On January 1, 2024 the federal Fighting Against Forced Labour and Child Labour in Supply Chains Act (Bill S-211) will take effect. Positioning Canada as an early nation to ban the importation of goods made with child labour, the Act serves as a transparency tool to aid the fight against modern slavery and lines up with the growing trend of voluntary ESG (Environment, Social and Governance) reporting and the steady march to mandatory public ESG disclosure in Canada. Effective January 1, 2024, entities subject to the Act (which includes both Canadian and non-Canadian owned or controlled entities) will be required to file their first annual report by May 31, 2024.

If you have obligations under the Act, it’s crucial that your senior leadership and governing body act now to understand the requirements of the Act and to identify and manage your risk exposure. Working openly and pro-actively with your current and prospective suppliers will help resolve issues and change working practices to best position you to comply with the Act.

1. What conduct does the Act address?

The Act’s purpose is to eradicate forced labour and child labour from Canadian supply chains. The Act marks another legislative attempt by Parliament to help combat modern forms of slavery. It also augments existing legislation by amending the Customs Tariff to also prohibit the importation of goods mined, manufactured or produced wholly or in part with “child labour”, as well as the already prohibited “forced labour” and “prison labour”. The Act codifies in Canadian law key definitions of these terms:

“Child”. Importantly, for the purposes of the Act a “child” is anyone under the age of 18.

“Child Labour”. In addition to labour or services offered or provided by a child in Canada under illegal circumstances, “child labour” means labour or services offered or provided by a child that:

• Are mentally, physically, socially or morally dangerous to the child.
• Interfere with the child’s schooling or requires them to attempt to combine school attendance with excessively long and heavy work.
• Reflect article3 of the International Labour Organization (ILO) Worst Forms of Child Labour Convention, 1999 (No. 182), which include trafficking, slavery, debt bondage, and that is likely to harm the health, safety or morality of the child.

“Forced labour”. Labour is “forced labour” if it’s offered or provided by a person who could reasonably be expected to believe that their failure to provide or offer it would threaten their safety or the safety of someone they know. It could also be forced or compulsory labour under the ILO Forced Labour Convention, 1930 (No. 29), which encompasses “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.”

2. What organizations have obligations under the Act?

The Act applies to all Canadian federal institutions and departments, Crown corporations and their wholly owned subsidiaries, and to any private sector “entity” (or one it controls) that either:

• Produces, sells or distributes goods in Canada or elsewhere. The Act defines “production of goods” as “the manufacturing, growing, extracting and processing of goods”.
• Imports goods into Canada that are made outside of Canada.

Similar to the Extractive Sector Transparency Act, the Act defines an “entity” as an organization that meets one of these two threshold criteria:

Public Listing. Listed on a stock exchange in Canada.

Business Structure. Does business, has assets, or has a place of business in Canada, has an average of at least 250 employees and, based on its consolidated financial statements, it meets at least two of the following conditions in at least one of the two most recent fiscal years:

• Has at least CAD $20M in assets
• Generated at least CAD $40M in revenue.

Notably, even entities that are neither owned nor controlled by a Canadian or a Canadian entity can be caught by this threshold definition and have reporting obligations under the Act.

3. What are the reporting requirements?

The Act’s public disclosure effectively institutes mandatory ESG reporting obligations for the entities and conduct it encompasses. This is a step toward the federal government’s implementation of its human rights obligations pursuant to key standards, such as those under the ILO and the United Nations’ 2023 Agenda for Sustainable Development. It’s also in line with the recognition in Canadian jurisprudence of the accountability of multinational actors in the context of forced labour as recognized in the Supreme Court of Canada’s 2020 decision in Nevsun Resources Ltd v. Araya.

Frequency. Starting in 2024, entities subject to the Act must report annually to the Minister of Public Safety and Emergency Preparedness before May 31 of each year. A controlling entity can choose to file either a separate report for each affiliate or a joint report on behalf of all its Canadian affiliates.

Public. Each report will appear publicly on an electronic registry managed by the Department of Public Safety and Emergency Preparedness – and you must also post it in a prominent place on your corporate website.

Shareholders. If your entity is incorporated under the Canada Business Corporations Act, you must also take positive steps to provide the report to your shareholders when you disclose your annual financial statements.

Report Contents. In each report you must outline the steps your entity has taken during its previous financial year to prevent and reduce the risk of forced or child labour within its supply chain. Additionally, you must report all the following information as part of the Supply Chain Risk Report:

• Your structure, activities and supply chains.

• Your policies and due diligence processes regarding forced and child labour.

• The parts of your business and supply chains that carry a risk of forced or child labour being used and the steps you’ve taken to assess and manage that risk.

• Any measures you’ve taken to remediate any forced or child labour.

• Any measures you’ve 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 your activities and supply chains.

• The training you’ve provided to employees on forced and child labour.

• How you assess your effectiveness in ensuring that your business and supply chains are not employing forced and child labour.

Report Approval. The entity’s governing body (for example, the board of directors) must approve the report and one or more members of that body must sign it.

4. What are the non-compliance penalties?

In addition to exposure to the expanding risk of ESG-related civil and statutory litigation, the Act holds entities accountable for their reporting obligations through statutory non-compliance measures, including serious consequences and penalties for both your entity, and its directors and officers, personally.

Entity Liability. Entities that fail to comply, or knowingly mislead or file a false report, are exposed to summary conviction and a fine up to $250,000.

Personal Liability. Additionally, directors or officers who “directed, authorized, assented to, acquiesced in or participated in” the offence, are exposed to personal liability regardless of whether they or the entity has been prosecuted or convicted of a summary offence.

Separate Penalties. Each instance of failure to comply with a requirement of the Act (filing the report, having it approved by your Board, having it signed by the director, and sending each report to your shareholders) can result in a separate penalty.

In furtherance of ensuring entities comply with their obligations, the Act also gives the Minister of Public Safety and Emergency Preparedness new enforcement powers, including powers to search, inspect and seize documents and evidence.

5. What should I do?

The Act doesn’t mandate specific actions for entities to take to address forced or child labour in their supply chains, though more guidance about minimum due diligence and other requirements could come. In the meantime, if you’re subject to the Act, implement pro-active measures now to help mitigate potential compliance and reporting risks:

Prepare Your Board of Directors. Your governing body, which in most cases will be your Board, must sign each annual Supply Chain Risk Report – this effectively elevates the issue of child and forced labour in supply chains to the highest level. In signing off on the report, directors will be required to exercise their fiduciary duty and act in the best interest of your entity. This, plus their management oversight role, means it’s crucial the Board both understand and address the risks this issue poses. Make sure they’re ready for it. For example, consider establishing a new Board committee or adding Act compliance to the mandate of an existing committee. Implement mandatory training covering human rights and child and forced labour in supply chains, the implications and risks, and how to respond.

Create a Conscious Culture. Take steps to create a culture of awareness of the issue of child and forced labour in supply chains throughout your entity from the senior ranks right on down. Train your employees and get them involved. For example, create an internal committee or cross-functional group with a focus on the issue and on Act compliance.

Conduct a Risk Assessment. Implement assessments to audit your risk exposure and that of your current and prospective supply chains by routinely identifying relevant supply chain issues and assessing policy effectiveness in addressing them. Consider mandating that your suppliers implement a similar risk assessment process.

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Please contact your McInnes Cooper lawyer or any member of our ESG Team @ McInnes Cooper to discuss compliance with your ESG reporting obligations under the Fighting Against Forced Labour and Child Labour in Supply Chains Act.