New Reporting Obligations: Child Labour and Forced Labour

By May 31, 2024, certain organizations will need to begin reporting on child labour and forced labour in their supply chains

On January 1, 2024, the Fighting Against Forced Labour and Child Labour in Supply Chains Act will come into force. The Act imposes annual reporting obligations on certain private sector entities (as well as certain government institutions) around the steps they have taken to reduce the risk that forced labour or child labour is used at any step of production of their goods, whether in Canada or elsewhere.

The reporting obligations under the Act apply to all entities listed on a Canadian stock exchange regardless of size, and to private companies with significant assets, revenue or employees as described below. Entities will have until May 31 of each year to submit their reports. As such, the initial report will be due May 31, 2024 in respect of an entity’s activities undertaken during its most recent prior financial year.

Reporting entities may wish to consider if there are any steps to be taken in the remainder of their current financial year in order to best position themselves for their initial report next year.

Background

The Act is a product of the enhanced focus on supply-chain matters that arose from the pandemic, and a fulfilment of the federal government’s statement in its 2023 budget that it intends to introduce legislation by 2024 to eradicate forced labour from Canadian supply chains.

The risk of child labour may seem remote, but may be especially persistent in certain industries. In 2021, the International Labour Organization and UNICEF estimated that 160 million children were engaged in child labour at the beginning of 2020, about three quarters of them in agriculture, including family farms. The organizations expect that this number has since risen as a result of poverty driven by the pandemic.

The Act is intended first and foremost as a tool to increase industry awareness and transparency for its subject matter. While the Act does not obligate businesses to take steps to end forced labour, the scope of the reporting obligation may help encourage some businesses and their boards to take a closer look at how they source their goods.

Reporting Obligation

After the Act comes into force, each entity to which it applies must, on or before May 31 of each year, submit a report in accordance with the details below, and any other details set out in the regulations to the Act, once they are released.

Entities Subject to Reporting Requirement

The annual reporting obligation applies to any corporation, trust, partnership or other unincorporated organization that meets the following criteria, or which “controls” an entity which does (the definition of “control” is to be confirmed in the regulations):

• it is listed on a stock exchange in Canada; or
• it 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:
  • 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
• it meets a description prescribed by regulations.

Contents of Report

The report must outline the steps the entity has taken during its previous financial year to prevent and reduce the risk that “forced labour” or “child labour” (each as defined below) is used at any step of either:

• the production by the entity of goods, whether in Canada or elsewhere, or
• the production of goods which are imported into Canada by the entity.

A joint report may be prepared in respect of more than one entity. Each report must include the following information in respect of each entity subject to the report:

• 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.

Each report is in respect of each reporting entity’s activities during the prior financial year. For example, if an entity’s financial year follows the calendar year, then a report due on May 31, 2024, would cover the activities from January 1, 2023 and December 31, 2023.

More information about the reports, including regarding the report format and templates, is expected to become available from Public Safety Canada in the coming months.

Approving and Publishing the Report

The report must be approved by, and signed by at least one member of, the governing body of each entity included in the report, or by the governing body of each entity that controls each included entity.

Once approved, the report must be submitted on or before May 31 of each year, beginning May 31, 2024, to Public Safety Canada, where they will be made available to the public in an electronic registry.

An entity must also make each report and any revised versions available to the public, including by publishing them in a prominent place on its website.

In the case of entities incorporated under the Canada Business Corporations Act, the report must also be distributed to each shareholder, along with its annual financial statements.

Enforcement

The Act allows the Minister to designate inspectors to help enforce the legislation, and permits them to enter any place and examine anything therein that they have reasonable grounds to believe is related to the administration of the Act. The owner or person in charge of the location must assist the inspector, and provide any documents or data reasonably required.

Non-compliance with the Act or with any Ministerial order made pursuant to it, including making any false or misleading statement or failing to submit a report, can attract a fine of up to $250,000, subject to a due diligence defence. Directors, officers, and agent and mandataries of an offending entity are subject to the same potential penalties.

Definitions of “Forced Labour” and “Child Labour”

Forced Labour

“Forced labour” means labour or service provided or offered to be provided by a person 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, which is defined (with some exceptions) as all work or service which is exacted from any person under the menace of any penalty and for which the said person has not offered himself voluntarily.

Child Labour

“Child labour” means labour or services provided or offered to be provided by persons under the age of 18 years 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, which is defined as:
  • all forms of slavery or practices similar to slavery, such as the sale and trafficking of children, debt bondage and serfdom and forced or compulsory labour, including forced or compulsory recruitment of children for use in armed conflict;
  • the use, procuring or offering of a child for prostitution, for the production of pornography or for pornographic performances;
  • the use, procuring or offering of a child for illicit activities, in particular for the production and trafficking of drugs as defined in the relevant international treaties;
  • work which, by its nature or the circumstances in which it is carried out, is likely to harm the health, safety or morals of children.

Change to Customs Tariff

The Act also amends the Federal Customs Tariff to expand the prohibition on the importation of goods mined, manufactured or produced, in whole or in part by forced labour, to also include child labour.

Key Take-Aways

If your business is subject to the reporting obligation under the Act, there is still time to prepare.

• Consider reviewing the aspects of your entity’s operations and policies that are required to be described in the report, and be on the lookout for any room for improvement. Review your company’s prior public disclosure for details and risks to focus on.
• Be aware of timelines and deadlines. The initial report will be in respect of an organization’s prior fiscal year. Consider when your fiscal year ends, and which milestones need to be met by that time.
• Engage in due diligence by reaching out to your vendors and suppliers and asking them to describe how they address the risk of child labour and forced labour in their own operations. Which independent third-party certifications are available, and do they have them? They may be able to offer alternative options for how your goods may be sourced, or the possibility of additional oversight and diligence for certain aspects of the supply chain.
• Consider conducting (or increasing) periodic in-person supply chain audits, and using supply-chain software to track raw materials and components and validate suppliers’ declarations. In-person visits can also help your business develop meaningful community relationships and may foster other unrelated solutions and improvements along the way.
• Start drafting your report early, and give the board plenty of time to review it and follow up.
• Finally, remember to keep a sharp eye out for further guidance from Public Safety Canada around regulations, reporting templates and other details. We’ll update this blog as more details become available.