Canada’s Modern Slavery Bill Nears Final Approval: New Reporting Requirements Are Coming

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Canada’s proposed “modern slavery” legislation – the Fighting Against Forced Labour and Child Labour in Supply Chains Act (“New Act”) – is currently awaiting consideration by the House of Commons Standing Committee on Foreign Affairs and International Development. Once passed, the New Act could become law as early as January 1, 2023, creating new reporting obligations for many Canadian businesses across all sectors, including many Canadian-listed public companies and potentially foreign businesses that do business in Canada. The reports will be accessible to the general public.

Please note that this post is based on the Second Reading version of the New Act. It is possible that the final form of the legislation will differ from what is described below.

What You Need To Know

The New Act is part of Bill S-211, which passed Second Reading in the House of Commons on June 1, 2022. While broadly similar to the other modern slavery bills that Parliament has considered in recent years, some of its requirements are more onerous than the corresponding requirements in those bills.

Briefly, the New Act:

  • Requires a publicly accessible report to be made about each entity’s corporate structure and supply chains, as well as of measures taken with respect to forced labour and child labour. The extent of disclosure may be more than some companies are expecting.
  • Applies to Canadian-listed companies and other entities that meet a size threshold (any two of: $40 million revenue, $20 million assets, 250 employees).
  • Might apply to a foreign business that meets the size threshold globally, even if its Canadian operations do not meet the threshold independently.
  • Extends the reporting obligation to entities that produce, sell, distribute or import goods into Canada, with no de minimis exception – even entities that deal only incidentally with goods will need to consider whether a report is required.
  • Includes some special rules for corporate groups, including a provision that allows a single report to be filed on behalf of multiple entities.
  • Includes warrantless search
  • Creates a maximum penalty of $250,000, which can apply to the entity itself or to corporate directors, officers and other individuals.
  • Could become law as early as January 1, 2023, with the first Annual Report due (in that case) on May 31, 2023.

Which Businesses Must File Reports?

Determining whether an entity has obligations under the New Act will generally involve two tests.

First Test

First, the organization must determine whether it falls under the definition of “entity” in the New Act, which applies to:

  • Any listed entity (on a Canadian stock exchange);
  • Any other corporation, or to any trust, partnership or other unincorporated organization, that in at least one of its two previous financial years, has met at least two of the following three conditions (the “Size Threshold”):
    • C$20 million in assets;
    • C$40 million in revenue; and
    • 250 employees (on average); and
  • Any other entity that may be prescribed by regulation.

Note: This could potentially apply to non-Canadian entities with a nexus of some sort to Canada.

The Size Threshold applies to any corporation, trust, partnership, or other unincorporated organization that “does business in Canada” and/or has assets or a place of business in Canada. This appears to bring foreign entities within the ambit of the New Act and it is noteworthy that the definition of the Size Threshold does not state that the asset, revenue and employment figures on which it is based refer to assets, revenue or employees in Canada. It is hoped that the application of this test to non-Canadian entities will be addressed prior to implementation.

Second Test

An organization that is an “entity” under the First Test will have a reporting obligation if it does any of the following (“Qualifying Activities”):

  • Produces, sells or distributes goods in Canada or elsewhere;
  • Imports into Canada goods produced outside Canada; or
  • Controls an entity that does either of the above.

While some key terms are left undefined, the proposed legislation does provide definitions for the following:

  • “Production of goods” is defined to include “the manufacturing, growing, extracting and processing of goods”.
  • “Controlled by another entity” is defined broadly, as direct or indirect control “in any manner”. Any entity that controls another entity is deemed to control any entities controlled by that other entity.

Note: This could potentially apply to entities that deal in goods only incidentally

In its current form, the New Act does not include any de minimis threshold or exemption with respect to the Qualifying Activities. As such, an entity may have a reporting obligation even if the production, sale, distribution and/or importation of goods is not its core business. For example, a services business might need to consider whether the importation of office supplies for its internal use could trigger a duty to report.

Note: Distributors are now included

A key change from previous versions of this legislation is that the New Act includes the distribution of goods in the list of Qualifying Activities.

The Reports: Form and Content

Every entity must file a report (“Annual Report”) with the Minister of Public Safety and Emergency Preparedness (“Minister”). As discussed below, it is also possible to submit a revised report (“Revised Report”) that updates or corrects the Annual Report.

Focus on avoidance of child labour and forced labour

The Annual Report must report on the steps taken during the 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 definitions section of the New Act includes definitions of “child labour” and “forced labour”. “Child labour” is broadly defined to include labour by persons under the age of 18 years that has any of a range of negative impacts, including (for example) physically dangerous work and work that interferes with schooling. “Forced labour” includes labour performed under duress, e.g. under the reasonable expectation that the personal safety of the labourer or another person would be threatened if they failed to perform the labour. The complete definitions and underlying international conventions should be consulted with respect to the meaning of these terms.

Required information

In addition to describing specific steps taken during the financial year, the Annual Report must include the following information in respect to each entity covered by the report (the language is taken directly from section 11(3) of the proposed legislation):

  • Its structure, activities and supply chains;
  • Its policies and due diligence processes in relation to forced labour and child labour;
  • 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;
  • Any measures taken to remediate any forced labour or child labour;
  • 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;
  • The training provided to employees on forced labour and child labour; and
  • How the entity assesses its effectiveness in ensuring that forced labour and child labour are not being used in its business and supply chains.

