Designed to Fail. Canada’s Act to Fight Against Forced Labour and Child Labour in Global Supply Chains

The opening

As a Canadian, I was excited to read that my country will soon join the growing list of countries with binding Responsible Business Conduct (RBC) legislation. After watching progress in the United States, United Kingdom, Europe, Australia and others, I was perplexed why Canada – the one who touts itself as the “strong voice for the protection of human rights” wasn’t holding our companies to account for abuses in their supply chains.?

What kind of abuses you may ask? Here are two examples of many:?

·???????In 2022, Public Services and Procurement Canada terminated two supply contracts worth?$222M?with Supermax Healthcare Canada following allegations that the gloves it manufactured in Malaysia for use by Canadian health care workers were made with forced labour.?Earlier the US Customs Border Patrol had investigated Supermax and its subsidiaries identifying 10 of the 11 forced labour indicators.

·???????On April 24, 2013, Rana Plaza in Bangladesh collapsed killing 1,130 people and seriously injuring 2,520 others. Two of the clothing-manufacturing companies caught up in the collapse were under contract to supply the Canadian giant Loblaws. In 2019, victims of the tragedy tried to sue Loblaws in Canadian courts, but the Supreme Court concluded the company was not liable since it had “no control over the circumstances that were dangerous, and had no control over the employers or employees or other occupants of Rana Plaza” – a position which is directly contrary to internationally recognized standards around duty of conduct on due diligence.?

Canada’s Current State of Play?

Sure – Canada has made some efforts to show it’s not a laggard in the area of business and human rights and at least on paper – the efforts look credible. In 2019, the Government appointed a Canadian Ombudsperson for Responsible Enterprise (CORE) to investigate human rights abuses by Canadian companies operating abroad in the oil and gas, mining and garment sectors; and in 2020, Canada amended its Customs Tariff to ban imports of goods produced by forced labour in line with requirements in the Canada-United States-Mexico Agreement.

Nearly four years later however, the actual results look less impressive. CORE has been critiqued for questions over its independence and structural inefficiencies. The CORE has an investigative mandate and can make remedial recommendations to private companies, but its determinations are otherwise non-binding.[1]?The organization sits within Global Affairs Canada and in 2021-22, there were only five complaints submitted – of which only one was deemed “admissible” and later referred to another party.[2]?Similarly, enforcement of the import ban has been lopsided with the U.S. Customs and Border Protection data, stopping a total of 3,237 shipments over suspicions of forced labor, compared to Canada’s stopping of one shipment, which it later released it after a challenge from the importer.[3]

Bill S-211: Could it be the Game Changer?

In November 2021, following seven failed attempts to pass RBC legislation, Bill S-211 was introduced as a private-member’s Bill. It aims to provide greater transparency by forcing in-scope businesses to disclose the measures actively taken to reduce the risk of forced or child labour within their supply networks. After receiving Government backing, it’s now in its third reading in the House of Commons, the last step before receiving Royal Assent. Could this Bill be the game changer that starts to hold Canadian companies to account while improving real conditions for workers in producing countries???Let’s take a closer look at its scope and substance to find out more.

First – who would be in-scope for the legislation??

Only those companies that are:

1. Listed on a Canadian Stock Exchange (e.g., there are four main ones including the?Toronto Stock Exchange?(TSX))?
2. Has a place of business in Canada, does business in Canada or has assets in Canada?and meets at least two of the following conditions:?

i. Has C$20 million or more in assets,

ii. Generated at least C$40 million in revenue, and

iii. Employs an average of at least 250 employees; or

3. Otherwise prescribed by regulations, which have yet to be enacted.

This means that most small and medium sized enterprises would be excluded from reporting requirements under the new legislation. While this contravenes international frameworks such as the OECD Guidance on RBC, which clearly state that all companies – regardless of their status, size, ownership structure or sector – should integrate responsible business conduct within their core business operations, supply chains and business relationships, it does broadly align with the approach taken by other jurisdictions (see Annex A for details).?

Second – what do companies actually need to do under this soon-to-be enacted law?

Bill S-211 introduces yet another?reporting regime?requiring in-scope entities to submit a public annual report explaining the steps they have taken to prevent and mitigate forced labour and child labour risks in their operations and supply chain.??If as expected, the law is adopted in this year,?Companies will be expected to file their first reports by end May 2024.?The report must be made available to the Minister (possibly on a centralized registry) and also made accessible to the public by displaying it on a prominent place on the company website.?

Similar to Australia’s Modern Slavery Act (AMSA), Canada’s Act to Fight Against Forced Labour and Child Labour requires seven mandatory reporting criteria. The content broadly overlaps with the AMSA and the UK’s Modern Slavery Act (MSA) but with some differences outlined below:?

The Analysis – will it be effective?

Bill S-211 offers a glimmer of hope that Canada designed RBC Disclosure Legislation that rises above the rest. The Parliamentarians did invite a host of leading experts to study the shortcomings of the MSA and AMSA and you can see they took some learnings on board – e.g. the new Bill makes improvements on the aforementioned acts by mandating specific report content; and including financial penalties and liability of directors in cases of non-compliance. Specifically, companies that do not report, who fail to make the report accessible, or who hinder a designated person from publishing the report, may be convicted of a summary offense and liable to a fine of CAN $250,000 or less. The same punishments and fines apply to those who knowingly make false or misleading statements in their report.

