Canada’s Modern Slavery Act: what businesses need to know

Modern slavery — specifically forced labour — is a global challenge. The International Labour Organization estimates that 28 million people worldwide were in forced labour in 2021. This form of modern slavery occurs in almost every country in the world, and cuts across ethnic, cultural and religious lines. Canada is far from immune from this issue. According to a World Vision's 2023 Supply Chain Risk Report, the value of Canadian imports of everyday products — like electronics and clothing — that are at risk of being produced by child or forced labour increased to $48 billion as of 2021. The surge in imports of “risky” goods has been driven by climate change, conflict, COVID-19 and inflation.

The Canadian government has joined other jurisdictions in introducing measures to combat slavery and other forms of forced labour in its supply chains. 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, referred to as Canada’s “Modern Slavery Act” (the Act), has passed third reading in the House of Commons, and is expected to come into force on January 1, 2024. Designated institutions and entities will be required to file their first reports (described below) by May 31, 2024. Failure to comply with the reporting obligations under the Act can result in fines, reputational damage, and liability for directors and officers.  

This blog includes a high-level summary of the Act, and what businesses should expect once it comes into force.

Background

Canada has ratified several international conventions that prohibit various forms of forced labour, which the government has been taking steps to translate into domestic policy.^[1] The Act is one of a number of pieces of legislation Parliament has reviewed designed to deal with various forced labour in supply chains.^[2]

In 2018, the House of Commons Subcommittee on International Human Rights (SDIR) released a report [PDF] on child labour in supply chains. The SDIR report recommended, among other things, that the government should “draw on lessons learned by jurisdictions that have implemented supply chain legislation” to develop legislative and policy initiatives that motivate businesses to eliminate the use of any form of child labour in their global supply chains.

Since the SDIR report, efforts have been made to include commitments around forced labour in supply chains through Canada’s bilateral and multilateral trade agreements. For example, as part of the Canadian government’s implementation of Chapter 23 of the Canada-United States-Mexico Trade Agreement (CUSMA), the government amended the Customs Tariff to prohibit the importation of goods mined, manufactured or produced wholly or in part by forced labour.   

The Act is aligned with broader domestic and global trends promoting responsible conduct on the part of businesses (see previous post: New Canadian foreign investment promotion and protection model expands responsible business conduct provisions). A number of other jurisdictions, such as the U.S., Australia, and the U.K., have implemented legislation designed to combat forced labour in supply chains. Domestically, Canada has also established the Canadian Ombudsperson for Responsible Enterprise (CORE), which has a mandate to encourage companies to follow certain international standards relating to supply chain human rights, and to receive and investigate complaints regarding the conduct by Canadian companies operating abroad in respect of certain supply chain human rights matters. 

Canada has historically been criticized for its limited enforcement when it comes to forced labour. Canada has also been criticized for failing to create a presumption that all products sourced from Xinjiang are products of forced labour, and to impose a corresponding obligation on importers to rebut this presumption in relation to all imports from the region, as was done in the U.S. Canada Border Services Agency (CBSA) has denied requests to impose a presumptive ban, and the CBSA’s approach has historically been upheld by the courts.

The Modern Slavery Act at a glance: key obligations

The Act introduces reporting obligations on government institutions and certain private entities that produce, sell, distribute or import goods in or into Canada or that control entities that do so. While these reporting institutions and entities must prepare and make publicly available reports, including prescribed information, the Act does not require these institutions or entities to make any changes to their supply chains. Rather, per the government’s Legislative Summary [PDF] (the Summary), the legislation relies on transparency to encourage better practices.

Specifically, the Act

• establishes reporting obligations on certain government institutions and private-sector entities
• creates an inspection regime applicable to certain entities

The Act also creates an enforcement regime and requires amendments to the Customs Tariff.

The Act builds on existing measures the government has taken to limit the importation of goods mined, manufactured or produced wholly or in part by forced labour, in accordance with its obligations under multilateral treaties and free trade agreements, including CUSMA. Until the Act comes into force, the importation of goods produced with forced labour remains prohibited by the Canadian Customs Tariff. In addition, Canada has levied narrow sanctions against China with respect to the Xinjiang Uyghur Autonomous Region (Xinjiang) in connection with allegations of forced labour in the region.

Reporting obligations – government institutions and reporting entities

The Act establishes a reporting framework for two categories of entities: (1) government institutions and (2) certain private sector entities.

Government institutions are subject to the reporting framework established by the Act if they produce^[3], purchase or distribute goods in Canada or elsewhere.

Private sector entities are subject to similar reporting requirements under the Act where they: (1) meet prescribed thresholds and (2) engage in certain activities. This three-part test is essentially as follows:

1. Does the entity produce, sell or distribute goods in Canada or elsewhere, or control an entity that engages in such activities? If not, does the entity import into Canada goods produced outside of Canada, or control an entity that engages in such activities?
2. If yes, is the entity listed on a stock exchange in Canada, or does the entity have assets, a place of business, or otherwise do business in Canada?
3. If so, does it meet at least two of the three following thresholds for one of the last two fiscal years: (1) $20 million in assets, (2) $40 million in revenue, or (3) 250 employees.

