By Janelle M. Lewis, Attorney and Business Strategist
I. Is it Important for Business Lawyers to Know About Regulations Against Forced Labor[i] in the Supply Chain?
Many business lawyers have client/companies whose relationship with the global supply chain can have a significant impact on their business strategy. This article will look at the recent supply chain act passed by the Canadian Parliament, and what business lawyers should know about the new law to advise their clients/companies. The article’s objective is to examine the role for business lawyers who need to understand the various regulations when they advise their companies/clients whose goods and/or services move cross borders between Canada and other countries. It is essential for business lawyers whose work involves global trade with Canada to keep well-informed about emerging regulations and responsibilities that are geared at prohibiting forced labor in the supply chain.
A. Understanding Supply Chain Due Diligence
Business Lawyers should have a comprehensive understanding of Supply Chain Due Diligence, which involves assessing the risks and ensuring compliance throughout the supply chain. This includes conducting thorough background checks, verifying the integrity and reputation of suppliers, evaluating their labor practices, and assessing their compliance with relevant laws and regulations.
II. What is Considered Forced Labor?
A. International Definition
The International Labor Organization (ILO) definition of Forced Labor in accordance with the ILO Forced Labour Convention, 1930 (No. 29) is “all work or service which is exacted from any person under the menace of any penalty and for which the said person has not offered himself voluntarily.”[ii] The definition itself has three elements, all of which are needed to qualify as forced labor: 1) Work or service; 2) Menace of any penalty; and 3) Involuntariness.[iii]
“Work or service” is defined to include all types of work, whether in the formal or informal economy. It is also defined to include all sectors and industries.[iv] “Menace of any penalty” is defined to apply to a wide range of penalties that can be used as a means of coercion to work, depriving the individual of the right to and informed consent.[v] The “involuntariness” definition expands upon the previous element of “menace of any penalty” by specifically referring to “…the free and informed consent of a worker to take a job and his or her freedom to leave at any time.[vi]
B. Exceptions to the Definition of Forced Labor
The following are exceptions under the forced labor definition: compulsory military service, normal civic obligations, prison labor (under certain conditions); work performed during an emergency; and minor communal service.[vii] Compulsory military service must work or service that is “purely military in character” and in the virtue of performing military duties.[viii] Normal civic obligations in the form of work or service must be performed in the spirit of recognized civic obligations of citizens in a “fully self-governing country.[ix]” With respect to prison labor, there are forced labor exceptions under certain circumstances.[x] The exception pertains to work or service that is performed because of a conviction in a court of law which is controlled by public authorities.[xi] The exception does not apply to individuals who are hired or “placed at the disposal of private individuals, companies or associations…[xii]”
Work or service performed during an or in preparation for an emergency that would endanger the existence of a part or all of society is not considered forced labor.[xiii] Cases of emergency stated in the definition include war, fire, flood, famine, earthquake, violent epidemic or epizootic disease, invasion by animals, insects, or vegetable pests.[xiv] The definition is broad and is not limited to the above-mentioned cases and applies to generally any situation that would endanger society in part or in whole.[xv] Minor communal service is not considered forced labor if it is performed as a normal civic obligation that is mandatory for members of the community to perform.[xvi] Work or service performed under this capacity is done under the condition that that member of the community (including their representatives) have a right to be consulted as to the need for the service.[xvii]
C. When Does Forced Labor Tend to Occur?
According to the ILO, forced labor tends to occur when portions of the supply chain are outsourced.[xviii] In this capacity, suppliers along the supply chain might turn to labor market intermediaries to get more workers when there is a sudden increase in demand or when a deadline has been moved up.[xix] There are times when the hired labor market intermediaries themselves hire intermediaries, further decreasing the transparency of worker engagement in the supply chain.[xx] The risk of forced labor is greatest when there are several stages of subcontracting via intermediaries and when labor market intermediaries charge fees for their services .[xxi] Forced Labor happens across many industries.[xxii] There are, however, industries where forced labor is more prevalent, most notably agriculture and retail.[xxiii]
D. Government Involved Forced Labor Practices
Forced labor that is imposed by the government or state authorities is also a prohibited form of forced labor.[xxiv]This includes mandating forced labor for: expressing opposing political views or ideologies of the current government;[xxv] purposes of economic development;[xxvi] purposes of labor discipline;[xxvii] purposes of punishing those who engaged in strikes;[xxviii] and purposes of racial, social, national, or religious discrimination[xxix].
