Despite roadblocks arising from several interruptions to Parliament over the last few years, Canada continues to revive its draft business and human rights (BHR) legislation to fulfill its commitment to fight against modern slavery in supply chains.1
The most recent draft legislation was introduced to the Senate on November 24, 2021. The new 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 (the Bill) passed its second reading on and was referred to the Standing Senate Committee on Human Rights.2 Like its predecessors, the Bill’s major purpose is to serve as a tool for transparency by imposing supply chain reporting requirements on Canadian government institutions and businesses that meet certain criteria.
Key changes in the new Bill
Although the Bill is largely the same as its predecessor Bill S-216, some key changes include:
- an expanded definition of “child labour”;
- new definitions for “governing body” and “government institution,” and separate but similar reporting requirements for government institutions and private entities;
- an expanded application of the reporting obligations that now apply to government institutions in addition to private-sector entities;
- the supplementary information that must be submitted with each annual report is broader and must include information regarding diligence processes relating to forced and child labour;
- annual reports must be approved by the entity’s governing body;
- private entities can now submit single or joint reports for related entities; and
- federally regulated corporations must provide the annual report to each shareholder together with their annual financial statements.
Will the Bill apply to your business?
The Bill will apply to any Canadian-linked “entity” that produces, sells, or distributes goods anywhere in the world, imports goods into Canada, or controls an entity engaged in any of these activities. Notably, this iteration of the Bill also applies to wholesalers. An “entity” within the meaning of the Bill is a business listed on a Canadian stock exchange or has a connection to Canada3 and meets at least two of the following three conditions for at least one of its two most recent financial years:
- the entity has at least $20 million in assets;
- the entity has generated at least $40 million in revenue; or
- the entity employs an average of at least 250 employees.
The meaning of an “entity” may also be prescribed by regulations. The broad definition of “control” remains the same: an entity controls another entity if it directly or indirectly controls that entity in any manner. An entity that controls another entity is automatically deemed to control all related subsidiaries.
The Bill’s reporting requirements now also apply to Canadian “government institutions” that produce, purchase, or distribute goods anywhere in the world. The meaning of “government institution” is taken from the federal Access to Information Act.4 Adding government institutions was largely the result of COVID-19 as the federal government also risks sourcing medical supplies and other products made with forced labour such as masks and gloves.5
What will you need to report?
The Bill’s reporting requirements are largely the same for both government institutions and entities. Like the previous draft bills, the Bill requires government institutions and private entities to provide the minister of public safety and emergency preparedness (the Minister) with an annual report outlining the steps taken during the previous financial year to prevent and reduce the risk that forced labour or child labour is being used at any step in their respective supply chains. All reports must be publicly available in a prominent place on the relevant entity’s website.
The report must now also include information about the government institution or private entity’s structure, activities and supply chains; its diligence processes for forced and child labour; and any information regarding how the government institution or private entity assesses its effectiveness in preventing forced and child labour in its activities and supply chains.
For a private entity, the report must be approved by its governing body and such approval must be evidenced with an attestation statement and a signature by one or more members of the governing body.
How will the Bill be enforced?
The Bill’s enforcement mechanism and established offences have not changed since the previous iteration. The Bill continues to provide for far-reaching investigative powers to persons designated by the Minister. The Minister may order an entity to take any necessary measures where lack of compliance with the legislation is found.
An entity found guilty of an offence under the Bill is liable for a fine of up to $250,000 per offence. The Bill continues to provide for director, officer, and agent liability where such individuals directed, authorized, assented to, acquiesced in or participated in the commission of the offence.
How does Canada compare internationally?
The Bill’s framework is similar to modern slavery legislation already in force in California,6 Australia,7 and the United Kingdom,8 all of which establish reporting obligations for certain types of entities. However, the Bill’s disclosure regime is distinct from legislation in countries such as France,9 Germany,10 and the Netherlands11 where a mandatory due diligence approach has been adopted such that entities have a duty to prevent human rights violations in their supply chains. While the Bill does not set a diligence standard, the broadened reporting requirements, which now include information about an entity’s diligence processes, are likely to have the effect of ensuring some level of diligence is being conducted.
The Bill is narrower in scope as it focuses exclusively on forced and child labour and does not capture human trafficking and exploitation within the meaning of modern slavery as other jurisdictions, such as the United Kingdom, do.
In contrast to other jurisdictions, the Bill imposes significantly harsher penalties for lack of compliance. More expansive BHR legislation may be on the horizon in Canada in light of the prime minister’s recent mandate letter to the minister of labour addressing the government’s commitment to not only eradicate forced labour from Canadian supply chains but also ensure Canadian businesses do not contribute to human rights abuses abroad.12
The Customs Tariff currently prohibits importing goods that are “mined, manufactured or produced wholly or in part by forced labour.” Like Bill S-216, the Bill proposes to add “child labour”13 to the current prohibition on “forced labour” and also incorporate the Bill’s definitions of “forced labour” and “child labour.”
CORE’s study on child labour in Canadian garment industry supply chains
In addition to the Bill’s introduction in December 2021, the Canadian Ombudsperson for Responsible Enterprise (CORE) announced the launch of its first study that will review the possible use of child labour in the supply chains of Canadian garment companies abroad.14 The study will commence in 2022 and focus on such companies’ progress in establishing BHR due diligence processes.
The CORE is an impartial body that operates at arms length from the federal government and has a mandate to review human rights complaints arising from conduct by Canadian companies abroad in the mining, oil and gas and garment sectors. Our previous article about the establishment of the CORE and its mandate can be found here. The launch of the CORE study on child labour, in parallel to the Bill’s introduction, indicates there will be heightened focus on modern slavery in Canadian supply chains in 2022.
As Canada moves closer to enacting its own modern slavery legislation, Canadian businesses would be well advised to proactively assess any risk in their own global supply chains and ensure they understand all aspects of any subsidiaries’ production processes as well. In addition, directors, officers and others working in executive positions should be especially mindful of reporting obligations relating to forced and child labour given the risk of significant personal liability for any non-compliance with the Bill.
The Bill continues to receive support from all political parties and Canadian citizens meaning this version of the Bill may become law sooner rather than later.15
The authors wish to thank Elizabeth Kazakov, articling student, for her assistance in preparing this legal update.