Canada's new forced labor law
Date of publication: December 11th, 2023
On May 3, 2023, Canada passed its first reporting legislation for modern slavery and child labor, the Fighting Against Forced Labor and Child Labor in Supply Chains Act (the Act), Bill S-211. The Act
enters into force on January 1, 2024, with the first set of reports due May 31, 2024
. This regulation is yet another example of governments globally focusing on human rights considerations, and more specifically, modern slavery in global supply chains.The law introduces new reporting obligations that certain Canadian and foreign businesses must comply with to reduce risk of modern slavery in their supply chains. Before the Act, reporting was generally voluntary.
The Act also extends the import ban under the Customs Tariff to enable the Canada Border Services Agency (CBSA) to seize goods that are mined, manufactured, or produced, wholly or in part, by forced labor or child labor. This is consistent with the United States Mexico Canada Agreement (USMCA) labor chapter, which prohibits forced labor and requires each country to put measures in place to prohibit the importation of goods manufactured by forced or compulsory labor.
Although many companies have implemented policies and procedures to address the risk of forced/child labor in their supply chains, it is important to understand the requirements to ensure that what is currently in place will meet a company’s legal obligations – and if not, what steps are necessary to ensure compliance.
What businesses are subject to the act?
The Act applies to any entity:
- producing, selling, or distributing goods in Canada or elsewhere.
- importing into Canada goods produced outside Canada.
- controlling an entity engaged in any activity described above.
An entity is defined as a corporation or a trust, partnership, or other unincorporated organization that:
- is listed on a stock exchange in Canada,
- has a place of business in Canada, does business in Canada or has assets in Canada and that, based on its consolidated financial statements, meets at least two of the following conditions for at least one of its two most recent financial years,
- it has at least CA$20 million in assets.
- it has generated at least CA$40 million in revenue.
- it employs an average of at least 250 employees.
- is prescribed by regulations, which have yet to be enacted (a Reporting Entity).
It will be important to review your corporate structure to understand whether your company is subject to the requirements. For example, an online seller that has warehouses in Canada may be subject to the Act because it applies to companies “that have assets in Canada.” Or foreign businesses with subsidiaries in Canada could potentially both be subject to the Act if they meet the thresholds outlined above.
Obligations under the act
This law is focused on disclosure and supply chain transparency. Companies within the scope of the regulation must file a report annually (not later than May 31st of each year) on their efforts to prevent and reduce the risk of forced labor in their supply chain. Reports must be available to the public, including by publishing them in a prominent place on an entity's website. Additionally, the report must be submitted to the Minister of Public Safety and Emergency Preparedness (the Minister) and will be available on a public registry.
The report must include the following:
- The steps the entity has taken during its previous financial year to prevent and reduce the risk that forced labor or child labor is used at any step of the production of goods in Canada or elsewhere by the entity or of goods imported into Canada by the entity.
- Its structure, activities, and supply chains.
- Its policies and its due diligence processes in relation to forced labor and child labor.
- The parts of its business and supply chains that carry a risk of forced labor or child labor being used and the steps it has taken to assess and manage that risk.
- Any measures taken to remediate any forced labor or child labor.
- Any measures taken to remediate the loss of income to the most vulnerable families that results from any measure taken to eliminate the use of forced labor or child labor in its activities and supply chains.
- The training provided to employees on forced labor and child labor.
- How the entity assesses its effectiveness in ensuring that forced labor and child labor are not being used in its business and supply chains.
Additionally, the reports must be approved by an entity’s governing body, or in the case of a joint report, by the governing body of each entity included in the report, or the governing body that controls each entity included in the report. In most cases, this will be the board of directors.
Board approval must be accompanied by a statement in the report stating that it has been approved by the board and must include a signature of one or more members of the governing body that approved the report.
Also, any reporting entity that is incorporated under the Canada Business Corporations Act or any other Act of Parliament must provide the Report as amended to each shareholder, along with its annual financial statements.
Potential penalties for non-compliance
Should it be determined that a report does not comply with the Act, the Minister may order an entity to take the necessary steps to comply with the Act (corrective actions).
Companies or individuals that fail to comply with the regulation, or make false/misleading statements, are subject to summary convictions of up to CA$250,000.
Additionally, the content of the report (made public by the Act), could highlight grounds for further legal action by third parties (e.g., breach of contract on warranties, common law liabilities, potential regulatory audits). Companies should be mindful of this.
Directors, officers, and agents are also subject to specific liability under the Act. Any director, officer, agent, or mandatary that directed, authorized, assented to, acquiesced in, or participated in an offence is a party to and guilty of an offence under the Act, and is liable on conviction to the punishment, whether or not the person or entity that committed the offence has been prosecuted or convicted.
Companies should consider that public reports of this nature can pose additional risks, based on the nature of the content that must be disclosed. For example, a report could indicate that the company’s goods are produced in regions that have a high risk of forced labor, and the report shows no steps were taken to address or mitigate those risks. This poses reputational risk and provides CBSA grounds for potential seizure of goods at the border. Because the reports are public, content could be viewed by competitors as well.
How to prepare
Conducting a thorough risk assessment to identify the parts of your business and supply chain that carry risk for modern slavery will be a necessary exercise to provide the information required in the report. Strategies to increase visibility into the supply chain may be similar to the ones used to mitigate other forms of supply risk and respond to customer demands. This will be critical to ensure that appropriate policies and safeguards are in place to address these risks, and that employees and business partners are made aware of the risks and red flags applicable to the business through relevant and periodic training.
Some of the areas of focus based on known risk factors should include:
- Suppliers located in regions with weak rule of law, corruption, displacement and known human rights violations.
- High-risk sectors, such as silica-based products, computer parts, food and beverage, and apparel/textiles/footwear.
- Suppliers who employ vulnerable workers, such as migrant workers.
- High-risk business models, such as outsourcing and franchising.
Also, companies will need procedures to continuously monitor and assess the effectiveness of measures adopted so that they remain relevant and effective. This includes engaging suppliers to understand their approach to mitigating/preventing forced labor.
As a result of existing regulations targeting modern slavery, such as the Uyghur Forced Labor Prevention Act (UFLPA), the German Supply Chain Due Diligence Act, the UK Modern Slavery Act and others, your company may already have policies and procedures in place to comply with similar requirements. These can be leveraged for the purpose of the Act. However, a thorough review of requirements should still be conducted to confirm compliance for reporting purposes.
For more information on how ONESOURCE Global Trade solutions can assist you in conducting due diligence with respect to forced labor in your supply chain, please contact your Account Manager or Client Services Manager.