When Canada recently passed a law to prevent modern slavery, joining Germany, Australia and the U.K., supporters heralded it as groundbreaking while critics denounced it as insufficient. Such a mixed reception could be a sign that the country’s effort to establish a legal structure to fight forced labor is off to a good start, but a great deal still needs to be done as companies assess requirements for compliance.
After four years of back-and-forth, the Canadian Parliament passed Bill S-211 (“Fighting Against Forced Labour and Child Labour in Supply Chains Act”) on May 3, 2023. The law is meant to provide supply-chain transparency by requiring public and private entities to submit annual reports of their due diligence programs. The entities and their supply chains must show that they are not using forced labor or child labor. This law is potentially stricter on child labor than we have seen in other laws to date.
Under the new regulation, the first report is due no later than May 31, 2024. It affects government institutions and private entities that are listed on Canada’s stock exchange and has assets or presence in Canada or does business in the country with at least two of these conditions recently:
- At least $20 million in assets;
- Generated at least $40 million in revenue;
- Employs an average of at least 250 employees.
Although this is Canada’s first modern slavery law, it has taken other measures in the past to address the problem. The country’s Customs Tariff bans imports produced by forced labor as required by the United States-Mexico-Canada Agreement.
In 2021, Canada also announced measures to protect Canadian businesses from becoming unknowingly complicit in importing goods made by forced labor in China’s Xinjiang Uyghur Autonomous Region.
Canadian Law’s Advantages
The new law imposes significant reporting obligations on Canadian businesses and importers, which makes it a step in the right direction. One of the law’s most advantageous features is its scope. Reporting obligations are based on consolidated financial statements, so even when individual entities within a corporation don’t meet the thresholds, they still need to report as a collective.
Second, the law extends its reach beyond Canada by including foreign entities with business presence in the country. Third, the reporting requirements also apply to government agencies, including Crown corporations and subsidiaries owned by the government that are established like private companies (e.g., utility companies). Entities that fail to comply or knowingly make false or misleading statements face fines of up to C$250,000.
While the Canadian Customs Tariff already prohibits the import of goods produced by forced labor, the new law reinforces the restriction by defining the meaning of “forced labor” and including child labor as part of the definition.
The advocacy group Stop the Traffik congratulated the Canadian Parliament for its work. “This law drives up the risk to those who do not take action, whether they are unaware of the issue or fail to prioritize in order to prevent the harm modern slavery and human trafficking inflicts across our world,” said CEORuth Dearnley.
By contrast, the Bloc Quebecois and National Democratic Party criticized the law because it doesn’t actually hold companies accountable and doesn’t have the power to end forced labor.
Likewise, the Canadian Network on Corporate Accountability panned the Act, saying: “Canada’s new law on forced and child labour in supply chains is bound to fail because it only requires companies to publish reports, and it risks making the problem worse by providing the appearance of real action when it is not.”
Transparency vs. Accountability
Concerns about Canada’s new law lie in the fact that it aims only for corporate transparency, not accountability. The law is arguably less powerful than Germany’s Supply Chain Due Diligence Act, also known as the Lieferkettengesetz (LkSG). Advocates consider the German law – like similar modern human rights due diligence laws in France, Norway, and Switzerland – to have more teeth.
What’s considered a good modern slavery law? A legislation should have access to justice and remedy, a preventative component, and administrative enforcement mechanisms, according to the UK-based Business & Human Rights Resource Centre.
When the organization presented its recommendations for the European Union’s Supply Chain Directive, currently pending before legislators, it recommend these elements:
- A strong civil liability regime
- Effective and safe stakeholder engagement
- Sufficient scope
- Mandatory requirements which go beyond tick box exercises
- Protection of all internationally recognized human rights and environmental standards
Additional Canadian Initiative
In Canada’s 2023 federal budget, the government revealed its intent to introduce new legislation by 2024 to eliminate forced labor from supply chains and to strengthen the import ban on goods produced using forced labor.
Unlike the newly enacted Bill S-211, the proposal is expected to go beyond reporting obligations by mandating affected companies to stop instances of forced labor.
Despite mixed reactions to Canada’s new law, there’s no denying the growing global movement toward the adoption of modern slavery laws. Differing reporting standards and frameworks can be a challenge for companies complying with similar laws in different jurisdictions. Without a universal reporting standard, every company must choose and develop its own compliance process.
The good news is, technology such as the Ethixbase360 third-party risk management platform can facilitate and accelerate reporting and due diligence compliance. The platform provides robust third-party questionnaires configured according to a company’s business requirements and specific risk areas, including modern slavery, anti-bribery and anti-corruption, LkSG, Australia’s Modern Slavery Act, and similar laws.
The true impact of Canada’s law can only be determined over time, but its implementation is likely to serve as a catalyst for other governments with similar goals to adopt comparable measures in a global effort. While the efforts of a single country are never sufficient, collaborative actions from around the world offer a stronger chance of eradicating the systemic problem of modern slavery.
We will continue to monitor this new law as it develops and provide guidance on complying with evolving regulatory obligations within a holistic and globally informed third-party risk management strategy.