Canada’s Modern Slavery Act: What It Means for Corporations and Supply Chains

The Federal Government’s recent Fighting Against Forced Labour and Child Labour in Supply Chains Act (the “Modern Slavery Act”, formerly known as Bill S-211) imposes disclosure obligations on governmental entities, Canadian entities and Canadian-linked entities.

On May 3, 2023, Bill S-211 passed its third reading in the House of Commons. Bill S-211 received Royal Assent on May 11, 2023, and the Modern Slavery Act will come into force on January 1, 2024, with the first annual report due on May 31, 2024.

This legal update constitutes the second installment in our series of updates concerning the Modern Slavery Act. Please see our October 2022 legal update here.

Overview

The Modern Slavery Act brings many Canadian corporations within its ambit. Canadian companies, whether listed on a stock exchange or unlisted, should understand the application of and disclosure obligations under the Modern Slavery Act. Failure to meet the disclosure requirements set out in the Modern Slavery Act may result in substantial penalties including fines of $250,000 per offence along with criminal prosecution.

Knowing how to prepare for the annual disclosure obligations, including understanding what must be reported and where to publish the report, will help entities to avoid the reputational risk associated with terms like “forced labour”, “child labour” and “modern slavery” being applied to the entity for contravening the Modern Slavery Act by failing to file the annual report or providing inadequate disclosure in the report.

What Entities Are Affected?

The Modern Slavery Act has broad application and will include any Canadian-linked “entity” that produces, sells or distributes goods anywhere in the world, imports goods into Canada, or controls any entity that does any of the above; an “entity” includes any company:

(a) listed on a stock exchange in Canada, or

(b) that has a place of business in Canada, does business in Canada or has assets in Canada and meets at least two of the following minimum thresholds for at least one of its two most recent financial years:

(i) has at least $20 million in assets;

(ii) has generated at least $40 million in revenue; and

(iii) employs an average of at least 250 employees.

Any listed entity that produces, sells, distributes or imports goods anywhere in the world (or controls any entity that does) or any unlisted Canadian-linked entity meeting at least two of the above asset, revenue or employee count thresholds will become subject to report and obligated to comply with the Modern Slavery Act (an “Obligated Entity”). If any two of the above thresholds are not met, or the entity does not produce, sell, distribute or import any goods, that entity would be exempt from the reporting requirements of the Modern Slavery Act.

For the purposes of the Modern Slavery Act, an entity that controls another entity is deemed to control any entity that is controlled or deemed to be controlled by the other entity or entities. An entity is controlled by another entity if it is directly or indirectly controlled by that other entity in any manner.

Annual Reporting Obligations

All Obligated Entities that meet the definition above must, on or before May 31 of each year (commencing in 2024), file an annual report to the Minister of Public Safety and Emergency Preparedness on the steps the entity has taken during its previous financial year to prevent and reduce the risk that forced labour or child labour is used by the Obligated Entity at any step of the production of goods in Canada or elsewhere, or of goods imported into Canada. To date, no form of report has been provided by the Minister and it is currently unclear whether there will be a standard form of report or if Obligated Entities will be required to create their own reports based upon the requirements outlined immediately below.

An Obligated Entity may comply with the annual report requirement either by:

(a) providing a report in respect of the Obligated Entity; or
(b) being party to a joint report in respect of more than one Obligated Entity.

The report must also include the following information in respect of each Obligated Entity subject to the report:

(a) its structure, activities and supply chains;

(b) its policies and its due diligence processes in relation to forced labour or child labour;

(c) the parts of its business 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;

(d) any measures taken to remediate any forced labour or child labour;

(e) any measures taken to remediate the loss of income to the most vulnerable families that result from any measure taken to eliminate the use of forced labour or child labour in its activities and supply chains;

(f) the training provided to employees on forced labour and child labour; and

(g) how the Obligated Entity assesses its effectiveness in ensuring that forced labour and child labour are not being used in its business and supply chains.

Moreover, the report must be approved:

(a) in the case of a report in respect of a single Obligated Entity, by its governing body; or
(b) in the case of a joint report, either

a. by the governing body of each Obligated Entity included in the report, or

b. by the governing body of the Obligated Entity, if any, that controls each entity included in the report.

The approval of the report must be evidenced by either:

(a) a statement that sets out whether it was approved pursuant to the paragraphs of the Modern Slavery Act applicable to a report in respect of a single Obligated Entity or a joint report; and

(b) the signature of one or more members of the governing body of each Obligated Entity that approved the report.

The report must be made available to the public, including by publishing it in a prominent place on the Obligated Entity’s website. Any Obligated Entity incorporated under the Canada Business Corporations Act (or any other act of Parliament) must provide the annual report to each shareholder along with its financial statements. Reports will also be made available on the Department of Public Safety and Emergency Preparedness’ website.

Penalties for Non-compliance

Obligated Entities are required to file the annual report by May 31, 2024 to cover the entity’s previous financial year. Failure to file the report will attract substantial penalties including fines of $250,000 per offence, and individual executives, directors and employees could face the same financial consequences and criminal prosecution. These individuals can face liability even if the entity has not been prosecuted or convicted.

In addition to the penalties prescribed by the Modern Slavery Act, Obligated Entities should also note the reputational risk associated with having modern slavery in supply chains or by failing to provide adequate disclosure. Supply chain due diligence is therefore crucial to identifying potential areas where modern slavery or corruption could emerge. Note that the Modern Slavery Act does not require businesses to modify their existing supply chains per se, but instead requires transparency and disclosure in the form of annual reporting.

Preparation and Next Steps

Any Obligated Entity should consider a comprehensive review of its corporate governance policies and existing procedures and codes to consider whether the issue of modern slavery is addressed. Obligated Entities should also consider existing policies regarding supply chain due diligence to prepare for the report due on May 31, 2024. Our team can assist with Modern Slavery Act compliance by:

(a) performing enhanced due diligence on your supply chain to analyze potential risks;

(b) developing corporate governance policies and sustainable processes related to compliance with the Modern Slavery Act including assisting with the integration of such policies into a broader environmental, social and governance (ESG) strategy;

(c) developing policies and procedures focusing on preventing forced and child labour;

(d) providing training and education to boards and employees on the Modern Slavery Act and the disclosure obligations; and

(e) developing and assisting in the drafting of the annual report.

Should you require clarification with respect to any of the above, please do not hesitate to contact Peter Volk ([email protected]) or Jeff Arnold ([email protected]). The authors gratefully acknowledge the assistance of articling student Andrew Jensen in the preparation of this update.

This update is intended as a summary only and should not be regarded or relied upon as advice to any specific client or regarding any specific situation.

If you would like further information regarding the issues discussed in this update or if you wish to discuss any aspect of this commentary, please feel free to contact us.