Long-Awaited Guidance Released on Canada’s New Modern Slavery Legislation and its Reporting Requirements
On December 20, 2023, Public Safety Canada released its new website (the “Website”) regarding the implementation of the Fighting Against Forced Labour and Child Labour in Supply Chains Act (the “Supply Chains Act”).
The Website provides some much needed and long-awaited guidance on the Supply Chains Act just prior to its implementation on January 1, 2024. However, it also introduces a unique method for submitting the report through a questionnaire, which itself is quite detailed and may add a layer of complexity to compliance with the Supply Chains Act. Companies should ensure they review both the guidance and this questionnaire made available on the Website well in advance of attempting to file a report to ensure their report, and overall approach to the Supply Chains Act, aligns with the expectations of the responsible regulator, Public Safety Canada.
Although the Website provides a number of details regarding the interpretation of the Supply Chains Act and companies’ compliance with the same, and addresses a number of questions we had submitted to Public Safety Canada, the following focuses on some of the more salient elements of their guidance based on the questions we have been considering for our clients across a wide range of sectors and industries.
Included in the Website is a page entitled “Prepare a report – Entities” (the “Guidance Page”), which provides the first substantive guidance from Public Safety Canada on the Supply Chains Act. It sets out significant details on Public Safety Canada’s interpretation of the applicability of the Supply Chains Act as well as the content that is to be provided in a report produced in response to the Supply Chains Act.
Applicability of the Supply Chains Act
As we discussed in our client alert, Is your business ready? The Fighting Against Forced Labour and Child Labour in Supply Chains Act comes into force January 1, 2024, published when Bill S-211 (the “S-211 Alert”), which enacted the Supply Chains Act, first received royal assent, the Supply Chains Act applies broadly to
- any entity that produces, sells, or distributes goods in Canada or elsewhere,
- to any entity that imports into Canada goods produced outside Canada, and
- to any entity that controls another entity engaged in such production, sale, distribution, or importation.
The Guidance Page discusses these three criteria and Public Safety Canada’s interpretation of them. Among the items it considers, it notes that:
- the terms “selling”, “distributing” and “importing” are not defined in the Supply Chains Act, but are intended to be interpreted in their “ordinary sense” and they are not intended to capture services such as marketing, financial services and software services that solely support these activities;
- the term “goods” refers to goods that are the subject of trade and commerce, understood in the ordinary sense of the word;
- an entity is considered to be importing goods into Canada if the entity is responsible for accounting for those goods under the Customs Act;
- though there is no prescribed de minimis threshold in the Supply Chains Act, the terms as they are used in the Supply Chains Act should be understood as excluding “very minor dealings”; and
- whether an entity controls another entity may be determined in accordance with an applicable accounting standard but should not be limited to these standards – it should be considered in substance over form and may include situations in which an entity exercises joint control of an operation.
As described in the S-211 Alert, a significant aspect of determining whether a business is subject to the reporting obligation set out in the Supply Chains Act is determining whether the business organization is considered an “entity” under the Supply Chains Act. The term “entity” is defined in the Supply Chains Act as any organization that is listed on a Canadian stock exchange, or an organization that has a connection to Canada (defined as having a place of business in Canada, doing business in Canada, or having assets in Canada) and also meets at least two of the following three conditions for a minimum of one of its two most recent financial years:
- has at least $20 million in assets;
- has generated at least $40 million in revenue; or
- employs an average of at least 250 employees.
On the interpretation of this test for applicability of the Supply Chains Act, the Guidance Page addresses some helpful points, including:
- confirmation that entities headquartered and operating in Canada or in any other country or jurisdiction could be subject to the reporting obligation;
- when establishing whether an organization has a presence in Canada such that they would be considered an “entity” under the Supply Chains Act, businesses should refer to criteria applied by the Canada Revenue Agency and interpret terms in their “ordinary sense”;
- the threshold values refer to global assets, revenue and employees of the relevant organization and assets are to be calculated on a gross basis (not a net basis); and
- the term “employee” as used in the Supply Chains Act has the same meaning as in Canadian common law and includes people employed on a full-time, part-time or temporary basis in Canada or in any other jurisdiction, but does not include independent contractors.
Despite this guidance, some ambiguity remains as the Guidance Page leaves many open questions for businesses to work through themselves in determining whether the Supply Chains Act applies to them. Interpreting terms in their “ordinary sense”, for example, could lead different businesses to different conclusions. It also remains unclear whether goods imported or distributed internally within an organization would fall within the scope of the Supply Chains Act, and how the Supply Chains Act’s requirement for entities incorporated under the Canada Business Corporations Act to share their reports with shareholders “along with its annual financial statements” should be interpreted.
