Bill S-211 – the Fighting Against Forced Labour and Child Labour in Supply Chains Act – which requires businesses to report on their efforts to combat forced and child labour, is set to take effect in 2024. In this post, which supplements our previous posts on Bill S-211, we look at the new legislation in the context of the broader Canadian regulatory landscape affecting what is often referred to internationally as “modern slavery”.
In addition to the new legislation, this regulatory context encompasses:
- The Canadian Ombudsperson for Responsible Enterprise (“CORE”), with respect to the oil & gas, mining and garment sectors;
- The Customs Tariff, with respect to control of the importation of goods produced with forced or child labour;
- The Criminal Code, with respect to the trafficking or exploitation of individuals; and
- The class actions process, with respect to alleged misrepresentations by businesses of their internal practices, policies and past issues relating to forced and child labour.
While these are arguably the key regulatory initiatives in this area, other factors may be relevant to businesses as they develop their anti-forced and child labour policies. Two of these are also referred to in this post: the international context of the legislation and role of securities regulation in encouraging and potentially enforcing accurate corporate disclosure in this area.
1. Bill S-211: Canada’s New Forced Labour and Child Labour Legislation
As discussed in our earlier posts, the Fighting Against Forced Labour and Child Labour in Supply Chains Act (the “Act”; previously Bill S-211) imposes certain reporting obligations in relation to efforts made to reduce the risk of forced and child labour.
The stated purpose of the Act is to implement Canada’s international commitment to contribute to the fight against forced labour and child labour through the imposition of reporting obligations on business entities (described below) and government institutions (which includes individual government departments and many federal agencies)..
Under the Act, any “entity” – a term that encompasses a corporation, trust, partnership or other unincorporated organization – must file a report annually with the federal government, provided that it satisfies the two following tests:
- It is either (i) listed on a Canadian stock exchange (in which case, proceed directly to (2)); or (ii) does business, has a place of business or has assets in Canada and, in either of its two most recent financial years, has met or exceeded a size threshold based on its consolidated financial statements. The size threshold is any two of: $40 million in revenue, $20 million in assets or 250 employees;
- It produces, sells or distributes goods in Canada or elsewhere and/or imports goods into Canada (or controls any entity that does so).
The annual report must be filed with the Minister of Public Safety and Emergency Preparedness (the “Minister”) and published on the entity’s website before May 31 of each year. The legislation does not contemplate that an entity might not have a website.
The exact format of the report, and of its website version, may be further specified by government guidance that is expected in the fall of 2023, but, in general, it will need to describe 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 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 must also include specified supplementary information pertaining to the entity’s structure, activities and supply chains, as well as information about its training programs and risk assessments as well as its responses to any forced or child labour situations that it has detected.
The first report must be filed with the Minister no later than May 31, 2024.
Persons and entities that fail to comply with certain provisions of the Act, including a failure to file and publish their report, are guilty of an offence punishable on summary conviction and liable to a fine of not more than $250,000. Further, the Act extends liability to an entity’s directors, officers, agents and mandataries to the extent that they directed, authorized, assented to, acquiesced in or participated in the commission of an offence.
While new to Canada, many of the reporting requirements that the Act establishes will be familiar to many multinational corporations, because they overlap significantly with existing requirements in the United States (California), United Kingdom, Australia, France, Germany and elsewhere. However, the Canadian legislation has certain distinctive aspects that will require all companies – including multinationals that are already filing in foreign jurisdictions – to ensure that their responses are tailored to Bill S‑211’s specific requirements.
The basic approach Canada has taken follows that of the U.K., California and Australia by requiring entities to focus their disclosure on the steps they are taking to ensure that forced labour and child labour are not present in their supply chains. This “reporting” approach is less demanding than the “diligence” approach underlying the French and German legislation (note that Australia is considering whether to move to a diligence model). That approach requires entities to actively investigate their suppliers and to report on the results of those investigations.
Many multinational corporations that are subject to multiple forced and child labour reporting requirements produce a single combined statement to addresses the requirements across each regime, and it is likely that this approach can be extended to Canada to meet the requirement to post compliance information on the corporate website. However, unlike some other jurisdictions, Canada also requires that a report addressing a list of specified topics be filed with the government for publication on a searchable government website. (In other words, unlike the U.K., for example, the Canadian government website will not simply link to the website statements of the reporting entities.) In the absence (so far) of formal reporting guidelines under the Act, Canadian corporations not already subject to reporting requirements in foreign countries may find it useful to review reports filed by their peers in other jurisdictions to inform their responses. The U.K. site, for example, is easily searchable and can be broken down by sector and size of business.
While the Act, like its counterparts in other jurisdictions, does not itself include substantive prohibitions on the use of forced and child labour, businesses should be mindful of the potential application of other statutes, notably the Criminal Code, in cases where forced and child labour are used, whether this occurs domestically or in foreign countries. The applicability of the Criminal Code is discussed in Section 4 of this post.
