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Since 2010, a wave of home state modern slavery legislation with extraterritorial effect has been enacted in many Western countries (Mares, 2018). This legislation seeks to increase the obligations of MNCs in relation to supply chain governance through the mechanism of disclosure (Phillips, LeBaron & Wallin, 2018). Companies are required to publicly disclose information pertaining to activities in their supply chain, specifically labour standards. Examples of disclosure legislation include the California Transparency in Supply Chains Act 2010, the United Kingdom (U.K.) Modern Slavery Act 2015, the French Corporate Duty of Vigilance Law 2017 and the Australian Modern Slavery Act 2018. Canada has also proposed disclosure legislation, having jointly agreed with the U.K., United States, Australia and New Zealand to encourage businesses to address modern slavery in supply chains (U.S. Department of State, 2018). Bill C-423, cited as the Modern Slavery Act, was introduced into parliament in December 2018 by the liberal government after Canada’s Standing Committee on Foreign Affairs and International Development recommended legislation similar to the California and U.K. Acts (Canada House of Commons, 2018). The Bill did not make it past its first reading and eventually Bill S-211, which almost exactly mirrors its predecessor, was introduced in February 2020.
Although disclosure laws vary in design, they all require companies to report on their CSR activities. This mode of governance has been coined “CSR as mandated by the government” and represents a shift away from the traditional voluntary CSR model (Phillips, LeBaron & Wallin, 2018). The legislation relies on the economic leverage of MNCs to weigh positively on labour standards throughout the supply chain (Phillips, LeBaron & Wallin, 2018). The aim is for the disclosure to guide consumer purchasing thereby enabling greater accountability. Policymakers and industry actors have hailed this legislation a game-changer in the fight against modern slavery but this is debatable (Mares, 2018). Disclosure laws can be divided into two groups, weaker transparency legislation and more stringent due diligence legislation. Companies subject to due diligence legislation such as the French Vigilance Law must identify and address actual or potential human rights and environmental abuses in their supply chain activities to reduce or prevent their negative impact (Nolan, 2018). In contrast, transparency legislation such as the California and U.K. Acts simply require companies to comply with the requirement of reporting. It does not mandate businesses to undertake steps to address modern slavery in their supply chains. Companies regulated by the U.K. Act can report that “no such steps” were taken and still be in compliance with the Act (LeBaron & Rühmkorf, 2017, p. 21). Transparency laws have therefore not engendered a serious corporate effort to combat their target human rights violations (Nolan, 2018).
Some researchers have argued that transparency CSR was used in the U.K. as a strategy to deflect more stringent due diligence legislation modelled after the U.K. Bribery Act 2010 LeBaron & Rühmkorf, 2019). However, transparency legislation can also be viewed as strategic choice. The basic tenets of contract and corporate law ensures that MNCs have limited liability for production related incidents in host countries. MNCs are separate legal entities from their suppliers and consequently there is no vicarious liability of MNCs for crimes or torts committed by their suppliers (LeBaron & Rühmkorf, 2019). Attempting to regulate lead firms by means of coercive laws for their indirect involvement in supply chain labour violations causes friction with these legal doctrines and triggers political sensitivities about national sovereignty (Mares, 2018). Transparency legislation avoids challenges from these legal principles because they do not hold the lead firm liable for harm caused in affiliate operations (Mares, 2018). Thus, instead of transparency laws being viewed as a weak substitute for more stringent legislation, they can be seen as successfully manoeuvring the legal barriers traditionally associated with transnational supply chains and prompting MNCs not to avoid their involvement in the situation.
Canada’s proposed legislation falls into this latter transparency group. It is therefore imperative to determine whether this legislation will encourage “cosmetic compliance” or meaningfully steer corporate conduct in the area of labour standards in global supply chains (Nolan, 2018). This brief aims to investigate Canada’s modern slavery legislation using a typology formulated to analyse the law’s design, stringency and enforceability.
The typology used in this brief isolates and interrogates the most significant areas and legal concepts that arise from Canada’s proposed modern slavery legislation. The purpose of this is to fully grasp how the provisions of this legislation will be operationalized. The categories of the typology are: a. the type of legislation; b. the material scope; c. the personal scope; d. the definition of value chain; e. the statutory duty under the legislation; f. reporting requirements; g. whether the legislation mandates a separate registry; h. auditing requirements; i. the statutory repercussion for breach of duty; j. impact on other forms of liability.
Bill S-211 (The Bill) can be described as ad hoc disclosure legislation. It is ad hoc meaning that it is not embedded in any other existing reporting mechanism such a consumer protection or financial reporting act (Salminen & Rajavuori, 2019). The Bill took the form of transparency legislation similar to that of the U.K.
