First Reports Under Canada’s Mandatory Supply Chain Reporting Regime Due by May 31, 2024

Key Highlights

• Bill S-211, An Act to enact the Fighting Against Forced Labour and Child Labour in Supply Chains Act and to amend the Customs Tariff (the “Act”) was introduced by the federal government of Canada on November 24, 2021, and came into force on January 1, 2024. The Act marks the government’s latest effort to enact legislation to mandate transparency and reduce the risk of forced labour and child labour in an organization’s supply chain.
• Under the Act, certain federal government institutions and a wide array of private sector “entities” engaged in certain activities (including companies listed on a Canadian stock exchange) are required to report on any risks that forced labour and/or child labour may be present in their supply chains, and disclose the policies, procedures, structures and plans they have implemented to mitigate those risks.
• The Act also notes that goods that are mined, manufactured or produced wholly or in part by forced labour or child labour shall be prohibited under Canada’s Customs Tariff.
• The first reports under the Act are due on May 31, 2024, and entities are required to speak to their activities during their prior fiscal year (ending no later than May 31, 2024).

This article is an updated version of the following, previously published by Aird & Berlis on March 30, 2023: Responsible Sourcing and Supply Chain Diligence: What Canada’s Proposed Anti-Forced and Child Labour Legislation Could Mean for Your Business.

Background

On November 24, 2021, the federal government of Canada introduced Bill S-211, An Act to enact the Fighting Against Forced Labour and Child Labour in Supply Chains Act and to amend the Customs Tariff (the “Act”) as its latest effort to enact legislation to mandate transparency and reduce the risk of forced labour and child labour in an organization’s supply chain. The Canadian government had previously proposed other legislative regimes to tackle this issue,^[1] and the Act incorporates much of the content of its predecessors. The obligations in the Act are built on the definitions of “child labour” and “forced labour” as set out in the International Labour Organization (“ILO”) Worst Forms of Child Labour Convention and the ILO Forced Labour Convention.^[2] As a result, the Act sets out new import bans and requires federal government institutions and certain other public and private companies to report on steps taken to reduce and prevent the risk of forced labour and child labour being used in their respective supply chains.

The introduction of the Act is timely as investors, governmental bodies, consumers, various stakeholders and the general public have exhibited an increased interest in the environmental, social and governance (“ESG”) performance of various organizations. In particular, supply chain risk management and the prevention of forced labour and child labour in the organization and its supply chain have come into focus, and several other international jurisdictions have adopted legislation to address these matters. Furthermore, as the Act imposes a reporting obligation on numerous organizations, one of the potential “trickle-down” effects of the obligations under the Act is that organizations may be prompted to examine their business practices more closely, which may lead to the reduction and even elimination of certain risks that pose wider threats to an organization’s operations. Through this internal examination, organizations may identify the presence of forced labour or child labour in their supply chains that could expose the organization to a number of legal risks beyond the scope of the Act and under labour and criminal legislation in multiple jurisdictions, for example. Moreover, even if there is no risk of forced labour or child labour identified in an organization’s supply chain, the examination indirectly contemplated by the Act may prompt organizations to revise supplier agreements and implement the necessary mechanisms to identify and mitigate other ESG-related risks that, if left unaddressed, would expose the organization to other financial, regulatory, legal or operational risks.  

As the Act came into force on January 1, 2024, this article summarizes the key provisions of the Act in its current form and sets out other helpful guidance that businesses may want to consider as they prepare to comply with the requirements set out under the Act.

Who Is Required to Comply With the Act?

The following government institutions will be required to comply with the Act:

1. Any Canadian federal government department or ministry of state;
2. Any body or office listed in Schedule 1 of the Access to Information Act; and
3. Any parent Crown corporation or wholly owned subsidiary of such a corporation within the meaning of section 83 of the Financial Administration Act.

Furthermore, other private sector “entities” that meet certain criteria will also be required to comply with the Act. An “entity” is defined under the Act as a corporation or an unincorporated organization, including a trust or a partnership, that:

1. 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 criteria below for at least one of its two most recently completed financial years:
   1. Has at least C$20 million in assets;
   2. Has generated at least C$40 million in revenue; or
   3. Employs an average of at least 250 employees;
2. Is listed on a stock exchange in Canada; or
3. Is otherwise prescribed by any regulations that may accompany the Act, which have not yet been released.

The Act also notes that the government institutions and private sector entities described previously must be engaged in the following activities:

1. Producing, selling or distributing goods in Canada or elsewhere, where “production of goods” is defined as the “manufacturing, growing, extracting and processing of goods”;
2. Importing goods produced outside Canada into Canada; or
3. Controlling an entity engaged in any of the foregoing activities, where “control” is defined as any direct or indirect control or common control in any manner. Consequently, a parent company that is considered an “entity” under the Act and controls, in the manner prescribed by the Act, one or more subsidiaries that are also considered “entities” under the Act, will be required to report on the activities of these subsidiaries, as discussed further in this article.

Given the broad definition of what constitutes an “entity” and given that there is no minimum threshold for the production, sale, distribution or import of goods that triggers the reporting obligation under the Act, as described further in this article, companies across a variety of sectors and jurisdictions will be required to comply with the Act as drafted.