III. The Role of Business Lawyers in Preventing & Mitigating the Risk of the Use Forced Labor in the Global Supply Chain
Business lawyers, whether they be in-house or in private practice, play a significant role in fostering more human rights in the supply chain. There is a clear role for business lawyers to spearhead legal initiatives while being a strategic partner in the prevention & mitigation of the risk of the use of Forced Labor in the Global Supply Chain. This is done is through the facilitation of company compliance with the regulations by renegotiating contracts with suppliers and spearheading mandatory regulatory compliance schemes for their clients/companies.[xxx] Business lawyers may also assist with the drafting of questionaries to suppliers about their social practices; and must review certain conditions to determine there are indications of forced labor.[xxxi]
A. Why Business Lawyers Should Spearhead Due Diligence efforts in Order to Comply with Regulations Prohibiting Forced Labor
Legal and reputational risk is minimized when a company engages in supply chain due diligence.[xxxii] Engaging in due diligence includes researching business partners to ensure that they align with the client’s or company’s value proposition.[xxxiii] The information collected should serve as a basis for gathering relevant facts pertaining to the business practices of the client’s or company’s suppliers. Additionally, the information collected from these due diligence activities provides a basis for a legal strategy as to how to renegotiate contracts as necessary. The collection of this information allows business lawyers to facilitate the process of informed consent and intentional compliance by their client/company.[xxxiv]
The supply chain due diligence process starts prior to the signing contracts with suppliers and continues past the signing at the beginning, as it becomes a routine compliance check.[xxxv] “The duty to know and understand your third party’s business as well as the people behind it is an ongoing responsibility that companies need to add to their list.”[xxxvi] In this capacity, business lawyers can provide added value by being a primary stakeholder who aligns the legal obligations with the strategic objectives in the context of the supply chain. They can take this information and use it to both renegotiate contracts with suppliers to become compliant with Canada’s Supply Chain Act. Business lawyers also use the information collected to spearhead compliance programs that increase the transparency of the supply chains they work with and maintain compliance with Canada’s supply chain regulations.
IV. What Business Lawyers Need to Know About Canada’s Supply Chain Law Preventing Forced Labor; and How Will It Impact The Movement of Goods Between Canada and Other Countries
A. Canada’s Supply Chain Law: “Fighting Against Forced Labour and Child Labour in Supply Chain Act”
1. Brief Background and Legal Objective of Fighting Forced Labor in Canada’s Supply Chain Act
Passed on May 11, 2023, the “Fight Against Forced Labour and Child Labour in Supply Chains Act” (“Canada’s Supply Chain Act”), was passed to demonstrate Canada’s commitment to the fight against, inter alia, forced labor in Canada’s supply chains.[xxxvii] Canada’s Supply Chain Act imposes reporting responsibilities on covered companies who are subject to the Act[xxxviii]. The Act comes into effect January 1st, 2024.[xxxix] Covered entities will be expected to submit annual reports on their supply due diligence efforts for the previous year, starting May 31st, 2024.[xl] This means that starting June 1st, 2023, covered entities will needs to start documenting their due diligence efforts to fight against forced labor in their supply chains.
The Canadian Parliament passed the Act because the Parliament,
“…considers that it is essential to contribute to fighting modern slavery, including by imposing reporting obligations on government institutions involved in producing, purchasing or distributing goods in Canada or elsewhere and on entities involved in manufacturing, producing, growing, extracting or processing goods in Canada or elsewhere or in importing goods manufactured, produced, grown, extracted or processed outside Canada.”[xli]
2. Forced Labor Defined Under Canada’s Supply Chain Act
Canada’s Supply Chain Act defines forced labor as labor or service that is performed by an individual who reasonably believes that their safety (or the safety of someone they know) could be threatened if they do not engage in the labor or service.[xlii] Therefore, the person involuntarily engages in the labor. Forced labor definition under Canada’s Act also incorporates the definition of forced labor provided under Article 2 of the ILO Forced Labour Geneva Convention, 1930 (No. 29).[xliii]
3. Who is Covered Under Canada’s Act?
Canada’s Supply Chain Act applies to entities that can be of any legal form, that is either listed on the Canadian Stock Exchange, qualifies as doing business in Canada or is considered an entity created through regulation.[xliv] This includes, having a place of business in Canada, doing business in Canada, or having assets in Canada.[xlv] For entities that are not listed on the Canadian Stock Exchange or considered an entity created through regulation, the entity must also meet at least two of the following requirements: 1) the entity has at least $20 million dollars in assets; 2) the entity has generated at least $40 in revenue and employs at least 250 employees; or 3) the entity employs an average of 250 employees.[xlvi]
Business lawyers should first assess if their client/company is a covered entity to which Canada’s Supply Chain Act applies. Following that assessment, if the answer is yes, then they should assess if their client/company is engaging in at least one of the following business activities in the supply chain: 1) producing, selling, or distributing goods both in Canada and abroad;[xlvii] 2) importing goods into Canada from abroad;[xlviii] 3) controlling an entity that produces, sells, or distributes goods both in Canada and abroad;[xlix] or 4) controlling an entity that imports goods into Canada from abroad[l]. Upon completion of these assessments, if the covered entity is subject to Canada’s Supply Chain Act, then attention needs to be directed to due diligence.
