On May 3, Parliament passed 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"). The Act is a significant new piece of legislation that imposes an annual reporting requirement on many Canadian businesses, including those operating outside of Canada, concerning forced and child labour in their supply chains. The Act also creates new enforcement powers, allows for significant financial penalties for violations, and bans the importation of goods produced in whole or in part with child labour.

While the Act is significant in and of itself, it should be understood as Canada's initial step taken as part of a broader global effort to combat forced and child labour. As the government first announced in Budget 2023, they intend to introduce additional new legislation that will further address forced labour. As such, businesses must not only prepare to fulfill their annual reporting obligations under the Act, but should expect and prepare for increased regulatory and enforcement efforts concerning forced and child labour in their supply chains.

We explore the background to the Act, the Act itself, as well as its broader implications below.

Background: The Global Movement against Forced & Child Labour

Over the past decade, organizations such as the International Labour Organization, the United Nations, and World Vision have called for countries to do more on the issue of forced and child labour. In response, jurisdictions including the European Union, the United Kingdom, France, Germany, Norway, Australia, and California have either passed or are in the process of passing legislation to address forced and child labour by imposing due diligence and/or reporting obligations on companies, or banning the importation of goods produced in whole or in part using forced or child labour.

Canada followed these other jurisdictions in taking steps to combat forced labour, including through its trade agreements such as the Canada-United States-Mexico Agreement. Consistent with its obligations under CUSMA, Canada amended the Customs Tariff to prevent the importation of goods produced in whole or in part with forced labour. Likewise, several bills addressing forced labour were introduced to Parliament, but they stalled before Bill S-211 was able to gain broad support.

The Act: Application, Obligations, and Enforcement Powers

What Businesses are Covered?

The Act applies to businesses that are either: (1) listed on a Canadian stock exchange; or (2) have a place of business in Canada, do business or have assets in Canada and that meet at least two of the three following size requirements based on consolidated financial statements:

  • has at least $20 million in assets;
  • generated at least $40 million in revenue;
  • or, employs an average of at least 250 employees.

These are relatively low thresholds and the sponsors anticipate that thousands of companies will be subject to the requirements of the Act.

Requirement for Businesses to Submit Annual Report

So long as businesses produce, sell or distribute goods in Canada or elsewhere or import goods into Canada, they will be required to file annual reports—the first being due in May 2024—that set out the steps they took during the previous financial year to prevent and reduce the risk that forced or child labour 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.

The annual report must also cover:

  • Business structure, activities, and supply chains;
  • Policies and due diligence processes concerning forced and child labour;
  • Measures taken to remediate any forced or child labour; and
  • Compliance processes (including risk assessments, audit processes, and employee training).

The annual report must be approved by a business's Board or governing body and be made publicly available, including through publication on the business's website and, for federally incorporated corporations, distributed to shareholders.

Enforcement Powers & Liability for Failure to Comply

The Act gives the government the power to enter businesses without a warrant to search and seize items to verify compliance. Failure to comply with the requirements—including by failing to submit or make the report public, or providing misleading information—can result in fines of up to $250,000 for both individuals and businesses, while corporate directors and officers may also be parties to an offence by directing, authorizing, assenting to, or participating in, its commission.

Key Takeaways: A Significant "First Step" and Further Legislation Expected

Although the Act's sponsosr frame this as relatively simple supply chain transparency (rather than due diligence) legislation, this may obscure the vague and potentially onerous nature of the obligations under the Act. For example, to be able to report on a number of the topics, the Act appears to contemplate that companies will adopt internal policies concerning forced and child labour; assess and manage forced and child labour risk in their supply chains; provide training to employees; and develop websites.

Likewise, while companies are only required to file an annual report detailing their actions to reduce or prevent forced and child labour in their supply chains (as opposed to obligating them to discover and/or take remedial action), the fact that companies must make these reports publicly available means that they have a strong incentive to go beyond the requirements of the law, to more actively conduct due diligence and work to eliminate forced or child labour in their supply chains.

Finally, it is important to note that although the government wanted to significantly expand the scope of the new Act, they could not reach consensus with other political parties. The government has therefore indicated that the new Act is only a "first step" and, as we noted in our Budget 2023 bulletin, that it intends to introduce additional legislation in 2024 to address forced labour. What this legislation will require is not yet clear, though it is expected to impose obligations upon businesses to take remedial action once they discover forced or child labour in their supply chains.

With the passage of the new Act, the domestic legal structure around Business and Human Rights or BHR (a.k.a. the "S"/Social in ESG) has reached a new plateau with even greater heights expected. The journey from "soft" (voluntary) to "hard" (mandatory) legal requirements imposed on Canadian businesses, both at home and abroad—the corporate human rights footprint—continues unabated.

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