Complying With Canada's Forced And Child Labour In Supply Chains Act: Are You Ready? - Corporate Governance

Under Canada's new modern slavery legislation, the Fighting Against Forced Labour and Child Labour in Supply Chains Act (Act), Canadian public companies and private businesses that meet certain size thresholds are required to file public reports on measures that they have taken to address and prevent forced and child labour in their supply chains during their previous fiscal year. The Act comes into force on January 1, 2024, and the initial report (Report) is due by May 31, 2024. For an overview of the Act, including details about its application and reporting requirements, please refer to our prior Blakes Bulletin: Parliament Passes Bill S-211: The New Forced Labour and Supply Chain Reporting Law (Prior Bulletin). This bulletin further provides an overview of the responsibility and liability under the Act and what businesses should be doing to prepare for initial reporting.

Responsibility and Liability

The Act requires the entity's board approval of the Report. One or more board members must also sign the Report. The Act also includes liability provisions for failing to report and making misleading statements. If an entity provides a report with false or misleading statements, the enforcement measures include fines, searches (without a warrant), and compliance orders, along with the reputational harm that a company may face. Critically, these liabilities expressly extend personally to directors and officers.

In addition, false or misleading statements in the Report not only attract liability under the Act but may also create a risk of secondary market liability for misrepresentation in certain circumstances involving public companies. Potential tort liability would likely follow similar logic as "greenwashing" claims that have been pursued against companies for misrepresentation regarding sustainability and climate efforts.

Exposure to statutory or civil liability can be minimized by ensuring that statements in a report are accurate and supported by underlying records and due diligence. Accordingly, entities should be preparing now to ensure they have accurate information to report.

Are You Ready to Report?

To date, there has been no government guidance on the particular steps that a company must take to satisfy the Act. The first Report is due in a little more than six months. It requires reporting about the steps an organization has taken during 2023 to prevent and reduce the risk that forced or child labour is used in its supply chain, including reporting about seven mandatory topics that are explained in our Prior Bulletin.

In the Canadian market, businesses are preparing by considering steps that include:

Risk assessment and supply chain mapping. The Act requires entities to identify and report about the areas of its supply chain that present a risk of forced or child labour. When making a public statement concerning the risk in its supply chain and operations, there should be an underlying basis for the characterization of risk in the Report. In preparation for this reporting obligation, many businesses are risk assessing and mapping their supply chain in relation to forced and child labour to support the board's consideration and approval of this aspect of the Report.
Drafting and revising policies. The Act requires entities to report about the policies in place that address forced and child labour. As a result, many businesses are updating their policies, including their Code of Conduct and Supplier Code of Conduct, to ensure they have the appropriate support for their reporting about applicable policies.
Supplier due diligence and terms and conditions. The Act requires entities to report about the due diligence processes in relation to forced and child labour and the steps taken to assess and manage that risk. In response, many entities are revising their supplier due diligence processes and contract terms as part of managing this risk.
Training. The Act requires entities to report on the training provided to employees on forced and child labour. In response, businesses have been designing or revising training provided to employees to address child and forced labour.
Assessing effectiveness. The Act requires entities to report on how they assess the effectiveness of ensuring that forced and child labour are not being used in their business and supply chains. As such, many businesses are considering and implementing measurable key performance indicators they can monitor on a year-over-year basis, revising as required, to support their reporting on how they assess their effectiveness.

Each of the above steps provides support for the statements an entity will ultimately make in its Report to the Minister of Public Safety and Emergency Preparedness and publish on its website. Taking these steps or similar steps, as appropriate, form the foundation for the board to have the confidence it needs in the Report contents to approve it, particularly given the risk of personal liability associated with misleading statements.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.