What does Canada’s Modern Slavery Act mean for your business?

Canada’s Forced Labour Law (also known as the Fighting Against Forced Labour and Child Labour in Supply Chains Act) is the country’s new act mandating all large Canadian-linked companies to report forced and child labour throughout their supply chains. Following the lead of the United State's and European Union's Forced Labor laws, Canada’s ‘Fighting Against Forced Labour and Child Labour in Supply Chains Act’ requires greater transparency and due diligence from companies that do business in Canada.

Forced labor is a global problem, with an estimated 27.6 million people trapped in forced labor conditions around the world. However, eradicating such conditions within an expansive, complex supply chain requires a strong understanding of where and how all goods are made. With similar regulations emerging around the world aimed at addressing forced and child labor risk, companies can no longer rely on partial visibility into their end-to-end supply chains.

Canada’s industry-agnostic Forced Labour Law, which expands the existing Customs Tariff, focuses on greater transparency by mandating supply chain due diligence. As of May 2024, companies in scope must publish an annual report made available to the public including evidence that the company has effectively mapped its supply chain, identified forced labour risks, and has a remediation plan in place should forced labor be identified. The consequences of non-compliance are serious: up to $250,000 in fines, criminal prosecution, and reputational backlash.

But who does this new law impact? And what steps should be taken to ensure compliance?

Which companies are impacted by Canada’s Forced Labor Law (Bill S 211)?

The Act applies to any corporation, trust, partnership or other unincorporated organization whose activities include producing, selling or distributing goods in Canada or elsewhere, importing goods into Canada, or controlling an entity engaged in these activities.

An entity is considered to be in scope of the Act if it meets at least two of the following conditions for at least one of its two most recent financial years:

• has at least $20 million in assets

• has generated at least $40 million in revenue

• employs an average of at least 250 employees

The entity must also:

• Produce, sell or distribute goods in Canada or elsewhere;

• Import into Canada goods produced outside of Canada;

• orControl an entity engaged in any of the foregoing activities.

What is required in the Canada Forced Labor Law annual report?

Canada’s new mandatory reporting requirement for businesses establishes a responsibility to publicly disclose the forced labour risk within your supply chain.

Reports must include the following information:

• The structure, activities and map of the supply chain;The policies and due diligence processes in relation to child and forced labor;

• Risk assessments for the parts of the business and supply chains that carry a risk of forced or child labor, as well as a description of remediation efforts once risk has been identified;

• Measures taken to remediate loss of income to the most vulnerable families that results from any measure taken to eliminate the use of forced or child labor in its activities and supply chains;

• The training provided to employees regarding forced and child labor; and

• How the entity assesses its effectiveness in ensuring that forced and child labor are not being used in its businesses and supply chains.

What steps should your company take to comply with Canada’s Modern Slavery Law?

Without a comprehensive plan, many companies risk being fined under the new law. Additionally, the government has indicated its intention to hold directors and officers criminally accountable for the disclosure. So, how do you know if there is forced labour in your company's supply chain?

To ensure compliance, your company must take the appropriate action.

Important, urgent steps include:

1. Map your entire supply chain
   How well do you know your supply chain beyond Tier1? Companies subject to the Modern Slavery Act should review their operations and suppliers throughout the entire supply chain, including both direct and indirect suppliers, and collect the necessary data to meet reporting obligations. The new Canadian law does not provide details on how many supply chain tiers should be investigated. Based on comparable laws in the U.S., it is advisable to investigate end-to-end suppliers, down to farms, mines and raw materials.

2. Identify goods sourced from high-risk zones
   The first and simplest step in evaluating the risk of forced and child labour in your supply chain is to discover if any suppliers are based in areas where forced labor may be present.. In fact, the U.S. is enforcing stricter investigations on all imports. Forced labor is a global problem, highlighted by the fact that the US Department of Labor has published a list of goods originating from over 70 countries that may be produced with forced labor.

3. Look deeper into products sourced from lower-risk zones
   Modern slavery exists across the entire globe. Thus, it is important to look beyond location when assessing risk. The first place to start is to assess risk by product type, as goods within the same industry hold different risk levels. According to the U.S. Department of Labour, “The most common agricultural goods listed are sugarcane, cotton, coffee, tobacco, cattle, rice, and fish. In the manufacturing sector, bricks, garments, textiles, footwear, carpets, and fireworks appear most frequently. In mined or quarried goods, gold, coal and diamonds are most common.” Further risk analysis will be necessary for high-risk products and goods produced in high-risk zones.

4. Develop new company policies to avoid forced labour risk
   It is critical to anchor preventative measures in your company’s operations, especially when seeking out new suppliers. Establish a new due diligence process for examining the risk of future suppliers.

5. Educate all staff
   New labour laws around the world will impact all areas of your business, from human resources to procurement. It is essential that all staff are trained with new company policies to help avoid non-compliance charges.

What tools and technologies can help ensure compliance?

To comply with the Act, importers need full visibility into their end-to-end supply chain. Many consulting companies are advertising their ability to help companies prepare Forced Labour Act reports, but lack knowledge and data on company supply chains. Meanwhile, most companies do not understand their supply chains themselves. Luckily, there are tools to help.

1. Supply chain mapping

   Supply chain visibility means identifying every supplier, at every tier. Sourcemap invites every tier-1 vendor to disclose tier 2,3,etc. - automatically cascading to sub-suppliers to collect the data for a complete supply chain map down to origins. Supplier risk profiling is conducted based on specified risk categorization, such as country of origin, to identify pressure points in your supply chain.

2. Chain of custody traceability
   Companies looking to comply with both the Act and the U.S. Forced Labor Laws must trace the chain of custody for every product and every shipment imported into either Canada or the U.S. Sourcemap’s Chain of Custody Traceability collects and validates additional procurement and product chain of custody documentation from Tier 1 to Tier N for high-risk suppliers.

3. Continuous monitoring of the end-to-end supply chain

   Continuous monitoring of the end-to-end supply chain leverages best practices for highest engagement across all tiers. Adverse media monitoring & news alerts for key points of interest are available as a premium add-on feature.

4. On-demand reporting

   Validated by legal compliance experts, rapid and detailed reporting equips importers to provide requisite documentation to enforcement entities as needed.

Meeting the requirements for Canada’s new law will require novel supply chain mapping and monitoring processes, and it is just one of countless similar global mandates to come. Insight into your end-to-end supplier network is immensely useful for applications beyond compliance; risk mitigation, operations cost insights, increasing resilience, reducing inventory, assuring delivery times, and more are unlocked once you have a competitive understanding of all direct and indirect suppliers.

Sourcemap’s Forced Labor Due Diligence Solution provides importers with the tools they need to comply with North America’s evolving forced labor laws.

For more information, or to speak with our team of experts, click here.