Canadian Businesses Should Prepare for New Mandatory Reporting on Supply Chains and Forced Labour

Canadian Businesses Should Prepare for New Mandatory Reporting on Supply Chains and Forced Labour

Parliament is close to finalizing a new law that requires businesses to report annually on their supply chains and on forced labour.

Because of the new law, private-sector entities as well as government institutions will be required to file public reports on measures they have taken to prevent and reduce the risk of forced labour or child labour in their supply chains. The bill in question, S-211, Fighting Against Forced Labour and Child Labour in Supply Chains Act (the “Bill”) has moved to its final stage in the House of Commons[1] and is expected to come into effect on January 1, 2024 with a first report due in May 2024.

We first discuss to whom the reporting obligation applies. We then summarize what must be included in these reports and who must approve them, and discuss the penalties for failing to file. Finally, we discuss other obligations and prohibitions contained in the Bill, including a broadening import ban on goods made from child labour.

Reporting Obligation Applies to Large Swath of Canadian Businesses

The Bill does not limit the reporting requirement to any industry sectors. The obligation to file annual reports applies to any entity that is:

1. producing, selling or distributing goods in Canada or elsewhere;
2. importing into Canada goods produced outside Canada; or
3. controlling an entity engaged in such activities.

Entities include corporations or trusts, partnerships or other unincorporated organizations, where one of the following thresholds is met:

1.  It is listed on a stock exchange in Canada, or

2.  It has a place of business in Canada, does business in Canada or has assets in Canada, and based on its consolidated financial statements, meets at least two of the following conditions:

1. $20 million in assets.
2. $40 million in revenue.
3. an average of 250 employees or more.

3. It meets other thresholds prescribed by regulations (no such regulations yet exist).

As a result, even non-resident companies may be required to file and make public an annual report. For example, privately held foreign businesses that do business in Canada and meet the size thresholds must file and make public an annual report if they produce, sell or distribute goods anywhere or where they import goods into Canada. Control of a Canadian entity that meets these thresholds could separately trigger the reporting obligation for non-residents.

In addition, the reference to consolidated financial statements is noteworthy, as it vastly increases the number of entities that must report.

Contents of the Report

Importantly, the Bill does not impose a standard of care on companies or otherwise require them to take any specific measures to avoid or remediate forced labour or child labour. Instead, companies must report on their processes and on any actions they are taking. Given that the reports must be filed with the government and published prominently on the company’s website, the Bill effectively creates a “name and shame” transparency regime.

The annual report must cover:

• any steps taken during the previous financial year to prevent and reduce the risk that forced labour or child labour is used i) in the production of goods in Canada or elsewhere by the entity or ii) of goods imported into Canada by the entity.
• the entity’s structure, activities and supply chains;
• any policies and due diligence processes relating to forced and child labour;
• any parts of the business and supply chains that carry a risk of forced or child labour and steps taken to address and manage such risk;
• any measures to remediate forced or child labour;
• any training provided to employees on forced or child labour; and
• how the entity assesses its effectiveness in ensuring that forced or child labour are not being used in its business and supply chains.

There is currently no specific form or template for the report, though the Bill specifically contemplates that the form may be provided by the Minister following the Bill’s passage.

Board Approval and Offences

Reports must be approved by the reporting company’s governing body (typically its board of directors).[2] In the case of joint reports filed on behalf of a group of reporting entities, the report must be approved by either the governing body of each entity or by any governing body that controls each entity included in the report.

Penalties of up to $250,000 are applicable for failing to file a report or otherwise issuing a false report.

Directors and officers should be aware that the Bill creates personal liability for directors and officers that direct, authorize, assent to, acquiesce in or participate in any offence.

Reporting entities may wish to consider this new reporting obligation in the context of their broader ethics and ESG mandates. Companies may also consider further improving their supply chain due diligence and monitoring procedures in advance of the anticipated first reporting date in May 2024.

Canadian businesses should be aware of other parallel developments arising from the Government of Canada’s approach to forced labour enforcement. For instance, suppliers of goods to the federal government should be aware that Canada has introduced procurement contract clauses that permit the Government of Canada to terminate a contract if a good has been produced in whole or in part by forced labour (see our previous bulletin here).

The Bill Also Creates a New Import Prohibition on Goods Made of Child Labour

Separately and aside from the new reporting obligation, the Bill expands on Canada’s existing prohibition on the import of goods made from forced labour. It does so by adding goods made of child labour to the import prohibition. The Bill also includes a definition of child labour.

The prohibition on goods made of forced labour was originally brought into effect on July 1, 2020, after the ratification of Canada-United States-Mexico Agreement Implementation Act.[3]

The Bill may have the unintended effect of rendering difficult any enforcement of the import ban. This is because its definitions do not overlap completely with the forms of child labour laid out by the International Labour Organization (“ILO”). Specifically, the Bill broadens the definition of “child labour” beyond that laid out in the ILO Minimum Age Convention, 1973 (No. 138). In addition, the Bill may affect enterprises who, through their supply chains, employ 15, 16 and 17 year olds even where that employment is not otherwise offside the ILO conventions. Canadian importers should fully understand the additional requirements imposed by the Bill and be aware of possible inconsistencies between the Bill’s definition of child labour and those definitions laid out in international conventions.

McMillan’s International Trade group continues to monitor developments relating to the Bill and to Canada’s continued enforcement of the forced labour prohibitions and is available to help businesses understand their risks and obligations.

[1] Parliament of Canada, Debates (Hansard), 44th parl, 1st sess, no. 164 (Monday, March 6, 2023), online.
[2] Defined in the Act as the “body or group of members of the entity with primary responsibility for the governance of the entity.”
[3] Canada-United States-Mexico Agreement Implementation Act, SC 2020, c. 1.

by William Pellerin, Hannibal El-Mohtar, Tayler Farrell

A Cautionary Note

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2023