Supply chain ethics
SA Law's Employment & Corporate experts explore the importance of your supply chain adhering to National Minimum Wage requirements.
I was recently prompted to write an article about the national minimum wage and how to adhere to the requirements after a surge in press coverage related to the issue which comprised, largely, of examples of businesses who had been thought to be getting it wrong. This kind of story has, unfortunately, come back to the fore after Channel 4’s Dispatches aired an episode entitled “Undercover: Britain’s cheap clothes” which alleged that factory workers making products for well-known fashion retailers were paid less than minimum wage.
The consequences of failing to pay national minimum wage
Not only can failing to pay national minimum wage cause untold reputational issues, harsher sanctions have been introduced for those who breach the relevant regulations. On 1 April 2016 the penalty percentage for non-payment of the prescribed minimum rates was increased from 100% to 200%, with a minimum penalty of £100 and a maximum penalty of £20,000 per worker.
What if suppliers fail to pay national minimum wage to their staff?
Many of the retailers named in the Dispatches episode have responded to the allegations by explaining that they were unaware that the work had been subcontracted to the suppliers who featured in the episode and that they take their obligations very seriously which suggests that there is a need for more stringent checks to be undertaken to vet suppliers.
Many other big brands have a similar problem with monitoring their supply chains to ensure that minimum standards are met. For example, the large furniture retailer, Ikea has been in the news recently as its lorry drivers have admitted to living, cooking and sleeping in their trucks for prolonged periods of time. Whilst Ikea’s representatives claim that “strict demands” are in place for the suppliers to ensure full compliance with matters such as minimum wage or acceptable working conditions, this is yet another example of how difficult it is to monitor supply chains.
Whilst problems with supply chains links, in some way, to the recent introduction of the Modern Slavery Act, which places a requirement on certain businesses to publish an anti-slavery statement (which should include a statement outlining the steps the organisation has taken to ensure that slavery and human trafficking is not taking place in any of its supply chains) it does not require organisations to ensure that their supply chains are free from slavery and does not extend to ensuring the relevant workers are paid the national minimum wage. For more information on the obligations imposed by the introduction of this legislation click here.
We recommend that businesses review the contracts they have in place with their suppliers and consider the position which has been adopted in respect of subcontracting all or part of the work. Companies that are involved in the supply chain process should consider adding specific wording and clauses into their commercial agreements. For example, a clause could be included to prohibit the use of forced or trafficked labour by contractors. Such a provision would mean that entities in an ogranisation’s supply chain have to agree to its anti-slavery and human trafficking policies. If drafted appropriately the wording can seek to strike a balance between the challenges faced by suppliers and the basic rights of workers.
Depending on the context, such agreements can also include warranties, indemnity provisions, country specific clauses, reporting obligations, audit obligations and restrictions on sub-contracting to ensure that minimum standards required by law are met not only by the main entity but also by anyone in the supply chain. Transaction specific clauses can be added to any agreement following an assessment of the risks in the supply chain.
Additionally, businesses can draft and publish wording to assist with compliance. Such a policy gives workers, contractors and other business partners guidance on the issues and measures taken by the organisation to tackle these problems - not only in its business but also in its supply chains.