2. The CORE: Ongoing Investigations in the Mining and Garment Sectors
Canadian companies in three specific sectors – mining, oil & gas and apparel – are also subject to investigations into alleged human rights abuses in their international operations by the Canadian Ombudsperson for Responsible Enterprise. Although the CORE does not have any direct enforcement powers, it can refer complaints that raise criminal liability to law enforcement, make recommendations to the company (e.g., compensation, mitigation measures, apologies) and monitor subsequent compliance, and make recommendations for the withdrawal of federal support (e.g., trade advocacy).
On July 11, 2023, the CORE published its initial assessments into allegations that two businesses – one in the apparel sector (the “First Apparel Business”) and one in the mining sector (the “Mining Business”) have relationships with businesses based in China that have used or benefitted from Uyghur forced labour.
On August 15, 2023, the CORE published two more initial assessments relating to allegations: one in relation to an investment company that formerly held an interest in a mining company (the “Investment Business”) and one into a second apparel business (the “Second Apparel Business”).
All four allegations were made by a coalition of 28 Canadian organizations (the “Complainants”) on June 21, 2022 (as noted below, three further allegations made by these organizations were also considered by the CORE in late August).
The First Apparel Business investigation
The initial assessment report for the First Apparel Business states that the company declined the CORE’s request for an initial meeting on the basis that its previously published statements responded fully to the concerns raised. The CORE assessment report states that upon receiving a draft of the initial assessment report, the First Apparel Business engaged with the CORE and requested a meeting at that point, which was declined by the CORE.
On reviewing the submissions of the Complainants and the First Apparel Business, the ombudsperson agreed that there was a need for further investigation of relationships between certain suppliers and other entities that had been associated with forced labour and of the sufficiency of the human rights due diligence efforts of the First Apparel Business. The fact that the First Apparel Business had initially declined to meet with the CORE appears to have factored into the decision.
The Mining Business investigation
The Mining Business reportedly did not respond at all to repeated inquiries, although it did make submissions after receiving the CORE’s draft initial assessment. This case involved a mining operation in China that was established as a joint venture. The Mining Business was one of the joint venturers but had lost effective control over the mining operation 10 years ago due to an ongoing dispute with the other joint venturer. Nevertheless, the Mining Business was said to have continued to publicly assert 70% ownership of the joint venture and the Complainants argued that, even if there was a dispute, the company should have acted on human rights concerns about the mine. The ombudsperson characterized the Mining Business as having “deliberately avoided participating in and cooperating with the CORE’s dispute resolution process without providing any explanation” and agreed with the Complainants that serious issues had been raised that had not been adequately addressed by the Mining Business.
The Investment Business investigation
This allegation relates to the activities of an indirectly owned subsidiary of the Investment Business involved in the mining project that was the subject of the complaint. The Investment Business’ interest in the subsidiary was sold in July 2022. The Investment Business also provided substantive responses to the complaint, including submissions relating to certain employment practices of the subsidiary prior to the sale.
The CORE declined to launch an investigation, but did provide recommendations to the Investment Business based on its mandate to advise Canadian companies on their practices and policies with regards to responsible business conduct. The CORE recommended that the Investment Business:
- Revise and update its policies on responsible exit or (if it does not have such policies) develop and adopt policies on responsible exit, including from high-risk areas, as part of its human rights due diligence;
- Share these policies with the CORE by December 29, 2023, and incorporate any feedback or comments from the CORE;
- Post the final policies on its website by March 15, 2024; and
- Publicly commit to implement and apply these policies in the context of its operations abroad.
The CORE has stated that it will report publicly on the findings of its follow-up on the above.
The Second Apparel Business investigation
The initial assessment report states that the Second Apparel Business declined to attend an initial assessment meeting, but submitted responses in two emails which referred to policies and strategies. Upon receiving a draft of the initial assessment report, the Second Apparel Business provided further comments indicating that it had undertaken further investigations and expanding on measures taken. It also clearly stated that it was committed to cooperating with the CORE in good faith.
The CORE agreed with the Complainants that there was a need for a limited investigation on specific points where, in the ombudsperson’s view, there was conflicting information. Given the Second Apparel Business’ willingness to cooperate in good faith, the CORE encouraged the parties to consider mediation as an option.
Early participation and clear indication of good faith cooperation could assist in early resolution
Of note, all four reports state that the Complainants were willing to participate in early resolution or mediation. However, in the cases of the First Apparel Business and the Mining Business the ombudsperson found that the companies were not willing to participate. The Apparel Business “did not confirm [its] intention to participate in mediation” when it was offered and the Mining Business simply stated it had no further comment. A clear indication from the Second Apparel Business of an intention to participate in good faith led to a recommendation for mediation.
