Under these rules, affected entities must report on their efforts to mitigate the use of forced and child labour at any point within their supply chains. Failure to do so may result in consequences that could include hefty financial penalties, criminal prosecution, and reputational damage.
As these rules are new and complex, it’s important to consider how confident you are in verifying each segment of your business’ supply chain. Our advisors can help you navigate these rules carefully and avoid severe repercussions for non-compliance. Even if your business isn’t required to comply, these rules present an opportunity for all businesses to demonstrate their position on human rights and leadership in corporate responsibility, and help your clients and stakeholders verify the integrity of their supply chains.
These new rules, which became law when Bill S-211 received Royal Assent on May 11, 2023, will come into force on January 1, 2024. Affected entities are required to file their first annual report on or before May 31, 2024, covering the entity’s previous financial year.
Is your business an affected entity?
Certain corporations, partnerships, trusts, and unincorporated organizations have annual reporting obligations under the new rules.
Specifically, these entities have reporting requirements if they produce, sell, or distribute goods (in Canada or elsewhere), import goods into Canada, or control (directly or indirectly) another entity involved in any of these activities and either:
- have a place of business in Canada, assets in Canada, or do business in Canada and meet at least two of the following criteria in one of the past two fiscal years:
- $20 million or more in assets
- $40 million or more in revenue
- 250 employees or more (on average); or
- are listed on a Canadian stock exchange.
These thresholds are assessed on a consolidated basis; however, reporting extends to all business entities in a group that meet the above criteria.
Reporting obligations also apply to federal government institutions that produce, purchase, or distribute goods in Canada or globally, regardless of their size.
How do the rules apply to affected entities?
Affected entities must develop an annual supply chain risk report, submit it to the Minister of Public Safety and Emergency Preparedness, and publish the report prominently on their website. This report, which must be approved by the entity’s board, should address efforts to prevent or reduce the risk of forced labour in the supply chain, as well as outline policies, employee training, and other steps taken to prevent forced labour, among other details.
The report must also include information about the entity’s:
- structure, activities, and supply chains;
- policies and due diligence processes in relation to forced, and child labour;
- parts of its business and supply chains that carry a risk of forced or child labour, and the steps taken to assess and manage that risk;
- measures taken to remediate any forced labour or child labour;
- measures taken to remediate the loss of income to the most vulnerable families that are affected by the elimination of forced or child labour in its activities and supply chains;
- training provided to employees on forced and child labour; and
- methods for assessing its effectiveness in ensuring that forced and child labour aren’t being used in its business and supply chains.
An affected entity that fails to comply with these new rules could face penalties up to $250,000. In addition, individuals such as directors and officers of affected entities, could also be subject to fines and criminal prosecution.
What can businesses do to prepare?
These new rules present an opportunity for all organizations to bring transparency to their supply chain, even if they aren’t affected by reporting requirements. Our team can help you:
- perform enhanced due diligence on your supply chain and analyze potential risks
- support the development of a sustainable process related to compliance with this legislation, and assist you with integrating it into your existing environmental, social and governance (ESG) strategy
- develop and implement internal policies around preventing forced and child labour
- introduce an anonymous whistleblower hotline within your organization for employees and suppliers
- provide training and education to boards and employees on the legislation and its reporting requirements
- support the development of your report
Navigating these rules can be complex—but we’re here to help. Canadian businesses, government institutions, and importers should prepare now for these changes and bolster their processes to avoid disruption of shipments into Canada and significant repercussions for non-compliance. In addition, businesses could view these rules as an opportunity to demonstrate their position on human rights and safety among global labour forces.