Much-Anticipated Guidance Released on Canada's Forced Labour Reporting Requirements

January 15, 2024

Written By Sabrina A. Bandali, Jessica Horwitz, Sharon K. Singh and Kathleen Wang

On December 20, 2023, Public Safety Canada issued long-awaited guidance that provides details on the reporting requirements introduced in the Fighting Against Forced Labour and Child Labour in Supply Chains Act (the Supply Chains Act). Public Safety Canada also hosted a public information webinar on January 11, 2024 to further discuss the guidance.

Government institutions and private sector organizations that meet the definition of "entity" under the Supply Chains Act (see our previous blog post from May 2023, Canada Introduces Mandatory Forced Labour Prevention Reporting Legislation) will have to (1) prepare a report that is to be uploaded to a government registry and also posted on the entity's website; and (2) respond to an online questionnaire that aligns with the various supplementary information specified in the Act. The first reporting deadline is quickly approaching, with first reports due by May 31, 2024.

The guidance addresses the following:

• Application of the Supply Chains Act and determining whether an organization has reporting obligations;
• The reporting process, including the mandatory online questionnaire;
• Contents and required format of the report (e.g., language requirements, length, file size, attestation wording); and
• Characteristics of compliant responses and best practices.

Companies that have reporting obligations should begin preparing their report and questionnaire responses with all speed. While reports are due by May 31, 2024 at the latest, each company report must be attested to and approved by the governing body of the organization (e.g., the board of directors), which may entail timing constraints related to meeting schedules and director availability. Entities incorporated under a federal statute, such as the Canada Business Corporations Act, must also distribute the report to shareholders with the company's annual financial statements, which means that practical deadlines for some businesses may fall earlier than May.

The following summary highlights some of the notable elements of the guidance.

Who Has Reporting Obligations?

As described in our May 2023 Blog, an organization will have reporting obligations if (1) it meets the definition of an "entity" set out in Section 2 of the Supply Chains Act; and (2) it engages in the kinds of activities described in Section 9 of the Act.

The guidance clarifies that both Canadian and foreign organizations may qualify as "entities". In addition to public companies, organizations that have a sufficient business presence in Canada (having a "place of business in Canada", "doing business in Canada", or having "assets in Canada") and meet certain size thresholds—two of the following for at least one of the last two fiscal years: $20 million in assets, $40 million in revenue or an average of 250 employees may be "entities" for reporting purposes.

With respect to the 'Canadian business presence' requirement, the guidance states that these concepts should be interpreted based on the ordinary meaning of these terms, as well as Canada Revenue Agency criteria, when determining whether an organization has a place of business in Canada, does business in Canada or has assets in Canada. "Brick and mortar" operations in Canada are not required.

The 'size' thresholds are evaluated based on the consolidated financial statements of the entity under examination, which means that the revenue, assets and employees of any subsidiaries that are part of the consolidation will count towards the threshold. Total assets, revenue and employees of the reporting organization are to be considered (i.e., not just those arising from or in Canada).

Activities that give rise to a reporting obligation for "entities" include producing, selling or distributing goods (in Canada or elsewhere), or importing goods into Canada, or controlling another "entity" that does any of those things. The terms are to be interpreted with reference to their plain meaning. While there is no minimum value threshold that applies to these activities, the guidance clarifies these terms should be interpreted as excluding "very minor dealings", although that phrase is not further defined. The guidance clarifies that these terms are also not intended to capture services that solely support the production, sale, distribution or importation of goods (e.g., marketing, administrative services, financial services, and software services).

Ultimately, the guidance confirms that the analysis of whether an organization will qualify as an "entity" as defined in the Supply Chains Act is a fact-specific exercise that may vary depending on the circumstances of the business. Public Safety Canada's policy intention with respect to enforcement of the legislation is clearly to "cast a wide net" with respect to the scope of businesses that are subject.

The Reporting Process

Among the most important new information included in the guidance is the publication of an online questionnaire that reporting organizations must complete when submitting their reports to Public Safety Canada. The questionnaire asks a series of mandatory and optional questions that address the statutory requirements in the Supply Chains Act, including multi-part questions and questions with multiple-choice answers.

The text of the questions are available here in HTML so that reporting organizations may view them and prepare responses. Companies should carefully review the questionnaire and ensure that their responses to the questionnaire are accurate and consistent with the information provided in their reports.

Content and Format of the Report

In addition to completing the online questionnaire, reporting organizations must prepare a written report to be uploaded as a PDF with the questionnaire and separately published on the entity’s website (or if the entity has no website, made available to members of the public upon request). Public Safety Canada has stated that it will make reports available to the public through an online searchable catalogue. The guidance recommends that the report be no longer than 10 pages (or 20 pages for reports provided in both English and French) and it cannot be larger than 100 MB in size.

There is no prescribed visual format or level of detail required for the report. It must describe the steps taken by the reporting organization to prevent and mitigate the risk of forced labour or child labour in its supply chains, as well as address in one way or another the supplementary information points listed in Section 11 of the Supply Chains Act (see our previous blog, What Canada's New Forced Labour Reporting Law (Bill S-211) Means for Businesses).

If the entity reports in other jurisdictions as well, then a report prepared for another jurisdiction may be used so long as it contains accurate, applicable and relevant information for Canadian law purposes as required under the Supply Chains Act and otherwise conforms to the guidance published by Public Safety Canada (regarding e.g., length of the report, etc.). Joint reports (i.e., covering multiple entities) are possible, but should only be submitted if the content applies to all entities covered by the report or specifies which information applies to which entity covered by the report. If the information in a report is not applicable to all entities covered by the report, a joint report may not be appropriate. The guidance provides the example of circumstances in which a parent company has implemented comprehensive policies that apply to its operations but either do not apply to, or are not implemented in practice by, its subsidiaries.

Characteristics of Compliant Responses

Reporting organizations are encouraged to use simple and clear language, to be frank and describe the concrete actions that they have taken to prevent and mitigate forced labour and child labour risks. The Act does not prescribe any specific due diligence steps that must be taken; it only prescribes a requirement to report on any steps that have (or have not) been taken, with the policy goal of raising awareness and encouraging improvement in voluntary due diligence processes over time. While reporting organizations may undertake various actions related to human rights due diligence, environmental, social and governance (ESG) initiatives or other aspects of responsible business conduct not exclusively focused on forced labour or child labour, the guidance indicates that such actions can be included in the report in the space provided for additional information to the extent they are relevant to the purposes of the Act.

the guidance also clarifies that reports are not aspirational statements, although they may refer to goals and steps for the future. Reporting entities must not disclose any information that is considered confidential or that could compromise the privacy of any individuals or groups, or report on specific cases or allegations of forced labour or child labour.

Next Steps

Companies that meet the reporting entity thresholds described above should review their supply chain due diligence and monitoring practices and begin to prepare their reports and responses to the online questionnaire with all speed, bearing in mind timelines that may be required for board approval and communications with shareholders, as applicable.

Contact one of the authors, or a member of the Bennett Jones International Trade & Investment practice group or ESG team to discuss questions about the Supply Chains Act, Public Safety Canada's guidance or practical strategies for designing and implementing an effective forced labour and child labour compliance program to mitigate risks.

Authors