On January 1, 2024, the Fighting Against Forced Labour and Child Labour in Supply Chains Act (Canada) (the "Act") will come into force, requiring many Canadian businesses, businesses with connections to Canada, and federal government institutions to disclose their polices relating to the prevention of forced labour or child labour in their supply chains.
- The purpose of the Act is to implement Canada's international commitment to contribute to the fight against forced labour and child labour through the imposition of reporting obligations on certain government institutions and entities producing goods in Canada or elsewhere or importing goods produced outside of Canada.
- The Act requires an entity or government institution to file an annual report (a "Report") with the Minister of Public Safety (the "Minister") no later than May 31 of each year, starting on May 31, 2024.
- The Report must disclose, among other items, the steps taken during its previous financial year to prevent and reduce the risk that forced labour or child labour is used at any step of the production of goods in Canada or elsewhere by the entity or of goods imported into Canada by the entity.
- A Report must be approved by an entity's or government institution's governing body and published in a prominent place on the entity's or government institution's website.
- The Act provides broad investigatory powers to designated persons where verifying compliance with the Act is necessary, and non-compliance may result in a fine up to C$250,000.
Is the Act Applicable to you?
For the purposes of the Act, "entity" is defined as a corporation, trust, partnership, or other unincorporated organization that:
a. is listed on a stock exchange in Canada;
b. 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:
- it has at least $20 million in assets,
- it has generated at least $40 million in revenue, and
- it employs an average of at least 250 employees; or
c. is prescribed by regulations.
The reporting obligations apply to any entity (a) producing, selling or distributing goods in Canada or elsewhere; (b) importing into Canada goods produced outside of Canada; or (c) controlling an entity engaged in any activity described in (a) or (b).
On or prior to May 31 of each year, the Act requires that an entity or government institution submit a Report to the Minister on the steps that the entity or government institution has taken during its previous financial year to prevent and reduce the risk that forced labour or child labour is used at any stage during its production of goods in Canada, production of goods elsewhere, or goods imported into Canada.
The Report must also include the following information about the entity or government institution:
- its structure, activities and supply chains;
- its policies and due diligence processes in relation to forced and child labour;
- the parts of its business (or activities if it's a government institution) and supply chains 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 forced or child labour;
- any measures taken to remediate the loss of income incurred by vulnerable families that results from any measure taken to eliminate the use of forced or child labour from its activities and supply chains;
- the training provided to employees on the subject of forced and child labour; and
- the process for assessing its effectiveness in ensuring that forced and child labour are not being used in its activities and supply chains.
The Report must be approved by the entity's governing body, which is generally the board of directors. Where there is more than one entity, a joint Report may be submitted. The joint Report must be approved by the governing body of each entity included in the report or by the governing body, if any, that controls each entity included in the Report.
Currently, there are no requirements as to the form of the Report. However, in the future the Minister may specify the form requirements in a manner that the Minister considers appropriate. The United Kingdom and Australia have legislation similar to the Act, which may be helpful in establishing the form of the Report.
The head of every entity or government institution must make the Report available to the public, including by publishing it in a prominent place on its website. Additionally, if the entity is incorporated under the Canada Business Corporations Act, or any other federal Act, the Report must be provided to each shareholder, along with its annual financial statements.
After the Report is submitted to the Minister, the Report will also be made available to the public as part of a registry on the Department of Public Safety and Emergency Preparedness.
Designated persons under the Act will be given broad powers, including but not limited to, entering any place where such designated person has reasonable grounds to believe there is anything to which the Act applies or any document relating to the administration of the Act, examining, copying and removing anything from a place for the purposes of verifying compliance with the Act. The Minister may require the entity to take any measures that the Minister considers to be necessary to ensure compliance with the Act.
Every person or entity that fails to provide a Report, fails to assist a designated person to exercise their powers, fails to comply with an order made by the Minister, or obstructs a designated person from exercising their powers, is guilty of an offence punishable on summary conviction and liable to a fine of not more than $250,000.
For prosecution of an offence described above, it is sufficient proof of the offence to establish that it was committed by an employee, agent, or mandatary of the accused, regardless of whether the employee, agent, or mandatary is identified or has been prosecuted for the offence, unless the accused establishes that they exercised due diligence to prevent its commission.
How to Prepare for the May 31 Deadline
If the Act applies to you, consider proactively taking the following steps:
- evaluate and collect information about the company's business activities and supply chain;
- compile or create policies relating to the prevention of forced and child labour (i.e. staff training and measures to remediate forced and child labour);
- design due diligence procedures and perform due diligence on the various elements in your supply chain (i.e. sourcing and procurement, manufacturing, and logistics); and
- implement protections within your contracts when contracting with partners in your supply chain, such as the use of representations, warranties, and covenants.
The May 31 deadline to submit Reports is quickly approaching. It is advised that businesses proactively collaborate with advisors and suppliers to collect supply chain information required for disclosure. Members of our Capital Markets Group at Fogler, Rubinoff LLP would be pleased to discuss how the new disclosure requirements may impact your business.
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.