Reporting obligations under new Canadian modern slavery legislation: What does a multinational business need to know?

Around the world, governments continue to pass meaningful legislation to combat the spread of forced labor and modern slavery within the global economy. The industry generates more than $150 billion per year and entraps millions in involuntary servitude, debt bondage, human trafficking, and child labor, often in global supply chains.

As such, staying abreast of the myriad developing laws surrounding modern slavery and supply chain management is critical for companies. Compliance officers must be attuned to changes in laws and their impact on the company’s compliance controls.

Following the passage of California’s 2012 Transparency in Supply Chains Act of 2010, the UK and Australia each passed their own supply chain transparency laws – and Canada is the latest country to follow suit. Multinationals that operate in Canada must now consider the impact of a new regulation on their operations.

In this issue of Practical Compliance, we take a concise look at the new regulations and what they mean for those who do business in Canada.

Background

In May 2023, Canada enacted its first modern slavery legislation: An Act to enact the Fighting Against Forced Labor and Child Labor in Supply Chains Act and to amend the Customs Tariff (the Act or Canadian Modern Slavery Act). Under this Act, companies subject to the legislation will be required to file an annual report with the Minister of Public Safety and Emergency Preparedness ‎of Canada as early as spring 2024. The report must, among other things, describe the modern slavery risks within the organization, as well as the risk mitigation measures implemented to address them.

National legislative measures to combat modern slavery in global supply chains have typically followed one of two approaches: imposing reporting requirements to increase transparency within organizations or mandating that businesses with global supply chains implement due diligence measures.

Canada has opted for the first approach, enacting legislation largely modeled on the UK Modern Slavery Act and California Transparency in Supply Chains Act. Both legislations require companies to make data available to consumers regarding an organization’s efforts to eradicate modern slavery from their supply chains, ostensibly fostering better-educated purchasing decisions and promoting responsible business practices.

To produce a meaningful report, your company will need to take concrete steps to gather the required information. There are various resources and tools available to support companies in their efforts to prevent modern slavery in their operations and supply chain. Below are suggested questions companies should consider in preparing responses.

Is your company required to file an annual report under the Canadian Modern Slavery Act?

The Canadian Modern Slavery Act applies to most companies that do business in ‎Canada.‎ The Act applies to “entities” that produce, sell, or distribute goods, ‎either in Canada or abroad, or that import goods into ‎Canada.

The Act defines “entities” as companies who (i) are listed on ‎a Canadian stock exchange, (ii) have a place of business in Canada, (iii) do business ‎in Canada, or (iv) have assets in Canada.[1] Companies not listed in Canada will only be deemed “entities” if they also meet at least two of the ‎following three criteria based on their consolidated financial statements over ‎the last two financial years:‎

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

In its current form, the Act does not specify whether the three criteria above ‎will apply only to the Canadian activities of the business ‎or if they will be applied to the company’s global operations. In the absence of clarifying guidance or legislation, companies should err on the side of caution and take the ‎necessary measures to closely review the Act’s requirements to determine how they apply to their entire global organization.‎

Notably, companies that control these entities must also comply with the requirements ‎of the Act. In other words, a foreign parent company that itself qualifies as an entity as defined above will also need to comply.

What must your company's annual declaration under the Canadian Modern Slavery Act include?

Reporting entities are required to produce an annual report to the Minister by May 31 of each year beginning in 2024. This report shall describe the steps taken during its previous financial year to prevent and reduce the risk that forced or child labor is used within their operation and supply chain, whether in Canada or abroad. Specifically, the report shall include the following:

• Its business structure, activities and supply chains
• Relevant due diligence policies and processes
• Parts of its business and supply chains that carry a risk of using forced or child labor and the steps taken to mitigate them
• Training provided to employees
• Steps taken to address any use of forced and child labor
• Measures taken to remediate the loss of income to the most vulnerable ‎families that may be affected by those steps taken to eliminate the use ‎of forced and child labor, and
• How the entity assesses the effectiveness in ensuring that forced and child labor are not being used.

The Canadian government will make a copy of these annual reports available to the public. Each reporting entity must publish its report in a prominent place on its company website.

The parent company or certain subsidiaries are already required to produce annual reports under modern slavery legislations in force in other countries, such as the UK and Australia. Can my business produce a single report covering all reporting entities in its corporate structure and these other jurisdictions?

In short, yes, companies will be able to produce a single report – at least under Canadian laws. The Canadian Modern Slavery Act explicitly allows reporting entities to produce a joint report, provided the report is approved and/or signed by each individual impacted entity.

Practically, while it may be more convenient for companies to produce a single report to comply with their obligations, companies that choose this route should be cautious. Although the content required in each report is similar, there are important differences in content that should not be overlooked, as well as different approval and signature requirements and filing deadlines.

Companies seeking a one-size-fits-all approach should familiarize themselves with these differences and ensure their report complies with the requirements in all impacted jurisdictions.

What are the penalties for non-compliance with the Canadian Modern Slavery Act?

In contrast with the California, UK, and Australian regimes, the Canadian Modern Slavery Act enacts severe penalties for non-compliance. Failure to produce, publish, or make available an annual report or obstructing or failing to assist in an investigation is an offense punishable by fines up to CAD250,000. Similar fines can be imposed in the event of any knowingly false or misleading statements.

Directors, officers, or agents who directed, authorized, assented to, or participated in any violation of the Act may also be held liable and are subject to similar penalties.

What should a multinational organization do to prepare for filing these reports?

Complying with modern slavery laws, including the Canadian Modern Slavery Act, is more than just a checkbox exercise. Advance planning is critical, and companies are encouraged to start planning now to gather and produce the data and information they will build into the disclosure.

As an illustration, it would be particularly challenging for a reporting entity to identify the parts of its business and supply chain that carry modern slavery risk without having conducted a thorough risk assessment exercise. Similarly, designing and implementing policies without a comprehensive understanding of the company’s risk profile will likely lead to the entity adopting policies and safeguards that are neither tailored to nor proportional with the actual risks within its supply chain, potentially leading to inadequate compliance and mitigation measures.

It is also critical to ensure that appropriate policies and safeguards are in place to address these risks, and that employees and business partners are made aware of the risks and red flags applicable to the business through relevant and periodic training.

Finally, companies should continuously monitor and assess the effectiveness of measures adopted so that they remain relevant and effective.

Companies should also keep in mind that the reports will be subject to public scrutiny. The risk of reputational harm, regulatory proceedings, or civil litigation, should the disclosure be deemed insufficient or inaccurate, is another important consideration with real consequences.

Conclusion

All told, the Canadian Modern Slavery Act imputes novel reporting obligations on companies. If you would like to discuss the new reporting obligations established by the Act or the various measures, procedures, mechanisms, and tools available to identify and manage the risks of use of modern slavery within your business’s operations, please contact the authors or your DLA Piper relationship partner.