Directors and officers of Canadian companies have two main duties, which are codified in section 122 of the Canadian Business Corporations Act (CBCA)

1. Fiduciary duty of loyalty: Directors and officers must “act honestly and in good faith with a view to the best interests of the corporation.”
2. Duty of care: directors and officers must “exercise the care, diligence and skill that a reasonably prudent individual would exercise in comparable circumstances.”

The CBCA sets out the factors directors and officers may consider when acting with a view to the best interests of the corporation. These factors explicitly include consideration of interests beyond the shareholder, such as employees, consumers, the environment and the long-term interests of the corporation.

Directors and officers can be personally liable for actions taken that do not comply with these requirements.

Some jurisdictions (including the U.K., France, California and Australia) have created specific regimes that increase the exposure of directors and officers for a failure to comply with the human rights-related obligations in the relevant legislation (for more information on specific legislation see Part IV – Business and Human Rights as Law). A Canadian equivalent of this regime has not yet been adopted in law.

Bill S-216, the Modern Slavery Act, which was tabled in the Senate in 2020, sought to address growing concerns in Canada related to modern slavery. The bill stated that if an entity commits an offence under the Act, directors and officers can be found liable for their actions if they directed, authorized, assented to, acquiesced in or participated in the offence whether or not the person or entity has been prosecuted or convicted.

Given the growing convergence and alignment in standards between jurisdictions, Canadian directors and officers should take note of how foreign legislation is impacting businesses that operate in those jurisdictions to inform the potential liability that may arise in Canada.

Modern slavery laws are also opening new potential avenues of directors’ and officers’ liability. Forced labour and child labour reporting laws generally require that the reporting statement be approved by the board of directors and signed by a director (with similar accountability for partnerships). Even if directors are not directly liable, legislated reporting requirements increase the exposure of directors to liability for a breach of their fiduciary duties. Directors have increased exposure to allegations such as failing to act with reasonable care, skill and diligence when signing the slavery statement, and failing to exercise due diligence in determining which steps the company should take to address the risk of slavery in its supply chains.