Canada Ramps Up Efforts to Eliminate Forced and Child Labor in Supply Chains

On May 3, 2023, the Canadian Parliament passed a bill (Bill S-211) focused on environmental, social and government (ESG) policy, entitled “An Act to Enact the Fighting Against Forced Labour and Child Labour in Supply Chains Act and to Amend the Customs Tariff” (Act). The bill received royal assent on May 11 so that it will become effective on January 1, 2024.

The Act implements Canada’s international commitment to contribute to the fight against forced and child labor by imposing reporting obligations on entities (and government institutions) that produce goods in Canada or elsewhere or import goods produced outside Canada.

The passage of the Act creates a compliance imperative for Canadian businesses to enhance their due diligence measures and proactively identify and eliminate forced and child labor in their supply chains. Specifically, businesses that fall within the scope of the new rules will be required to file detailed annual reports on the measures they have taken to identify, address and prevent forced labor, prison labor and child labor in any step of their supply chains. The reports will be provided to the Minister of Public Safety and Emergency Preparedness, with the first report due on or before May 31, 2024.

These new obligations under the Act will apply to any private entity that imports, produces, sells or distributes goods into or within Canada, or controls an “entity” that carries out any of the above activities.

An “entity” for these purposes is defined as an organization that:

• Is listed on a Canadian stock exchange;
• Has or carries out business in Canada and meets two of the three following criteria in the last two years:
• Has at least CAD 20 million in assets;
• Generates at least CAD 40 million in revenue; and/or
• Employs an average of at least 250 employees in the last two years; or
• Is specifically listed by regulations (the list does not yet exist).

Required Information

• The report will have to include information regarding the entity’s:
• Structure, activities and supply chains;
• Policies and due diligence processes related to forced and child labor;
• Business and supply chain components that carry risks of forced and child labor, along with the steps taken to manage that risk;
• Measures taken by the entity to remediate the loss of income to the most vulnerable families that results from its measures to eliminate the risk of forced or child labor;
• Training provided to employees; and
• Assessment of its effectiveness in ensuring that forced and child labor are not being used in its business and supply chains.

The annual report must be made publicly available, with the entity publishing each report in a prominent place on its website. Federal corporations must also provide these reports to their shareholders together with their financial statements. Every filed annual report will be posted on an online register maintained by the Canadian government.

Enforcement and Penalties

To enforce the Act, government officials have the ability to enter and search an entity’s property and remove anything for the purpose of verifying compliance without a warrant, unless it is a residence.

Any entity or person that is required to file an annual report but fails to do so, obstructs a designated official or fails to comply with an order from the Minister will be found guilty of a summary offence and liable to fines of up to CAD 250,000. Notably, directors, officers and others who direct, authorize, assent to, acquiesce or participate in an offence under the Act may be held personally liable.

Takeaways

The new forced and child labor act is another example of governments enacting legislation compelling importers to eliminate force labor in their supply chains and underscores the importance eliminating this practice to various governments. The U.S. Uyghur Forced Labor Prevention Act (UFLPA) that became effective on June 21, 2022 creates a presumption of forced labor for any goods made in whole or in part with inputs from the Xinjiang Autonomous Uyghur Region (for prior coverage, see the tax alert dated June 24, 2022). And on March 17, 2023, Mexico introduced a new resolution banning the importation of goods into that country that are produced by forced labor. The resolution becomes effective on May 18, 2023.

The new Canadian law does not require companies to take actions to prevent the use of forced or child labor because the importation of such goods into Canada is already illegal under Canada’s “Customs Act.” However, new act extends the import prohibition to the importation of goods made with child labor.

Companies should consider taking actions now to prepare for the reporting requirements that will commence in 2024. Such actions could include:

• Conducting supply chain mapping, along with risk assessments;
• Creating, reviewing, updating and implementing policies related to forced or child labor and remediation; and
• Developing or updating training and education for employees regarding forced and child labor.

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