Global M&A trends and risks
Powerful new forces shaping in the M&A landscape
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Global | Publication | June 15, 2020 - 11 AM ET
Bill S-211, An Act to enact the Modern Slavery Act and to amend the Customs Tariff (the Bill), was introduced in the Senate on February 5, 2020: https://www.parl.ca/DocumentViewer/en/43-1/bill/S-211/first-reading. The Bill aims to solidify Canada’s international commitment to combat modern slavery by imposing supply chain reporting obligations on all businesses that meet certain criteria and that rely on human labour for their goods production. While the onset of the COVID-19 pandemic in March eclipsed the Bill (as it did so many other things), global supply chain disruptions caused by the pandemic increased the risk of supply chains being tainted by child labour and forced labour, the areas of concern addressed by the Bill. The Bill overlaps significantly with Bill C-423, the Private Member’s bill that died before the fall 2019 elections.
The Bill’s introduction coincided with the judgment of the Supreme Court of Canada in Nevsun Resources Ltd. v Araya et al., released on February 28, 2020.1 In that case, a majority of the Supreme Court decided that Eritrean plaintiffs alleging forced labour (among other wrongs) at a mine in Eritrea against a Canadian mining company could sue the company in Canada, dismissing the company’s motion to strike the action. Both the Supreme Court judgment and the Bill are reflections of Canadian law’s increasing cognizance of the intersection between international business activities and human rights issues.
Unlike its British and Australian counterparts, the Bill does not provide a definition for the term “modern slavery.” Instead, it covers child labour and forced labour. Child labour is defined as labour by a person under the age of 18 years in circumstances that are contrary to the laws applicable to persons under the age of 18 in Canada. Forced labour is defined as labour provided in circumstances that could reasonably cause someone to believe that if they refused to perform the labour, their safety or the safety of someone known to them would be at risk. Other forms of modern slavery, like debt servitude or human trafficking, are not captured under the Bill. Nor does the Bill cover other human rights abuses, as is the case with legislation in some other jurisdictions.2
The Bill will apply to any entity that produces or sells goods, or imports goods into Canada, or controls an entity that does one of those things.3 Businesses that provide services exclusively will not be subject to the Bill’s application. An “entity” is any business that is listed on a Canadian stock exchange, or has a connection to Canada4 and meets at least two of the following conditions:
Regulations may also expand the scope of what qualifies as an “entity.” Similarly, the definition of “control” is very broad: an entity is controlled by another entity if that entity controls it in any matter, whether directly or indirectly. If an entity is said to control another entity, it will be automatically deemed to control all subsidiaries of that entity, as well as any subsidiaries of those subsidiaries. This gives the Bill significant reach, meaning liability will be able to flow through complex corporate structuring.
The Bill requires entities to provide the Minister of Public Safety and Emergency Preparedness (the Minister) with an annual report outlining any actions taken throughout the previous financial year to prevent and reduce the risk of forced labour being used in their supply chains. Entities subject to the Bill must also make their annual reports publicly available on their website.
The report must include information about the entity’s structure and the goods that it produces or imports into Canada; its policies in relation to forced and child labour; any activities it participates in that carry a risk of forced 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; and the training provided to employees on forced labour and child labour. A director or officer will be required to attest to the truthfulness, accuracy and completeness of any information in the report.
Given the public nature of the report, businesses should be alive to changes that may need to be made to their operations in order to manage any potential reputational risk. Businesses should take the time now to consider what kind of training they might offer employees and downstream suppliers as well as what sort of formal policies against modern slavery they can effectively implement.
The Bill provides far-reaching investigative powers to persons designated by the Minister. If, upon investigation, it is determined that a business is not in compliance with the legislation, the Minister may order that entity to take any measures that the Minister deems necessary to bring it into compliance. The Bill has a punitive aspect as well: any entity found guilty of an offence is liable to a fine of up to $250,000 per offence. Any officer, director or agent of any entity that commits an offence under the legislation may also be personally fined if they had any role in directing, authorizing or participating in the business’ commission of the offence.
The framework set out in the Bill is similar to legislation that is currently in force in the United Kingdom and Australia. However, the import ban introduced by the Bill is an important difference that sets Canada’s draft legislation apart. Possibly inspired by long-standing U.S. trade law, which prohibits the importation of goods made by forced labour,5 this provision will wholly exclude goods manufactured by forced labour or child labour.
In certain respects, the Bill has a more narrow application than the U.K.’s Modern Slavery Act (2015) and Australia’s Modern Slavery Act (2018). The U.K. and Australian legislation extend reporting obligations to businesses that provide services, and also capture human trafficking within their definitions of modern slavery, whereas the Canadian Bill is limited to forced and child labour.
It is not yet clear what role, if any, the newly created Canadian Ombudsperson for Responsible Enterprise (the CORE) might play under the regime to be created by the Bill. The CORE is an independent and non-partisan body which reports to the federal Minister of Small Business, Export Promotion, and International Trade. It receives and reviews claims of alleged human rights abuses arising from the operations of Canadian companies abroad in the mining, oil and gas, and garment sectors. Although operating independently of one another, there is obviously an affinity between the regime created by the Bill and the CORE’s mandate.
Canadian businesses would be well advised to proactively assess any risk in their own global supply chain and ensure that they understand all aspects of any subsidiaries’ production processes as well. Directors, officers and other individuals working in executive positions should be especially mindful of reporting obligations relating to modern slavery given the liability that they could be personally exposed to for non-compliance under the Bill.
As Canadian businesses seek to stabilize their global supply chains in coping with the disruptive effects of COVID-19, they should be vigilant about supply chains that might become tainted with child labour or forced labour, itself a situation resulting from measures that foreign governments might take to suspend labour protections as a way of dealing with the pandemic.
Norton Rose Fulbright has extensive experience advising clients on supply chain management, human rights due diligence and policy development and implementation against modern slavery, and our global reach ensures that we can provide guidance on how to ensure compliance with the law even when the operations in question are located in overseas jurisdictions.
Nina Varumo is a freelance portrait and documentary photographer based in Stockholm. A recent project of hers Kvinnor till sjöss (‘Women at sea’) is on ongoing photo series highlighting the working life of female seafarers in order to change the stereotypical image of what and who is a seafarer.
Companies have been publicly reporting on their financial performance for over a hundred years. However, they are increasingly having to make public non-financial disclosures relating to sustainability and environmental, social and governance (ESG) matters as a result of rules, laws and regulations issued by stock exchanges, governments and regulators worldwide.
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