An entity can also be designated as a reporting entity pursuant to the regulations (which have not yet been enacted).

What are the reporting requirements?

An entity that meets the above noted thresholds (Reporting Entities) must report to the Minister on the steps that it took during its previous financial year to prevent or reduce the risk that forced labour or child labour was used at any step of the production or import of its goods in Canada.

To comply with Bill S-211, Reporting Entities are required to include the following information in their annual report

1. the entity’s structure, activities and supply chains
2. the entity’s policies and due diligence processes in relation to forced labour and child labour
3. the parts of its business and supply chains that carry a risk of forced labour and child labour and the steps it takes to assess and manage that risk
4. measures taken to remediate forced labour and child labour
5. measures taken to remediate the loss of income to the most vulnerable families that results from the measure taken to eliminate the use of forced labour and child labour
6. training provided to employees on forced labour and child labour
7. how the entity assesses its effectiveness in ensuring that forced labour and child labour is not being used in its business and supply chains

The report must be submitted on or before May 31 of each year. It must be approved by the Reporting Entities’ governing body. For approval, the report must include (a) a statement that sets out whether it was approved pursuant to the approval of the governing body and (b) the signature of one or more members of the governing body that approved the report. A joined report can be made by two entities. In such cases, the report must be approved by both governing bodies.

The Act requires public disclosure of the report. The report must be posted in a prominent place on the entities’ website. In addition, corporations incorporated under the Canada Business Corporations Act must provide the report to shareholders together with their annual financial statements.

The inspection regime

The inspection regime provided for in the Act gives the government powers to compel a business to provide certain information or documentation to ensure compliance and to otherwise investigate non-compliance. The Act also provides the government with wide powers to issue orders requiring the business to take any measures it considers necessary to ensure compliance with the legislation.

Enforcement

It is an offence for a person or entity to fail to meet their annual reporting obligations, fail to comply with an order from the Minister to meet those obligations, obstruct or fail to give reasonable assistance to designated persons, or provide false or misleading statements to designated persons. Each of these is an offence punishable upon summary conviction, carrying a fine of up to $250,000.

If a Reporting Entity commits an offence under the Act, any director, officer, agent or individual otherwise mandated to act on behalf of the entity who directed, authorized, assented to, acquiesced or participated in the offence is a party to the offence. Such individuals may be liable to conviction upon summary judgment and subject to the same fines as the entity (up to $250,000). These individuals can be held liable whether or not the entity has been prosecuted or convicted.

The Act also establishes a presumption that employees, agents, and other individuals mandated to act on behalf of the entity are presumed to act on behalf of the entity. It is sufficient proof that an offence has been committed that it was committed by such an individual, whether or not the individual is prosecuted for the offence (or even identified). The Act does provide an exception to this, where the accused entity establishes that they exercised due diligence to prevent the commission of the offence.

The Minister of Public Safety and Emergency Preparedness may designate persons or classes of persons for the administration and enforcement of the Act. While persons (typically a government department) have not yet been designated, some guidance can be taken here from existing legislation. While the focus of the Extractive Sector Transparency Measures Act (ESTMA) is on detecting and deterring corruption (as opposed to forced labour), and while the ESTMA is narrowed to the extractive sector, the ESTMA creates similar reporting obligations for private entities and carries similar penalties. The Summary notes that the ESTMA is enforced by Natural Resources Canada, which takes a “risk-based approach” to compliance verification, using an “internal risk assessment framework” to determine when compliance audits are required. A similar approach may be taken by the department responsible for enforcing the Modern Slavery Act. 

In addition to the penalties prescribed in the legislation, businesses should be mindful of the reputational risk associated with having modern slavery in their supply chain; supply chain diligence is important to prevent corruption and other forms of economic crime. A key element of the Act is that Reporting Entities must publicly disclose their reports. The legislation does not include a mechanism for Canada to require businesses to modify their supply chains; Canada is relying on transparency and the reputational risk associated with being associated with modern slavery as a tool to modify behaviour. This risk therefore should not be overlooked.

Key takeaways for businesses

Businesses with a nexus to Canada should expect that this legislation will come into force as early as January 2024, and that Reporting Entities will face an obligation to file their initial reports by May 2024. Reporting entities that fail to comply with these new reporting requirements could face fines up to C$250,000. Any party that authorizes, consents to, or participates in the infringement may also face similar penalties.

Reporting entities and businesses unsure whether they are in fact reporting entities should be prepared to start reporting and should consult with external counsel regarding their reporting obligations. If you require any assistance or have any questions regarding the Modern Slavery Act or any matter regarding compliance with Canada’s trade and sanctions regulatory regime, please contact a member of our team.