4. Due Diligence Responsibilities with Respect to Forced Labor under Canada’s Supply Chain Act
Every entity to which the Canadian Act applies must submit a report to the Minister of Public Safety and Emergency Preparedness (“Minister”) on the steps that the entity took to prevent and reduce the risk of forced labor in their supply chain.[li] This includes every step of the production of goods in the entity’s supply chain both in Canada and those produced abroad and imported into Canada.[lii]
Business lawyers should understand that the report itself must contain the following supplementary information regarding forced labor in their client’s or company’s supply chain: any measures to rectify forced labor, and the loss of income to the most vulnerable families that has resulted from said rectification.[liii] The report must also mention the measures their client/company has taken to rectify any forced labor in the supply chain, including information from training providing to employees on forced labor, and the risk of forced labor in the supply chain with the steps to assess and manage the risk.[liv] Additionally, the entity must report on its structure, activities, and supply chains, as well as policies and its due diligence efforts as it relates to forced labor.[lv] The report must be approved by the entity’s governing body.[lvi]
Business Attorneys should also know that this report required under Canada’s Supply Chain Act must also be made accessible to the public.[lvii] Covered entities, upon providing a copy of the report to the Minister, must make the report available to the public, which includes publishing the report on its website.[lviii] If the client/company is incorporated under the Canada Business Corporations Act, or any other Parliamentary act, then in addition to the report, the client/company must also provide its annual financial statements.[lix]
5. Enforcing Canada’s Supply Chain Act
The Minister may designate a person or “classes of persons” to enforce Canada’s Supply Chain Act.[lx] If they believe that a forced labor violation is occurring within the supply chain, the designated person(s) has several powers of enforcement. The designated person(s) has a great deal of power to enforce Canada’s Supply Chain Act.[lxi] Some of the powers include, examining any place and/or document(s); using any means of communication, copying any equipment or data, documenting evidence through various means, removing evidence for examination, and prohibiting or limiting access, to name of few enforcement powers granted to designated person(s).[lxii]
6. Penalties for Forced Labor Violations under Canada’s Act
If the Minister comes to the opinion that the covered entity is not in compliance with reporting requirements; fails to make reports public accessible; and/or fails provides reasonable assistance to designated person(s) that would facilitate their ability to “…exercise their powers or perform their duties or functions” the Minister may take measures it deems necessary to ensure compliance.[lxiii] Failure to comply with the provisions may result in the entity’s guilt of a violation punishable on summary conviction and a liability of up to $250,000.[lxiv] This includes making misleading or false statements and providing misleading information.[lxv]
Additionally, directors, officers, agents, or mandated person who directed, authorized, agreed to, or participated in the commission of a violation of the abovementioned provisions are held liable for the conviction, whether they have been prosecuted or convicted.”[lxvi] Subsequently, if there is “sufficient proof” to establish an employee or agent or mandatary of the accused committed the violation, then they are thought to have committed the violation whether the employee, agent or mandatary has been identified or prosecuted for the violation.[lxvii] This presumption, however, can be rebutted if the employee, agent, or mandatary can establish that they exercised due diligence to prevent the forced labor violation in the supply chain.[lxviii]
V. Conclusion
For business lawyers whose client/companies engage or participate in global supply chain, they need to have a solid understanding of the applicable jurisdiction’s regulations and its impact the client’s/company’s business activities. Specific to this article, business lawyers should be up-to-date on Canada’s Supply Chain Act or “Fight Against Forced Labour and Child Labour in Supply Chains Act” to advise their clients/companies, who participate in Canadian supply chains, how to prevent or mitigate the risk of forced labor.
This article examined the recent supply chain act passed by the Canadian Parliament, and what business lawyers should know about the new law to advise their clients/companies. The article’s objective was to examine the role for business lawyers who need to understand Canada’s Supply Chain Act when they advise their companies/clients who have goods and/or move cross borders between Canada and other countries. What this article shows is that it is essential for business lawyers whose work involves global trade with Canada to keep well-informed about emerging regulations and responsibilities that are geared at prohibiting forced labor in the supply chain. Failure to understand Canada’s Supply Chain Act could lead to a lack of compliance and due diligence that could result in financial liabilities, legal liabilities, and reputational risks.
