New requirements for certain Canadian companies

Does your business:

• produce, sell or distribute merchandise in Canada or elsewhere?
• import goods produced outside of Canada?

We invite you to read the following!

The Fighting Against Forced Labour and Child Labour in Supply Chains Act (the 'Act ') came into effect on January 1^st, 2024. In particular, the Act aims to increase industry awareness and transparency, and encourages companies to improve their practices regarding forced labour and child labour. To this end, the Act requires federal institutions and certain entities to submit a report to the Minister of Public Safety and Emergency Preparedness (the “Minister”) on measures taken to prevent and reduce the risk of forced labour and child labour.

To whom do the new requirements apply?

An entity is defined per the Act as a corporation, partnership, trust, or other unincorporated organization that meets one of the following three criteria:

1. is listed on a stock exchange in Canada;
2. has a place of business in Canada, does business in Canada or has assets in Canada and, based on its consolidated financial statements, meets at least two of the following conditions for at least one of its two most recent fiscal years:

a) has at least $20 million in assets[1];
b) has generated at least $40 million in revenue;
c) employs an average of at least 250 employees[2].

3. is prescribed by regulations.

The obligation to report to the Minister pursuant to the Act applies to any entity that:

• produces, sells or distributes goods in Canada or elsewhere;
• imports goods produced outside of Canada into Canada; or
• controls an entity engaged in any activity described in any of the preceding points.

It should be noted that the Act also applies to federal institutions[3] that produce, purchase, or distribute goods, in Canada or elsewhere, which must therefore prepare and submit an annual report pursuant to the Act.

What is an entity's reporting obligation?

Any entity that, per the above criteria, is subject to the new requirements pursuant to the Act will be required to file an annual report no later than May 31^st of each year. The first annual report is due no later than May 31^st, 2024. This report must describe the measures the entity implemented to prevent and mitigate the risk of the use of forced labour or child labour at any stage of production of the entity’s goods — in Canada or elsewhere — or their importation into Canada during its last fiscal year, including its due diligence policies and processes relating to forced labour and child labour. The report must also provide information on the structure, business activities, and supply chains of the entity. In addition, the report must include information on the training provided to its staff in relation to forced labour and child labour.

Preparing a report in compliance with the requirements of the Act therefore implies that the entity keep track of the implemented measures to combat forced labour and child labour throughout its supply chain, all with the aim of stimulating companies to think about the best practices to adopt in this area. Among the wide range of measures that an entity can implement in this regard are the development or revision of procurement procedures and human rights protection policies, due diligence mechanisms for suppliers, and the adoption of a binding supplier code of conduct.

Public Safety Canada has published guidelines to provide more information on how to prepare such a report, including content and form requirements. Among the formal requirements, it is recommended that the report not exceed 10 pages.

Procedures for the preparation and presentation of a report by an entity

Once the report has been completed, it must be approved by the governing body with the legal authority to bind the entity. In the case of a corporation, for example, the report must be signed by at least one member of the Board of Directors. The Act also stipulates that entities that are corporations incorporated under the Canada Business Corporations Act are required to provide their shareholders with the report submitted pursuant to the Act, along with the corporation's annual financial statements.

Before filing their report, entities are required to complete an online questionnaire on their compliance with the requirements of the Act. Entities will need to ensure that the information provided in the questionnaire is consistent with the information provided in their report.

Finally, once submitted to the Minister, the report must be made available to the public, e.g. by publishing it in a prominent place on its website. All reports will also be made available to the public via an electronic registry on the Public Safety Canada website.

Offences and Punishment

A natural or legal person commits an offence and may be fined up to $250,000.00 if he or she:

a)    fails to submit an annual report that meets the requirements of the Act;

b)    fails to make the annual report available to the public;

c)    knowingly makes a false or misleading statement or provides false or misleading information to the Minister or the person designated by the Minister for the administration and enforcement of the Act.

Any director, officer or agent of an entity who orders, authorizes, consents to, or participates in such an offence will be considered a co-perpetrator of the offence and may incur the same penalty. However, with regard to the offences mentioned in sub-paragraphs a) and b) above, a person may not be convicted if he or she proves that he or she exercised due diligence to prevent the commission of the offence.

Conclusion

Companies subject to the new requirements arising from the Fighting Against Forced Labour and Child Labour in Supply Chains Act have until May 31^st, 2024 to produce their first report, and will be required to produce such a report on an annual basis thereafter. Accordingly, they should begin the process of preparing their report now if they have not already. They should also begin a process of reflection and evaluation of the measures they are taking to reduce and prevent the risks of forced labour and child labour. As part of this process, companies will be asked to review their procurement, forced labour and child labour policies, their code of ethics or code of conduct, as well as their supplier verification and audit processes, all of which can involve a considerable amount of work.

In closing, it is important to mention that in addition to the reporting obligation, the Act also amends the Customs Tariff to broaden the scope of certain prohibitions and definitions, in particular the definition of the terms "forced labour" and "child labour."

If you have any questions about the above, please do not hesitate to contact our Corporate Law team, who will be pleased to assist you.