What Organizations Need to Know About Canada’s New Anti-Forced Labour Supply Chain Law

The Canadian government’s new law addressing modern slavery in supply chains came into force on January 1, 2024. The “Fighting Against Forced Labour and Child Labour in Supply Chains Act” (the “Act”) requires eligible entities and government institutions to prepare reports detailing their efforts to prevent forced or child labour in their supply chains. 

Entities covered by the Act can include:

• Canadian public companies;
• Canadian private businesses; 
• Entities that import goods into Canada; 
• Any governmental department; and 
• Crown corporations and their subsidiaries. 

For the purposes of the Act, the following types of entities must comply with the Act’s guidelines:

1. Organizations listed on a Canadian stock exchange; 
2. Has a place of business in Canada, does business in Canada, has assets in Canada, and has met two of the following conditions in at least one of the last two fiscal years:
   •  $20,000,000 or more in assets 
   • $40,000,000 or more in revenue; and
   • 250 or more employees. 
3. Is prescribed by any additional regulations (the government has not enacted any at this point)

The Act requires that on or before May 31 of each year, government institutions and entities report to the Minister of Public Safety and Emergency Preparedness on the steps taken during the previous financial year to prevent and reduce the risk of using forced or child labour. 

The report must also include information about the government institution’s or entity’s:

1. structure, activities and supply chains; 
2. policies and due diligence processes concerning forced and child labour; 
3. activities and supply chains that carry a risk of forced or child labour being used and the steps it has taken to manage that risk;
4. measures taken to remediate forced or child labour; 
5. any measures taken to remediate the loss of income incurred by the most vulnerable families that result from any measure taken to eliminate the use of forced or child labour from its activities and supply chains; 
6. training provided to employees on forced and child labour; and 
7. its process for assessing its effectiveness in ensuring that the organization does not use forced and child labour in its activities and supply chains.

The Minister must maintain an electronic registry of all submitted reports, which will be available to the public on the Department of Public Safety and Emergency Preparedness website. The Minister also has the discretion to impose specifications on the form and manner in which organizations provide reports. 

Reporting entities that fail to comply with the Act are guilty of an offence punishable on summary conviction and liable to a fine of not more than $250,000, as are persons who knowingly make a false or misleading statement or knowingly provide false or misleading information to the Minister or persons designated by the Minister. Directors, officers, and agents of entities who directed, authorized, assented to, acquiesced in or participated in the commission of an offence under the Act can also be found guilty of the offence and liable on conviction to the same penalties.

Although organizations with material supply chain risk may already engage in diligence and reporting exercises, the Act will likely capture many entities that have not previously considered potential modern slavery issues. With reports under the Act due on or before May 31, 2024, organizational compliance with the Act should be of the utmost importance. Businesses should develop comprehensive programs relating to forced and child labour in their supply chains and should consider known risk factors related to forced and child labour, such as suppliers located in countries with weak rule of law, corruption, and known human rights violations. Organizations should also consider if their suppliers employ vulnerable workers such as migrant workers.

Important Updates

Following up on our February 14, 2024, article regarding the implementation of the “Fighting Against Forced Labour and Child Labour in Supply Chains Act” (the “Act”), the federal government published an Updated Guidance regarding the Act. While the reporting deadline for organizations remains May 31, 2024, there are some key changes organizations should be aware of.

New information regarding which entities are required to report

The Updated Guidance states that a subsidiary must determine if the Act applies to it independently of its parent, rather than relying on the consolidated financial statements belonging to the parent. The subsidiary should evaluate its own financial statement to determine if it falls within the size-related thresholds outlined in the definition of entity. If the definition of entity captures the parent company and the subsidiary, and they both have reporting obligations, they can submit a joint report. Additionally, an organization can use its employment and tax records to determine if it meets the requirements of “doing business in Canada” or having assets in Canada.

Removal of references to selling or distributing in the guidance

In its discussion of the applicability of reporting requirements, the Updated Guidelines no longer references the sale and distribution of goods. However, it’s crucial to note that the Act has not been amended and still includes a reference to entities involved in the sale and distribution of goods as reporting entities. This creates a potential discrepancy between the Updated Guidline and the Act, which could lead to confusion about when a reporting obligation is triggered.

Specific guidance for government institutions

Provincial and municipal governmental institutions are not subject to the reporting requirements under the definition of “government institutions” in the Act. Some provincial Crown corporations, however, may fall under the definition of “entity” and be required to report.

Conclusion

The update to the guidelines provides some helpful clarifications for reporting entities but has also created new ambiguity for some entities. As a reminder, reports under the Act are due by May 31, 2024. If you have any questions on whether your entity falls under the Act and how these reports should be prepared and filed, please reach out to a member of our team.