Modern slavery is increasingly becoming a concern for Canadian businesses with complex supply chains. The International Labour Organization reported that approximately 49.6 million people were in modern slavery in 2021.1 Australia, the United Kingdom and the State of California are just some of the jurisdictions that have introduced legislation in an effort to tackle this issue through mandatory reporting requirements of certain businesses.2 Canada is also taking steps to combat this issue through its Fighting Against Forced Labour and Child Labour in Supply Chains Act ("Canada's Modern Slavery Act" or the "CMSA"), which is now in force, effective January 1, 2024.3 Public Safety Canada ("PSC") recently published guidance on the CMSA requirements (the "Guidelines").4 Please see Miller Thomson's previous article to learn about the Guidelines.
The CMSA amends the Customs Tariff5 to create a prohibition on the importation of goods manufactured or produced, in whole or in part, by forced labour or child labour. The CMSA considers "child labour" to include labour or services provided or offered by a person under the age of 18 years and is contrary to Canadian laws, under circumstances that are mentally, physically, socially or morally dangerous or interferes with their schooling. "Forced labour" is deemed to include labour or services provided or offered by a person under circumstances that cause the person to believe their safety or the safety of a person known to them would be threatened if they failed to provide or offer to provide the labour or service.
The CMSA also introduces a requirement for certain entities to submit annual reports to the Minister of Public Safety and Emergency Preparedness on or before May 31, 2024. This reporting requirement aims to require these entities to become transparent in relation to the risk or presence of forced labour and child labour within their operations and their supply chains by reporting the steps they have taken during their previous financial year to prevent and reduce the risk or presence of forced labour and child labour in the production of goods in Canada or goods imported into Canada by the entity and including such other information as required by the CMSA. Please see Miller Thomson's previous article to review what is considered an "entity" under the CMSA that must report and to review the related requirements. We note that there are certain monetary thresholds that must be met along with business activities that must be conducted in order to be considered an "entity" required to report under the CMSA.
The Guidelines clarify the steps a reporting entity must complete before May 31, 2024, being:
- Prepare a report that meets all of the requirements of the CMSA.
- Obtain approval of the report from the appropriate governing body or bodies who have the legal authority to bind the entity or entities, evidenced by a signed attestation in the prescribed format included in the report.
- Complete the mandatory online questionnaire consistent with the information provided in the report.
- Upload the completed report in PDF format before submitting the online questionnaire.
- Publish the report to the entity's website in a prominent place.
TRANSPORTATION AND LOGISTICS INDUSTRY
The CMSA could directly or indirectly capture those providing transportation and logistics services to their customers. First, they could be directly captured if they meet the definition of a 'reporting entity' for purposes of the CMSA. Alternatively, even if they are not obligated to submit a report, their customers may be reporting entities, in which case, those customers may reach out to these service providers to gather information regarding their practices and procedures, to assist in ensuring that the customer is reporting with respect to its entire supply chain in a fulsome and accurate manner. Accordingly, transportation and logistics service providers may need to produce their own policy dealing with modern slavery in due course and should anticipate questions from their stakeholders, customers and partners on this topic.
Although the CMSA does not explicitly define the terms "selling," "distributing" and "importing," the terms are not intended to capture services that solely support the production, sale, distribution or importation of goods. The Guidelines specifically provide that marketing, administrative, financial and software services as examples of services that are not included in the definition of selling, distributing and importing.
The Guidelines consider an entity to be 'importing' goods into Canada if the entity is responsible for accounting for those goods under the Customs Act6 (the "Customs Act"). Purchasing goods produced outside of Canada from a third party, where that third party is considered to be the importer of record for the purposes of the Customs Act, does not count as importing goods.
Simply put, where a logistics provider is not responsible for accounting for the goods, it will not be caught by the CMSA; however, each supply chain may be structured differently than the next. For example, where a logistics provider has agreed to act as importer of record for customs purposes or possibly for other regulated industry purposes (e.g. it holds a Health Canada site licence), these activities may trigger reporting requirements for the service provider if it meets the other thresholds in the definition of "reporting entity."
Another situation that may be captured is where the logistics provider engages in importing activities on its own behalf and accounts for such goods. For example, a motor carrier that regularly purchases and imports electric vehicles to convert its fleet, or electronic logging devices or other tablets as it brings on new drivers and vehicles, or returns to the country with its own pallets and dunnage. Other examples include a warehouseman that purchases racking from another country and imports it into Canada, or an air carrier that purchases new or refurbished aircraft from other countries and brings them into the country. Provided that these logistics service providers are acting as importer of record for these activities and otherwise meet the "reporting entity" thresholds, they may need to comply with the CMSA.