Despite the above, hope for the Bill’s effectiveness starts to fade when examining whether Bill will encourage Canadian government and companies to get serious about the implementation of RBC in their supply chains. Based on evidence from other jurisdictions that have adopted RBC legislation – how effective will this new transparency legislation be on improving human rights conditions for affected groups or driving stronger corporate accountability for negative impacts?

After reading Bill S211, its related Hansard reports[1]?and getting caught up on what latest research is telling us about effective legislative approaches to holding businesses accountable, I’ve concluded that there are?two major flaws?in the Bill’s design and enforcement mechanisms, which will limit its effectiveness:??

First Flaw: Absence of a duty of conduct for human rights due diligence

The first flaw I want to highlight is the absence of a duty of conduct.??In short, the legislation only requires companies to report on their actions – it does not require them to actually conduct human rights due diligence.[2]?This means that companies can report that they have not taken any steps or inadequate steps to identify, prevent and address forced labour and child labour in their supply chains and they would still be in compliance with the law.??

This approach deviates from International Standards such as the UNGPs, which clearly state that?both?transparency and HRDD are parts of a company’s duty to respect human rights. This being said, some countries such as Norway, have adopted Transparency Acts, which combine reporting requirements with a duty of conduct, while others like Canada, UK and Australia seem to opt for the transparency-only route.??For a deeper explanation of the types of legislation please see Annex B.??

So what is the most effective one in terms of real impact on the ground? Well, as a disclaimer, we are still learning but we do already have some valuable insights to draw upon.??Based on my research, there are three main reasons why transparency-only legislation will not be effective at improving human rights impacts or corporate accountability:

i.?????????Transparency alone doesn’t change corporate behaviour around due diligence or accountability for actions:?

When Canada was designing its new legislation, it brough in many expert witnesses such as Cindy Berman (then the Head of Modern Slavery Strategy at ETI), who stated that corporate due diligence needed to be at the center of any attempts to change systemic exploitation in global supply chains. Yet in the words of one of the Bill’s supporters, Hon. John McKay?“Bill S-211 is not a due diligence bill. Failure to comply will not expose a negligent company to a human rights lawsuit.”?Critics of the transparency-only route argue that without an accompanying HRDD obligation and civil, administrative, or criminal liability for failure to comply, reporting alone cannot effectively contribute to corporate accountability. In part this is because it unrealistically relies on consumers and civil society to read the statements and to pressure companies into doing more.?

ii.?????????It encourages a siloed, tick-the-box approach:

First and foremost, the Bill’s narrow focus on two of the five ILO Fundamental Principles and Rights at Work means that companies will not have to report on how they are addressing other key human and labour rights. For example, the Rana Plaza tragedy focussed on building and fire safety and would not come under the prevue of the Act. Arguably, by putting the focus on forced labour and child labour, the Bill doesn’t force companies to address a lot of the issues that drive these outcomes such as poverty, unsafe working conditions, purchasing practices and climate change.?

Second, an independent, UK Government-commissioned review in 2019 found that while the MSA?has contributed to greater awareness of modern slavery in companies’ supply chains, a number of companies are approaching their obligations as a mere tick-box exercise, and it is estimated around 40 per cent of eligible companies are not complying with the legislation at all.[3]?Similarly a study by the Human Rights Law Centre on the AMSA found that the majority of companies engaged in “superficial reporting”.[4]

iii.?????????The first is often the last:?

While some say that this Bill is a good “first-step” for Canada to take, which may lead to more robust legislation,?international experience has shown that once legislatures have passed legislation that requires transparency alone, they stop there and do not go any further.[5]??One might forgive trailblazers like the United States and United Kingdom for adopting flawed legislation in the first instance, but now that we know the sub-standard results, what does it say about countries that follow their lead???In March 2022, Surya Deva of the United Nations Working Group on Business and Human Rights testified at Senate hearings on Bill S-211, and asked the poignant question of why Canada was pursuing “a very defective model of regulation when far superior models of regulation are emerging.”[6]

Second Flaw:?Inadequate mechanisms for accountability and enforceability?

The second flaw I want to discuss is around the resources the government is prepared to expend to ensure the legislation is adequately enforced. The question of resources was asked to one of the Bill’s Government Sponsor’s MP John McKay and he responded “I do not think this bill is going to be resource heavy. What it really requires is getting the Aussie and U.K. legislation, looking at them, taking what we think is best for us, putting up a website and making some elements in the public safety ministry responsible for it.”[7]

i.?????????Accountability: How do we know who needs to report??

According to Peter Newell, “the term [accountability] implies both a measure of answerability (providing an account for actions undertaken) and enforceability (punishment or sanctions for poor performance or illegal conduct).[8]?It is notable that the Government of Canada, even though it is on the cusp of adopting this new law, does not appear to know (or at least share) how many companies may need to report under the new law.??One of the big “lessons learned” from the UK experience was that not having a public list of “in-scope” companies makes it extremely difficult to ensure accountable. In fact one of the main recommendations that came out of the UK Independent Review was that the Government should establish an internal list of companies in scope of section 54 [which requires them to publish a slavery and human trafficking statement] and check with companies whether they are covered by the legislation.

ii.?????????No mechanism to actually read and evaluate the reports:?

