The Government of Canada enacts the Fighting Against Forced Labour and Child Labour in Supply Chains Act; Now what?

On January 1, 2024, the Canadian federal government’s Fighting Against Forced Labour and Child Labour in Supply Chains Act (the “Act”) came into force. The purpose of the Act is to encourage Canadian businesses to take steps to prevent and reduce the risk of forced labour and child labour in their operations and supply chains by instituting mandatory reporting requirements.

Who does the Act apply to?

The Act applies to government institutions and private entities, as the terms are defined in the Act. Under the Act, an “entity” includes a corporation or trust, partnership or other unincorporated organization that either:

(a)   is listed on a stock exchange in Canada; OR

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

1. it has at least $20 million in assets,
2. it has generated at least $40 million in revenue, and
3. it employs an average of at least 250 employees.

An entity must provide an annual report (the “Report”) to the Minister of Public Safety and Emergency Preparedness (the “Minister”) on or before May 31^st of each year if it:

(a)   produces, sells or distributes goods in Canada or elsewhere;

(b)   imports into Canada goods produced outside Canada; or

(c)   controls an entity engaged in any activity described in paragraph (a) or (b).

The entity must also make the Report available to the public, including by publishing it in a prominent place on its website. If the entity is incorporated under the Canada Business Corporations Act or any other act of Parliament, it must provide the Report to its shareholders, along with its annual financial statements.

What must be included in the Report?

The entity must detail the steps it has taken during its previous financial 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, as well as:

(a)   its structure, activities and supply chains;

(b)   its policies and its due diligence processes in relation to forced labour and 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 results 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 entity assesses its effectiveness in ensuring that forced labour and child labour are not being used in its business and supply chains.

Notably, an entity may also be party to a joint Report in respect of more than one entity.

In the case of a Report regarding a single entity, the Report must be approved by an entity’s governing body. If the Report is a joint Report, it must be approved by either

(a)   the governing body of each entity included in the Report; or

(b)   the governing body of the entity, if any, that controls each entity included in the Report.

Such approval must be evidenced by a statement that sets out how it was approved and include the signature of one or more members of the governing body of each entity that approved the Report.

What are the penalties for non-compliance?

A person or entity who commits an offence under the Act is punishable on summary conviction and liable to a fine of not more than $250,000. Offences under the Act include, but are not limited to, an entity failing to submit a Report or failing to make the Report available to the public by publishing it in a prominent place on its website.

The Act imposes personal liability on directors, officers or agents who direct, authorize, assent to, acquiesce or participate in committing an offence under the Act. Employees or agents are presumed to act on behalf of their employer when they commit offences under the Act, unless the employer can establish that they exercised due diligence to prevent the commission of the offence.

How can you prepare for filing your Report?

If you are subject to the Act, you should begin preparing the required Report. To ensure appropriate compliance, you can create an internal reporting system to be able to collect the necessary information required to comply with the Act’s reporting requirements.

In light of the new Act, you may also wish to take proactive steps to identify and address potential risks in your Canadian business operations and supply chains. For example, you can develop appropriate policies and procedures to prevent and address child labour and forced labour. You can also ensure your supply agreements include relevant contractual provisions addressing child labour and forced labour, with appropriate representations and covenants from suppliers, termination provisions in the event of material breaches of such provisions, and flow down obligations to sub-suppliers in your supply chains. In addition, you could conduct internal audits and complete further due diligence on existing and prospective suppliers to identify and be able to address areas of risk.

For assistance in preparing a Report, or for more information on corporate compliance and how to navigate obligations that may arise from the Act, please contact a member of the Corporate / Commercial Group at Torkin Manes LLP.

The authors would like to thank Articling Student Lexie Cooper for her contributions to drafting this article.