January 10, 2024Calculating...

Fighting Against Forced Labour and Child Labour in Supply Chains Act (Bill S-211): 10 key clarifications from the Minister

On December 20, 2023, the Minister of Public Safety and Emergency Preparedness (the Minister) published the long-awaited guidance on the Fighting Against Forced Labour and Child Labour in Supply Chains Act (the Act), which officially came into force as of January 1, 2024. Although the guidance clarified certain aspects of the Act’s interpretation and application, some uncertainty remains. We discuss ten key clarifications.

What you need to know

  • The Minister has established a submission portal and questionnaire that must be completed when submitting a report under the Act. The questionnaire largely reiterates content required for the report.
  • Reports are limited to ten pages and should address consistent organizational policies and practices. Related entities with the same policies and practices should consider joint reporting. Related entities with divergent policies and practices should consider reporting separately.
  • The Minister provides further clarification on the meanings of “doing business in Canada”, having a “place of business in Canada”, and “producing”, “selling”, “distributing” and “importing”.
  • The asset, revenue and employee thresholds in the “entity” definition are worldwide, not limited to Canada.
  • Entities should consider “very minor dealings” as excluded from the reporting obligation.
  • “Control” should be understood broadly and determined substantively. Reference may be had to accounting principles. The Minister stopped short of defining an applicable test for “control”.
  • The level of detail in a report should be proportionate to an entity’s size and risk profile. Reports are not required to include commercially or legally sensitive information, or discuss specific instances of forced labour or child labour.

Ten key clarifications

The guidance clarifies the mechanics of reporting, including where and how reports are to be submitted, and some key concepts, including “control”, “business presence in Canada”, and the production, sale, distribution and importation of “goods”. Ten key takeaways follow:

  1. Report submission and questionnaire: A portal is now available on the Minister’s website, allowing entities to directly submit reports in PDF format. As part of the submission process, entities will be required to complete a questionnaire, including 1) mandatory close-ended questions, such as indicating the industry in which the entity operates, and 2) optional open-ended questions that largely track the required content of the report, such as describing an entity’s policies and due diligence processes in relation to forced labour and child labour. The submitted report must also be published prominently on the entity’s website or, for entities without a website, provided to any member of the public upon request.
  2. Report format: Reports are limited to ten pages (or 20 pages for reports in both English and French) and a PDF file that does not exceed 100MB in size. This restriction may affect entities’ ability to coordinate reports among multiple jurisdictions with similar legislation, such as Australia and the United Kingdom (though the guidance specifically acknowledges that entities may leverage reports filed in those jurisdictions, doing so may be impractical depending on the length of those reports). However, entities may provide additional information to supplement responses, including by providing links to relevant websites and publicly available documents.
  3. Joint reporting: A joint report should only be submitted if its content applies to all entities covered by the report. Where organizations have policies and practices that apply broadly to the entire business, a joint report may be appropriate. However, where entities within an organization have diverging business practices, risk profiles and/or relevant policies, it may be more appropriate for each entity to file a separate report.
  4. Business presence in Canada: The Act does not define what constitutes a “place of business in Canada” or “do[ing] business in Canada”. Entities are advised to use the ordinary meaning of these terms and apply the criteria set by the Canada Revenue Agency for similar tax determinations. The examples provided suggest that these terms are to be interpreted broadly. Note that an entity can be considered to be doing business in Canada despite not having a place of business in Canada.
  5. Asset, revenue and employee thresholds: These size thresholds refer to total global assets, revenue and employees. For example, an organization that employs more than 250 employees globally will still exceed the relevant threshold even if only 25 of those employees are in Canada. Assets are to be calculated on a gross basis. “Employee” has the same meaning as in Canadian common law and includes all of an entity’s full-time, part-time and temporary employees but does not include independent contractors.
  6. Meaning of producing, selling, distributing and importing goods: References in the Act to producing, selling, distributing or importing goods are not meant to capture services that support these activities. Entities are advised to refer to the Customs Act to determine whether the entity is considered to be “importing goods” into Canada.
  7. Very minor dealings excluded: Though the Act does not include minimum thresholds or de minimis carve-outs for relevant activities, the guidance provides that the terms for producing, selling, distributing and importing should be understood as excluding “very minor dealings”. No definition of “very minor dealings” is provided.
  8. Meaning of control: Control is understood to include both direct and indirect control extending down the organizational chain. The guidance indicates that control should be interpreted broadly and determined substantively. Entities may reference applicable accounting standards where relevant. However, no definition of “control” is provided.
  9. Report contents: Entities are advised to consider the submission questionnaire to guide the contents of the report. The level of detail should be proportionate to an entity’s size and risk profile. For example, if remediation measures are not applicable, an entity may state so. For the purpose of transparency, the guidance states that entities should indicate in their report whether they also report under legislation in other jurisdictions. The Act also clarifies that entities are not required to:
    • disclose commercially sensitive information that would expose them to legal risk or compromise the privacy of any person, or
    • report on specific cases or allegations (or corresponding descriptions of any specific instances of remediation).
    Note that the report must include a statement from the person signing it that they have exercised reasonable diligence in attesting that the report is true, accurate and complete in all material respects.
  10. Due diligence: The guidance specifically references the OECD Due Diligence Guidance for Responsible Business Conduct in its discussion of due diligence, which sets out due diligence practices that entities may wish to integrate into their policies and practices in connection with reporting under the Act.

What’s next?

Entities with a reporting obligation must file their inaugural report with the Minister in the manner specified in the guidance by May 31, 2024, and then subsequently by May 31 in each year that follows. The same requirement applies to federal government institutions as well. Corporations that are federally incorporated (including corporations incorporated pursuant to the Canada Business Corporations Act) must provide the report or revised report to each shareholder, along with its annual financial statements, which may effectively accelerate the May 31 deadline to such an earlier date that such entity provides its annual financial statements to shareholders.

What can you do to prepare?

Please refer to our bulletin from September 2023 for specific recommendations on how you can prepare your entity to comply with the Act. In addition, organizations may want to familiarize themselves with the questionnaire, which is available on the Minister’s website, and the report submission process in advance of the filing deadline.

To discuss these issues, please contact the author(s).

This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.

For permission to republish this or any other publication, contact Janelle Weed.

© 2024 by Torys LLP.

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