What Obligations Are Introduced by the Act?

The Act introduces two new obligations that the previously noted organizations must comply with. Firstly, all organizations meeting the above-noted criteria under the Act must publish an annual report (the “Annual Report”) with the Minister of Public Safety and Emergency Preparedness (the “Minister”), on or before May 31 of each year, that sets out the steps that the organization has taken during its previous fiscal year to prevent and reduce the risk that forced labour or child labour is used at any step of the production of goods in Canada or elsewhere by the organization. Private entities will also be required to report on any steps taken during their previous fiscal year to prevent and reduce the risk that forced labour or child labour is used at any step of the production of goods imported into Canada by such entities.

The Annual Reports published by both governmental institutions and private entities must also describe the following aspects of the organization’s prior fiscal year:

1. The organization’s structure, activities and supply chains;
2. The organization’s policies and due diligence processes in relation to forced labour and child labour;
3. The parts of the organization’s business and supply chains that carry a risk of forced labour or child labour being used, and the steps it has taken to assess and manage that risk;
4. Any measures taken to remediate any forced labour or child labour;
5. 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 labour or child labour in its activities and supply chains;
6. The training provided to employees on forced labour and child labour; and
7. How the organization assesses its effectiveness in ensuring that forced labour and child labour are not being used in its business and supply chains.

The Act notes that governmental institutions and private entities may submit individual reports for each applicable parent company and subsidiary, or one report may be provided for all applicable corporate bodies. Furthermore, in addition to submitting their Annual Reports to the Minister, governmental institutions and private entities alike are required to make their Annual Reports available to the public, including by publishing the Annual Report on a prominent place on the organization’s website. Federally incorporated companies (e.g., companies existing under the Canada Business Corporations Act) will also be required to send their Annual Report to their shareholders with their annual financial statements.

Furthermore, the Act extends the existing import ban under Canada’s Customs Tariff to goods that are mined, manufactured or produced wholly or in part by forced labour or child labour.

How Will the Act Be Enforced?

The Act contemplates that failing to file an Annual Report, failing to have the Annual Report approved by the organization’s board of directors, failing to have the Annual Report signed by a director, and knowingly making a false or misleading statement in the Annual Report will constitute an offence. Furthermore, for federally incorporated companies, failing to send the Annual Report to the company’s shareholders with the company’s annual financial statements will also constitute an offence.

Broadly speaking, the Act equips any persons designated by the Minister with far-reaching investigative powers and the authority to take any necessary measures against organizations deemed to have committed an offence. The Act does specify certain penalties for committing any of the aforementioned offences, noting, however, that offending organizations may be liable for a fine of up to $250,000 per offence, and directors and officers who direct, authorize, assent to, acquiesce or participate in the commission of an offence may be personally liable.

When Are the Annual Reports Due?

The first Annual Reports are due by May 31, 2024. As a result, any organizations required to report under the Act will be required to disclose the steps they have taken during their previous fiscal year (ending no later than May 31, 2024) to address any risks in their supply chains.

How Does the Act Compare to Other International Instruments?

As noted above, a number of global jurisdictions have adopted anti-forced labour and anti-child labour legislation. The Act is similar to legislation adopted in the United Kingdom, Australia and California, which establish reporting obligations for certain types of organizations. However, the Act specifically focuses on forced labour and child labour, and does not explicitly capture human trafficking and other forms of exploitation captured in alternative definitions of modern slavery. Furthermore, unlike similar legislation adopted in France, Germany and the Netherlands, the Act does not state that an organization must conduct due diligence. However, as discussed below, conducting due diligence is a key exercise in producing the Annual Reports. Finally, in contrast to most other jurisdictions, the Act imposes harsher penalties for lack of compliance.

How Can Businesses Comply With the Act Going Forward?

The Act is in its first year of implementation and may be subject to further finalization and amendment. However, organizations can take several proactive steps to ensure they are prepared to comply with any reporting requirements under the Act, such as:

1. Conducting due diligence to both identify any forced labour or child labour in their respective supply chains and track the effectiveness of certain frameworks and policies to ensure that the risk of forced labour and child labour is reduced. Due diligence processes may be structured in a variety of ways, depending on the organization’s size and industry. However, the United Nations Global Compact Business & Human Rights Navigator sets out certain procedures for conducting such due diligence, which may be broadly useful as a starting point for developing suitable frameworks and conducting supply chain due diligence;
2. Implementing supplier codes of conduct setting out, for example, certain necessary prohibitions and monitoring procedures regarding suppliers’ labour practices and, specifically, the use of forced labour or child labour;
3. Training directors, officers and internal personnel on their duties in light of the pending obligations under the Act; and
4. Reviewing and updating contracts with existing suppliers to ensure that any risks associated with forced labour or child labour are promptly addressed and mitigated.

Conclusion

The ESG & Sustainability Group at Aird & Berlis will continue to monitor the development and implementation of the Act. Please contact the authors at any time if you have any questions regarding your compliance with the Act.