Canada is implementing new measures to address the use of forced and child labour in global supply chains. Canada’s Modern Slavery Act (“The Act,” formerly known as Bill S-211) passed on May 11, 2023[1]. The Act will create supply chain transparency and reporting obligations for certain companies as part of Canada’s efforts to fight against forced labour and child labour in Canadian supply chains.
The 2022 Global Estimates of Modern Slavery, published by a group of international organizations reported that 27.6 million people are trapped in forced labour—an increase of 2.7 million individuals since 2016[2]. The worsening situation is attributed to the compounding effects of the pandemic, political instability and unsafe migration in recent years.
Against this backdrop, the Canadian government introduced measures that compel businesses and government institutions to take steps to prevent this exploitation of vulnerable individuals.
Companies will be required to report to the Minister of Public Safety and Emergency Preparedness. The report must include steps to prevent and reduce the risk that forced labour or child labour is used at any step of the production of goods in Canada or elsewhere by the company, or of goods imported into Canada. As the law firm Norton Rose Fulbright lays out, the report should also include[3]:
Reports must be approved by the company’s governing body. Additionally, reports must be made available to the public, including by publishing a copy in a prominent place on the company’s website. Companies incorporated under the Canada Business Corporations Act or any other Act of Parliament must provide a copy of the report to each shareholder, along with its annual financial statements.
D&O policies cover a wide range of losses, including damages, settlements, judgments, and defence expenses, subject to the terms and conditions in the policy. D&O policies do not, however, generally cover fines and penalties. This means that penalties under the Modern Slavery Act would not be covered. D&O policy wording amendments should be negotiated with insurers to cover fines and penalties where insurable under applicable law in the case of the directors and officers themselves.
When an insured person is requested to provide a response to the regulator, the D&O policy provides coverage for expenses incurred in preparation to the meeting. While lawyers’ fees are covered (defence expenses), the cost of collecting documents and records on the investigated matter are not automatically covered. Some insurers are willing to endorse their policies to cover the cost of records and documents and this can be negotiated into the policy wording.
Directors and officers have never faced a higher level of liability than today. The inherent risk categories such as securities litigation, class actions and regulatory exposures remain the same however, these liabilities are ever evolving and become more complex as stakeholders, home and abroad, assert their competing interests and everyone has a responsibility to be a respectful global citizen. The Act emphasizes that, in addition to internal oversight of the company, the external factors of knowing where and how inputs are derived along with environmental impacts of the final product are being scrutinized. Failure to fully understand how the company fits into the global value chain and how it must be a steward will be detrimental to its success and directors and officers will be held accountable. For these reasons directors and officers need to exercise due diligence, engage proper advisors, and exhibit an understanding of controls and processes to mitigate a company’s risk.
