Canada’s new modern slavery in supply chains legislation has been in the works for years, but with the filing deadline just two months away, some companies are still struggling to understand their reporting obligations.
The new law requires many businesses and government institutions to publicly report on the risk of forced labour and child labour within their supply chains. The legislation came into effect Jan. 1, and entities have until May 31 to produce their reports. But there is still significant confusion about who is captured by the legislation.
“Even though government was fairly open and transparent about this coming into force, and it’s been winding its way through, I think, genuinely, it really did take folks by surprise,” said Alison Babbitt, a partner with Norton Rose Fulbright and co-head of its responsible business and sustainability group. “I think there are still people that don’t appreciate that this applies to them, and they’re still getting up to speed to figure out whether they’re caught or not.”
As recently as last month, the federal government was still trying to clarify aspects of the law with additional guidance. The latest direction addresses who is required to report, but the clarification has actually sowed more uncertainty, said Kari MacKay, the head of the mining group at Goodmans LLP.
The law – which doesn’t just cover businesses; some government institutions, such as Crown corporations, will have to file too – refers to “entities.” This could be corporations, trusts, partnerships or other types of unincorporated organizations that meet certain criteria such as being listed on a Canadian stock exchange. Other considerations concern the number of employees, assets and revenue. From there, the law targets entities that are producing, selling, distributing or importing goods.
But the March guidance dropped the “selling and distributing” component, Ms. MacKay said.
“There is certainly ambiguity when one reads the Act and the guidance together. The guidance doesn’t seem consistent in all respects with the Act,” she said. “I think in truth, our legislators are still working out what they want too.”
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Ms. MacKay said they’re advising clients to go with what’s written in the law itself.
“At the end of the day, I think we all think the legislation’s purpose is positive,” she said. “But the interpretation and application is the subject of ongoing understanding.”
Parliament enacted Bill S-211 on May 3, 2023, creating the Fighting Against Forced Labour and Child Labour in Supply Chains Act. The legislation is similar to laws that already exist in the United Kingdom, Australia and California. Many corporations that are already filing in those jurisdictions will have an easier time complying with the Canadian requirements, because much of the work has been done, Ms. MacKay said.
Where there has been more confusion is with subsidiaries and corporations with foreign parent companies. Businesses that have no meaningful risk of modern slavery within their supply chains may also not realize they could be captured. For example, a Canadian corporation that operates entirely within the country’s borders – raw materials, manufacturing, sales – may still qualify. Additionally, a Canadian subsidiary of a U.S. company may need to file, and in fact, under certain circumstances, the U.S. parent may also have to report.
“It’s been extremely busy,” said Michael Dixon, a partner with Blake, Cassels & Graydon LLP. “I’m having three or four calls from clients a day.”
Businesses have been asking for guidance on a range of issues, from working through the type of information that must be disclosed to the logistics around producing the finished product; for example, the final document must include a signed attestation from a member of the entity’s governing body.
Ms. Babbitt from Norton Rose Fulbright said companies are expected to report on the specific ways they’re looking at forced labour and child labour, noting company policies on the issues and due diligence processes with suppliers. For example, Ms. Babbitt said, corporations may have done risk mapping exercises, which involve digging into their supply chain – from the collection of raw materials, to the factory floor and beyond – and identifying where potential danger zones might be by considering the geography, commodity type, jurisdiction and industry involved.
For Stephen Pike, a partner with Gowling WLG, some of the outstanding questions concern enforcement. Will anyone within government be reading the reports? Will those who file receive feedback? Will there be some sort of enforcement if reports are inadequate? If so, which agency will be responsible? Currently, this is all unclear, he said.
“I think the most important thing to recognize is that this is reporting legislation. It doesn’t prescribe business activities. It doesn’t try to tell businesses how they should operate or how organizations should operate,” Mr. Pike said, adding that the law does not require companies to stop forced labour or child labour within their supply chains if it has been identified. “This is about transparency.”
And actually, Mr. Pike noted, under the implementation of the Canada-United States-Mexico Agreement (CUSMA) – the renegotiated NAFTA – there are already provisions prohibiting the importation of goods produced by forced labour. One additional layer of Bill S-211 is that it builds on the protections included in CUSMA and banned the importation of goods that are produced using child labour as well.
Entities are required to make their reports public and they will also be available through a government website. Some reports are already starting to appear online, although the federal government has yet to post any on the public catalogue. In a statement, a spokesperson with Public Safety Canada said the department expects to begin posting reports shortly after the May 31 deadline.