January 25, 2024by Israel Foulon LLP
As of January 1, 2024, the federal Fighting Against Forced Labour and Child Labour in Supply Chains Act (the “Act”) has come into force. Under this Act, prescribed businesses (the applicable criteria is set out below) will be required to make annual reports before May 31 of each year (starting this year, i.e. 2024) to detail the steps the entity has taken to identify, address and prevent forced labour, prison labour and child labour in the business’ supply chain. The Act provides specific definitions of child labour and forced labour, and it also amends the Canadian Customs Tariff to extend the existing ban on importing goods produced with forced labour to also apply to importing goods produced by child labour.
Scope of the Act
The Act’s reporting obligations will apply to any private-sector entity that produces, sells or distributes goods in Canada or elsewhere, that imports goods into Canada, or that controls any entity engaged in producing, selling, distributing or important goods into Canada.
The Act defines “entity” to include all corporations, trusts, partnerships and unincorporated organizations that:
- Are listed on a stock exchange in Canada; or
- Have a place of business in Canada, do business in Canada or have assets in Canada and, based on its consolidated financial statements, have met at least two of the following three conditions in at least one of its last two financial years:
- Had at least $20 million CAD in assets;
- Generated at least $40 million CAD in revnue;
- Employed an average of at least 250 employees; or
- May be prescribed by regulations (no regulations have been drafted).
The reporting obligations under the Act arise based on consolidated financial statements, meaning that the obligations extend to corporate groups that collectively meet the above-noted thresholds even if the corporate groups’ individual constituent corporations may not.
Requirement to Report
Businesses that come under the Act’s definition of “entity” must submit an annual report (the “Report”) to the Minister of Public Safety and Emergency Preparedness (the “Minister”) by May 31 on 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. Entities can submit Reports for themselves, or can be party to joint Reports in respect of more than one entity (e.g. a corporate group can submit a joint Report for all its constituent and subsidiary entities). The Report must be approved by the governing body of the relevant entity, or, in the case of a joint Report, by the governing body of the entity with overall control.
The Report must also be published digitally on the reporting entity’s website in a prominent fashion, and entities incorporated under federal acts and the Canada Business Corporations Act must provide the Report to each shareholder along with annual financial statements. Filed annual reports will be posted on an online registry maintained by the Minister.
Contents of the Report
The Report must contain the following information:
- 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
At this time, the Act does not specify which measures entities are to take to combat forced and/or child labour in their supply chains.
Enforcement of the Act
The Act empowers designated officials to enter and search an entity’s property and remove anything for the purposes of examination in order to allow said officials to verify compliance with the Act. The said officials are empowered to enter any of the entity’s property without a warrant, unless the property is a dwelling house (a residence).
Any entity that fails to submit a Report, fails to make the Report publicly available (which includes publishing it on a prominent place on its website), or fails to provide the Report to shareholders as prescribed is guilty of a summary offence and on conviction liable to a fine of up to $250,000 CAD. Directors and/or officers who direct, authorize, agree to or participate in any of these offences will also be personally liable for this penalty.
Takeaways for Employers
For employers who count as entities under the definition of the Act, the requirements of the Report will essentially require a supply chain audit and/or risk assessment, and the creation and implementation of due diligence procedures in the context of both existing supply chains and prospective future supplier relations. As the Act does not specify a particular procedure or set of measures that entities must follow to create their reports, it will be up to entities to formulate an appropriate procedure unique to their own operations that can then form part of the content of the prescribed Report.
Entities will have to provide clear breakdowns of their supply chains and the risk of forced and/or child labour at different stages of the supply chains based on numerous contextual factors such as the type of industry, its typical products and business practices, the countries suppliers may be based in, and the on-the-ground production standards known to the entity about its external/international suppliers. Entities may need to secure representations of ethical production standards from suppliers where on-the-ground due diligence is not possible, and the entity’s employees will also need to be trained on forced and child labour to be able to conduct meaningful due diligence processes.
Given that this would be the first year of the Act and the first Report required under same, this Report would be a novel endeavour for most employers and would most likely require different procedures from employer to employer depending on the specific structure and nature of the business. Our team would be happy to assist with the development and implementation of a due diligence procedure, supply chain audit, training for employees and the drafting of a compliant Report under the Act, and to respond to any concerns and/or complications that may arise throughout the process.