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Further to our client bulletin, New Reporting Obligations: Fighting Against Forced Labour and Child Labour in Supply Chains Act, released on November 21, 2023, the Government of Canada has provided additional guidance (“Guidance“) that will help reporting entities comply with their obligations to report on the prevention of forced and child labour within their supply chains.

Overview of the Act

On January 1, 2024, the Fighting Against Forced Labour and Child Labour in Supply Chains Act (Canada) (the “Act“) came into force, requiring many Canadian businesses, businesses with connections to Canada, and federal government institutions to disclose their polices relating to the prevention of forced labour and child labour in their supply chains. The Act requires a business designated as a “reporting entity” to complete an online questionnaire, file a report with the Ministry of Public Safety Canada, and publish the report to the reporting entity’s website, prior to May 31 of each year, if it satisfies the two tests below:

1. A business is designated as an “entity” and may be required to submit a report if it is a corporation or a trust, partnership or other unincorporated organization that is either:
   1. listed on a Canadian stock exchange (if so, proceed directly to (2)); or
   2. does business, has a place of business or has assets in Canada and, in either of its two most recent financial years, has met or exceeded any two of the following size thresholds based on its consolidated financial statements: $40 million in revenue, $20 million in assets, or 250 employees; and
2. An “entity” is a “reporting entity” and must submit a report if it produces, sells, or distributes goods in Canada or elsewhere and/or imports goods into Canada (or controls any entity that does so).

Application of the Act

Determining a Business Presence in Canada

To determine whether the entity has a “place of business”, “does business”, or “has assets”, the ordinary meaning of the words and the criteria applied by the Canada Revenue Agency for tax and employment related purposes should be used. Notably, the Guidance provides that doing business in Canada does not require having a place of business in Canada.

Thresholds for Assets, Revenue, and Employees

In relation to size thresholds (assets, revenue, and employees), the Guidance confirms:

• Each threshold shall be based on consolidated financial statements (i.e. the calculation includes all entities controlled by the reporting entity and excludes any entity that controls the reporting entity) and calculated in Canadian dollars based on total (global) amounts, meaning the calculation should include Canada and any other jurisdiction where the business has assets, revenue, and employees.
• Assets must be calculated on a gross basis, and not a net basis, while also noting that assets may include intangibles such as goodwill.
• The definition of “employee” does not include independent contractors.

Meaning of Producing, Selling, Distributing, and Importing Goods

The Act specifies that the “production of goods” includes the manufacturing, growing, extracting, and processing of goods, but the terms “selling, distributing, and importing” are not explicitly defined. The Guidance provides that the terms are not intended to capture services (marketing, administrative services, financial services, etc.) that solely support the production, sale, distribution, or importation of goods.

An entity is “importing goods” into Canada if the entity is responsible for accounting for those goods under the Customs Act. The word “goods” refers to goods that are the subject of trade and commerce, understood in the ordinary sense of the word. There is no prescribed threshold for the minimum value of goods that an entity must produce, sell, distribute, or import for the Act to apply. However, the Guidance confirms that terms as they are used in the Act should be understood as excluding very minor dealings.

Overview of the Reporting Process

If a business is a “reporting entity”, it must complete the following steps of the reporting process ahead of the May 31 deadline:

1. Prepare a Report – reporting entities must develop a report that meets all requirements of the Act.
2. Approval and Attestation – the report must receive approval from the appropriate governing body or bodies who have the legal authority to bind the entity or entities (in the case of a corporation, the board of directors). The attestation should follow the form provided in the Guidance. It must be signed and included in the final PDF version of the submitted report.
3. Complete Online Questionnaire – includes a series of open and closed-ended questions that address each of the requirements under the Act.
4. Upload Completed Report – at the end of the questionnaire, entities must upload their attested report.
5. Publish Report to Entity’s Website – entities must publish their submitted report in a prominent place on their website. A copy of the report uploaded through the questionnaire will be made publicly available by Public Safety Canada. Additionally, federally incorporated entities under the Canada Business Corporations Act must provide the report to its shareholders, along with its annual financial statements.

Report Content

As discussed in our previous article, the report must include the required information in section 11 of the Act, which must reference the activities taken by an entity during its previous financial year (the financial year ending no later than the May 31 deadline). Regarding the report content, the Guidance explains:

• The purpose of the reporting is not to certify that an entity is “risk-free,” but rather to demonstrate that the entity has taken steps to identify and address risks. The reporting process is intended to encourage transparency, not to penalize entities for having identified risks in their activities and supply chains.
• The expectation is that entities will describe the concrete steps they are taking to prevent forced/child labour rather than provide solely aspirational statements. Entities can mention action plans, but the report itself is not intended to serve as a plan or mission statement.
• Entities should not disclose commercially sensitive information or report on specific cases or allegations of forced labour or child labour in a manner that would create legal or privacy concerns.
• The Guidance notes that when preparing a report, entities can use the same information and structure provided in the questionnaire, although this is not required.
• Since the report will be a public-facing document, entities should use simple and clear language in their responses to make their report accessible.

Questionnaire

Prior to an entity submitting a report, a questionnaire must be completed. The questionnaire consists of mandatory and optional questions. The Guidance strongly encourages entities to answer optional questions. The first set of questions, identify the entity and how it meets the test to be a reporting entity. The remaining questions relate to the required information to be provided by the entity in the report (the questionnaire can be accessed here).

Joint Reports

An entity can submit a joint report to include its own actions and those of any entities it controls (i.e., its subsidiaries), or that covers multiple entities belonging to the same corporate group. The Guidance provides that a joint report should only be submitted if the information provided generally applies to all entities covered by the report.

If two or more entities decide to file a joint report, the reporting entity must also describe the steps that the controlled entities have taken to reduce risks of forced/child labour.

A joint report should not be submitted in cases where entities have risk profiles, policies or have taken actions that diverge significantly and in a way that would make it difficult to prepare a report accurately describing all entities. Where the information applicable to each entity differs significantly, each entity is urged to submit its own report and to complete the online questionnaire separately.

Next Steps

The May 31 reporting deadline is quickly approaching. Federally incorporated corporations under the Canadian Business Corporations Act may need to provide the report to shareholders earlier, along with its financial statements, if the annual general meeting is scheduled prior to the May 31 deadline. Entities are encouraged to proactively collaborate with advisors and suppliers to develop reports. Members of the Securities and Corporate Group at Fogler, Rubinoff LLP would be pleased to help your business navigate the Act’s disclosure requirements.

This publication is intended for general information purposes only and should not be relied upon as legal advice.