Content of the Report
In addition to guidance on the applicability of the Supply Chains Act, the Guidance Page also provides substantive views on the content that should be produced in the report itself. Some of the key points from the Guidance Page on this include:
- the report cannot exceed 10 pages in length or 100 MB in size;
- the report should include the following attestation from a member of the governing body of the entity that has the authority to bind it:
In accordance with the requirements of the Supply Chains Act, and in particular section 11 thereof, I attest that I have reviewed the information contained in the report for the entity or entities listed above. Based on my knowledge, and having exercised reasonable diligence, I attest that the information in the report is true, accurate and complete in all material respects for the purposes of the Supply Chains Act, for the reporting year listed above.;
- if a report that is being submitted to another jurisdiction meets the requirements of the Supply Chains Act, it can also be used to satisfy the reporting obligation of an entity under the Supply Chains Act (though, it is important to also consider the questionnaire’s requirements, as discussed further below);
- the Supply Chains Act does not require entities to disclose commercially sensitive information that would expose them to legal risk or compromise the privacy of any persons; and
- entities are not required to report on specific cases or allegations of forced labour or child labour - the description of the forced labour and child labour risks identified and the description of any remediation measures taken need not reference specific instances, persons or groups.
The Guidance Page also provides details on how entities may respond to each of the seven specific requirements for the report as set out in subsection 11(3) of the Supply Chains Act. However, as noted in the following section, in addition to this guidance, another key driver in preparing the report is now the new questionnaire being implemented by Public Safety Canada.
A new development that has been brought to light through the release of the Website is the implementation of a mandatory questionnaire (the “Questionnaire”) that must be completed when filing a report with the Minister of Public Safety. The completion of the Questionnaire is therefore an additional obligation imposed on entities subject to the reporting obligation under the Supply Chains Act.
Among other components of the Questionnaire is an introductory section where entities must identify how the Supply Chains Act applies to them (i.e. how they meet the definition of “entity” and the activities they engage in that trigger the reporting obligation). This introductory section may be an important consideration for entities that are uncertain if the reporting obligation under the Supply Chains Act actually does apply to them, but are seeking to file a report in case it does.
The Questionnaire also requests significant details on the entity’s supply chain diligence and risk assessments with regards to forced labour and child labour. These details are based on the requirements for the report set out in the Supply Chains Act. However, the Questionnaire prescribes possible responses to these requirements using “check-the-box” type options, which must be completed, as opposed to solely an open-ended text response. This approach may remove the ability for entities to properly describe their own processes and procedures in their own words and require them to conduct an analysis to determine if their activities are appropriately captured by the relevant check boxes.
The Questionnaire is quite detailed and will likely require some time and input from various departments of the business to complete. At the moment, the Questionnaire appears to only be available as an online form, such that it is not possible to access all of the questions at one time so that they may be taken away and completed in consultation with persons across a business.
The Questionnaire does not appear to align with the approach taken by other jurisdictions that have implemented similar reporting obligations. For example, it does not appear that either Australia or the United Kingdom, both of whom have imposed similar reporting obligations, require that businesses complete a detailed questionnaire in addition to filing a report or statement regarding forced labour and/or modern slavery. This additional obligation imposed by Public Safety Canada will be important for businesses to take into account when they are considering how to comply with the Supply Chains Act, particularly businesses that are reporting in multiple jurisdictions.
Given the broad scope of the Supply Chains Act and the wide range of businesses it captures, the Website provides some much needed insight into Public Safety Canada’s approach to the implementation of the Supply Chains Act. It will be extremely important for businesses that are filing reports under the Supply Chains Act to review the Website, particularly the Guidance Page and the Questionnaire, and make sure this information is incorporated into their approach to addressing their obligations under the Supply Chains Act.
McCarthy Tétrault’s International Trade and Investment Group has advised a large number of clients in a variety of industries on how to respond to the Supply Chains Act as well as on compliance with the import and distribution prohibitions regarding goods made in whole or in part from forced labour and/or child labour. We will continue to monitor and report on developments in this space. Our initial client alert on the Supply Chains Act provides a useful overview of the Supply Chains Act and the obligations it imposes. For more information on forced labour in supply chains and Canada’s response more generally, refer to our four part series on the subject from 2021 and 2022.
- Mitigating Risk Exposure to Forced Labour in the Supply Chain: Part I - The Forced Labour Crisis(October 2021)
- Mitigating Risk Exposure to Forced Labour in the Supply Chain: Part II - Canada’s Response to Forced Labour(November 2021)
- Mitigating Risk Exposure to Forced Labour in the Supply Chain: Part III - What Companies Should be Doing Now(November 2021)
- Forced Labour and Modern Slavery Update – Canadian Firms Now Facing Greater Scrutiny of Their Supply Chains(October 2022)