Three things to consider about Canada’s new modern slavery reporting legislation

As we approach the date when Canada’s new modern slavery reporting legislation comes into force, companies and unincorporated organizations should consider whether they meet the definition of an in-scope entity and must therefore comply with the Act. If so, they should consider the applicable report filing and delivery deadlines and the actions they should take in 2023 in anticipation of submitting the required report in 2024.

Canada’s Fighting Against Forced Labour and Child Labour in Supply Chains Act (Act) is scheduled to come into force on January 1, 2024. In general terms, the Act imposes obligations on in-scope entities to report on, among other things, the steps taken during the previous financial year to prevent and reduce the risk of child labour or forced labour being used by them or in their supply chains. For a more detailed overview of the Act and the reporting requirements, you can access our earlier update here.

First reports under the Act are due to be filed by no later than May 31, 2024, but certain federally incorporated entities will have to deliver their reports to shareholders before that date. As these deadlines quickly approach, entities who have not addressed their compliance obligations should consider:

• whether the Act applies to them and/or other members of their company group (including foreign affiliates doing business in Canada or holding interests in Canadian subsidiaries);
• the applicable filing and delivery deadlines; and
• the actions they should take in 2023 in anticipation of preparing and filing a report in 2024 (including a risk assessment of their supply chains).

Does the legislation apply to my organization?

In addition to certain government entities, the Act applies to corporations, trusts, partnerships and other unincorporated organizations that (1) are either listed on a stock exchange in Canada or meet certain connection-to-Canada and financial threshold tests and (2) produce, manufacture, grow, extract, process, sell or distribute goods in Canada or elsewhere or import goods into Canada. 

If an entity is not listed on a Canadian stock exchange, the Act will only apply if it (1) does business or has assets or a place of business in Canada and (2) meets at least two of the following financial conditions in at least one of the last two financial years: has at least $20 million in assets, $40 million in revenues and/or has an average of at least 250 employees.

Entities that control an in-scope entity are also subject to the Act, which may have extra-territorial implications. For example, a United States entity with an in-scope Canadian subsidiary may itself be caught by the Act.

It is important to note that the Act is very broadly drafted, that many of the terms used in the Act (such as “goods,” “importing” and “distributing”) are not defined and that the government has not yet published any supporting regulations or guidelines.

Takeaway: given the broad nature of the Act, organizations (including service providers) should carefully review the criteria to determine whether they are, in fact, caught by the legislation.

What is the deadline to comply?

In-scope entities must submit a report to the federal government annually by May 31, with the first report being due May 31, 2024. In addition, they must concurrently publish the report in a “prominent place” on their websites.

Companies incorporated under the Canada Business Corporations Act (CBCA) as well as other federally incorporated entities such as banks have additional reporting obligations. In addition to submitting the report to the government, these entities must provide a copy of the report to their shareholders along with their annual financial statements. Given that public CBCA companies with a December 31 year-end and banks with an October 31 year-end typically mail their annual financial statements well before May 31, this will effectively result in an earlier reporting deadline for such federally incorporated entities.

Public CBCA and other federally incorporated entities should also consider the implications of securities regulations stemming from compliance with the Act. For example, as a result of sending the modern slavery report to shareholders, they will need to file a copy of the report on SEDAR+. 

Reports under the Act must be approved by the governing body of the entity. For most companies, this will mean approval by the board of directors. Internal governance standards and timing requirements will need to be taken into account to ensure directors have sufficient time to review and approve the report.

Takeaway: In-scope CBCA companies, banks and other federally incorporated entities should gear up to send their modern slavery reports to shareholders and file the reports on SEDAR+ at the same time they send shareholders their annual financial statements. All other in-scope entities have until May 31, 2024, to prepare and submit their first reports, but should consider timing implications given board approval requirements.

What should in-scope entities be doing now?

The modern slavery report is required to include, among other things, a description of the steps taken in the previous financial year to prevent and reduce the risk of modern slavery by the entity or in its supply chain. As a result, in-scope entities should be taking steps in 2023 to be in a good position to submit their first modern slavery reports in 2024. The precise next steps will vary depending on factors such as the jurisdictions of operations of entities in its supply chain, the products or commodities in question and the governance and policies and procedures already in place. Examples of issues and questions that in-scope entities should consider include the following:

• Corporate governance structure and policies: Is there a committee of the board of directors and/or working group charged with overseeing modern slavery risk mitigation? Does the entity have in place appropriate and up-to-date policies such as a human rights policy, corporate code of conduct, supplier code of conduct, hiring policy and/or whistleblowing policy? Are appropriate governance structures in place to establish and maintain adequate disclosure controls and procedures?
• Risk assessment: Which parts of the business and supply chains carry a risk of modern slavery? 
• Procurement policies and procedures: Is there a comprehensive list of all suppliers and their jurisdiction of operations? Are there appropriate supplier screening and ongoing diligence procedures in place? Should any third parties be engaged to help the entity assess risks in the supply chain? Do supplier contracts contain appropriate risk-mitigation provisions?
• Training and education: What measures are being taken so the board of directors, executive team, procurement team and employee workforce in general are being educated on the issues of forced labour and child labour?
• Organizational chart: Are there subsidiaries and/or other entities in the organizational chart that must also comply with the Act? Other entities in the organizational chart may themselves meet the two-part test for compliance described above and be required to file a modern slavery report. Note the Act permits entities to file a joint report.

Takeaway: Our experience in other jurisdictions that have implemented similar modern slavery legislation suggests that the assessment of modern slavery-related risk in an organization and its supply chain as well as taking action to mitigate such risk is an iterative process that will evolve and improve over time. Entities should consider the steps they have already taken, if any, and what further steps can be taken in 2023 to be in a better position to file their first reports in 2024.