The emergence of modern slavery legislation in California, the U.K., France and Australia is giving the business and human rights area an increasing hard law dimension which affects businesses across the board, especially if their operations or supply chains encompass developing countries.
Canada may be next to regulate modern slavery in global supply chains. If so, it will follow a global trend in legislative measures to eliminate modern slavery, responding to the 2012 United Nations Guiding Principles on Business and Human Rights, the global standard for corporate human rights obligations.
Last October, the House of Commons Standing Committee on Foreign Affairs and International Development published a report highlighting that child labour remains widespread. In response, the February, the federal government committed to consult on possible supply chain legislation.
To date, there are two pieces of proposed legislation: C-423 – An Act respecting the fight against certain forms of modern slavery through the imposition of certain measures and amending the Customs Tariff, a private member’s bill, and the draft Transparency In Supply Chains Act (TSCA) to be tabled in the Senate sometime this year.
C-423 targets modern slavery, especially child labour. Subject to certain jurisdictional thresholds, it would apply to any entity that manufactures, produces, grows, extracts, processes or sells goods in Canada or elsewhere; imports into Canada such goods; or controls an entity described above. Such entities would be required to produce an annual report, including policies and steps taken to prevent and reduce the risk of forced or child labour, a list of activities that carry a risk of forced and child labour and remediation measures taken. It would include monetary penalties for non-compliance and an import ban for goods produced with child or forced labour. If passed, C-423 would come into force on Jan. 1, 2020.
The TSCA provides four mechanisms to combat modern slavery: a reporting requirement for qualifying entities; a duty of care for all businesses that meet an annual turnover threshold; the creation of an ombudsperson and compliance committee; and mechanisms to receive and investigate disclosures of modern slavery from whistleblowers. The duty of care provisions are potentially far-reaching, in that they would establish a legal responsibility to take reasonable steps to avoid the use of modern slavery in a business’s overseas operations.
Both C-423 and the TSCA’s requirements apply to resource companies and would require reporting, provide penalties and may, in the case of the TSCA, establish a positive duty of care to avoid the use of modern slavery in mining operations.
Existing modern slavery disclosure requirements
On Sept. 14, 2018, the securities regulator in Quebec (the Autorité des marchés financiers or AMF) published guidance to public companies on modern slavery disclosure requirements. The AMF’s guidance highlights existing disclosure requirements in the continuous disclosure documents of issuers and sets out AMF staff expectations. It does not modify existing legal requirements or create new ones. However, the AMF provides comprehensive guidance in response to international regulatory developments.
The AMF asks issuers to consider materiality and whether the nature of their business requires them to disclose risks related to modern slavery and risks affecting their supply chain in continuous disclosure documents. In this regard, AMF lists litigation risks, regulatory risks, reputational risks and operational risks. Further, and importantly, the guidance states that boards of directors, audit committees and certifying officers should ensure that the disclosure in documents filed under securities regulations is consistent with management’s assessment of the materiality of modern slavery-related risks. The AMF is the first securities regulator in Canada to specifically address and provide guidance for modern slavery disclosure.
Resource companies need to consider materiality of risks posed by modern slavery as well as risks affecting their supply chain in terms of reputation, litigation, regulatory and operational risk and report, in compliance with the AMF guidance, if these risks are deemed material.
Implications for Canadian resource companies
While the details of any final legislation remain to be seen, it is important that Canadian resource companies and their counsel are aware of the potential impact on their business, especially if their operations or supply chains encompass developing countries.
Companies need to consider the potential impact on their business and operations now in order to assess risk and prepare for reporting and potential duty of care requirements.
KELLIE L. JOHNSTON is Of Counsel, business law at Norton Rose Fulbright and BENEDICT WRAY is an associate.