A transformative piece of federal legislation is compelling Canadian businesses to examine their supply chains more closely than ever before. The Fighting Against Forced Labour and Child Labour in Supply Chains Act (the Supply Chains Act), which came into force on January 1, 2024, has established a significant compliance and transparency regime. This Act is not merely aspirational; it carries substantial penalties and creates serious reputational risks.
For businesses in B.C., a primary gateway for international trade and imports, the implications are immediate. The Act’s first reporting deadline passed on May 31, 2024, and this annual reporting requirement is now a permanent fixture of the corporate compliance calendar. Many businesses that meet the specified thresholds may not even be aware of their obligations. This legislation fundamentally changes the conversation around corporate social responsibility, moving it from a voluntary marketing exercise to a mandatory legal disclosure.
The Era of Mandatory Corporate Transparency
The Supply Chains Act is Canada’s response to a global movement demanding accountability for human rights abuses in corporate supply chains. It is modelled after similar legislation in jurisdictions like the United Kingdom and Australia. The core purpose of the Act is not to immediately penalize companies for having risks in their supply chains, but rather to compel transparency. It requires businesses to publicly report on the steps they took during their previous financial year to prevent and reduce the risk that forced labour or child labour is used at any stage of their supply chains.
The actual impact of the law lies in its public nature. All reports filed with the Minister of Public Safety are made available to the public in an online registry. Furthermore, the reporting entity must also publish the report in a prominent location on its own website. This public disclosure creates a powerful incentive for action, as a report detailing minimal or non-existent due diligence can be highly damaging to a company’s brand, investor relations, and consumer trust.
Determining if Your Business is a “Reporting Entity”
The first and most critical question for any B.C. business owner is whether their operation is subject to the Act. The law applies to “reporting entities,” which are defined through a multi-part test that captures a wide range of businesses.
An entity is required to report if it is a corporation, trust, partnership, or other unincorporated organization that falls into one of two main categories.
First, it applies to any entity listed on a Canadian stock exchange. Second, and more broadly, it applies to any entity that has a place of business in Canada, does business in Canada, or has assets in Canada, provided it also meets specific financial thresholds.
The Financial and Activity Thresholds
This second category is the one that will capture many private businesses based in B.C. An entity in this category must meet at least two of the following three criteria for at least one of its two most recent financial years, based on its consolidated financial statements:
- It has at least $20 million in assets.
- It has generated at least $40 million in revenue.
- It employs an average of at least 250 employees.
The use of consolidated financial statements is a crucial detail. A smaller B.C.-based subsidiary might not meet these thresholds on its own, but if its financials are consolidated with a larger parent company, the entire group may be drawn into the reporting requirement.
Meeting these size thresholds is not the final step. The entity must also be engaged in specific commercial activities. The Act applies to entities that are:
- Producing, selling, or distributing goods in Canada or elsewhere.
- Importing goods into Canada that are produced outside of Canada.
- Controlling an entity that is engaged in either of the activities listed above.
The “control” provision is particularly expansive. A large holding company that meets the financial thresholds but does not directly import or produce goods will still be a reporting entity if it controls a subsidiary that does import goods, even if that subsidiary is small. Given the presence of major import-export hubs and ports in B.C., a vast number of local businesses will find themselves meeting this activities test.
Deconstructing the Annual Report: The Seven Core Elements
For businesses that are determined to be reporting entities, the central obligation is to prepare and submit a detailed annual report. The Supply Chains Act is highly prescriptive about the content of this report. It is not enough to simply state that the company is against forced labour. The report must provide substantive information on seven specific topics.
1. Structure, Activity, and Supply Chains
The report must describe the entity’s structure, activities, and supply chains. This requires a clear mapping of the business, its subsidiaries, and a general overview of its supply chains, including the geographic regions from which it sources goods.
2. Policies and Due Diligence Processes
The entity must detail its policies and due diligence processes in relation to forced labour and child labour. This involves explaining the written policies that are in place, such as supplier codes of conduct or internal whistleblower policies.
