Public Safety Canada Releases Updated Guidance on Modern Slavery Reporting Obligations

The Fighting Against Forced Labour and Child Labour in Supply Chains Act (the “Act”) came into force on January 1, 2024, implementing enhanced reporting requirements for certain entities to combat forced labour and child labour. See our earlier update on the Act and its reporting obligations, Modern Slavery Reporting Obligations for Canadian Entities Effective January 1, 2024.

The Minister of Public Safety and Emergency Preparedness (the “Minister”) published updated guidance on March 7, 2024 (the “Updated Guidance”) to revise its original guidance released on December 20, 2023 (the “Original Guidance” and, collectively, the “Guidance”).

Background

The stated purpose of the Act is to implement Canada’s international commitment to contribute to the fight against forced labour and child labour by imposing reporting obligations on any entity that produces, sells or distributes goods in Canada or elsewhere, any entity that imports into Canada goods produced outside Canada, and any entity that controls (directly or indirectly) another entity engaged in such producing, selling, distributing or importing.

The Act defines an “entity” as a corporation, trust, partnership or other unincorporated organization that:

• is listed on a Canadian stock exchange;
• has a place of business in Canada, does business in Canada or has assets in Canada and meets at least two of the following conditions for at least one of its two most recent financial years (based on its consolidated financial statements):
• the entity has at least $20 million in assets,
• the entity has generated at least $40 million in revenue, and
• the entity employs at least 250 employees.

The Act contains separate reporting requirements for government institutions.

Entities subject to the Act must prepare annual reports that are published prominently on their website and filed with the Minister no later than May 31 of each calendar year (commencing in 2024). A group of related corporate entities with separate reporting obligations may file a single joint annual report on behalf of all related entities. Any reporting entity that is incorporated under the Canada Business Corporations Act or any other federal legislation must provide such entity’s annual report to each shareholder along with the entity’s annual financial statements.

The Initial Guidance constituted the first substantive guidance released by the Minister in respect of the reporting obligations under the Act, which was then supplemented and clarified by the Updated Guidance. The Guidance details the Minister’s interpretation of the Act’s application and reporting obligations under the Act.

Interpretation

As set out above, the reporting obligations under the Act apply to entities that meet the applicable financial thresholds and produces, sells or distributes goods in Canada or elsewhere, import goods produced outside Canada or control another entity that produces, sells, distributes or imports goods. The Guidance confirms that entities should apply the ordinary sense of the following words to judge whether they are engaged in any of these activities:

• “Production of goods” includes the manufacturing, growing, extracting and processing of goods.
• “Goods” refers to goods that are the subject of trade and commerce.
• “Importing” means that the entity is responsible for accounting for the applicable goods under the Customs Act. Purchasing goods produced outside Canada from a third party, where that third party is considered to be the importer for the purposes of the Customs Act, does not count as importing goods.
• The terms “producing” and “importing” are not intended to capture services that solely support the production or importation of goods. For example, marketing, administrative services, financial services and software services.
• “Employee” 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.
• “Doing business in Canada” does not require having a place of business in Canada, but, understood in its ordinary sense, may include producing goods, selling goods, distributing goods, having employees, processing payments, making purchases or contracts, having bank accounts or maintaining inventories in Canada.

There is no prescribed threshold for the minimum value of goods an entity must produce or import for the Act to apply. The terms as they are used in the Act should be understood as excluding very minor dealings.

“Control” and Subsidiaries

Whether an entity “controls” another entity may be determined in accordance with an applicable accounting standard (e.g., International Financial Reporting Standards (IFRS), Generally Accepted Accounting Principles (United States) (GAAP), etc.) but should not be limited to these standards. Control should be considered in substance over form and may include situations in which an entity exercises joint control of an operation. Furthermore, control extends down the organizational chain and includes both direct and indirect control.

Parent companies and subsidiaries must ultimately undertake separate exercises, utilizing their respective financial statements and the revenue, assets and employees of any subsidiaries they each control, to determine whether they are subject to the reporting obligations under the Act. Subsidiaries should not rely on the consolidated financials of any parent entity that controls it.

Questionnaire

In releasing the Guidance, the Minister also confirmed that entities must complete and file with the Minister a mandatory questionnaire (the “Questionnaire”) concurrent with submission of their annual report. The Questionnaire includes a series of open and closed-ended questions that request significant details on the entity’s supply chain diligence and risk assessments with regards to forced labour and child labour. The Guidance states that the Questionnaire may be used as a resource for entities when preparing their annual report.

“Distributing” and “Selling”

The Updated Guidance, which focuses on the production of goods in Canada and the importation of goods into Canada, differs from the text of the Act in that it does not speak to distributing and selling. The Act has not been amended to remove corresponding references to distributing and selling and applies to entities engaged in distributing and selling.

Looking Forward

Entities subject to reporting obligations under the Act must file their annual report with the Minister by May 31, 2024, along with the completed Questionnaire. Federally incorporated entities (including corporations incorporated pursuant to the Canada Business Corporations Act) must provide the report or revised report to their shareholders along with their annual financial statements, which may effectively accelerate the May 31 reporting deadline to an earlier date. In light of the Updated Guidance, entities should determine if they or any of the entities they control are required by the Act to file an annual report and, if so, consult with counsel regarding the preparation and content of the required disclosure.

For further information on the Guidance and reporting obligations, please contact any member of our Capital Markets Group or Dispute Resolution Group.