On December 13, 2018, Canadian Member of Parliament John McKay introduced a private members’ bill in the House of Commons entitled An Act respecting the fight against certain forms of modern slavery through the imposition of certain measures and amending the Customs Tariff – Modern Slavery Act (“Bill C-423”). Its purpose is to “implement Canada’s commitment to contribute to the fight against modern slavery through the imposition of reporting obligations on entities involved in the manufacture, production, growing, extraction, or processing of goods in Canada or elsewhere or in the importation of goods manufactured, produced, grown, extracted, or processed outside Canada”.
Since then, the Canadian government has held consultations on labour exploitation in global supply chains in May and June in response to last year’s report on ending all forms of child labour in supply chains by the Parliamentary Subcommittee on International Human Rights. Given these developments in Canada, as well as the enactment of similar legislation in other jurisdictions (namely, the United Kingdom, California, France, Australia, the Netherlands, and most recently, the United States), Bill C-423 should be welcomed by Parliament, investors and the public as the logical next step towards increasing accountability of Canadian companies operating transnationally.
The lowdown on mandatory transparency reporting
In Canada, modern slavery already constitutes a human trafficking offense under criminal and immigration laws. Section 279.01 of the Canadian Criminal Code defines the offence of human trafficking as recruiting, transporting, transferring, receiving, holding, harboring or concealing a person, or exercising control, direction or influence over the movements of a person, for the purpose of exploiting them. However, the other democracies listed above have surpassed Canada on the legislative front by adopting laws specifically tailored to combat modern slavery in business.
For example, the United Kingdom pioneered the first Modern Slavery Act (“the Act”) in 2015. Under Section 54 of the Act, any commercial organization which supplies goods or services, carries on a business or part of a business in the UK and whose annual turnover is £36 million or above, is required to produce a “slavery and human trafficking statement” for each financial year. The statement should detail what the company is doing to “ensure that slavery and human trafficking is not taking place in any of its supply chains and in any part of its own business”.
However, since its adoption, the Act has been subject to criticism by various stakeholders, due both to poor reporting practices and because it does not actually require companies to address the risks they identify in their reports. Worse still, a company does not need to conduct due diligence to pinpoint human rights risks if it chooses not to. It can simply state in its report that it does not do so. In a nutshell, the legislation is designed to increase transparency around the issue of modern slavery in the hope that consumers and investors alike will take notice of these disclosed risks (or lack thereof) and pressure companies into mitigating and/or remedying them.
As such, Bill C-423 is not the first of its kind. Compared to its UK predecessor, the Canadian bill is equally vague in terms of its reporting obligations. Section 7 states that every entity[1] must provide the Minister with a yearly report listing the steps it has taken “to prevent and reduce the risk that forced labour or child labour is used at any step of the manufacture, production, growing, extraction or processing of goods in Canada or elsewhere by the entity or of goods imported into Canada by the entity” [emphasis added]. Much like the UK Act, it does not impose a positive obligation to perform modern slavery due diligence, nor does it require entities to prevent and reduce actual modern slavery in their operations; it merely requires companies to report on what they are or aren’t doing to identify the risks. The language in Section 7 is subtle, but important.
Fortunately, the Canadian bill does distinguish itself from the UK Modern Slavery Act on three fronts: its control provisions, its enforcement measures, and its section on offences and punishment. Unlike the UK Act, Bill C-423 contains express control provisions which state that the Act would apply to entities that directly or indirectly control other entities that manufacture, sell or import goods into Canada. In practice, this presumably means that entities fulfilling their reporting obligations under the law would be required to take their subsidiaries’ activity into account and report on risks of modern slavery they identify in their supply chains.
Moreover, the Canadian bill is more stringent than its UK predecessor in terms of enforcement measures. Should an entity be in breach of the reporting obligations under Section 7, the bill grants powers to designated classes of persons to enter any place in which they have reasonable grounds to believe there to be documents relating to the administration of the Act. It goes as far as providing for the entry into private residences under the authority of a warrant. Finally, failing to report under Section 7 or resisting an entry by authority would constitute an offence punishable on summary conviction and could be liable to a fine of up to $250,000.
The business case for mandatory transparency legislation in Canada
Given the novelty of the bill in Canada and the high stakes of failing to comply with its reporting requirements, one might wonder about the need for such legislation… First and foremost, Canadian companies are already reporting under the UK Modern Slavery Act, given that the reporting requirement extends to companies carrying on business in the United Kingdom. As of July 2019, thirty-five Canadian companies have released modern slavery statements, including companies that are often in the public discourse such as Air Canada, lululemon, and most major Canadian banks.
As such, a similar legal obligation created by Canadian mandatory transparency legislation would not come as a shocking novelty to some of the largest Canadian corporations who are already complying with reporting requirements in a sister jurisdiction. If anything, the fact that these leading corporations are already reporting under comparative legislation (and that compliance does not appear to be unduly difficult) may render other Canadian corporations less likely to oppose a similar proposal in Canada.
Furthermore, the benefits to interested stakeholders of enacting mandatory transparency legislation in Canada are numerous. To begin, a clear set of reporting guidelines accompanying the law would contribute to the standardization of expectations and obligations companies must fulfill across jurisdictions, especially when doing business in countries that have already adopted mandatory transparency legislation or are in the process of doing so. As this Modern Slavery Report [.pdf] highlights, the current fragmented approach can lead to a patchwork of national laws with inconsistent requirements for transnational corporations across jurisdictions.
In addition, the enactment of a law similar to that of the UK Modern Slavery Act allows Canada to bypass potential obstacles posed by federalism and the separation of powers as it concerns provincial securities regulation. In other words, if mandatory transparency obligations on modern slavery were to be incorporated into securities regulations rather than as a standalone federal act, each provincial legislature would have to amend their own securities act to add this reporting requirement. This could lead to inconsistencies among the provinces and cause confusion for corporations and investors alike. Last but not least, an increase in the availability and quality of reported information on modern slavery in corporate supply chains may incentivize socially conscious consumers and investors to make better informed choices when consuming products or investing in companies.
As Professor Penelope Simons reported, Canada is falling behind other countries when it comes to holding its companies accountable when they cause harm abroad. Canada must keep up with its international peers by enacting mandatory transparency legislation in order to compel Canadian corporations and foreign corporations doing business in Canada to publicly report on the risks of modern slavery in their supply chains and operations. Bill C-423 is by no means the be-all and end-all solution to eradicate modern slavery in supply chains and elsewhere (the creation of the office of the Canadian Ombudsperson for Responsible Enterprise is another initiative that deserves immediate attention). Nevertheless, if enacted, a Canadian Modern Slavery Act would at the very least raise awareness among legislators, corporate leaders and consumers of the global modern slavery crisis.
[1] The term “entity” is defined in section 2(1) of the Bill as a corporation, trust or other unincorporated organization that is listed on a stock exchange in Canada, has a place of business in Canada or does business in Canada, and has meets at least two of the following conditions for at least one of its two most recent financial years: (i) has at least $20 million in assets; (ii) has generated at least $40 million in revenue; (iii) employs an average of 250 employees.
About the author
Emilie de Haas is a recent graduate from McGill University’s Faculty of Law with a dual degree in Common Law and Civil law (BCL/LLB’19). She has a particular interest in Business & Human Rights and Corporate Social Responsibility. Emilie interned at the Danish Institute for Human Rights and worked as a summer associate in a major law firm in Toronto. She will soon assume a position as Assistant Legal Counsel at the Permanent Court of Arbitration in The Hague. She can be reached at: emilie.dehaas [at] mail.mcgill.ca.