Canada: The Government Of Canada Tackles Forced Labour Worldwide

On November 24, 2021, the Government of Canada introduced 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 "Act"). The Act received Royal Assent on May 11, 2023, and will take effect on January 1, 2024, imposing significant reporting obligations on Canadian businesses and importers. The first report will be required to be filed with the Minister on or before May 31, 2024.

The Act follows the enactment of similar legislation in Australia, France, and Germany and is designed to identify and eliminate the use of both forced and child labour in the products imported and sold in Canadian markets.

Human rights and corporate governance advocates have pushed heavily for governments to enact meaningful legislation to identify and eliminate the use of child and/or forced labour in supply chains. The topic of forced and child labour received a renewed focus after extensive media coverage of the abysmal working conditions suffered by migrant workers imported into Qatar to build the stadiums and infrastructure for the 2022 FIFA World Cup. According to UNICEF, 160 million children were involved in child labour in 2020 and these numbers are on the rise.

Modern legislation enacted to combat child and forced labour practices is one prong of a multi-pronged approach to eliminate these practices.

What are the reporting requirements under the Act?

The Act creates a reporting scheme for all qualifying businesses, requiring them to undertake an analysis of their supply chains and determine where forced and/or child labour may be occurring,

Section 11 of the Act enumerates the topics on which each qualifying business must report in their annual report to be filed with the Minister of Public Safety and Emergency Preparedness on or before May 31 of each year (the "Annual Report"). The Annual Report must include:

Additionally, the Annual Report must include the following information for each entity:

1. its structure, activities and supply chains;
2. its policies and due diligence processes in relation to forced labor and child labour;
3. the parts of its activities 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;
4. any measures taken to remediate any forced labour or child labour;
5. 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;
6. the training provided to employees on forced labour and child labour; and
7. how the entity assesses its effectiveness in ensuring that forced labour and child labour are not being used in its business and supply chains.

Who will be required to comply?

When enacted, the Act will introduce strict new reporting requirements on Canadian businesses which undertake any of the following three activities and meet the qualifying criteria set out below.

Activities

1. Producing, selling or distributing goods in Canada or elsewhere, where "production of goods" is defined as the "manufacturing, growing, extracting and processing of goods";
2. Importing goods produced outside Canada into Canada; or
3. Controlling an entity engaged in any of the foregoing activities, where "control" is defined as any direct or indirect control or common control in any manner. Therefore, a parent company that controls one or more subsidiaries, as prescribed by the Act, will be required to report on the activities of these subsidiaries.

Qualifying Criteria

1. The business is listed on a stock exchange in Canada;
2. The business has a place of business in Canada, does business in Canada or has assets in Canada and that, based on its consolidated financial statements, meets at least two of the following conditions for at least one of its two most recent financial years:
   1. it has at least $20million in assets,
   2. it has generated at least $40million in revenue, and
   3. it employs an average of at least250employees; or
3. The business is prescribed by regulations.

The reporting requirements will also apply to the following government institutions:

1. any Canadian federal government department or ministry of state;
   
2. any body or office listed in Schedule 1 of theAccess to Information Act;and
   
3. any parent Crown corporation or wholly-owned subsidiary of such a corporation within the meaning of section 82 of theFinancial Administration Act.

The Act requires that the Annual Report be approved by each entity's governing body (i.e. board of directors), and in the case of corporations incorporated under the Canada Business Corporations Act, the entitymust also provide the Annual Report to its shareholders. Organizations subject to the Act are also required to make the Annual Report publicly available, including on their website.

Enforcement Mechanisms

Every person or entity that fails to comply with the reporting regimesubsection will be guilty of an offence punishable on summary conviction and liable to a fine of not more than $250,000.

Not only can this fine be imposed on a non-compliant business organization, but also on the directors and officers of that organization, as well as other agents who direct, authorize, assent to acquiesce in or participate in the commission of an offence.

How to Comply with the Act

Canadian businesses which fall under the reporting requirements must leverage their internal control and reporting frameworks to implement processes to identify and analyze potential areas of concern within their supply chains, by implementing the following strategies:

1. Perform a Risk Assessment: Leverage existing risk assessment processes to identify key points in the supply chain and sourcing cycle. Understand how the supply chain cycle occurs and identify any key control already operating around new and existing supplier engagement. Narrow down where the key risks are present and perform procedures to ensure that no child and/or forced labour may be occurring within those key risk areas.
2. Develop Robust Processes and Documentation: Where key control processes do not already exist, develop business processes for identifying and reviewing supply chain risk specific to forced and/or child labour. Create effective documentation and testing processes to ensure that all new and existing suppliers are subjected to effective review and approval before implementation. Build the development and execution of the Annual Report into a well-documented key control process.&nnbsp;
3. Utilize Existing Internal Audit and Reporting Units: Regular and routine testing of the process implemented to identify and mitigate any inherent risk associated with the Act should be performed by any existing internal audit, or compliance functions. Any gaps or deficiencies in control should be rectified immediately with a corresponding investigation of any risk not sufficiently mitigated.
4. Implementing Supplier Code of Conduct: Consider requiring all suppliers enter into a "supplier code of conduct" which enumerates both parties' commitments to eliminating forced and/or child labour. Ensure that your suppliers have their own control processes and procedures in place to identify and mitigate all risk inherent to forced labour practices.
5. Effective Training on Supply Chain Management: Ensure that effective learning and development programs are implemented entity-wide. Ensure that key employees are aware of the relevant provisions of the Act and have the skills, knowledge and resources available to identify any risk, mitigate that risk, and report to senior management any concerns they may encounter within their roles and responsibilities.

Conclusion

The introduction of the Act represents a meaningful step forward in the Canadian government's commitment to battling forced and child labour. In preparation for the first Annual Report due date those entities who will fall under the purview of the Act must take meaningful steps to prepare their businesses for the new obligations imposed upon them. Taking early action to perform the necessary risk assessment procedures, identifying potential areas of concern, and developing a process to complete the required reporting will be essential to being to comply with such new obligations. Complying with the provisions of the Act may seem burdensome at the outset, but through early implementation of a robust control process, subject entities can effectively mitigate their risk and streamline their reporting requirements into the future.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.