On New Year’s Day, 2024, Canada’s new Fighting Against Forced Labour and Child Labour in Supply Chains Act will enter into force. When it does, Canada will join several of its peer countries in implementing legislation to combat forced labour or what is often referred to as “modern slavery.” But Canada’s legislation will go beyond that of its peers to the extent that our nation will seemingly become the first country to impose a prohibition on the importation of goods manufactured or produced in whole or in part with child labour.

Although the above would seem to be significant achievements that place Canada at the forefront of the global movement against forced and child labour, the response to the passing of the Act has been muted or even negative. As a Breach Media report noted, there is “a chorus of critics who say the bill is not only toothless, but it comes at a time when other countries have found effective ways to combat slave labour. And worse, it could even serve as a smoke screen that delays further action.”

Criticism of the legislation appears to be attributable to the framing of the Act, by both supporters and critics, as “transparency” or “reporting” legislation, which requires only the filing of annual reports. This is in contrast to more onerous “due diligence” legislation implemented by some countries such as Norway, which requires businesses to take actions to address any findings of forced labour in their supply chains.

However, when read in light of other obligations and broader socio-legal developments, it is clear that this legislation will impose serious and substantial obligations on businesses, particularly the largest and most influential, and therefore has the genuine potential to shift corporate behaviour. These other obligations and developments include:

• the trend of foreign claimants pursuing Canadian corporations in domestic courts for human rights violations abroad
• the prohibition on the importation of goods mined, manufactured, or produced using forced or child labour
• shareholder expectations related to environmental, social, and corporate governance (ESG) factors

The Movement Against Forced and Child Labour

While international movements against forced and child labour have long been active, more recently, organizations such as the International Labour Organization, the United Nations, and World Vision have drawn attention to the issue, often through references to “modern slavery.” This is an umbrella term used to refer to situations in which workers are exploited through the threat of violence, coercion, deception, abuse of power, or forced marriage.

In response to calls for action, jurisdictions such as the United Kingdom, France, and Norway have passed legislation imposing reporting and/or due diligence requirements upon businesses. Canada took steps to combat forced labour through trade deals such as the Canada-United States-Mexico Agreement, the establishment of the Canadian Ombudsperson for Responsible Enterprise, and the introduction of various Parliamentary bills aimed at addressing forced and/or child labour (though none of them passed).

Despite these efforts, Canada has increasingly received negative media coverage related to what critics see as a lax commitment to fighting the importation of forced-labour goods. In fact, as a major trading partner to the world’s largest economy, Canada was highlighted last year by Uyghur activist Omer Kanat as a hole in U.S. efforts to address “modern slave labour.”

During the 2021 federal election campaign, promising to better address the issue was part of both Liberal and Conservative political platforms. In 2020, with the Liberals in power, 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—was introduced in the Senate (where it had previously been introduced as Bill S-216 in 2020). This legislation was passed in April 2023.

Application and Obligations

The Act has wide application to businesses with operations or assets in Canada, which was the intention of legislators. This is in contrast to some other jurisdictions, such as the UK, where the equivalent legislation applies only to the largest companies.

Any company listed on a Canadian stock exchange falls within the purview of the Act. The legislation also covers any venture that has a place of business in Canada, does business in Canada, or has assets in Canada and that meets at least two of the following three size requirements based on consolidated financial statements for one of the last two years:

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

So long as these businesses produce, sell, or distribute goods in Canada or elsewhere or import goods into Canada, they will be required to file an annual report. In addition to submitting these reports to the government, companies must post them publicly on their websites and distribute them to shareholders in the case of companies incorporated under the Canada Business Corporations Act.

These reports must detail steps taken during the previous year to prevent and reduce the risk that forced labour or child labour is used in the issuer’s supply chains. They must also include information concerning:

• the report issuer’s corporate structure, activities, and supply chains
• policies and due diligence processes related to forced labour and child labour
• identified parts of the business and its supply chains that carry risk related to forced or child labour being used
• steps taken to assess and manage the identified risks
• any measures taken to remediate forced labour or child labour
• any measures taken to remediate the loss of income (to the most vulnerable parties) resulting from any remediation measures taken
• training provided to employees concerning forced and child labour
• how effectiveness in ensuring that forced and child labour are not being used in their business and supply chains is assessed

For many businesses, creating an annual report meeting these requirements will be a demanding undertaking because they will need to peer deeply into their supply chains, which may span multiple jurisdictions and continents.

More than Transparency Legislation

As noted above, Bill S-211 has been characterized as mere “reporting” or “transparency” legislation, as opposed to more onerous “due diligence” legislation. As a result, critics ranging from the NDP to human rights organizations have refused to support it. Instead, critics have generally thrown their support behind proposed legislation such as Bill C-262, which would require Canadian companies to avoid any “adverse impacts” on human rights, and create a private right of action for persons who have suffered loss resulting from the actions of companies that fail to comply.

It cannot be disputed that the primary obligation of Canada’s new forced-labour law is the creation and filing of an annual report. However, when the Act is understood more broadly in terms of its purposes, and the way its reporting obligation intersects with other obligations under the Act and other legal developments, as well as ongoing developments in ESG, it forms part of a substantial legal framework that is designed to remove forced and child labour from production supply chains, whether the goods are produced in Canada or abroad.

Keep in mind that the purpose of any reporting regime is to encourage change through transparency. In recent decades, corporate supply chains have become increasingly complex and opaque—even to purchasing companies—and companies now have a legal obligation to examine their supply chains beyond Tier 1 and Tier 2 suppliers. Furthermore, the requirement that companies make their annual reports publicly available immediately invites scrutiny from both the public and investors (in the case of federally incorporated public companies), which will put pressure on companies to make good faith efforts to closely scrutinize their supply chains.

And while the language of the Act does not legally require companies to take action if they find forced or child labour in their supply chains, it is naïve to think that most companies would, or indeed could, take no action. The drafting of the legislation itself makes clear that entities are expected to take action, as the covered entities must note in their annual reports any measures taken to remediate any forced labour or child labour, as well as 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. Additionally, the obligation to detail any such findings in publicly available reports gives rise to potentially significant reputational harm, the material loss of shareholder value, and legal exposure.

The reporting requirements in the Act also act synergistically with other legal developments, including the trend for foreign victims to pursue civil claims in Canadian courts against Canadian corporations for violations of human rights abroad, including the use of forced labour, as well as the prohibition in the Customs Tariff on the importation of goods produced in whole or in part with child and/or forced labour. Therefore, any notice in an annual report that a company has found forced or child labour in its supply chains increases the risk of civil claims being brought against it and effectively renders goods inadmissible to Canada and invites seizure by the Canada Border Services Agency.

For corporate boards, the risks associated with finding forced or child labour in their supply chains creates a strong incentive to scrupulously review their supply chains and take immediate corrective action if any forced labour or child labour is found. After all, while businesses routinely accept varying degrees of risk, there are few that will want to risk suffering the serious losses—ranging from weakened shareholder demand to seizure of goods—that would flow from being associated with the use of child or forced labour.

Given the new obligations that will be imposed by Canada’s new forced-labour law next year, businesses should be deeply examining their supply chains while thinking about reshaping them to reduce risk. This could include revising contractual arrangements to incorporate codes of conduct, labour standards, third party audits, and risk allocation mechanisms. While doing this, businesses should also note the trajectory of global reform.

Bill S-211 is but a reflection of rising expectations amongst investors and legislators who want businesses to take ESG seriously when managing their operations. And for business leaders, that means all eyes are on your human rights footprint and the internal compliance cultures you put in place to meet emerging regulatory demands.