern Slavery Act 2018 (Cth), led by Professor John McMillan AO, was tabled in federal parliament in May.

Thirty recommendations have been made for government to consider, many in line with overseas regulatory trends. 

These include expanding reporting and new penalties. More than 280 organisations from business, civil society and academia contributed to the review’s public consultation process during the past year, including the AICD. 

The Modern Slavery Act aims to increase business and government awareness of modern slavery risks and support entities to identify, report and address the risks through greater transparency. 

Under the current law, organisations with revenue above $100m are required to prepare annual modern slavery statements, approved by their boards (see AICD best practice guide). 

There are currently no direct penalties in the Act for non-compliance, although other avenues for regulatory action could apply. As noted in the review, modern slavery presents a complex and difficult challenge embedded in the global economy. 

Latest estimates are that more 49 million people live in situations of modern slavery, with a high prevalence in the Asia-Pacific region. 

The review found no hard evidence that the Act in its early years has led to meaningful change. 

Three main weaknesses with the current regime were identified. The standard of reporting is variable, the reporting obligation is not properly enforceable, and the process is at risk of being drowned by a sea of large and incompatible statements. 

Key review recommendations include: 

• Lowering the reporting threshold from $100m to $50m annual turnover 
• Expanding mandatory reporting criteria (on incidents, consultation and complaints) 
• Requiring implementation of a due diligence system — rather than describing processes 
• Establishing a federal anti-slavery commissioner 
• Penalties for entities that fail to submit a statement, knowingly submit a materially false statement or fail to have a due diligence system in place. 

The full review report can be accessed on the Attorney-General’s Department website. 

The AICD is carefully considering its recommendations, in particular lower reporting thresholds. 

Our view remains that refinements to the regime should focus on lifting the quality of reporting by Australia’s largest entities, not increasing the compliance burden on smaller organisations and NFPs. 

We have also recommended that the new anti-slavery commissioner targets practical guidance and sector coordination (for example, sector supplier codes). 

We will be consulting with government as it formulates its response to the review findings. 

Criminalising wage underpayment

The federal government is advancing its election promise of stronger penalties for underpayment of wages, with a recent consultation on criminalising wage theft through the Fair Work Act 2009. 

This follows moves by Victoria and Queensland to introduce criminal penalties in state law. The proposals draw on recommendations from the 2019 report by the Migrant Workers Taskforce. 

The taskforce found that underpayments were occurring with a severity and magnitude that suggests existing penalties are not sufficient to drive change. In 2021–22 the Fair Work Ombudsman recovered more than $500m worth of underpayments for 385,000 workers. 

The AICD strongly condemns deliberate underpayment of employee wages and entitlements. 

We recognise that boards have an important role to play in driving a culture of compliance in the organisations they govern, including meeting obligations to employees. 

Australia’s industrial relations system is also extremely complex. Some instances of underpayment may be a consequence of differing or incorrect interpretations and administrative errors, given this complexity. 

Where corporations deliberately adopt a business model that intentionally and systemically underpays employees or categories of employees, it is appropriate that criminal penalties apply. 

Our submission argues that criminal sanctions should, however, focus on employer conduct that is egregious and deliberate. 

The AICD has also opposed a proposal to extend existing accessorial criminal liability for directors for an offence by the company via a new “failure to prevent” offence. 

This would lower the fault threshold from one where directors are knowingly involved in a contravention, to one where directors and officers are liable unless they can demonstrate that they exercised due diligence to prevent the offence. 

We argue that a “failure to prevent” model for directors is not consistent with the Council of Australian Governments’ established principles for director criminal liability provisions. 

Under the Corporations Act 2001 (Cth) directors are already subject to a statutory duty to act with care and diligence and can be personally liable for corporate breaches of the law. 

Our submission also calls for simplification of the industrial relations system as a related reform. 

Climate standards & reporting

The International Sustainability Standards Board (ISSB) is expected to release its initial set of standards for corporate sustainability reporting mid-year. 

Their publication will herald the biggest shift in corporate reporting in a generation and be a major step forward in global efforts to harmonise reporting frameworks. In parallel, regulators including ASIC have ramped up their enforcement focus on greenwashing. 

Most relevant to AICD members, the ISSB climate standard is widely expected to be the basis for the new mandatory reporting in Australia being developed by the federal government. 

The AICD is engaging closely on these issues with the goal of workable policy settings that encourage fulsome disclosures while recognising the uncertainties involved. 

Mandatory reporting is expected to commence for Australian large businesses and financial institutions for reporting periods from 1 July 2024, with first reports in 2025. 

The AICD is working with Climate Governance Initiative Australia partners Deloitte and MinterEllison on a reporting guide to help Australian boards with the new regime, to be released later this year. 

Access the suite of free director climate governance resources on the Climate Governance hub of the AICD website. 

This article first appeared under the headline 'Reforms in Focus' in the July 2023 issue of Company Director magazine.