Companies need to ensure that they're practicing due diligence and proving their work
As of Jan. 1 2024, Canada’s new forced labour reporting act will come into force, meaning that any impacted businesses only have the remainder of this year to make the necessary changes or face potential legal ramifications.
Speaking to HRD, Jillian Frank, partner, employment and labour law at KPMG, says that it’s time for employers to seriously consider the nuances of this new Act in order to avoid potential fines or lawsuits.
“Up until this year, Canada didn’t have legislation relating to modern slavery in international trade or in our supply chains,” says Frank. “The Act, which is aimed at fighting against forced labor and child labor in supply chains, is known here as Bill S-211. We colloquially refer to it as the Modern Slavery Legislation.
“Laws protecting workers from forced labor and child labor aren't new to Canada – we have employment standards relating to wages, overtime hours and the hiring of minors [children]. This Act now means that Canadian organizations have to consider workers involved in their entire supply chain, not just those the company hires directly.”
Essentially, this means that companies need to closely look at all aspects of their operations – not just what happens on Canadian soil. Currently, domestic employment laws don’t cover the foreign workers involved in the manufacturing or sourcing processes making goods that are sold by Canadian companies. This legislation is the initial step to have companies look at their overall supply chain and describe their due diligence efforts to address the risk of forced labour or child labour in their supply chain.
The Act applies to Canadian businesses that supply, produce or sell goods in Canada, import goods into Canada or are involved with a business that does either of the above.
“The companies that have to comply fall within certain thresholds,” says Frank. “For instance, if the company is listed on a stock exchange in Canada, or is a private company that meets certain conditions – such as having at least $20 million in assets, $40 million in revenue or having an average of 250 employees in at least one of the two prior financial years – then they’re required to report under the Act.”
Furthermore, foreign-owned businesses would also be impacted if they meet these thresholds and are supplying, producing, storing or importing any goods to Canada. “It’s not the location of the ownership of the company that’s considered, it’s the activity within Canada’s supply chain,” adds Frank.
Because of the nature of this Act, companies need to work on a relatively short deadline to submit their report – by May 31, 2024.
This report is a first of its kind for a number of Canadian private companies, Franks explains, as it requires these companies to disclose private information that previously they never had an obligation to make public.
“It’s an insight into their company’s operations,” she says.
Also, there are criminal implications of misstating that information. “Organizations should be concerned about accurately reporting their due diligence programs relating to the risk of forced labour and child labour in their supply chain.”
This in itself is raising lot of questions, and some concern for operational teams. Where do they begin? What's the risk assessment that they need to be conducting? What should be detailed in the report? What areas of the business aren’t impacted?
“The Act requires the organization to provide details on the company's structure, activities and supply chains,” says Frank. “The report does not only cover direct suppliers, it can include tier two or three suppliers – essentially the producers of the raw materials and equipment - it’s very broad as a definition.”
On top of this, each report has to be filed annually, identifying the steps that that organization has taken in the previous financial year to prevent the risk of forced labor.
Companies need to ensure that they’re practicing due diligence and proving their work. That means showing processes that identify, prevent, mitigate and account for how the organization is addressing actual or potential risk of forced labor and child labor. What policies do you have in place? What vetting processes do you do with suppliers? How do you follow up with suppliers once risks are known? And how do you do your risk assessment?
“It is about identifying where in the organization is the greatest risk of forced or child labour – and rectifying that,” says Frank. “The Act focuses on continuous improvement. Once the most significant risks are identified and being addressed, the company would then move on to other risks of forced labour or child labor in their supply chain – all of which needs to be described in their reports. The report also must address steps to remediate any loss of income for vulnerable families that may have relied on forced or child labor.”
This, as Frank tells HRD, goes to the purpose of the legislation of focusing on reducing the incidence of child labor and forced labor as well as supporting the communities that are impacted by modern slavery. As opposed to saying, we're no longer going to be working with you.
“The main consideration is the impact that the company and its business has on those communities,” says Frank. “And that's really what that aspect of the report is speaking to. Overall, it’s one way for businesses to avoid abetting modern slavery, which can afflict the most vulnerable in society.”
