On November 15, 2024, Public Safety Canada (“PSC”) released a new version of its guidance (the “Guidance”) on the Fighting Against Forced Labour and Child Labour in Supply Chains Act (the “Supply Chains Act”) which contains significant changes to its interpretation of the scope of the reporting obligation and new information on the content and delivery of reports.

As discussed in our client alert released when the Supply Chains Act was first passed in 2023, this legislation imposes a wide-reaching obligation on companies with a nexus to Canada to report on the actions that they had taken in their prior fiscal year to combat the risk of forced labour or child labour being used in their supply chain. The Guidance was first released on December 20, 2023 to assist businesses in interpreting the Supply Chains Act given the broad drafting of the legislation itself. However, as discussed in our previous client alerts on the Guidance (available here and here), notwithstanding subsequent revisions, the Guidance continued to leave open a number of questions as to how the Supply Chains Act applies to businesses.

These latest changes to the Guidance attempt to address some of these open questions. As discussed in our most recent client alert on the topic, PSC has been engaging in discussions with stakeholders on how to improve the Guidance based on the experiences during the first year of implementation of the Supply Chains Act. In updating the Guidance, PSC has sought to incorporate some of this feedback and provide additional clarity to Canadian businesses on both the scope of the reporting obligation under the Supply Chains Act and, for those within scope, the content and submission of their report. We summarize some of the key changes to the Guidance below.

1) Scope of Reporting Obligation

As many readers will know, there are two significant branches of the test to determining whether a business is subject to the reporting obligation under the Supply Chains Act: (1) determining if the business falls within the scope of the term “entity” under the Supply Chains Act, and (2) determining if it engages in one of the relevant activities set out under section 9 of the Supply Chains Act. The updates to the Guidance provide additional insight into how both of these branches of the test.

(a) Are you an “entity”?

The term “entity” is defined in the Supply Chains Act as follows:

Entity means a corporation or a trust, partnership or other unincorporated organization that

(a) is listed on a stock exchange in Canada;

(b) has a place of business in Canada, does business in Canada or has assets in Canada and that, based on its consolidated financial statements, meets at least two of the following conditions for at least one of its two most recent financial years:

(i) it has at least $20 million in assets,

(ii) it has generated at least $40 million in revenue, and

(iii) it employs an average of at least 250 employees; or

(c) is prescribed by regulations. 

Paragraphs (a) and (c) of the definition do not frequently raise issues (with reference to part (c), there continue to be no regulations issued pursuant to the Supply Chains Act). However, there have been significant questions regarding the interpretation of paragraph (b).

The first issue many businesses faced with paragraph (b) is how to determine if they had a sufficient nexus to Canada (i.e. having a place of business in Canada, doing business in Canada or having assets in Canada) to be subject to the reporting requirements. There are two significant updates to the Guidance that assist in interpreting this aspect of the definition:

• To assist in determining whether a business is “doing business in Canada”, the Guidance now explicitly references the Canada Revenue Agency’s Guidance on “carrying on a business in Canada”, which is fairly detailed and provides helpful examples.
• To determine whether an organization would be considered to “have assets in Canada”, the Guidance now states that assets are limited to “tangible assets” and do not include intangibles such as intellectual property, securities and goodwill. This will help alleviate concerns of foreign businesses whose only “assets” in Canada are ownership interests in Canadian companies and who were concerned that these securities could be considered assets in Canada for the purpose of the definition of entity.

The second issue when examining paragraph (b) is whether or not your business meets the relevant financial thresholds. The substantive Guidance on this aspect of the test remains largely unchanged – parent organizations are expected to use financial statements that include the global, gross assets and revenue figures for themselves and their subsidiaries in evaluating whether the relevant thresholds are met (i.e. consolidated statements). Subsidiaries, meanwhile, should evaluate their own financials separately from their parent entities to determine if a subsidiary is subject to the reporting obligation (regardless of whether or not a parent entity is). The one significant change relates to what should be included when calculating the value of the assets for purposes of the threshold in subparagraph (b)(i). The updated Guidance now provides that only “tangible” assets should be used for that calculation, and intangible assets such as intellectual property, securities and goodwill, should be excluded.

(b) Are you engaging in the relevant activities?

If a business is an “entity” under the Supply Chains Act, pursuant to sections 9 and 11 of the Supply Chains Act, the entity is subject to the reporting obligation if you engage in one or more of the listed activities. Specifically, section 9 of the Act reads as follows:

9 This Part applies to any entity

(a) producing, selling or distributing goods in Canada or elsewhere;

(b) importing into Canada goods produced outside Canada; or

(c) controlling an entity engaged in any activity described in paragraph (a) or (b).

