Written By Sharon Singh, Jessica Horwitz, Sabrina A. Bandali and Jordan Crocker

As businesses finalize their reports under the Fighting Against Forced Labour and Child Labour in Supply Chains Act (the Act) in advance of the May 31, 2024, statutory deadline, Public Safety Canada has updated its administrative guidance to clarify certain technical requirements, while also sowing confusion in respect of the basic question of which entities have reporting obligations under the Act. Public Safety Canada revised its guidance for Entities, originally issued in December 2023, on March 5, and March 20, 2024, and also added a page for answers to top questions and other amendments on March 5. A separate section was also added to the guidance website on March 13, 2024, to address the reporting obligations of government institutions.

While the guidance issued so far by Public Safety Canada clarifies certain matters, including that parent companies and their subsidiaries must confirm their own reporting obligations on an entity-by-entity basis and that Crown corporations could potentially have reporting obligations, it no longer addresses the "selling" and "distributing" activity triggers that appear in paragraph 9(a) of the Act. To evaluate whether it has a reporting obligation, an organization must interpret the text of the Act, while contending with the administrative guidance that purports to narrow the statutory obligation and Public Safety Canada's likely approach to enforcement.

Selling and Distributing Activity Triggers Removed

Section 9 of the Act stipulates that a legal entity that meets the definition of "entity" under the Act is required to file a report if it:

a) produces, sells or distributes goods in Canada or elsewhere;

b) imports into Canada goods produced outside Canada; or

c) controls an entity engaged in any activity described in paragraph (a) or (b), with control defined broadly in the guidance as any direct or indirect control or common control "in any manner".

However, Public Safety Canada removed references to "selling" and "distributing" from the sections of its guidance that discuss which types of entities need to report. The previous guidance mirrored the language in section 9 of the Act, as follows:

"As per section 9, reporting obligations apply to entities engaged in either producing, selling or distributing goods in Canada or elsewhere; importing into Canada goods produced outside Canada; or controlling an entity engaged in either of those activities."

Now, this wording has been replaced by the following:

"Reporting requirements are for entities that produce goods in Canada or elsewhere, entities importing goods produced outside Canada, and entities that control another entity that produces or imports goods."

While the administrative guidance may serve as an indicator of Public Safety Canada's intended enforcement priorities at least for the first reporting year, the guidance is not legally authoritative and can change at any time without notice. Companies should continue evaluating their reporting obligations for the 2023 financial year using a practical and risk-based approach, in consultation with legal counsel.

Subsidiaries and Parents

Subsidiaries must determine their reporting obligations separately from their parent company. A subsidiary should evaluate its own financial statements (not the consolidated financial statement of the parent company that controls it) to determine if it falls within the size-related thresholds outlined in the definition of an entity. A scenario is therefore possible in which a parent company has a reporting obligation (if it meets the definition of "entity" in the Act) while a subsidiary does not, or vice versa. This may (or may not) impact the substantive contents of the report(s) filed on behalf of the entities, depending on the nature and integration of the group's business operations.

Joint reports are still permissible to cover multiple related parties, as long as the applicable policies, procedures and risk mitigation steps taken by each organization are sufficiently similar to be able to describe them jointly in a single report without creating false or misleading statements.

Crown Corporations

On March 13, 2024, Public Safety Canada further updated its guidance to include a separate page of guidelines for government institutions. Government institutions must adhere to the reporting and questionnaire requirements outlined in the Act.

The updated guidance notes the possibility that Crown corporations may have reporting obligations under the Act:

"Provincial and municipal governmental institutions are not subject to the reporting requirements as per the definition of “government institutions” in the Act. However, some provincial agent Crown corporations may be subject to the reporting requirements by falling under the definition of "entity." It is their responsibility to determine whether they are a reporting entity under the Act."

Other Clarifications

The updates also clarified some previously ambiguous points in the guidelines:

• The 10-page limit for reports is now acknowledged as a recommendation as opposed to a requirement. This was also revealed at Public Safety Canada's virtual information session in January on the Act's requirements. The only true size limit is a 100MB technical file size restriction of Public Safety Canada's online upload portal.
• It is recommended, although not mandatory, to produce both English and French versions of the report, and if doing so the versions should be produced and uploaded as two separate PDF files.
• An entity is considered to be "importing" goods into Canada if the entity is responsible for accounting for those goods under the Customs Act. In most cases, this refers to the entity that is identified as the importer of record on the customs entry documentation filed with the Canada Border Services Agency, or otherwise the party who holds title to the goods at the time they are released from customs control. An entity that buys a good in a domestic transaction and that is not causing or managing the importation is not, generally, an importer. Purchasing goods produced outside Canada from a third party, where that third party is the importer for the purposes of the Customs Act, does not count as importing goods.
• Entities may refer to the factors considered by the Canada Revenue Agency when determining if a non-resident person is "carrying on business in Canada" for GST/HST purposes, which is a common law test based on a weighing of factual circumstances. If an organization does not already know whether it has a GST/HST registration requirement in Canada under the Excise Tax Act, please consult legal counsel. These factors include:
  • the place where agents or employees of the non-resident are located;
  • the place of delivery;
  • the place of payment;
  • the place where purchases are made or assets are acquired;
  • the place from which transactions are solicited;
  • the location of assets or an inventory of goods;
  • the place where the business contracts are made;
  • the location of a bank account;
  • the place where the non-resident's name and business are listed in a directory;
  • the location of a branch or office;
  • the place where the service is performed; and
  • the place of manufacture or production.
• The Act requires that reporting entities make their reports available to the public, including by publishing it in a prominent place on their websites. The guidance now clarifies that the May 31 deadline only applies to the requirement to submit the report and online questionnaire, and that reporting entities should publish their reports on their respective websites at their earliest convenience following the submission to Public Safety Canada.
• Public Safety Canada has confirmed that only the PDF reports and "select identifying information" from the Public Safety Canada online questionnaire will be published and viewable by the public on the Public Safety website. However, we further note on this point that there has been no guarantee made about confidentiality of the questionnaire responses, and the responses could be subject to disclosure through Access to Information Act requests or future official government reporting, so organizations should not put anything in the online questionnaire that they would consider to be sensitive or confidential.
• Reports can contain images or visual aids as long as they follow the requirements outlined in the guidance. We note further that organizations using visual aids in their reports should be cautious that the images do not create a false or misleading impression, or one that runs contrary to the narrative statements in the report.

Takeaways

While the removal of the references to "selling" and "distributing" activities in the reporting obligation guidance may suggest that there could be future amendments to the legislation to narrow the scope of activities that trigger a reporting obligation, further clarity will likely not be forthcoming before the May 31, 2024 deadline for this year's report. In the meantime, companies that have a reporting obligation in respect of production or importing activities, or that have decided to adopt a conservative approach to the reporting to mitigate legal risk and/or for other commercial or reputational reasons, will not be impacted.

If you have any questions, please contact one of the authors, or a member of the Bennett Jones International Trade & Investment practice group or Sustainability & ESG team to discuss issues concerning the application of the Act to your organization, Public Safety Canada's guidance, or practical strategies to design and implement an effective forced labour and child labour compliance program to mitigate risks.