What is Canada’s Modern Slavery Act?

Canada is one of the latest countries attempting to encourage organizations to adopt sustainable and governance-friendly business practices. With the passage and enactment of the “Fighting Against Forced Labour and Child Labour in Supply Chains Act”, which went into quick effect earlier this year, Canada hopes to increase transparency and supply chain due diligence. Due to its nature, the act is commonly known as the Modern Slavery Act, or MSA.  

The act came into effect on January 1, 2024, and stipulates that organizations must submit a comprehensive report for the previous financial year by May 31 of the following year. This gives in-scope organizations little time to prepare for the increase in investigations they may need to undertake. In fact, the first reports were due May 31, 2024, surveying the organization’s forced and child labor risk mitigation actions in 2023.  

Maintaining MSA compliance may require you to step up your supply chain due diligence and reporting capabilities, which may seem difficult at first, especially given the compressed timelines. However, following MSA requirements will also give your organization the chance to fully understand the implications of your value chain, and head off costly fines and reputational mistakes before they have the chance to affect your business.  

What is the Canadian Modern Slavery Act?

The Canadian Modern Slavery Act is a new legislation that requires in-scope organizations to submit a report on the actions taken to mitigate forced and child labor practices within the organization’s supply chain. The report must be board-approved, publicly available, and be sent to Canada’s Minister of Public Safety and Emergency Preparedness by May 31st each year.   

Penalties for failing to comply to the MSA can be pretty steep: any individual or organization that doesn’t submit a report, or produces false or misleading information within a report can be found guilty of a summary offense and be fined up to CAD$250,000. Individual liability extends to directors, officers, employees, and agents of an organization, so any person responsible for signing off on MSA reporting could be considered complicit in supplying false or misleading information. The MSA does have a defense consideration in the case of employees and agents; however, it is patently clear that the Canadian government will not take non-compliance lightly. 

Who does the Canadian Modern Slavery Act apply to?

The MSA applies to a large range of organizations operating within Canada, including public and private companies, and businesses that import goods into Canada. Companies qualify as in-scope if they: 

• Are listed on the Canadian stock exchange
• Have a place of business in Canada, do business in Canada, or have assets in Canada, and meet at least two of the following conditions in at least one of the last two financial years:
• Held a minimum CAD$20 million in assets
• Produced a minimum CAD$40 million in revenue
• Employed an average of a minimum 250 employees (including part-time employees)
• Produce, sell, distribute goods in or from Canada; or import goods into Canada
• Are prescribed by regulations – this last point is aimed at future regulations, as there are no current regulations that stipulate that specific organizations should be considered in the scope of the MSA.

Figure 1 – In-scope company requirements for Canadian MSA  

Businesses that are not based in Canada, but that have a Canadian subsidiary (with a controlling majority) that produces, sells, or distributes goods into or from Canada, or that imports goods into Canada are also considered in-scope. In these cases, the controlling business must submit a joint report with the Canadian subsidiary.  

What are in-scope organizations required to do?

The MSA requires companies to submit a comprehensive report, with information about their organizational structure, forced and child labor policies, and any mitigation actions taken to prevent forced and child labor. Additionally, the report must detail how the organization evaluates its own impact in preventing force and child labor. To ensure that the report contains all of the required information, organizations are also required to fill out an online questionnaire prior to submitting the report. The aim is to help organizations understand what information they need to gather for the report. It also serves as another way for the Canadian government to ensure accurate reporting, as they are consequences for organizations that enter different information in the questionnaire and the report.   

Unlike other international regulations, the MSA doesn’t require organizations to re-construct their supply chain to ensure negligible amount of labor risk. However, it does require businesses to communicate any labor risks that they are aware of within their supply chains, and any steps they have taken to minimize any labor risks.  

The report must be uploaded to the Ministry of Public Safety’s online portal, published on the organization’s website, and must be approved by the organization’s governing board. Additionally, any businesses incorporated under the Canada Business Corporations Act must provide a copy of the report to all shareholders, along with their annual financial statements.   

Next steps

In some ways, Canada’s MSA is less obviously burdensome in its requirements than other comparable global regulations. By focusing on reporting over explicit action, it may feel easier to prepare for the MSA. However, these reports will be publicly available, and consumers are more aware than ever of the provenance of their products. If your company is found to have known instances of forced or child labor in your supply chain and not taken any action, the damage to your company’s reputation could be substantial.   

Furthermore, the MSA follows worldwide legislation on modern slavery, including the US’ Uyghur Forced Labor Protection Act, the EU’s Corporate Sustainability Due Diligence Directive, Australia’s Modern Slavery Act, and more. The likelihood is that your organization may be affected by more than one of these ESG-focused legislations. Ensuring that you maintain compliance to the MSA is a good way to make sure your organization is compliant to other reporting- and mitigation-heavy global regulations.  

Therefore, in-scope companies must ensure accurate visibility into their supply chains. This will not only allow organizations the ability to understand where potential labor risks are, but will give them the chance to mitigate against them. 

Figure 2 – Visibility metrics for companies beyond tier 1 suppliers  

Canada’s Fighting against Forced Labour and Child Labour in Supply Chains Act is taking a slightly different tack to other regulations around the world by focusing on consistent, public reporting on modern slavery in supply chains. By forcing organizations to grapple with labor risks within their supply chain, businesses are encouraged to take stronger, effective action to prevent governance risk and reputational damage.