New Annual Reporting Requirements for Certain Organizations

In an effort to combat modern slavery, the Canadian government recently passed legislation which introduces new annual reporting requirements for certain entities and increase the scope of goods which cannot be imported into the country.

In recent years, we have seen many nations pass legislation aimed at curtailing the use of forced labour and child labour in companies' supply chains. After much governmental review and debate, Canada has followed suit, passing Bill S-211, the Fighting Against Forced Labour and Child Labour in Supply Chains Act ("Bill S-211") on May 11, 2023. This legislation introduces new reporting requirements for certain entities, broad enforcement powers, as well as changes to Canada's current import ban on goods produced using forced labour.

New Reporting Requirements

As a result of Bill S-211, certain organizations operating in Canada will now need to prepare and submit an annual report outlining the steps the organization has taken to prevent and reduce the risk that forced labour or child labour is used at any step of its supply chain during its previous fiscal year.

Scope of Entities:

This annual reporting requirement does not apply to all organizations operating in Canada. Rather, to be subject to this requirement the organization must meet both of the following requirements:

• Entity: To qualify as entity under Bill S-211, the organization must:
  • Be listed on the stock exchange in Canada; or
  • Have a place of business in Canada, do business in Canada, or have 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:
  • It has at least $20 million in assets;
  • It has generated at least $40 million in revenue; and
  • It employs an average of at least 250 employees; or
  • Is prescribed by regulation.

AND

• Activity: The entity must:
  • Produce, sell or distribute goods in Canada or elsewhere;
  • Import into Canada goods produced outside Canada; or
  • Control an entity engaged in either of the above activities.

Although these requirements do limit the scope of the reporting requirement to some extent, it remains broad enough to capture many medium and large size organizations who deal in goods in Canada. Importantly, there is no requirement that the organization be incorporated in Canada – so long as it does business or has assets in Canada, it may fall within the scope of the reporting requirement.

Report Requirements:

For those entities that must prepare a report, they can either do it alone or jointly with other related entities. Either way, the report must include the following information with respect to each entity:

• Its structure, activities, and supply chain;
• 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 must vulnerable families that result 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.

Both forced labour and child labour are defined terms, as follows:

• "Forced labour" means labour or service provided or offered to be provided under circumstances that:
  • Could reasonably be expected to cause the person to believe 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; or
  • Constitute forced or compulsory labour as defined in article 2 of the Forced Labour Convention, 1930, adopted in Geneva on June 28, 1930.
• "Child Labour" means labour or services provided or offered to be provided by persons under the age of 18 and that:
  • Are provided or offered to be provided in Canada under circumstances that are contrary to the laws applicable in Canada;
  • Are provided or offered to be provided under circumstances that are mentally, physically, socially or morally dangerous to them;
  • Interfere with their schooling by depriving them of the opportunity to attend school, obliging them to leave school prematurely or requiring them to attempt to combine school attendance with excessively long and heavy work; or
  • Constitute the worst forms of child labour as defined in article 3 of the Worst Forms of Child Labour Convention, 1999, adopted at Geneva on June 17, 1999.

Once the annual report has been filed, it will be publicly available online.

Timeline:

Although Bill S-211 was passed on May 11, 2023, it does not come into force until January 1, 2024. Once in force, the annual report must be submitted by May 31^st of each year, meaning the first report is due in just over a year, on May 31, 2024.

Organizations that are not currently required to prepare an annual report are encouraged to keep a close eye on their assets, revenues, and number of employees as should they subsequently meet the threshold, they will need to start preparing annual reports.

Enforcement Powers

Failing to file an annual report as required can result in hefty repercussions. Bill S-211 provides broad enforcement powers and penal measures to help ensure compliance.

On the enforcement side, a "designated" person will be able to enter any place for the purpose of verifying compliance where they have reasonable grounds to believe the reporting requirement may apply. Upon entry, they will have very broad search and seizure powers. A warrant is not required, unless it is a search of a residential house.

If an entity or person is found to be offside the reporting requirement, they can be charged with a summary offence and fined up to $250,000. In certain circumstances, directors and officers may be held personally liable for these offences.

Changes to Canada's Import Ban

Bill S-211 does not just add the annual report requirement. It also changes Canada's existing import laws which prohibit the importation of good produced by forced labour.

In 2020, the Customs Tariff was amended in accordance with the new United States-Mexico-Canada Agreement ("USMCA") to prohibit the importation of goods mined, manufactured or produced wholly or in part by forced labour. The Canada Border Services Agency ("CBSA") has authority to detain for inspection shipments containing goods suspected of being produced by forced labour. If determined to be produced by forced labour, the CBSA has authority to change their tariff class and prevent the goods from entering Canada.

Although, to date, this power has rarely been exercised by the CBSA, Bill S-211 broadens the scope of goods which may be caught to include goods mined, manufactured, or produced by either forced labour or child labour. It is speculated that, between the expansion of the goods caught and the current spotlight being placed on the topic by the government and public alike, we may see an increase in the CBSA exercising its power to detain, inspect, prohibit goods from entering Canada or even seize goods that have been unlawfully imported.

Takeaways

These legislative changes have the potential to impact organizations of all sizes, across all industries. The impact upon entities required to prepare an annual report is undoubtedly significant. They will be required to scrutinize their supply chain and business practices and policies, before preparing a report that will be publicly available. Aside from the time and cost of preparing the report, if the process of preparing the report reveals deficiencies in the entity's supply chain practices and policies, serious consideration should be given to how to remedy these deficiencies given the public nature of the report and potential for reputational harm.

However, organizations which are not required to prepare an annual report may still feel the knock-on effects of these legislative changes. If search and seizure of imported goods is increased, this may have significant impacts on any organization that deals in or relies upon imported goods.

Further, it has been indicated by the Canadian government that this legislative change is just the first step, and more changes may be afoot to further prevent the use of goods produced by child and forced labour in Canada.

Organizations of all sizes would do well to scrutinize their supply chain and ensure their practices and policies are up to snuff. To get a better understanding on how these changes may impact your organization, please reach out to Lee Workplace Law. We would be happy to assist.