We note that there is an exception available for very minor dealings. It may be possible to argue that where a transportation and logistics service provider does not routinely import and account for goods, it would not be "importing" for the purposes of the CMSA and should not be caught by this legislation. However, no specific guidance has been published as of the date of publication with regard to the minor dealings exception that would provide certainty to this analysis. It is important to review the CMSA and the Guidelines in detail when evaluating its applicability to your business.
Additionally, businesses operating within the transportation and logistics industry should be aware that retrieving the required information (either for their own reports or to respond to questions from their customers) may be more difficult depending on the length and complexity of their supply chains and the type of subindustry the supply chain partners operate in. A higher exposure to more supply chain partners may mean a greater responsibility in reporting requirements and in preventing and minimizing the risk and presence of modern slavery.
SUPPLY CHAIN LEGISLATION IN OTHER JURISDICTIONS
Where a reporting entity is subject to reporting requirements under supply chain legislation in another jurisdiction as well, the entity may use overlapping information in their report required under the CMSA, as long as all of the information required by CMSA is provided. If applicable, the reporting entity should indicate in their report whether they are subject to reporting requirements under another supply chain statute in another jurisdiction for the purpose of transparency.
The Government of Canada intends to publish additional guidance. Until then, where the Guidelines do not touch on certain topics, businesses can use industry standards and comparable legislation of foreign jurisdictions to inform their actions.
THE RIPPLE EFFECT: INDIRECT IMPACT ON OTHER ENTITIES
As discussed above, businesses that are not considered a "reporting entity" by the CMSA may be caught indirectly by the legislation through the application of the CMSA to an entity's customers, stakeholders or partners. The CMSA is expected to cause a ripple effect up the supply chains of entities, impacting other businesses and supply chain partners within and outside of Canada.
While some businesses will not be required to produce annual records under the CMSA, entities, such as banks, other financial institutions and sophisticated equity holders, might still demand the production of them. Companies may decide to amend their existing and new agreements to contractually require the other party to: i) attest that they comply with modern slavery laws, and; ii) demonstrate their prevention of modern slavery within their respective supply chains. Businesses may decide to terminate relationships with supply chain partners that cannot or will not remedy modern slavery within their operations.
It is also important to consider the possibility that some businesses may become a reporting entity under the CMSA through their natural growth or through an expansion by regulations of the definition of an "entity" to include additional corporations, trusts, and partnerships. Accordingly, it will be important for businesses to monitor the applicability of the legislation to them over time.
WHAT BUSINESSES SHOULD DO NOW
Companies should promptly consider whether they are required to submit a report under the CMSA and generally evaluate the level of risk they are exposed to directly within their own operations and indirectly within their supply chains.
Companies are reminded that their annual reports are subject to public scrutiny. If a consumer or the general public does not believe the entity is wholly interested in eliminating modern slavery from their supply chains, the entity's reputation with their supply chain partners and their consumers could be tarnished.
Companies and supply chain partners should analyze their current arrangements to determine whether modern slavery is present within their supply chains or operations and if they have enacted measures to remediate them. Logistics service providers should be mindful that their customers will need to track modern slavery in their supply chains, and will be considering how to obtain this information from their supply chain partners.
Although the annual reports are not due until May 31, 2024, companies are recommended to begin preparing conducting their due diligence, preparing their policies, and if applicable, drafting their annual reports now as this may be a lengthy process.
Footnotes
1. Global Estimates of Modern Slavery: Forced Labour and Forced Marriage, International Labour Organization (ILO), Walk Free, and International Organization for Migration (IOM), Geneva, 2022.
2. Modern Slavery Act (Australia), Modern Slavery Act 2015 (United Kingdom), and The California Transparency in Supply Chains Act (California).
3. Fighting Against Forced Labour and Child Labour in Supply Chains Act, SC 2023, c 9.
4. Public Safety Canada. (2023, December 20). Prepare a report – Entities. Government of Canada. https://www.publicsafety.gc.ca/cnt/cntrng-crm/frcd-lbr-cndn-spply-chns/prpr-rprt-en.aspx.
5. Customs Tariff, S.C. 1997, c.36.
6. Customs Act, RSC 1985, c 1.
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.
