Written By Jessica Horwitz, Sabrina A. Bandali, Sharon Singh, Laurie Wright and Ethan Gordon
After several stalled efforts in recent years (see previous Bennett Jones blog posts on Bill C-423 and Bill S-216), Parliament is poised to pass a supply chain transparency law aimed at preventing and reducing the risk of forced labour and child labour in supply chains. Private members 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", is expected to pass third reading in the House of Commons shortly and will have immediate implications for Canadian business and importers.
Bill S-211 proposes to introduce a public reporting regime that will require many government institutions and private sector entities to submit a public annual report explaining the steps they have taken in the previous fiscal year to prevent and reduce the risk that forced labour and 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. Private sector entity reports would be filed with the Minister of Public Safety and Emergency Preparedness on or before May 31 of each year. This means that if the Bill passes and receives Royal Assent in 2023, the first reports due in May 2024 must address steps government institutions and companies are taking this fiscal year to address these risks.
The passage of Bill S-211 would create a further compliance imperative in the form of public and stakeholder scrutiny of the forced labour track records of Canadian government institutions and private sector businesses to enhance their due diligence and proactively identify and eliminate forced labour in its supply chains. The idea is that over time, this increased compliance attention will discourage upstream suppliers from engaging in such practices if they want to continue supplying goods to the Canadian market.
Who Will Have Reporting Obligations?
Reporting entities include all Canadian federal government institutions and departments, Crown corporations and their wholly-owned subsidiaries, as well as any other private sector "entity" that is:
- producing, selling or distributing goods in Canada or elsewhere;
- importing into Canada goods produced outside Canada; or
- controlling an entity engaged in any activity described in paragraph (a) or (b), with control defined broadly as any direct or indirect control or common control "in any manner".
An "entity" is defined as a corporation or a trust, partnership or other unincorporated organization that:
- is listed on a stock exchange in Canada;
- has a place of business in Canada, does business in Canada or has assets in Canada and that, based on its consolidated financial statements, meets at least two of the following conditions for at least one of its two most recent financial years:
- it has at least C$20 million in assets,
- it has generated at least C$40 million in revenue, and
- it employs an average of at least 250 employees;
- is otherwise prescribed by regulations, which have yet to be enacted.
Subject to further regulation or guidance that the government may issue once the Bill is passed, control of a Canadian "entity" that meets these thresholds could trigger a reporting obligation for non-residents. A corporate group that has multiple entities with a reporting obligation can file a single joint report on behalf of the group. A similar definition of "entity" is contained in the Extractive Sector Transparency Measures Act, which may provide useful guidance on the scope of covered entities.
The fact that Bill S-211 also extends reporting requirements to government institutions in addition to private sector entities is a notable departure from previous proposed legislation. A "government institution" for reporting purposes includes any Canadian federal government department or ministry of state, or any body or office listed in Schedule I of the Access to Information Act, and any parent Crown corporation or wholly-owned subsidiary of such a corporation within the meaning of section 83 of the Financial Administration Act.
What Information Needs to Be Reported?
The private sector annual reports, which must be approved by the reporting entity's governing body (board of directors or similar), must include the following information in respect of each entity subject to the report:
- the entity's 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.
The reporting obligations for government institutions include similar content requirements.
The Bill does not prescribe the specific measures that a company must take to remediate forced labour or child labour in its supply chains. Presumably, reporting entities will retain discretion over the design and implementation of compliance systems appropriate to their operations. However, it is possible that the Canadian government will develop more detailed guidance regarding expectations for minimum standards due diligence, or introduce more specific legal requirements by way of regulation, after proposed legislation enters into force.
When Will the Reporting Requirements Take Effect?
The bill provides that the Fighting Against Forced Labour and Child Labour in Supply Chains Act will enter into force on January 1 of the year following the year in which it receives Royal Assent. This means that if the law receives Royal Assent in 2023, it will enter into force on January 1, 2024, and the first report deadline for reporting entities will be May 31, 2024.
Bill S-211 was passed by the Senate on April 28, 2022, and proceeded through first and second reading in the House of Commons, sponsored by Liberal Member of Parliament John McKay, who previously introduced similar legislation in 2018. The Standing Committee on Foreign Affairs and International Development completed its review on November 30, 2022, without recommending any amendments. Next, the bill will go through report stage and third reading in the House of Commons and, if adopted, get Royal Assent to become law.
The House reconvened after the Christmas recess on Monday, January 30, 2023. Given where Bill S-211 currently sits on the order of precedence for private members' business, it will likely be several weeks until the House considers the Committee Report and proceeds to third reading of the bill. However, the bill has wide support among both government and opposition Members of Parliament and consequently is expected to pass in the first quarter of 2023.
This will give the Minister of Public Safety and Emergency Preparedness approximately a year to set up the online public reporting registry, establish the form and manner of reporting, and issue any guidelines for business in anticipation of the first May 31 reporting deadline.
Other Elements of Bill S-211
In addition to the public reporting requirement, Bill S-211 also includes a number of other amendments to clarify and expand the scope of existing forced labour laws:
- It extends the import ban under Canada's Customs Tariff to goods that are "mined, manufactured or produced wholly or in part" with "child labour" in addition to goods produced with "forced labour" and "prison labour" which are already prohibited.
- It codifies a Canadian definition of both "child labour" and "forced labour", adopting the definitions from Article 3 of the International Labour Organization (ILO) Worst Forms of Child Labour Convention, 1999 and Article 2 of the ILO Forced Labour Convention, 1930 respectively.
- It introduces a definition of "production of goods" meaning "the manufacturing, growing, extracting and processing of goods."
- It gives new enforcement powers to the Minister of Public Safety and Emergency Preparedness, including powers of search, inspection and seizure of documents and evidence.
- Importantly, Bill S-211 also creates personal liability for directors and officers, among others, who direct, authorize, assent to, acquiesce in or participate in an offence under the proposed act.
"Child labour" is defined as labour or services provided or offered to be provided by persons under the age of 18 years and that:
- are provided or offered to be provided in Canada under circumstances that are contrary to the laws applicable in Canada;
- are provided or offered to be provided under circumstances that are mentally, physically, socially or morally dangerous to them;
- interfere with their schooling by depriving them of the opportunity to attend school, obliging them to leave school prematurely or requiring them to attempt to combine school attendance with excessively long and heavy work; or
- constitute the worst forms of child labour as defined in article 3 of the ILO Worst Forms of Child Labour Convention, 1999.
"Forced labour" is defined a labour or service provided or offered to be provided by a person under circumstances that:
- could reasonably be expected to cause the person to believe their safety or the safety of a person known to them would be threatened if they failed to provide or offer to provide the labour or service; or
- constitute forced or compulsory labour as defined in article 2 of the ILO Forced Labour Convention, 1930.
Entities or individuals who fail to comply with the obligations under the Fighting Against Forced Labour and Child Labour in Supply Chains Act or make false or misleading statements, or provides false or misleading information to the Minister (e.g., in an annual report) will be subject to summary conviction with fines up to $250,000.
Supply chain transparency should be a vital part of any company's ESG framework. Companies should ensure that the proper governance structures are in place to identify and mitigate risks, including with respect to forced labour and child labour. Companies that meet the reporting entity thresholds described above should review their supply chain due diligence and monitoring practices now, in anticipation of the reporting requirements expected to begin in May 2024. There are a variety of practical strategies that companies can take to prevent and mitigate the risk of forced labour and child labour in their supply chains contact a member of the Bennett Jones International Trade & Investment or ESG practice groups to discuss methods to implement robust governance measures and risk mitigation strategies to prevent and combat forced labour and child labour in your supply chains.