Mar 20, 2023
If Proposed Bill S-211 Passes, is Your Business Ready to Join the Fight Against Forced Labour and Child Labour in Supply Chains?
By Daniel Katzin
The Canadian federal government has proposed 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 (“Bill S-211”) to promote transparency and reporting, and 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. Bill S-211 was passed in third reading by the Senate on April 28, 2022, and is currently in its third reading in the House of Commons. If it comes into force, Bill S-211 would impose new reporting obligations on private-sector entities producing, selling or distributing goods in Canada or importing into Canada goods produced outside Canada.
The past few years have seen a significant increase in consumer, government and investor scrutiny on Environmental, Social and Governance (“ESG”) issues. As awareness of the impact of businesses on the planet and society grows, customers and investors are more concerned about where they spend their money and the corporations in which they invest. In line with these trends, and as discussed in the recent March 6th debates of the third reading of Bill S-211 in the House of Commons, it is expected that Bill S-211 will heighten the requirement for compliance as corporations will have to worry about reputational damage, government investigations, consumer disapproval and increased financial costs for non-compliance and additional financial risk.
What New Reporting Requirements Does Bill S-211 Impose?
Under Bill S-211, certain private entities would be required to disclose information about their efforts to prevent and reduce the risk that forced labour or child labour is used in their production of goods in Canada or elsewhere, or of goods imported into Canada by such entities. In accordance with its goal of increased transparency, Bill S-211 would require every such entity to make an annual Supply Chain Risk Report (“Report”) to the Minister of Public Safety and Emergency Preparedness on or before May 31st of each year. An entity would also be required to make its Report available to the public, including by publishing it in a prominent place on its website. Any entity that is incorporated under the Canada Business Corporations Act or any other Act of Parliament would need to provide its Report to its shareholders, along with its annual financial statements.
Who is Subject to the Reporting Requirements Proposed by Bill S-211?
Bill S-211’s definition of an “entity” subject to the reporting requirement is specific and encompasses a corporation, trust, partnership or other unincorporated organization that (1) is listed on a Canadian stock exchange; or (2) 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:
(a) it has at least $20 million in assets,
(b) it has generated at least $40 million in revenue, or
(c) it employs an average of at least 250 employees.
Alternatively, a corporation, trust, partnership or other unincorporated organization may be designated as an entity as prescribed by regulations.
What Must be Included in a Supply Chain Risk Report?
A Report would highlight the steps the entity has taken during its previous financial year to prevent and reduce the risk that forced labour or child labour was 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. A Report must include the following information regarding the entity:
- its structure, activities and supply chains;
- its policies and its 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.
What are the Consequences for Failing to Comply?
Entities that fail to comply with this obligation may be found guilty of an offence punishable on summary conviction and may face fines of up to $250,000. Additionally, the Minister of Public Safety and Emergency Preparedness may also require entities to take measures to ensure compliance with the reporting requirement of Bill S-211.
Importantly, a Report must be approved by the governing body of an entity. In the case of a corporation, the governing body would be its board of directors. By requiring the governing body of an entity to approve the Report, Bill S-211 effectively ensures that the directors of an impacted corporation will exercise their fiduciary duty to act in good faith and honestly when signing the Report.
Additionally, the proposed Bill imposes personal liability on directors, officers or agents who direct, authorize, assent to, acquiesce or participate in committing an offence under Bill S-211. Employees and agents of an entity are presumed to act on behalf of their employer when they commit such offences, unless the employer can establish that they exercised due diligence to prevent the commission of the offence. These expanded accountability measures are intended to ensure that Canadian entities do not engage in child and forced labour at any stage of their production process.
What Steps Can You Take to Get Ready for Bill S-211’s Passing?
While Bill S-211 is not yet law, entities that may be subject to the legislation can prepare for its potential passage. Firstly, this would involve collecting, or creating an internal reporting system to be able to collect, the necessary information required to comply with Bill S-211’s proposed reporting requirements. More importantly, businesses can prepare by proactively addressing the underlying objectives of Bill S-211 to prevent and reduce the risk of forced labour and child labour in Canadian business operations and supply chains. For example, businesses could conduct internal audits and complete further due diligence on existing supply chains to identify and be able to address areas of risk. Businesses can also develop policies and procedures to prevent and address child labour and forced labour in their operations and supply chains.
Consumers are increasingly educated about the impact of their purchases on the environment and society, and they expect corporations to be transparent about their practices. This has led to a surge in demand for sustainable and socially responsible products and services, as customers are willing to pay a premium for corporations that align with their values. Investors are also paying closer attention to ESG issues, as they recognize the potential financial risks and opportunities associated with sustainability. Ultimately, corporate transparency is key to building trust with customers and investors.
Bill S-211 represents an important step forward in Canada’s efforts to combat child labour and forced labour. Businesses that may be subject to the legislation should take proactive steps to identify and address potential risks in their operations and supply chains, and prepare to comply with the new reporting obligations if Bill S-211 receives Royal Assent and becomes law.
For more information on corporate compliance and how to navigate obligations that may arise from Bill S-211, please contact a member of the Business Law Group at Torkin Manes LLP.
The authors would like to acknowledge Torkin Manes Articling Student, Lavaniya Rajah, for her contribution to drafting this article.