On May 11, 2023, the Fighting Against Forced Labour and Child Labour in Supply Chains Act, S.C. 2023, c. 9 (the “New Act”) received Royal Assent and became law. Formerly known as Bill S-211, the New Act requires certain companies to file reports on their efforts to combat forced and child labour, the first of which will be due by May 31, 2024. As noted below, the legislation also amends the Customs Tariff to prohibit the importation of goods produced by either forced or child labour – concepts that it defines more broadly than previously.
This article considers the global context of the legislation and the possibility that the New Act will not be Parliament’s last word on what’s often referred to as “modern slavery”.
Supply Chain Reporting Obligations
In brief, the reporting obligations apply to all entities[1] that:
Are either (i) listed on a Canadian stock exchange or (ii) do business, have a place of business or have assets in Canada, and meet a size threshold based on their consolidated financial statements (any two of: $40 million in revenue, $20 million in assets or 250 employees); (iii) and produce, sell or distribute goods in Canada or elsewhere and/or import goods into Canada (or which control any such entity).
The size threshold does not specify that the revenue, assets or employees must be from or in Canada. Thus the obligations might apply to a multinational business even if its Canadian operations do not independently meet the threshold. Note also that the requirement that the entity produce, sell, distribute or import goods has no de minimis exception. In other words, even entities that deal only incidentally with small quantities of goods, or which import goods only for internal or office use rather than dealing in goods commercially, will need to consider whether a report is required.
In terms of substance, the New Act:
Requires a publicly accessible report to be made about each entity’s corporate structure and supply chains, as well as any measures it has taken with respect to forced labour and child labour; adopts definitions of “child labour” and “forced labour” that are broader than those used in International Labour Organization (“ILO”) conventions (more on that below); Includes some special rules for corporate groups, including a provision that allows a single report to be filed on behalf of multiple related entities; includes warrantless search provisions; creates a maximum penalty of $250,000, which can apply to the entity itself or to corporate directors, officers, and other individuals; and will take effect on January 1, 2024, with the first Annual Report due on May 31, 2024.
It is important for entities that are required to report to attend to this issue well in advance of the May 2024 deadline, as understanding how the obligations apply to a particular organization may take some time.
Import Prohibitions
In addition to the reporting requirement, the New Act amends the Customs Tariff – specifically tariff item No. 9897.00.00 – in two important respects. First, it extends the existing prohibition on the importation of goods mined, manufactured or produced wholly or in part by forced labour so that it includes goods mined, manufactured or produced wholly or in part by child labour. Second, it broadens the definitions of the terms “forced labour” and “child labour”.
Specifically, under the general definitions section of the New Act:
The “forced labour” provision includes the traditional definition under the ILO’s Forced Labour Convention, 1930 – essentially, and with certain exceptions, involuntary work exacted from a person under the menace of any penalty – but supplements that definition with an alternative definition that refers to work or services provided by a person who reasonably believes that the person’s safety, or the safety of another person known to him or her, would be threatened if the person did not perform the labour or provide the service. It is not apparent why this addition was necessary, although superficially it appears that it may require less evidence of the involuntariness of the labour or service. The “child labour” provision expands import prohibitions significantly with respect to child labour, which was previously not distinguished from the broader category of “forced labour”. The New Act’s definition incorporates the definition from the ILO’s Worst Forms of Child Labour Convention, 1999, which includes, inter alia, all forms of slavery and similar bondage, the use of children in pornography, prostitution and the illegal drug trade and the recruitment of child soldiers. However, the New Act substantially supplements that definition by including labour or services provided by persons under the age of 18.
Under circumstances that are contrary to the laws applicable in Canada (where the labour or services are provided within Canada); and/or that interfere with schooling by depriving them of the opportunity to attend school, obliging them to leave school prematurely or requiring them to “combine school attendance with excessively long and heavy work”.
These broadened definitions may require businesses that import, distribute, sell, or use imported goods to reassess their risks under the Customs Act, which can include trade compliance verifications by the Canada Border Services Agency (“CBSA”) that could lead, among other things, to the seizure of goods or ascertained forfeitures in lieu of seizure in certain situations. The issuance of penalties under the Administrative Monetary Penalty System (AMPS) could also be used for less serious offences. In all cases, criminal prosecution could be undertaken where warranted.
While the extent of the necessary compliance effort may depend on a situation-specific assessment of the real risk of a violation, in theory all importers of goods (and all users of imported goods) should implement appropriate compliance procedures to identify any potential supply chain risks. The key element would in all cases be to determine where and how the imported goods are mined, manufactured, or produced (as applicable).
Businesses may wish to reassess any contractual safeguards that they have established to allocate these risks among the entities through which imported goods typically pass (importer, distributor, merchant, end user, etc.). In this respect, any entity named as “importer of record” on the Canada Customs Coding Form (B3 Form) should be the first target of verifications and enforcement measures by the CBSA. However, it is noteworthy that even if the imported goods are sold or transferred to third parties in Canada subsequent to their importation, the CBSA would still be authorized to enforce the import prohibition pursuant to the Customs Act.
Global Context of the Legislation
The New Act is part of a worldwide effort to enact “modern slavery” legislation. Such legislation aims to curtail the use of child and forced labour by preventing products made with such labour from entering global supply chains. To date, the legislation that has been introduced internationally has been of one of two types:
Due diligence legislation, under which companies are required to actively investigate their supply chains, with a due diligence defence. This type of legislation, which exists in France and Germany, generally allows for third-party lawsuits against allegedly non-complying entities on human rights grounds. Reporting legislation, under which companies are only required to file public reports on what, if anything, they have done to combat forced labour and child labour in their supply chains, with penalties generally limited to failure to file reports (and no provision for third-party suits).
While “due diligence” legislation sets a higher bar, it is also costly to comply with. Thus, in the jurisdictions that have implemented this type of legislation, it has been limited to very large business enterprises with thousands of employees. According to John McKay, MP for Scarborough-Guildwood and the New Act’s sponsor in the House of Commons, fewer than 100 Canadian companies would be large enough to be required to comply if the French or German standards applied here. Accordingly, the New Act has been framed as broadly applicable “reporting” legislation that will require thousands of Canadian entities to file reports.
At Third Reading, Mr. McKay characterized the philosophy behind the New Act as follows:
“Bill S-211 is a supply chain transparency bill. Companies of a certain size would be expected to examine their supply chains annually and certify that they are free of slave products, or if they are not, what are they going to do about it. Powers would be given to the Minister of Public Safety to examine the filing, and if not satisfied, cause an investigation to be made. We expect that the mere existence of the bill will create a high level of compliance as companies worry about their reputational damage, government investigations, consumer disapproval and increased financial costs for non-compliance and additional financial risk. Keeping it simple is the essence of this bill: examine our supply chains; certify there is no slavery; and if there is, tell us what they are going to do about it.”
Read what future developments this may portend at stikeman.com