Is your supply chain ready for Canada’s modern slavery legislation?

Royal assent was given to the Fighting Against Forced Labour and Child Labour in Supply Chains Act (the Act) in May of 2023. We discussed the contents of the act prior to its coming into force in our previous bulletin.

The Act requires many businesses with connections to Canada, and federal government institutions, to report annually on steps that they have taken to prevent and reduce the risk that forced labour or child labour is being used in their supply chains.

The deadline for the submission and publication of an organization’s first report under the Act is May 31, 2024. Preparation and approval of an accurate report will involve significant work, which would be best started early.

What you need to know

• How to prepare for reporting: If the Act applies to your organization, consider starting the process of gathering information about your current supply chain, reviewing policies and processes to help reduce or eliminate the use of forced labour or child labour, and preparing an accurate report.
• Who is covered under the Act: The Act is far-reaching and will apply to (1) any company listed on a Canadian stock exchange, and (2) any company doing business or holding assets in Canada that meets certain size thresholds—and produces, sells or distributes goods in Canada or elsewhere, or imports goods into Canada. Any federal government institution that produces, purchases or distributes goods in Canada or elsewhere will also be required to submit a report.
• Where to publish the report: A company subject to the Act will be required to report on the steps taken to reduce the risk that forced labour or child labour is used in its supply chains, as well as publish this report on its website and submit it to the Minister of Public Safety and Emergency Preparedness (the Minister) by May 31 of each year. Canada Business Corporations Act (CBCA) corporations and other federally incorporated entities must also provide the report to their shareholders.
• What should be included in the report: The report must include a description of the entity’s supply chains, policies, due diligence processes, training and other steps taken to manage the risk of forced labour and child labour, any measures taken to remediate forced labour and child labour, and an assessment of effectiveness in ensuring that forced labour and child labour are not being used.

Does the reporting obligation apply to you?

A corporation, trust, partnership or other unincorporated organization will have obligations under the Act if it:

1. is listed on a stock exchange in Canada; or
2. has a place of business in Canada, does business in Canada, or has assets in Canada, and meets at least two of the following conditions in one of two of its most recent financial years:
   1. has $20 million in assets;
   2. generated at least $40 million in revenue; or
   3. employs at least 250 people; and
3. if either (1) or (2) are met, conducts any of the following specified activities:
   1. produces, sells or distributes goods in Canada or elsewhere;
   2. imports goods into Canada; or
   3. directly or indirectly controls an entity engaged in (a) or (b).

The Act is, therefore, far-reaching, capturing Canadian and foreign entities doing business in Canada, having assets in Canada, or listed in Canada, as well as entities with a connection to Canada that “control” such an “entity in any manner”¹.

There may, in some instances, be questions as to whether an entity’s business involves the production, sale, distribution or import of “goods” (as opposed to the provision of services). The analysis of that point is a factual and context-specific matter.

Where must the report be submitted, and when?

Entities with a reporting obligation must file a report with the Minister by May 31 of each year and make it available to the public (which, until further regulations are passed or further guidance is published by the Minister, may be done through prominently publishing the report on an entity’s website).

The same requirement applies to federal government institutions as well. Corporations which are federally incorporated (including corporations incorporated pursuant to the CBCA) must provide the report or revised report to each shareholder, along with its annual financial statements.

Reports may be provided jointly or individually for entities which are under common control. The reports must also be approved by the entity’s governing body (such as the board of directors, in the case of a corporation). The controlling entity’s governing body may approve a joint report on behalf of its controlled entities.

What must be included in the report?

Each report must include a description of the steps the entity has taken during its previous financial year to prevent and reduce the risk that forced labour 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. There is no set form of report currently required under the Act. The Act requires the following information in respect of each entity:

• its structure, activities and supply chains;
• its policies and its due diligence processes in relation to forced labour and child labour;
• the parts of its business and supply chains that carry a risk of forced labour or child labour being used and the steps it has taken to assess and manage that risk;
• any measures taken to remediate any forced labour or child labour;
• any measures 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 its activities and supply chains;
• the training provided to employees on forced labour and child labour; and
• how the entity assesses its effectiveness in ensuring that forced labour and child labour are not being used in its business and supply chains.

Getting your organization ready

The report is a publicly available document, and its contents must be accurate. Making misleading statements is an offence under the Act with a fine of up to $250,000 (which can extend to directors and officers). Such a proceeding also carries a reputational risk.

There are a few things any organization can do as the initial reporting deadline approaches.

1. Understand the requirements

Assess whether your organization is an “entity” defined in the Act, and if so, whether it conducts activities that require a report and/or controls another “entity” that conducts activities that require a report. If your organization needs to report, you will need to consider the form of report that you plan to create to satisfy the Act’s requirements.

Given the current lack of regulation or guidance on the form of the report, it may be useful to look at reports from companies in your industry filed in Australia and the United Kingdom under analogous (but not the same) legislation.

2. Gather information

Evaluate your organization’s policies and processes, supplier code of conduct, certifications from suppliers, and contractual representations from suppliers, and the practices the various vendors in your supply chain.

Many organizations discuss their forced labour and child labour prevention already, whether as part of their ESG strategy or in connection with requirements of laws where they operate outside of Canada. Consider whether their reports address the steps that they take in respect of their own organization and their subcontractors and vendors that may form part of your supply chain.

If you have policies or processes in place related to forced labour or child labour, consider whether your agreements with vendors require them to comply.

3. Begin a conversation

Engage internal stakeholders across your organization that have been engaged in policymaking and practices related to forced labour and child labour prevention. In large companies, this may involve engaging teams in other countries that have been engaged in this analysis under local legislation in previous years.

Consider approaching vendors for information on their practices and certification that child labour and forced labour are not being used in the supply chain for your goods.

4. Take additional steps

If your information gathering reveals areas for improvement, think about steps that you can take in the coming months, including potentially:

• new internal policies and procedures;
• additional training requirements;
• additional due diligence, monitoring and assessment requirements for supply agreements and for other potential transactions;
• new language to include in supply agreements and a timeline for integrating that language into existing contracts based on materiality; and
• additional contract governance activities with vendors (ongoing assessments, notification and reporting, establishing points of contact within organizations to assess risks and remediate problems).