Most disclosure laws understand the general definition of value chains to be product supply chains, that is, “supply chains consisting of a company’s subsidiaries and suppliers” (Salminen & Rajavuori, 2019, p. 617). The proposed Canadian legislation does not specifically use the words value or supply chain but this can be implied by the section 5 reference to entities that import goods into Canada which were produced outside Canada. In theory, this casts a wide net over an entity’s entire supply chain. However, the legal definition of value chains is far more complex. The Canadian Bill states that the reporting obligations apply to any entity which controls an entity engaged in production or importation of goods. The term control is often an indication of the distinction between equity- based and contract- based value chains (Salminen & Rajavuori, 2019). If the legal definition focuses on equity- based structures that is, structures the entity owns, MNCs would be able to avoid liability by outsourcing production from the corporate group to contractors.
However, the proposed Bill appears to avoid this issue by stating in section 6 that control by an entity means “directly or indirectly, in any manner”. This expansive language appears to include both equity and contract based structures. Furthermore, the section 6(2) states that “an entity that controls another entity is deemed to control any entity that is controlled or deemed to be controlled by the other entity”. This is important because while the first tier of suppliers are easily identified, suppliers in lower tiers may not be as easily visible and may enter and exit the supply chain at various times (Nolan, 2018). Section 6(2) brings lower tier suppliers under the control of the lead firm through its affiliation with a higher ranked supplier. Lead firms therefore cannot use the excuse of ignorance of sub suppliers. However, if MNCs focus disclosure on the visible suppliers closer to the top of the chain and not the lower tier contractors of whom they may not be aware, they may be omitting incidents of forced labour that occur deep in the chain. This raises questions about the reliability of the disclosures.
The statutory duty under Bill S-211 is listed in section 7 of the legislation. This includes an annual report disclosing the steps an entity has taken during the previous year to prevent and reduce the risk of forced or child labour being used in its supply chain. The report must include: a. the entity’s structure and supply chain; b. policies in relation to child labour and forced labour; c. activities that carry risk of forced or child labour and steps taken to assess or manage that risk; d. measures taken to remediate any forced or child labour; and e. training provided to employees on forced and child labour. Section 8 states that the entity must make the report available to Minister of Public Safety and Emergency Preparedness (the Minister) and the public by posting it in a prominent place on its website.
As previously mentioned, Canada’s proposed modern slavery legislation was modelled after the U.K. Act. The reporting areas in both pieces of legislation are quite similar. An analysis of the first 75 statements published under the U.K. Act showed that only nine statements covered all six reporting categories (Nolan & Bott, 2018). However, an important distinction between the U.K. and Canadian legislations is that the U.K. Act states that companies may include information about the suggested areas while Bill S-211 states that disclosure reports must include information on all five categories. This is significant because it indicates that the disclosure reports under the proposed Canadian Act will be much more thorough than those issued under the U.K. Act. This also provides opportunities for greater comparison of disclosure reports across companies as the legislation has standardised the specific content required.
An analysis of 1,300 U.K. reports revealed that although no companies simply reported they took no steps, the quality of the reports were weak indicating a tick-box approach in which companies incorporated generic language and key words without providing any substantive information (Carrier & Bardwell, 2018; Mares, 2018). Similarly, an analysis of the first reports released under the California Act revealed disclosures that were “more symbolic than substantive” (Birkey et al., 2018 p. 827). The proposed legislation also does not establish any commonly accepted baseline standard, such as the UN Guiding Principles, to which companies should adhere (Phillips, LeBaron & Wallin, 2018).
The proposed legislation, like the U.K. and California Acts, requires companies to be more transparent but it does not mandate that companies change their conduct to prevent labour abuses in their supply chains (Mares, 2018). This is in contrast to the due diligence requirements under the French Vigilance Law in which companies are required to develop a vigilance plan in accordance with the UN Guiding Principles’ concept of due diligence. This plan outlines not only the company’s human rights risks but also those of its subsidiaries and suppliers. The law then requires companies to take steps to mitigate or prevent the risks, to develop a risk alert mechanism with the input of trade unions and monitor the effectiveness of these measures (Nolan, 2018). Due to the fact that Canada’s proposed legislation contains no measures requiring businesses to modify their conduct, it will likely encourage only cosmetic compliance.
Bill S-211 does not specify if the disclosure report must be separate or if it can be part of a company’s annual report. Section 7(4) only states that the Minister may specify in writing the form and manner in which the report is to be provided and must make those requirements available to the public in a manner they consider appropriate. For the purpose of format standardisation it would have been better to clarify this but once the report is clearly identifiable on the company’s website this should not be an issue.
Canada’s proposed legislation does not provide for a separate registry for modern slavery disclosure reports. Section 18(2) only states that Minister must publish a report containing a summary of the activities of entities in a prominent place on the Department of Public Safety and Emergency Preparedness’ website. The U.K. Act also failed to provide for a separate registry. The lack of a centralised database of reports made it almost impossible to monitor whether the businesses that were meant to report had complied. Less popular firms were also able to get away with not reporting (Carrier & Bardwell, 2018; Mares, 2018).
There is no requirement in Bill S-211 that disclosure reports need to be audited. Transparency laws rarely require independent verification of reports. However, when there is such a requirement auditors do not verify whether the content of the report is truthful but simply whether the report has been issued (Mares, 2018).
