Many businesses and organizations in Canada must now closely examine their supply chain and prepare for new reporting obligations to comply with new rules under Canada’s Fighting Against Forced Labour and Child Labour in Supply Chains Act (commonly known as the Modern Slavery Act or the Supply Chains Act) (the Act).
Under these rules, affected entities must report on their efforts to mitigate the use of forced and child labour at any point within their supply chains. Failure to do so may result in consequences that could include hefty financial penalties, criminal prosecution, and reputational damage.
As these rules are new and complex, it’s important to consider how confident you are in verifying each segment of your business’ supply chain. Our advisors can help you navigate the requirements of the Act and avoid severe repercussions for non-compliance.
The Act became law when Bill S-211 received Royal Assent on May 11, 2023, and came into force on January 1, 2024. Affected entities are required to file their report on or before May 31 annually, covering the entity’s previous financial year, with the first report due May 31, 2024.
Is your business an affected entity?
Certain corporations, partnerships, trusts, and unincorporated organizations will have annual reporting obligations under the new rules. Specifically, entities have reporting requirements under the Act if they produce, sell, or distribute goods (in Canada or elsewhere), import goods into Canada, or control (directly or indirectly) another entity involved in any of these activities and either:
- have a place of business in Canada, assets in Canada, or do business in Canada and meet at least two of the following criteria in one of the past two fiscal years:
- $20 million or more in assets;
- $40 million or more in revenue;
- 250 employees or more (on average); or
- are listed on a Canadian stock exchange.
These thresholds are assessed on a consolidated basis in Canadian dollars. The size-related thresholds refer to total (global) assets, revenue, and employees. When business entities in a group meet the above criteria, the reporting requirements extend to each of these entities; however, the federal government has stated that “very minor dealings” may be excluded. The government has also clarified that, to determine whether an organization “imports goods into Canada”, it would look at the importer of record on customs documents.
Reporting obligations also apply to federal government institutions that produce, purchase, or distribute goods in Canada or elsewhere, regardless of their size.
Are you in scope?
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How do the rules apply to affected entities?
Affected entities must complete a mandatory questionnaire, develop an annual supply chain risk report, and submit both to the Minister of Public Safety and Emergency Preparedness by May 31, 2024, among other requirements. The report must also be published prominently on the entity’s website. This report, which must be approved by the entity’s governing body (i.e., board of directors), should contain responses that are consistent with the questionnaire and will address efforts to prevent or reduce the risk of forced and child labour in the supply chain, as well as outline policies, employee training programs, and other steps taken to reduce the risk of forced and child labour, among other details.
The report must also include information about the entity’s:
- structure, activities, and supply chains;
- policies and due diligence processes in relation to forced, and child labour;
- parts of its business and supply chains that carry a risk of forced or child labour, and the steps taken to assess and manage that risk;
- measures taken to remediate any forced labour or child labour;
- measures taken to remediate the loss of income to the most vulnerable families that are affected by the elimination of forced or child labour in its activities and supply chains;
- training provided to employees on forced and child labour; and
- methods for assessing its effectiveness in ensuring that forced and child labour aren’t being used in its business and supply chains.
Entities can provide additional support to supplement responses and can provide links to publicly available information that details their action plan, policy, or related reports.
An affected entity that fails to comply with these new rules could face penalties up to $250,000. In addition, individuals such as directors and officers of affected entities, could also be subject to fines and criminal prosecution.
Further guidance and resources on complying with the Act, released in December 2023, are available on the Public Safety Canada website.
Of note, the guidance acknowledges that: “No sectors or industries involving the production, sale, distribution, or importation of goods are assumed to be entirely free of forced labour and child labour risks. The purpose of reporting is not to certify that an entity is “risk-free,” but rather to demonstrate that the entity has taken steps to identify and address risks. The reporting exercise is intended to encourage transparency, not to penalize entities for having identified risks in their activities and supply chains.”
How we can help
These new rules present an opportunity for all organizations to bring transparency to their supply chain, even if they aren’t affected by reporting requirements. Our team can help you:
- Perform supply chain mapping and enhanced due diligence to identify potential risks
- Determine current business practices that you may have in place to reduce your risk of forced or child labour, identify gaps related to compliance with this legislation and help you to develop practical action plans to address those gaps
- Introduce an anonymous whistleblower hotline within your organization for employees and suppliers
- Provide training and education to boards and employees on the legislation and its reporting requirements
- Support the completion of the mandatory questionnaire and the development of your report
Takeaway
Even if your business isn’t required to comply, these rules present an opportunity for all businesses to demonstrate their position on human rights and leadership in corporate responsibility, and help your clients and stakeholders verify the integrity of their supply chains. Navigating these requirements can be complex—but we’re here to help. Canadian businesses, government institutions, and importers should prepare now for these changes and bolster their processes to avoid disruption of shipments into Canada and significant repercussions for non-compliance.
Contact your local advisor or reach out to us here.