Additional investigations announced
On August 24, 2023, the CORE announced three additional investigations with respect to companies in the apparel sector, in response to submissions from what appears to be the same group of Complainants. These cases were generally similar to the first four in that, while the Complainants’ allegations related only to imprecisely described indirect connections to forced labour, they met the CORE’s low threshold for proceeding. It should be noted that the CORE’s decisions in these cases appear to have been influenced by what the CORE characterized as the respondents’ reluctance to participate fully at each stage of the process and/or their failure to respond in sufficient detail (in the CORE’s view) to the Complainants’ allegations.
3. The Customs Tariff’s Import Prohibitions
Goods that are mined, manufactured or produced wholly or in part by forced labour, or goods manufactured or produced wholly or in part by prison labour, are currently prohibited from entering Canada pursuant to tariff item No. 9897.00.00 in the List of Tariff Provisions set out in the schedule to the Customs Tariff. As prohibited items, such goods cannot enter Canada and must therefore be abandoned, destroyed or re-exported by the importer.
Expanded definitions under the Act will mean more exclusions
The Act amends the Customs Tariff and also modifies the description of goods covered under tariff item No. 9897.00.00 by extending the existing prohibition on the importation of goods mined, manufactured or produced wholly or in part by forced labour so that it includes goods mined, manufactured or produced wholly or in part by child labour, whether coerced or not. Such amendments refer to the broad definitions of “forced labour” and “child labour” as provided for in section 2 of the Act.
In practice, these broadened definitions will likely increase the risk of a violation for importers. For example, the new concept of “forced labour” may require less evidence of the involuntariness of the labour or service. Moreover, the definition of “child labour” in the Act should expand import prohibitions significantly when compared to the former definition of “forced labour”. Notably, the Act substantially supplements that definition by including labour or services provided by persons under the age of 18: under circumstances that are contrary to the laws applicable in Canada (where the labour or services are provided within Canada); and/or that interfere with schooling by depriving them of the opportunity to attend school, obliging them to leave school prematurely or requiring them to “combine school attendance with excessively long and heavy work”.
The result of the above is that many goods that are not “mined, manufactured or produced wholly or in part by forced labour” under current legislation (and thus not subject to the import ban) could become subject to the import prohibition based on the new broadened definitions effective as of January 1, 2024.
To enforce the import ban, the Canada Border Services Agency (“CBSA”) has been granted significant powers such as: examination and detention of goods at the border, issuance of monetary penalties, seizure of goods, destruction or disposition of goods, application of ascertained forfeitures (i.e., imposition of monetary penalties when the goods cannot be seized), search of an entity's property, and criminal prosecution.
In order to detain goods at the border, seize them, or take other enforcement actions, the CBSA must have reasonable grounds to believe that forced labour or child labour was involved in the production of the goods. Different elements can give rise to such suspicion, including, for example, information retrieved by the CBSA itself or by other government entities, warnings issued by foreign authorities, public reports, etc.
Businesses may wish to reassess any contractual safeguards that they may have established to allocate these risks among the entities through which imported goods typically pass (importer, distributor, merchant, end user, etc.). In this respect, any entity named as “importer of record” on the Canada Customs Coding Form (Form B3) should be the first target of investigations and enforcement measures by the CBSA. It is worth noting that the CBSA may exercise its powers not only at the border, but also once the goods have been sold or passed on to other persons in Canada. In other words, the CBSA is authorized to enforce the import prohibition pursuant to the Customs Act post-importation. In essence, as the powers of the CBSA subsist even after the imported goods have changed hands, all businesses (irrespective of their size) that directly or indirectly deal with imported goods should make proper inquiries about their origins.
Furthermore, it should be pointed out that the Customs Act specifically prohibits any person from possessing, purchasing, selling, exchanging or otherwise acquiring or disposing of any imported goods that are subject to an import ban. Therefore, this means that a Canadian retailer or end-user, for example, could also (in theory) face criminal charges just for selling or being in possession of goods subject to the import prohibition. Accordingly, all businesses dealing with imported goods (irrespective of their size) should take reasonable steps to ensure such goods are compliant with Canadian law.
As the CBSA is the only federal department or agency in charge of enforcing the import prohibition, any business or end-consumer finding that they may be in possession of imported goods subject to the import prohibition should contact the CBSA’s Border Watch Tip Line. It is noteworthy that the acceptance of a voluntary disclosure by the CBSA does not necessarily preclude criminal prosecution.
4. Criminal Code Provisions
While the Act establishes reporting requirements, direct regulation of coercive exploitation of individuals (modern slavery) is left to the Criminal Code. Section 279.01 of the Code, “Trafficking in Persons”, establishes a sentencing range of 4 years to life imprisonment for anyone who transfers, holds, harbours (etc.) a person, or controls the person’s movements for the purpose of exploiting them or facilitating their exploitation (the most severe penalties apply where the exploitation involves a kidnapping or violent act). Since 2010, child labour has been dealt with by Section 279.011: where the person is a minor, the sentencing range is 5 years to life imprisonment (or 6 years to life, if a kidnapping or violent act occurs).