Many studies have concluded that the neither the UK nor the Australian legislation are adequately enforced – in part because of their absence of fines but also because they are not sufficiently staffed to digest and evaluate the report content. Instead they rely on civil society and consumers to spot the non-compliances and to shame companies into compliance. Of course some may argue that Canada’s approach to providing director’s liability and monetary fines may change this, but with no public plan to have an appointed body to read through and evaluate the reports, how will the government be able to take a systematic approach to identifying the non-compliances and issuing the fines?

This approach of “outsourcing” oversight and enforcement roles is not limited to Canada. According to a recent study by the University of Chicago on transparency legislation, the?state has almost completely withdrawn itself and assigned these crucial accountability functions to consumers, civil society, and investors. Without a government-led regulatory mechanism to ensure quality of the disclosures and to impose serious fines for failure to comply, not only may the disclosures and processes be inadequate, but there is a danger that misleading disclosures and flawed processes may mask harmful impacts and be detrimental to workers and communities in global supply chains.[9]

The Finale?

Bill S-211 is still not enacted and hence the jury is still out on its effectiveness. This being said, based on learnings from other jurisdictions, there is ample room for concern that the law, once adopted, won’t lead to meaningful improvements on respect for human rights in global supply chains. We also need to wonder why the Canadian Government has spent years researching this bill, listening to experts and the result is legislation that isn't designed to meet its stated objectives.??

Canada is a country that like many, relies heavily on natural resource extraction, with many companies operating in sectors and countries whose business models benefit from exploitation and low labour standards. It is likely that Bill S-211 was the result of a compromise between Government and business – one that allows the Government to “save face” internationally by showing they are doing “something” to regulate their companies’ supply chains but which at its heart – allows businesses to continue business as usual.?

Without the added drive and impetus for companies to be required to undertake specific actions in their supply chains around human rights due diligence, - and without the presence of an adequately equipped body to identify and penalize non-compliances, then Canadian companies will only make surface-level efforts to ensure compliance, leaving the systemic business practices that drive exploitation and abuses unchecked. I know we as Canadians can do better, must do better – so I for one won’t be celebrating when S-211 passes into law.

[1]?Official reports of the Legislative Assembly and Parliamentary Committees and broadcasts Assembly and Committees proceedings

[2]?Canadian Network on Corporate Accountability “Top Three Reasons Why Bill S-211 Misses the Mark” (2021)?https://cnca-rcrce.ca/2021/06/29/pdf-top-three-reasons-why-bill-s-216-canadas-modern-slavery-reporting-act-misses-the-mark/

[3]?Independent Review of the Modern Slavery Act, Final Report (2019) https://www.gov.uk/government/publications/independent-review-of-the-modern-slavery-act-final-report

[4]?Human Rights Law Centre et al., “Paper Promises? Evaluating the Early Impact of Australia’s Modern Slavery Act” (6 February 2022), 2, available online: https://www.hrlc.org.au/reports/2022/2/3/paper-promises-evaluating-theearly-impact-of-australias-modern-slavery-act.

[5]?Hansard Records, March 6 2023?https://www.ourcommons.ca/DocumentViewer/en/44-1/house/sitting-164/hansard

[6]?Hansard Records, March 2022?https://sencanada.ca/en/committees/RIDR/noticeofmeeting/572895/44-1

[7]?Hansard Records, March 6 2023?https://www.ourcommons.ca/DocumentViewer/en/44-1/house/sitting-164/hansard

[8]?Peter Newell,?From Responsibility to Citizenship: Corporate Accountability for Development, Inst. Dev. Stud., Apr. 2002

[9]?R. Chambers and A.Y. Vastardis,?Chicago Journey of International Law “Human Rights Disclosure and Due Diligence Laws: The Role of Regulatory Oversight in Ensuring Corporate Accountability”?https://cjil.uchicago.edu/print-archive/human-rights-disclosure-and-due-diligence-laws-role-regulatory-oversight-ensuring

[1]?Mccarthy Tetrault, “Canadian Agency Report Highlights Risk of Child Labour in the Global Apparel Supply Chain” (February 2023) available at?https://www.mccarthy.ca/en/insights/blogs/terms-trade/canadian-agency-report-highlights-risk-child-labour-global-apparel-supply-chain

[2]?A. Robinson “At Its Core Canada’s Inefficient Response to Corporate Abuses Abroad” (April 2022)?https://www.kroegerpolicyreview.com/post/at-its-core-canada-s-inefficient-response-to-corporate-abuses-abroad?and CORE Annual Report 2021-2022 https://core-ombuds.canada.ca/core_ombuds-ocre_ombuds/annual-report-2021-2022-rapport-annuel.aspx?lang=eng

[3]?CBP Dashboard?https://www.cbp.gov/newsroom/stats/trade/uyghur-forced-labor-prevention-act-statistics