What is the Canadian Modern Slavery Act and What Are Its Reporting Requirements?

Article Highlights:

• Officially known as the Fighting Against Forced Labor and Child Labor in Supply Chains Act, the Canadian Modern Slavery Act “aims to increase industry awareness and transparency about forced labour and child labour, and to encourage responsible business practices.”
• Businesses that fall within the scope of the Canada MSA have to report on how they identify forced labor within their supply chain, what their processes are for mitigating forced labor if and when it’s discovered, and any internal frameworks for evaluating the effectiveness of those processes.
• To achieve compliance with the Canadian Modern Slavery Act, in-scope businesses should consider investing in supply chain mapping, updating supplier contracts, and implementing contingency measures for addressing forced labor if and when it’s discovered.

What Is the Canadian Modern Slavery Act?

The Canadian Modern Slavery Act (MSA), which is officially known as the Fighting Against Forced Labor and Child Labor in Supply Chains Act, is a law that  “aims to increase industry awareness and transparency about forced labour and child labour, and to encourage responsible business practices.” Entered into force on January 1, 2024 by the Government of Canada, the Canadian MSA requires businesses that fall within the scope of the regulation to submit annual reports on the due diligence measures they are taking to identify, address, and mitigate forced labor and child labor in their supply chains. 

Why Was the Canadian Modern Slavery Act Established?

The Canadian government established the MSA in 2024 in order to force in-scope businesses to take a more assertive, rigorous approach to their due diligence efforts, and to do more to root out labor exploitation in their supply chains. The government cites statistics from the International Labour Organization, which found that nearly 28 million people worldwide are victims of forced labor. By imposing reporting obligations on businesses operating in Canada, the government hopes to increase transparency and accountability, and push businesses to engage in more ethical sourcing practices. 

The MSA should also be understood within the broader context of the sustainability movement. As more and more countries are embracing ESG and developing ways to implement its principles into formal regulations and legal frameworks, addressing forced labor has become a growing priority for governments across Europe and North America. 

Who Has to Comply With the Canadian Modern Slavery Act?

Businesses are considered in the scope of the MSA if they are either:

• Listed on a stock exchange in Canada
• Have a place of business in Canada, conduct business in Canada, or own assets in Canada. 
  
  • Entities that fit into one or more of the above categories must also fulfill two of the following three criteria to fall into the scope of the Modern Slavery Act: Possess at least $20 million in assets; have generated annual revenue of $40 million or more; and have an average of at least 250 employees. 
  • Companies need only have fulfilled two of these criteria in one of the last two fiscal years to trigger CMA reporting obligations. 

What Are the Reporting Requirements for the Canadian Modern Slavery Act?

Businesses that fall within the scope of the Canada MSA have to report on how they identify forced labor within their supply chain, what their processes are for mitigating forced labor if and when it is discovered, and any internal frameworks for evaluating the effectiveness of those processes. While more specific reporting guidelines can be found on the Canadian government’s Justice Laws page, there are eight primary reporting categories:

• The business’s structure, activities, and supply chains.

• Policies and due diligence practices for identifying forced labor and child labor in their supply chains.

• Identification of the parts of the supply chain that carry the greatest risk of forced labor and/or child labor.

• Steps the company has carried out to assess and mitigate those risks.

• Specific measures the company has taken to remediate forced labor or child labor in their supply chains.

• Specific measures the company has taken to address and mitigate any potential loss of income to vulnerable families as a result of actions taken against forced labor.

• Training given to employees related to forced labor and child labor.

• The company’s strategies for evaluating the effectiveness of its efforts to eliminate any forced labor or child labor in its supply chains. 

Who Do Companies Submit Their Reports to?

Businesses complying with the Canadian Modern Slavery Act must submit their annual reports to the Department of Public Safety and Emergency Preparedness, often referred to as Public Safety Canada. In addition, organizations are also responsible for making their report available to the public, typically by publishing the information on their website. 

Finally, public companies incorporated under the Canada Business Corporations Act (CBCA) must provide the full report to all shareholders along with regular financial statements and filings. 

How Does the Canadian Modern Slavery Act Compare With the U.K. Modern Slavery Act?

Canada’s Fighting Against Forced Labor and Child Labor in Supply Chains Act is far from the first ESG directive focused on addressing forced labor in global supply chains. Entered into force in 2015, the U.K. Modern Slavery Act was a watershed regulation that required businesses operating in the U.K. to assess the risk of forced labor in their supply chains and implement corrective measures to remediate them. The U.K. Modern Slavery Act differs from its Canadian counterpart in several ways:

• The threshold for inclusion is annual revenue of at least £36 million.

• Unlike Canada’s MSA, which has significant penalties for noncompliance, the U.K. Modern Slavery Act does not set forth any legal repercussions for violators. 

• While Canada’s MSA requires companies to submit their reports on or before May 31st of each year, the U.K. Modern Slavery Act only asks that businesses file within six months of the end of each fiscal year. 

What Are the Consequences for Noncompliance with Canada’s MSA?

The Canadian government’s penalties for noncompliance with the Modern Slavery Act are uniquely severe for this type of regulation: any business in the scope of the MSA that fails to submit an annual report can face financial penalties of up to CAD 250,000. Firms that submit false, deceptive, or otherwise misleading statements in their reports may be responsible for similar penalties. 

The Canadian government’s penalties for noncompliance with the Modern Slavery Act are uniquely severe for this type of regulation: any business in the scope of the MSA that fails to submit an annual report can face financial penalties of up to CAD 250,000.

What Are the Most Effective Strategies for Complying with the Canadian Modern Slavery Act?

To achieve compliance with the Canadian Modern Slavery Act, in-scope businesses should start by referring to the reporting guidelines and seeing if their existing due diligence measures fulfill some or all of the directive’s requirements. In addition, organizations may want to consider developing and implementing the following strategies to adhere to the MSA:

• Direct and sub-tier supply chain mapping.

• Part-to-site mapping, including visibility of specific manufacturing sites and locations.

• A training program that educates all employees on how to identify forced labor and child labor in their supply chains.

• Language in supplier contracts stipulating that any evidence of forced labor will not be tolerated, and could result in termination of the contract and the supplier relationship.

• Specific contingency measures for addressing forced labor if and when it’s discovered, including drawing on dual sourcing and alternative suppliers; contract termination; and internal protocols for reporting forced labor to the appropriate regulatory body. 

• Mechanisms for assessing the efficacy of due diligence processes for identifying and mitigating forced labor. 

Effective Due Diligence Requires a Comprehensive SCRM Framework

Though most businesses would readily acknowledge the importance of adhering to the Canadian Modern Slavery Act and other similar ESG regulations, few actually have the resources and data visibility to execute thorough due diligence measures on their own. Fortunately, today’s supply chain risk management (SCRM) tools offer powerful functionalities to address precisely this need. Z2Data’s range of capabilities can play an integral role in MSA compliance, including through the following features:

• Out-of-the-box compliance analysis for BOMs and parts. 

• Supply chain mapping

• Direct and sub-tier supplier risk scores

• Comprehensive ESG data on manufacturers 

• Sanctions data and forecasting 

Though most businesses would readily acknowledge the importance of adhering to the Canadian Modern Slavery Act and other similar ESG regulations, few actually have the resources and data visibility to execute thorough due diligence measures on their own.

Multifaceted supply chain visibility is more important than ever. Businesses that can draw on Z2Data’s capabilities are able to immediately expand their visibility in a slew of critical ways. To learn more about the Z2Data platform and how it can help organizations achieve compliance with the Canadian Modern Slavery Act and other ESG directives, schedule a free demo with one of our product experts.