“Exploitation” in this context is defined in Section 279.04 as causing a person to provide labour or a service by:
“engaging in conduct that, in all the circumstances, could reasonably be expected to cause the other person to believe that their safety or the safety of a person known to them would be threatened if they failed to provide, or offer to provide, the labour or service.”
The same words are used in the definition of “forced labour” in the Act. In determining whether exploitation has occurred, courts may consider factors such as the use of coercion (i.e., a threat or use of force) or deception by the accused and/or any abuse by the accused of a position of trust, power or authority (Criminal Code, s. 279.04(2)).
Those who knowingly materially benefit from a breach of the trafficking provisions, whether directly or indirectly, can also face charges and up to 10 years incarceration or 14 in the case of the trafficking of a child.
The above provisions apply extraterritorially to Canadian citizens and permanent residents. It appears that any conduct by a business within Canada, or material benefits derived from exploitation occurring in Canada, could create criminal liability under these sections. But so could conduct outside of Canada by a Canadian, or material benefits derived from such conduct.
Criminal Code provisions relating to extortion (s. 346(1)), kidnapping (s. 279(1)) and forcible confinement (s. 279(2)) could also be relevant in extreme situations, although there is no provision in the Criminal Code for applying them to conduct outside Canada.
5. Class Actions and Regulator Scrutiny
A recent British Columbia Court of Appeal class action certification ruling raises a significant issue for companies making “modern slavery” statements under Bill S-211 or otherwise. The representative plaintiff in the proposed class action (the “Plaintiff”) argued that he and other members of the proposed class had been influenced to purchase grocery items associated with the two defendants (the “Defendants”), a U.S.-based candy manufacturer (the “Appellant”) and its Canadian subsidiary (the “Canadian Defendant”).
This ruling concerned the Appellant’s claim that the B.C. court lacked jurisdiction over it due to the lack of a real and substantial connection between the Appellant and British Columbia. The Court of Appeal agreed and dismissed the class action as regards the Appellant (the Canadian Defendant did not dispute the B.C. court’s jurisdiction in this hearing). Thus this ruling did not attempt to resolve the negligent misrepresentation issues themselves, the existence of which nonetheless provides some food for thought.
The Plaintiff’s notice of civil claim noted two publications of the Defendants:
- Their 2014 Corporate Social Responsibility Report, in which it was stated:
- that the Defendants were “actively involved in large-scale efforts that are committed to rooting out forced labour, especially forced labour” in their cocoa supply chain; and
- that they “have zero tolerance for the ‘worst forms of child labour’ in their supply chain” as defined under two different ILO conventions; and
- Their Supplier Code of Conduct, which stated:
- that the Defendants are “committed to the elimination of the ‘worst forms of child labor’;” and
- that certain forms of child labour are prohibited from their supply chain.
The Plaintiff then went on to assert that child labour and slavery are in fact “prevalent” in the Defendants’ supply chain in the developing world and that the impression to the contrary created by the documents referred to above is false and misleading to retail purchasers of Defendants’ chocolate products given that it is not corrected by any disclosures on the packaging.
Overruling the trial judge, the Court of Appeal held that the Plaintiff had not provided sufficient evidence of the facts surrounding the alleged misrepresentations to allow a B.C. court to take jurisdiction over the Appellant. Nor had the Plaintiff shown that the Appellant carried on business in the province, a fact that might also, in theory, have grounded an assertion of jurisdiction even if the tort had occurred elsewhere.
Nevertheless, the case against the Canadian Defendant is apparently proceeding. One takeaway from this is that, while it is natural to make optimistic and positive assertions in public statements, advertising or more formal types of disclosure, all such disclosure should be subject to proper diligence and support to avoid the risk of this type of exposure. Furthermore, while the viability of this type of negligent misrepresentation class action is not clear, there may be exposure under applicable Canadian securities laws that impose liability for both primary and secondary market disclosure, and risk of regulatory action. As the popularity of “ethical investing” creates real economic advantages for organizations with strong CSR records, supply chain transparency claims may come under the scrutiny of the Competition Bureau and securities regulators – much as has already happened with “greenwashing” controversies surrounding some corporate environmental claims (see our post on the Competition Bureau’s “Green Growth” summit and, with respect to securities regulators, CSA Staff Notice 51-364 Continuous Disclosure Review Program Activities for the fiscal years ended March 31, 2022 and March 31, 2021, at 9363-64).
The authors would like to thank Ryan Albaum and David Kumar, summer students in the Toronto office of Stikeman Elliott LLP, for their contributions to this article.