While no specific format is set out in the New Act, the Minister may issue a public written statement that sets out the required form and manner of reporting.

Extent of public disclosure of structure, activities and suppliers

The content of the Annual Report has been expanded considerably from previous “Modern Slavery” bills. One potentially significant change is a result of what initially appears to be a minor change in wording: while the previous version of the legislation required only that “information respecting” each entity’s structure (etc.) be provided, the corresponding section in the New Act states that each entity must provide “the following information …: its structure, activities and supply chains”.

The new wording could be understood to require something more than just unspecified “information respecting” an entity’s structure (etc.) – for example, to be requiring that precise information identifying each entity’s suppliers and setting out its corporate structure be made available in these public documents. It is hoped that additional clarity about this aspect of the Annual Report will be available before the first reports are to be filed.

Revised reports

An entity may submit a Revised Report provided that the approval process outlined above has been followed and provided that the report includes a description of the changes made to the original report.

There is no explicit restriction on the reasons for which a Revised Report may be submitted and the provision of such a report is always at the option of the company.

The Reports: Timelines, Processes and Access

Timelines

The period of the Annual Report is the entity’s financial year. The filing deadline is the following May 31.

Joint filing process

A single Annual Report may be filed on behalf of multiple entities (“Joint Report”), although information must still be broken down by entity within that report. There is no express requirement that the multiple entities be related in any particular way.

Internal approval process

The New Act requires that entities filing a report include specific steps in their internal approval process.

Approval by board of directors (or other governing body)

The Annual Report must be approved by the “governing body” of each entity to which the report applies, except in a case where, in a Joint Report, one entity controls each of the others – in that circumstance, only the governing body of the controlling entity need approve the report. “Governing body” is defined as “the body or group of members of the entity with primary responsibility for the governance of the entity.”

Attestation

The approval of the governing body or bodies must be attested by a statement that sets out whether the report is a single-entity or a joint report. The signature of at least one member of the governing body – or of each governing body, in the case of a joint report – is also required.

Distribution to shareholders (CBCA corporations)

Any federally incorporated entity, including Canada Business Corporations Act (“CBCA”) corporations, must provide its Annual Report, and any Revised Report, to each of its shareholders along with its annual financial statements.

Public access to the reports

The Annual Report or any Revised Report must be made available to the public, including by publishing it in a prominent place on the entity’s website. As noted under “Administration of the New Act”, below, all reports will also be available on the website of the Department of Public Safety and Emergency Preparedness.

Administration of the New Act

The New Act will be administered by the Minister of Public Safety and Emergency Preparedness, who will be required to maintain an electronic registry, available to the public, that includes copies of all submitted reports. The Minister is required, on an annual basis (generally on or before September 30), to table a report in Parliament that sets out the particulars of any charge laid under the New Act. This report will be posted on the Minister’s website.

Compliance Orders

The New Act provides for warrantless searches (and searches with warrants of dwelling places) for the verification of compliance with the Report requirements. As a consequence of such a search, the Minister may issue an order requiring the entity to take any measures required to bring its report into compliance, including with respect to its public availability.

Offences

Offences under the New Act fall into two categories:

  • Offences directly related to the Annual and Revised Reports; and
  • Offences related to a search of premises in verification of compliance with the New Act.

Directly related to the reports

A person or entity that fails to comply with certain provisions relating to Annual and Revised Reports, including the requirement to make them publicly available, is liable to a fine on summary conviction of up to $250,000.

Related to conduct during a search

A fine of up to $250,000 also applies to persons or entities that obstruct or fail to cooperate with a search conducted to verify compliance.

Attribution of offences to other persons or entities

Two provisions of the New Act attribute offences to persons or entities other than those that actively committed them:

  • An entity’s directors, officers, agents and mandataries are parties to and guilty of an offence, and subject to a fine of up to $250,000, to the extent that they directed, authorized, assented to, acquiesced in or participated in its commission; and
  • If an offence is committed by an agent, mandatary or employee of the “accused” (presumably the entity), it will also be considered an offence by the accused regardless of whether the employee, agent or mandatory has been identified or prosecuted, unless the accused establishes a due diligence defence.

Application to Government Institutions

In contrast with previous versions of this legislation, the New Act will apply to any government institution that produces, purchases or distributes goods in Canada or elsewhere. The reporting requirements for government institutions are similar to those that apply to business entities, although the “Offences and Punishment” section does not apply to them.

Customs Tariff Amendment

Bill S-211 makes minor amendments to the Customs Tariff and to tariff item 9897.00.00 to ensure that the provisions that currently concern the importation of goods produced by “forced labour” are updated to conform to the broader definitions and concepts in the New Act.

Next Steps

The New Act must still go through Committee stage and Third Reading in the House of Commons. If it receives Royal Assent in 2022, it will come into force on January 1, 2023. Otherwise, it will come into force on January 1 of the year following Royal Assent.

Because this legislation could potentially be in force as early as January 2023, businesses that qualify as “entities” should anticipate the possibility of having to file their first report by May 2023, while bearing in mind that the current version of Bill S-211 may differ from the finalized version and that the passage of the New Act in any form is not a certainty.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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