3. Risks of Forced Labour or Child Labour
The report must identify the parts of its business and supply chains that carry a risk of forced labour or child labour being used, and the steps it has taken to assess and manage that risk. This is often the most challenging part, as it requires a genuine risk assessment, not just a denial of risk.
4. Measures to Remediate Forced Labour or Child Labour
The entity must describe any measures taken to remediate any forced labour or child labour. If an issue has been identified, the company must report on the corrective actions it has taken to address it.
5. Measures to Remediate Loss of Income to Vulnerable Families
A unique requirement of the Canadian legislation is that the entity must report on any measures taken to remediate the loss of income to the most vulnerable families that may result from any measures taken to eliminate forced or child labour. This acknowledges that simply cutting off a supplier can have severe unintended consequences.
6. Employee Training
The report must detail the training provided to employees on the prevention of forced labour and child labour. This could include training for procurement teams, management, or all staff.
7. Effectiveness Assessments
The entity must explain how it assesses its effectiveness in ensuring that forced labour and child labour are not being used in its business and supply chains. This requires the company to have key performance indicators or other metrics to measure the success of its own policies.
The Power of Attestation: Director and Officer Accountability
The Supply Chains Act places a significant burden of accountability directly on the organization’s leadership. The report cannot be a low-level compliance document signed by a junior manager. It must be formally approved by the entity’s governing body.
For a corporation, this means the report must be approved by its board of directors. The report must then include a signed attestation from one or more directors or governors, certifying that they have reviewed the information and that the governing body has approved it. This requirement for a signed attestation forces the issue onto the board’s agenda and creates a mechanism for personal accountability. Directors and officers must be satisfied that the report is accurate and that the due diligence it describes has, in fact, been undertaken.
The Steep Costs of Non-Compliance
The penalties for non-compliance are severe and multifaceted. The most obvious are the financial penalties. An entity that fails to submit a report, fails to publish it prominently on its website, or knowingly makes a false or misleading statement in its report can face fines of up to $250,000.
Furthermore, the Act includes provisions for personal liability. Every director, officer, or agent of the entity who directed, authorized, assented to, acquiesced in, or participated in the commission of an offence is also liable for the offence. This pierces the corporate veil and places a direct legal risk on the individuals in charge.
Beyond the statutory fines, the most significant risk is reputational. In a market as socially and environmentally conscious as British Columbia, being publicly named in the government registry as an entity that failed to report is deeply damaging. Similarly, filing a report that is clearly inadequate or one that discloses the company has no policies, no due diligence, and no training related to forced labour is also unacceptable. Such a disclosure is an open invitation for negative press, activist campaigns, and divestment by investors who are increasingly focused on Environmental, Social, and Governance (ESG) criteria.
Beyond Compliance: A Strategic Imperative
Businesses, particularly those integrated with global markets, must view the Fighting Against Forced Labour and Child Labour in Supply Chains Act as more than just another compliance burden. It is a strategic imperative that re-frames supply chain management as a core legal and ethical function.
The Act forces companies to ask difficult questions about their partners and suppliers. This process of mapping supply chains and assessing risk, while initially daunting, is also a critical exercise in risk management. It can reveal dependencies, vulnerabilities, and inefficiencies in the supply chain that go far beyond the issue of forced labour.
Proactive due diligence, transparent policy-making, and robust reporting are no longer optional. They are the baseline for responsible corporate conduct in Canada. Preparing for this annual report requires a year-round effort, including policy development, supplier engagement, risk assessment, and internal training. Businesses that embrace this reality of transparency will not only ensure legal compliance but will also build a more resilient and reputable organization.
Contact CM Lawyers for Trusted Business Law Advice in Vernon, Salmon Arm & Enderby
If your business may fall within the definition of a reporting entity under the Fighting Against Forced Labour and Child Labour in Supply Chains Act, now is the time to take proactive steps. The knowledgeable business law team at CM Lawyers can help you determine your obligations, assess risk areas, develop meaningful due diligence processes, and prepare a compliant annual report that meets the Act’s strict disclosure and attestation requirements. Contact us online or call (250) 308-0338 for guidance tailored to your business and support in navigating this evolving federal compliance regime.