Increasing supply chain scrutiny: Are you ready for Canada’s modern slavery reporting requirements?

An act that would require companies across Canada to report on the measures they’re taking to guard against modern slavery in their supply chains is expected to soon become law.

The Fighting Against Forced Labour and Child Labour in Supply Chains Act (also known as the Modern Slavery Act; the “Act”) was first introduced in November 2021 through Senate Bill S-211. The Act establishes new reporting obligations (a so-called “Supply Chain Risk Report”) that many Canadian organizations would be required to comply with by May 31, 2024.

The Act aims to ensure Canadian consumers are not “unwitting supporters of slavery” and puts pressure on businesses with operations in Canada to reduce their reliance on modern slavery throughout their supply chains. This is the first legislation of its kind in Canada and follows a number of other countries – such as Australia, France and Germany – that have enacted their own modern slavery legislation.

Forced and child labour are on the rise

Eliminating forced and child labour has been a focus of ESG efforts for some time now, but the issue has become a growing concern in recent years. According to UNICEF, the number of child labourers worldwide is on the rise, with 160 million children involved in child labour in 2020.

Canadian companies may rely on forced or child labour in their supply chains without even knowing it. Even our own federal government fell victim to this issue during the COVID-19 pandemic, awarding more than $222 million in contracts to a medical glove supplier, only to later find out that the supplier used forced labour to manufacture the gloves. The government later conducted an independent audit into the company’s operations and ultimately cancelled the contracts in January 2022.

In January 2023, federal authorities in the United States investigated whether children employed to clean a number of slaughterhouses were victims of forced and child labour. The children in question were largely migrant workers who attended school during the day and worked overnight in dangerous conditions. The company that hired the children claimed that the workers had fake identification and documentation indicating they could be legally employed.

Stories like these emphasize not only the importance of taking active measures to prevent forced and child labour, but also how hard it can be to detect these issues.

Requirements under the Act

The Act applies to organizations:

  1. listed on a Canadian stock exchange; or
  2. having a place of business in Canada, doing business in Canada or having assets in Canada, so long as such an entity meets two out of these three criteria: (a) has at least $20 million in assets, (b) has at least $40 million in annual sales or (c) has at least 250 employees.

The Act also applies to “government institutions,” which include federal government ministries, departments and Crown corporations. Additional entities subject to the Act may be added at a later date through regulation.

The Act requires these organizations to prepare and submit an annual report setting out the steps they have taken to reduce the risk that forced labour or child labour are used anywhere in their supply chains. The annual report must include information on:

  1. the entity’s structure, activities and supply chains;
  2. policies and due diligence processes in relation to forced labour and child labour;
  3. parts of the entity’s business and supply chains that carry a risk of forced labour or child labour and the steps the entity has taken to assess and manage that risk;
  4. measures taken to remediate any forced labour or child labour (including measures taken to remediate loss of income to vulnerable families that could be impacted);
  5. the training provided to employees on forced labour and child labour; and
  6. how the entity assesses its effectiveness in ensuring that forced labour and child labour are not being used in its business and supply chains.

The annual reports must be approved by the organization’s governing body (e.g., board of directors) and then submitted to the Minister of Public Safety and Emergency Preparedness (the “Minister”) by May 31 of each year, with the first annual report due May 31, 2024.

Organizations subject to the Act are also required to make these reports publicly available, including on their website. If the organization is incorporated under the Canada Business Corporations Act or another federal statute, it must also provide the annual report to its shareholders. Eventually, the Minister will create a centralized publicly accessible electronic registry so that members of the public can review the reports that are submitted.

Consequences for non-compliance

The Act gives broad power to the Minister or their designates to conduct inspections and request information for the purposes of verifying compliance with the Act.

Offences under the Act include failing to comply with reporting requirements, providing false or misleading statements to the Minister, non-compliance with an order made by the Minister, failing to participate in an inspection or obstructing an inspection. The consequences for such offences are severe. The federal Minister has the power to impose a fine of up to $250,000 on a person or entity that has committed an offence under the Act. Not only can this fine be imposed on a non-compliant business organization, but also on the directors and officers of that organization, as well as other agents who direct, authorize, assent to, acquiesce in or participate in the commission of an offence.

The trend toward personal liability for directors and officers for ESG shortcomings was canvassed in our previous article: Board directors and executive officers beware: Personal ESG liability is here.

Preparing your organization

The Act has not come into force yet but is expected to soon, as it has strong support across political parties in the House of Commons. Although the first report required under the Act won’t be due until May 31, 2024, entities subject to the Act should start their efforts to prepare now.

Organizations that are subject to the Act should undergo a supply chain review and conduct a risk assessment to fully understand which organizations (e.g., manufacturers, suppliers, distributors) they rely on in their supply chains and the degree to which child or forced labour is used by these organizations. If an organization wishes to conduct an independent audit, they will need to account for the time to select an auditor and have the process completed.

If an organization discovers that it directly or indirectly relies on forced or child labour, it may take time to respond to such information by discussing these practices with a supplier, cancelling a supplier contract and/or finding a new supplier. Organizations will need to act quickly if they want to take these steps before their first report is due.

Even if an organization is not currently subject to the Act, these risks and issues should be considered as part of your broader ESG strategy.

MLT Aikins can assist

Our MLT Aikins ESG practice group can assist you in your supply chain review and in implementing measures to address supply chain risks. Our team can help you with:

  1. Conducting a risk assessment to identify parts of your business and supply chains that carry risk of forced labour or child labour;
  2. Creating and implementing policies to ensure your employees and suppliers are aware of their obligations to reduce the risk of forced and child labour, such as procurement policies and supplier codes of conduct;
  3. Reviewing and revising supply chain contracts to proactively address risk through supplier representations and warranties, ensuring terms speak to compliance with company policy, appropriate termination language, etc.
  4. Training directors and officers on the Act to support their ability to meet reporting obligations; and
  5. Advising on how to meet ESG reporting and compliance obligations under the Act, including development of the Supply Chain Risk Report.

Contact a member of our team today if you have questions about how the Act may affect your organization and how to ensure you’re meeting your compliance obligations.

Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.