Canada on the verge of enacting legislation against modern slavery in global supply chains
[Update: On May 11, 2023, Bill S-211 received Royal Assent. Bill S-211 will come into force on January 1, 2024.]
At the time of writing, Bill S-211, the Fighting Against Forced Labour and Child Labour in Supply Chains Act (the "Act"), is at third reading in the House of Commons, having already completed third reading in the Senate. If the Act receives royal assent in 2023, the Act will come into force on January 1, 2024.
Should the Act become law, Canada will join certain of their peers, including the United Kingdom, France, Germany, the Netherlands, the European Union, Australia and California, in the effort to address modern slavery in global supply chains.
National legislative measures to fight modern slavery in global supply chains have generally taken one of two approaches: while some states have enacted legislation that aims to increase organizational transparency by imposing reporting obligations to promote responsible business practices, others have imposed more onerous due diligence obligations on organizations with global supply chains.
Through the Act, Canada, like the United Kingdom, Australia and California, would be opting for a transparency-driven approach. If enacted, the Act will impose annual reporting obligations on government institutions and on certain private corporations, trusts, partnerships and unincorporated organizations concerning the measures taken to mitigate the risk of forced labour and child labour in their supply chains.
In addition to applying to “government institutions” (as defined in the federal Access to Information Act) that produce, purchase or distribute goods in Canada or elsewhere, the Act’s reporting obligations will apply to any “entity” that:
- produces, sells or distributes goods in Canada or abroad;
- imports into Canada goods produced outside of Canada; or
- controls an “entity” engaged in any of these two types of activities.
The Act defines “control” broadly. An “entity” will be considered to be in control of another entity if the entity is directly or indirectly controlled by that other entity in any manner. Moreover, the Act includes a deeming provision, such that an entity that controls another entity will be deemed to control any entity that is itself controlled or deemed to be controlled by that other entity. In other words, subsidiaries of an entity would be deemed to be controlled by the ultimate parent company.
Although the Act defines “control” broadly, the definition of “entity” is somewhat more limited. For purposes of the Act, an “entity” is a corporation or a trust, partnership or other unincorporated organization that:
- is listed on a stock exchange in Canada; or
- has a place of business in Canada, does business in Canada or has assets in Canada, and that also met at least 2 of the following conditions for at least one of its 2 most recent financial years:
- it has at least CAD $20 million in assets,
- has generated at least CAD $40 million in revenue, and
- employs an average of at least 250 employees.
The Minister of Public Safety and Emergency Preparedness (the "Minister") may also extend the application of the Act to any entity by regulation. At the time of writing, no such entities have been prescribed by regulations.
Based on the above definitions, there would be no minimum size requirements, minimum financial turnaround requirements, or even Canadian location requirements limiting what might constitute an “entity” for the purposes of the Act where that “entity” is listed on a stock exchange in Canada and that “entity” engages in one of the activities summarized above (or “controls” another entity engaged in such activities). Accordingly, the Act’s reporting requirements are likely to be applicable to a large proportion of organizations listed on the TSX and other Canadian stock exchanges.
Definitions of “forced labour” and “child labour”
The Act covers two types of modern slavery: forced labour and child labour.
Broadly speaking, forced labour is work performed under compulsion or involuntarily. The Act defines “forced labour” as any labour or service provided or offered by a person under circumstances that could reasonably be expected to cause the person to believe that their safety or that of a person known to them would be jeopardized if they failed to provide or offer the labour or service, or which constitutes forced or compulsory labour as defined in article 2 of the Forced Labour Convention, 1930, adopted in Geneva on June 28, 1930. Subject to limited exceptions, Article 2 of the ILO’s Forced Labour Convention, 1930 defines “forced or compulsory labour” as “all work or service which is exacted from any person under the menace of any penalty and for which the said person has not offered himself voluntarily”.
