Bill S-211 (the “Bill”), a Federal Senate Bill that calls for certain businesses and organizations to produce annual public reports relating to the use of forced or child labour, has passed its Third Reading and is widely expected to become law in its current form.
If passed, the Bill would require publicly-traded companies and government institutions, among others, to submit an annual public report (“Report”) outlining efforts made during the previous year to prevent and reduce the risk of forced or child labour being used at any stage within the production of goods made in, or imported into, Canada.
While the specific form of disclosure remains unfinalized, and it is theoretically possible that royal assent is not ultimately received, it is worth noting that Bill S-211 is but one legislative initiative within a broader movement that includes securities regulators and stock exchanges, among others, moving towards requiring greater transparency around similar issues such as ESG (environmental, social and governance), diversity and general corporate responsibility. As a result, it is time for businesses to not only start thinking about how they would comply with such laws and regulation, but also to consider scrutinizing the defensibility of their supply chain partnerships and pathways in light of the transparency likely to be soon required.
Retroactive Application
If the Bill receives Royal Assent in 2023, the first Reports will be due in May of 2024. Such Reports will need to describe the steps that businesses took to address the risks during the previous fiscal year, meaning Reports will retrospectively be based on efforts undertaken now. As a result, businesses need to start planning now to bolster and augment their due diligence efforts. They will be expected to have taken documented steps to identify and eliminate forced and child labour in their supply chains. Moreover, they will be forced to disclose current supply chain decisions. Overall, the legislative intention is to force suppliers upstream to quickly realize that using these forms of labour will prevent them from reaching the Canadian market.
Who Will Be Required to Comply with the Reporting Requirements?
Fundamentally, in addition to government entities, businesses listed on a stock exchange in Canada must comply with requirements if they are a corporation, trust, partnership, or unincorporated organization and they either:
- Produce goods in Canada
- Selling goods in Canada
- Distribute goods in Canada
- Import goods into Canada
- Control an entity that produces, sells, distributes or imports good into Canada
Entities that meet these qualifications but that are not listed on a Canadian stock exchange will still be required to comply with the supply chain reporting requirements if they do business in Canada, have assets in Canada, or have a place of business in Canada and have enough assets, revenue or employees to meet the statutory standards. As such, applicability is not limited to businesses registered or incorporated in Canada. Assuming the requirements take effect as currently proposed, entities required to make such annual Reports will also include foreign companies that operate in Canada and larger domestic privately-held businesses.
Failure to comply could subject an entity to fines of up to $250,000. Directors and officers of the entity could face personal liability as well.
Help with Reporting Compliance
While it can be problematic to comply with requirements that are not only new but also still subject to revision, the risk of retroactivity in the Bill means businesses would be ill-advised to take a wait-and-see approach with Bill S-211. Compliance, which will require significant investigation and documented action, is expected quickly and the penalties for failure are significant. In general, businesses also need to start thinking more substantively about current supply chain decisions and whether they will be defensible once transparency is mandated by law.
For help determining whether these requirements will apply to your business and how to establish a plan to comply, someone from our business law group would be happy to speak with you on the matter.