Importantly, with regards to paragraph 9(a), the updates to the Guidance make clear that PSC intends to read that provision narrowly so as to exclude selling and distributing goods from the scope of the reporting obligation. Specifically, the Guidance states:

Entities solely involved in distributing and selling are not expected to report under the [Supply Chains Act]. Public Safety Canada will not seek enforcement action in those instances.

This update to the Guidance provides comfort to those businesses that are engaged in selling and distributing goods, but not in producing or importing goods, that, despite the language of the legislation, PSC does not expect these entities to report.

PSC has also revised its interpretation of what constitutes “importing” under paragraph 9(b). The Guidance had previously indicated that importing under the Supply Chains Act was limited to those that accounted for the goods under the Customs Act (i.e. the importer of record). However, the updates to the Guidance have adjusted this interpretation, indicating that importing is intended to capture the “true importer that, in reality, caused the goods to be brought into Canada”. This more ambiguous interpretation could be more difficult for businesses to apply and appears to broaden the scope of activities that may trigger the reporting obligation.

With regards to paragraph 9(c), the concept of control under the Supply Chains Act is open-ended. The Guidance had indicated that accounting standards (such as the Generally Accepted Accounting Principles) are helpful in determining whether one entity controls another. The updates to the Guidance also adds a specific reference to the guidance issued by the Office of the Superintendent of Financial Institutions on control, which provides information on factors that are used to establish control in fact in that context.

Finally, when considering these activities, the Guidance indicates that PSC does not interpret section 9 as capturing “very minor dealings”. The updates to the Guidance expand on this, providing that this should be interpreted “in accordance with generally accepted principles of de minimis and evaluated within the context of each entity's business”. The concept of “very minor dealings” is therefore company specific, and must be considered on a case-by-case basis.

2) Content and Delivery of Report

In addition to these changes to the interpretation of the scope of the reporting obligation under the Supply Chains Act, the updated Guidance also provides additional insights on the reporting obligation itself.

A key concern many businesses had in filing reports is whether they were required to report on specific allegations related to forced labour or child labour or divulge information that could expose them to liability. The updated Guidance provides some comfort on these points, noting that “[e]ntities are not required to report on specific cases or allegations of forced labour or child labour.” Additionally, the Guidance indicates that the reporting obligation does not require businesses to disclose information that could expose them to liability, stating very clearly that businesses should “not disclose personal or commercially sensitive information that could create legal risk or compromise the privacy of any persons”.

The revisions to the Guidance also provides new clarification regarding the reporting documentation, including :

• The attestation language provided in the Guidance is an example of what should be included as the attestation language in a report, but can be modified as necessary for the relevant filing.
• Though wet signatures and electronic signatures on reports are both acceptable to the PSC, identifying the report as signed by typing “Signed” in the signature block is not.
• If an entity is required to share a report with shareholders, that can be done using the “standard means of delivery”, which may provide some assistance to businesses who were unsure how the requirement to share reports with shareholders interacted with other securities disclosure requirements.

The updated Guidance also describes some additional functionality built into PSC’s system for accepting reports. Specifically, confirmatory emails will now be sent to businesses upon receipt of a submission, and businesses will be able to download a copy of their responses to the questionnaire that is completed when filing the report for record keeping purposes. Finally, the updated Guidance makes clear that PSC will accept revisions to reports for up to one year after the applicable reporting deadline.

3) Conclusion

As businesses prepare for the their next round of reporting, it will be critical to thoroughly review the updated Guidance to ensure that they understand PSC’s expectations. Many businesses may find that the updates to the Guidance will impact their decision as to whether or not they will need to file a report, and it is important this analysis is done early to give ample time to prepare the report if required. In some cases, businesses who had previously submitted a report may now determine that they are no longer required to do so in light of these latest revisions to the Guidance, while other businesses who did not report may now conclude that they are within scope and must prepare and submit by next year’s deadline of May 31, 2025.

McCarthy Tétrault’s International Trade and Investment Law Group has advised a large number of clients in a variety of industries on the Supply Chains Act and has significant experience in assisting clients develop strategies and policies around modern slavery and supply chain compliance more generally. We will continue to monitor and report on any further developments in this space. Our Guide on the Reporting Obligations will also be updated to address this new administrative guidance, to be released in the near future.