The Act defines “child labour” as labour or services provided or offered to be provided by persons under the age of 18 years and that:
- are provided or offered to be provided in Canada under circumstances that are contrary to the laws applicable in Canada;
- are provided or offered to be provided under circumstances that are mentally, physically, socially or morally dangerous to persons under the age of 18 years;
- interfere with their schooling by depriving them of the opportunity to attend school, obliging them to leave school prematurely or requiring them to attempt to combine school attendance with excessively long and heavy work; or
- constitute the worst forms of child labour according to Article 3 of the Worst Forms of Child Labour Convention, 1999 adopted at Geneva on June 17, 1999. Article 3 states that the term “the worst forms of child labour” comprises:
- all forms of slavery or practices similar to slavery, such as the sale and trafficking of children, debt bondage and serfdom and forced or compulsory labour, including forced or compulsory recruitment of children for use in armed conflict;
- the use, procuring or offering of a child for prostitution, for the production of pornography or for pornographic performances;
- the use, procuring or offering of a child for illicit activities, in particular for the production and trafficking of drugs as defined in the relevant international treaties; or
- work which, by its nature or the circumstances in which it is carried out, is likely to harm the health, safety or morals of children.
The term “child” as used in the context of the Worst Forms of Child Labour Convention, 1999 also applies to all persons under the age of 18.
The Act provides for different reporting obligations as applicable to government institutions versus “entities”. This article will focus on the reporting obligations applicable to “entities”, as described above (“reporting entities”).
Once the Act comes into force, reporting entities will be required to produce an annual report regarding the steps the reporting entity has taken during its previous financial year to reduce and prevent the risk of recourse to forced labour or child labour at any step in the supply chain. This report will be due to the Minister by May 31 of each year during which the Act will be in force.
The report must include information about the reporting entity's structure, activities, and supply chains, and to identify the parts of the supply chain that carry a risk of using forced or child labour. The report must also describe how the reporting entity has assessed and controlled the risk of forced or child labour or remedied such use, if any. The report should describe the entity's due diligence policies and processes related to forced labour and child labour. However, the Act falls short of imposing express due diligence requirements on reporting entities.
As part of their annual report, reporting entities must also include information in respect of the training provided to employees on forced labour and child labour, and how the reporting entity assesses the training’s effectiveness in ensuring that forced labour and child labour are not being used in its business and supply chains. Reporting entities will also be required to include in their annual report information regarding any measures taken to remediate the loss of income to the most vulnerable families that results from any measures taken to eliminate the use of forced labour or child labour in their activities and supply chains.
The annual report may be filed jointly by reporting entities when it concerns more than one reporting entity, and must be approved by the governing body of each reporting entity concerned or by the governing body of the entity that controls all the entities concerned by the report. The annual report must be signed by one or more members of the governing body of each entity that approved the report.
Finally, reporting entities will be required to publish their annual reports in a prominent place on their website and to make them available to the public. Reporting entities that are federal corporations incorporated under the Canada Business Corporations Act or other federal legislation will also be required to provide a copy of their reports to shareholders with their annual financial statements.
Monitoring compliance and corrective measures
The Act provides broad investigative powers to persons designated by the Minister to monitor compliance with the Act, including the power to enter any premises to search for, examine and seize relevant documents and records (including electronic records).
Failure to produce, publish or make available an annual report or obstructing or failing to assist in an investigation is an offence punishable on summary conviction by a fine of up to CAD $250,000. This also applies to any false or misleading statement knowingly made to the Minister or to a person designated to enforce the Act.
Directors, officers or agents who directed, authorized, assented to or participated in any violation of the Act may also be held criminally liable and punished by the same penalty as that provided for the entity or person who committed the violation, even if that entity or person has not been prosecuted or convicted.
Before these new requirements come into effect, it is important for companies exposed to supply chain risk to consider whether they have the necessary policies, third party business partner due diligence procedures and training programs in place to ensure all their company’s supply chain is adequately and consistently monitored.
The federal government’s 2023 budget also announced the federal government's intention to introduce legislation by 2024 to eradicate forced labour from Canadian supply chains to strengthen the import ban on goods produced using forced labour, as well as to work to ensure existing legislation fits within the government's overall framework to safeguard our supply chains. As such, we recommend that organizations continue to monitor legislative developments in this area.
Our team of seasoned lawyers with established expertise in corporate governance, corporate ethics and compliance, and human rights remain on the lookout for developments related to this Act. We are available to assist you in navigating these new requirements against modern slavery and in developing the necessary tools to comply with them.