As strategic partners, business lawyers can bridge the gap between law and business strategy. They can do this by updating and/or expanding their knowledge on Canada’s Supply Chain Act compliance and performing the due diligence obligations for their clients/companies. This helps to to prevent & mitigate forced labor in the global supply chain while keeping clients/companies compliant, which brings economic value to their value proposition.
[i] The spelling of “Labor” and “Labour” reflects whether it’s used in the U.S. context or the Canada/Internationally context. Resultantly, the spellings are used interchangeably.
[ii] ILO, CO29 – Forced Labour Convention, Jun. 28, 1930, art. 2, para. 1,
https://www.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:12100:0::NO::P12100_ILO_CODE:C029 (Reaffirmed by Forced Labour Protocol art. 1, para. 3.).
[iii] ILO, What is forced labour, modern slavery and human trafficking, https://www.ilo.org/global/topics/forced-labour/definition/lang–en/index.htm(last visited May 14, 2023).
[iv] Id.
[v] Id.
[vi] Id.
[vii] Id.
[viii] CO29 – Forced Labour Convention, art. 2, para. 2(a).
[ix] Id. at art. 2, para. (2)(b).
[x] Id. at art. 2, para (2)(c).
[xi] Id.
[xii] Id.
[xiii] CO29 – Forced Labour Convention, art. 2, para. (2)(d)
[xiv] Id.
[xv] Id.
[xvi]CO29 – Forced Labour Convention, art. 2, para. (2)(e).
[xvii] Id.
[xviii] Ending Child Labour, Forced Labour and Human Trafficking in Global Supply Chains: ILO, OECD, International Organization for Migration (IOM), and UNICEF, 29 (2019)
[xix] Id.
[xx] Id.
[xxi] Id.
[xxii] Id.
[xxiii] Id.
[xxiv] See Generally ILO, C105 – Convention (n° 105) sur l’abolition du travail forcé, Jun. 25, 1957 (State signatories to the Convention will not use state sponsored forced labor for political reasons) https://www.ilo.org/dyn/normlex/fr/f?p=NORMLEXPUB:12100:0::NO::P12100_INSTRUMENT_ID,P12100_LANG_CODE:312250,en
[xxv]ILO, C105 – Convention (n° 105) sur l’abolition du travail forcé, art. 1, para. a.
[xxvi] Id. at art. 1, para. b.
[xxvii] Id. at art. 1, para. c.
[xxviii] Id. at art. 1, para. d.
[xxix] Id. at art. 1, para. e.
[xxx] Patrick Temple-West, How lawyers are cleaning up supply chains, Financial Times, June 16, 2021, https://www.ft.com/content/a35776c3-d263-4b4e-ae10-3985c386b058 (last visited May 14, 2023).
[xxxi] Id.
[xxxii] Christopher Sindik and Aymard H. Jimenez, Supply Chain Due Diligence: An expanding duty, November 10, 2021, Supply Chain Mgmt Rev, https://www.scmr.com/article/supply_chain_due_diligence_an_expanding_duty
[xxxiii] Id.
[xxxiv] Id.
[xxxv] Id.
[xxxvi] Id.
[xxxvii] Fighting Against Forced Labour and Child Labour in Supply Chains Act, SC 2023, c 9. https://www.parl.ca/DocumentViewer/en/44-1/bill/S-211/royal-assent
[xxxviii] Id.
[xxxix] Id. at c 9, s 5.
[xl] Id. at c 9, s 11.
[xli] Id. at c 9.
[xlii] Id. at c 9, s 2.
[xliii] Id.
[xliv] Id. at c 9, s 2(b) – (c)
[xlv] Id.
[xlvi] Id.
[xlvii] Id. at c 9, s (9)(a).
[xlviii] Id. at c 9, s (9)(b).
[xlix] Id. at c 9, s (9)(c).
[l] Id.
[li] Id. at c 9, s (11)(1).
[lii] Id.
[liii] Id. at c 9, s (11)(3).
[liv] Id.
[lv] Id.
[lvi] Id. at c 9, s (11)(4).
[lvii] Id. at c 9, s (11)(13)(1).
[lviii] Id.
[lix] Id. at c 9, s (11)(13)(2).
[lx] Id. at c 9, s (11)(14).
[lxi] Id. at c 9, s (11)(15)(1).
[lxii] Id. at c 9, s (11)(15)(2).
[lxiii] Id. at c 9, s (18).
[lxiv] Id. at c 9, s (19)(1).
[lxv] Id. at c 9, s (19)(2).
[lxvi] Id. at c 9, s (20).
[lxvii] Id.
[lxviii] Id.