The Parliament of Canada is widely anticipated to pass Bill S-211 this year, which would require most medium and large businesses operating in Canada to report on their supply chain forced labour and child labour risks and the steps taken to address those risks. This new Canadian federal legislation is part of a growing trend towards increased supply chain transparency and accountability globally and will likely impose a meaningful additional compliance burden on many Canadian and foreign companies operating in Canada. Any business operating in Canada can and should take active steps now to ensure compliance. If passed in 2023, the first report will be required before May 31, 2024 and companies will be required to report on activities undertaken during the company’s previous fiscal year.
Who is Covered
If passed in its current form, the Bill imposes a reporting requirement on covered “entities”. For businesses not listed on a Canadian stock exchange, the business would be an “entity” subject to the reporting requirement if it checks each of the four following boxes. Businesses listed on a stock exchange in Canada would be an “entity” subject to the reporting requirement if they satisfy the first two boxes only.
Note that there is no requirement that the business be registered or incorporated in Canada and thus the current scope of this Bill could very easily capture foreign incorporated businesses that operate in Canada.
What the Report Must Include
The Bill as currently drafted will require companies to provide annual reports covering the steps taken during the previous fiscal 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.”
The report would need to address specific items including, among other things:
- forced labour and child labour risks in the company’s supply chain;
- steps the company is taking to address those risks;
- company policies and its due diligence processes relating to forced labour and child labour;
- training provided to employees on forced labour and child labour; and
- how the business assesses the effectiveness of its measures to ensure there is no forced labour or child labour in its supply chains.
Companies that fail to comply with the new reporting requirements could face penalties of up to $250,000 CAD. Directors and officers of subject companies may also be liable for conviction if the director or officer directs, authorizes, assets, acquiesces, or participates in the offence of the corporation.
Canadian Ban of Importation of Goods Produced in Whole or in Part by Forced Labour
It has been illegal since July 1, 2020 to import goods into Canada that are mined, manufactured, or produced in whole or in part by forced labour but there is only one known public instance of enforcement in Canada so far.
This contrasts significantly with the enforcement record in the United States which also bans the importation of goods produced in whole or in part by forced labour but which imposes a presumption that certain goods from certain countries are produced with forced labour and puts the burden of proving otherwise on the importer.
The United States has been calling on Canada to increase its forced labour compliance and enforcement regime since the implementation of the USMCA (known in Canada as the “CUSMA”) in July 2020. So, it is possible that the implementation of the new reporting requirement could also lead to increased enforcement by the Canada Border Services Agency.
Reasons to Do your Due Diligence Now
There are many legal and non-legal reasons to conduct robust due diligence regarding forced labour and child labour now including:
- to prepare to comply with Bill S-211;
- to mitigate risk of seizure of goods or materials by the CBSA in Canada or CBP in the United States;
- to mitigate risk of seizure of goods or materials by CBP upon sale/shipment to the United States; and
- to mitigate reputational risks that may result in suppliers or customers refusing to do business with your organization.
Canadian and foreign businesses operating in Canada should be proactive in understanding and complying with the new forced labor supply chain reporting requirements outlined in Bill S-211. With increased focus on enforcement expected in 2023, it is more important than ever for companies to be diligent in identifying and addressing forced labor and child labour risks in their supply chains. By doing so, they can help to ensure that their products and services are produced in an ethical and responsible manner, and help to combat the serious and pervasive problem of modern slavery.