Businesses put on notice: Public reporting on efforts to remove forced, child labor now mandatory in Canada

Commercial decision makers doing business in Canada (or planning to) may be caught off guard by the federal government’s recent call to fall in line with ethical sourcing practices, which demand the issuance of public reports as early as May 31st.

The newly enacted Fighting Against Forced Labor and Child Labor in Supply Chains Act (Bill S-211) holds organizations responsible and puts in place a series of reporting and compliance checks designed to encourage business operating in Canada to establish processes that raise awareness of potential unethical sourcing and remove it from their supply chains. Non-compliant businesses could face not only yet-unannounced governmental enquiries, seizures, and penalties, but also risk being publicly outed, impacting overall reputation.

Unlike the Uyghur Forced Labor Prevention Act (UFLPA) in the U.S., the Canadian legislation is based on a reporting system. In Canada, businesses are expected to take the initiative to identify instances of forced and child labor within their supply chains. The legislation, which also includes provisions for competitors and NGOs to act as whistleblowers, aims to raise awareness of social responsibilities to ensure alignment with global ethical sourcing standards.

Enacted in May 2023 and effective as of January 1, 2024, the legislation focuses on transparency and disclosure rather than dictating specific actions that businesses must take.

What’s new for businesses?

Simply put, entities listed on a Canadian stock exchange or those meeting two of the three listed criteria – $20 million in assets, $40 million in revenue, average of 250 employees or more – are covered by the legislation. These businesses are required to submit annual reports to regulatory authorities by May 31st of each year. Failure to comply or provide accurate information may result in penalties, including fines of up to $250,000.

What should these annual reports contain?

At the center of these reports are the business’s efforts to vet suppliers, develop internal codes of conduct, and maintain detailed records. As these reports will be available for review by the public, firms should align them to provide wholesome responses to the Department of Public Safety. It is important to note that prior to submission, an official with legal powers to bind the corporation, must also sign an attestation. This would acknowledge the business’s awareness of compliance and dedication to combating forced and child labor.

What businesses should begin to consider:

Reaffirming organizational commitment to ethical practices and developing an internal code of conduct are just the first steps. Additionally, businesses should be prepared to appropriately respond to a questionnaire that delves into:

  • Developing and implementing internal policies and processes to reduce and/or eliminate forced and child labor by outlining procedures for detecting and addressing potential violations. These policies should be communicated to employees and suppliers alike, and regularly reviewed and updated to ensure effectiveness.
  • Complying with reporting requirements which includes submitting annual reports to regulatory authorities on time, detailing efforts to combat forced and child labor within supply chains. 
  • Providing training and awareness programs for all employees and suppliers involved in procurement to ensure they understand the requirements of the legislation. 
  • Educating these stakeholders to identify not only signs of forced and child labor involvement, but also their responsibilities and the importance of ethical sourcing practices.

More than meets the eye:

Businesses are advised to go beyond the requirements of the legislation to reduce their risk exposure. They can do so by conducting supplier solicitation to unearth instances of unethical sourcing within their supply chains. In addition, they are further advised to:

  • Maintain detailed records of suppliers’ due diligence efforts, supplier relationships, and supply chain practices. 
  • Document supplier vetting processes, risk assessments, and other remediation efforts.
  • Conduct site visits to gather more information about their suppliers.
  • Educate and provide guidance to both external and internal stakeholders on how to identify potential risks and ensure adherence to regulatory requirements especially around the origin of products.

Benefits outweigh risks or vice-versa?

Excluding forced labor from a supply chain helps improve social standing and trustworthiness. Adhering to regulations also minimizes disruption risks. Conversely, failing to take proactive measures leaves organizations vulnerable to regulatory changes that could lead to reputation damage and impact growth potential. Financial loss associated with goods seizures could significantly impact P&Ls.

It is incumbent upon everyone in industry to begin the process of eliminating unethical practices from supply chains; not simply because it is mandated by government, but because it’s the ethical thing to do.

Khaled (Cal) Jamalalldeen is a Global Trade Consulting Executive at Livingston International. He is responsible for assisting businesses with the identification and resolution of trade compliance and commodity tax issues. He has more than 17 years of industry experience with particular skills in and extensive knowledge of commodity/indirect taxes, international trade compliance and financial recovery.