Transparency laws do not generally sanction companies that fail to comply with disclosure requirements (Salminen & Rajavuori, 2019). Repercussions usually include injunctive relief as provided for under the California and U.K. Acts or fines. Section 15(1) of Canada’s proposed legislation states that companies which fail to comply with the reporting obligation are guilty of an offence punishable on summary conviction and liable to a fine of not more than $250,000. The same fine is imposed in section 15(2) if a company knowingly makes any false or misleading statement to the Minister. Although this financial penalty scheme would encourage compliance, it may, as with the U.K. law, be rendered moot due to the weak reporting obligations (Salminen & Rajavuori, 2019). These sanctions are generally regarded as not being stringent enough to effectively end cosmetic compliance and link transparency with accountability.
Bill S-211 does not specify whether the legislation provides for other forms of liability. Such a provision is not unusual in transparency legislation. The California Act and the French Vigilance Law state that the legislation does not limit other legal remedies available. It is unclear if lack of an explicit provision providing for other forms of liability means it is not a possibility.
It is clear that the impact of disclosure laws on corporate behaviour depends on the stringency of the law. Canada’s proposed modern slavery transparency legislation is poised to join the post 2010 wave of home state regulation attempting to increase corporate accountability for the labour abuses which continue to occur in their supply chains. How to characterise this law – as a sell-out to corporate interests or as a stepping stone to corporate responsibility – is an open question. Analysis conducted on the transparency legislation after which Bill S-211 was modelled suggests that this law, if enacted, would unlikely cause any significant change in corporate behaviour. Research on the U.K’s Modern Slavery Act 2015 indicates that the law only encouraged a tick-box approach to reporting instead of substantive disclosure. However, instead of viewing the legislation from the angle of national governments appeasing businesses by proposing watered-down disclosure obligations, such laws could instead be considered a stepping stone. These laws are, in fact, the first step in the shift from corporate voluntarism towards more stringent legislation such as due diligence laws or criminal based liability laws in a bid to steer corporate conduct in the area of global supply chains.
References
Birkey, R., Guidry, R., Islam, M., & Patten, D. (2018). Mandated Social Disclosure: An Analysis of the Response to the California Transparency in Supply Chains Act of 2010. Journal of Business Ethics, 152, 827-841.
Canada House of Commons. (2018). A Call to Action: Ending the Use of All Forms of Child Labour in Supply Chains. Report of the Standing Committee on Foreign Affairs and International Development. 42nd Parliament. First Session.
Carrier, P., & Bardwell, J. (2017, January 24). How the UK Modern Slavery Act Can Find Its Bite. Retrieved from Open Democracy: https://www.opendemocracy.net/beyondslavery/patricia-carrier-joseph-bardwell/how-uk-modern-slavery-actcan-
ILO. (1930). C029 - Forced Labour Convention, 1930 (No. 29). Geneva: International Labour Organization.
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LeBaron, G., & Rühmkorf, A. (2017). Steering CSR Through Home State Regulation: A Comparison of the Impact of the UK Bribery Act and Modern Slavery Act on Global Supply Chain Governance. Global Policy, 8(3), 15-28.
LeBaron, G., & Rühmkorf, A. (2019). The domestic politics of corporate accountability legislation: Struggles over the 2015 UK Modern Slavery Act. Soci-Economic Review, 17(3), 709-743.
Mares, R. (2018). Corporate Tranparency Laws: A Hollow Victory? Netherlands Quarterly of Human Rights, 36(3), 189-213.
Nolan, J., & Bott, G. (2018). Global Supply Chains and Human Rights: spotlight on forced labour and modern slavery practices. Australian journal of Human Rights, 24(1), 44-69.
Phillips, N., LeBaron, G., & Wallin, S. (2018). Mapping and Measuring the Effectiveness of labour-related disclosure requirements for global supply chains. International Laour Office.
Prokopets, A. (2014). Trafficking in Information: Evaluating the Efficacy of the California Transparency in Supply Chains Act of 2010. Hastings International and Comparative Law Review, 37(2), 351-375.
Rühmkorf, A. (2018). From Transparency to Due Diligence Laws? Variations in Stringency of CSR Regulation in Global Supply Chains in the ‘Home State’ of Multinational Enterprises. In J. J. Plessis, Globalisation of Corporate Social Responsibility and Its Impact on Corporate Governance. Springer. Retrieved from http://ebookcentral.proquest.com/lib/mcmu/detail.action?docID=5261438
Salminen, J., & Rajavuori, M. (2019). Transnational sustainability laws and the regulation of global value chains: comparison and a framework for analysis. Maastricht Journal of European and Comparative Law, 26(5), 602-627.
U.S. Department of State. (2018). Principles to Guide Government Action To Combat Human Trafficking in Global Supply Chain. Retrieved December 9, 2019, from https://www.state.gov/principles-to-guide-government-action-to-combathuman-
This project is supported by the LIUNA Enrico Henry Mancinelli chair in Global Labour Issues at McMaster University, held by Judy Fudge, and by funding from the Social Sciences and Humanities Research Council.