Public Safety provides an update on Canada’s modern slavery legislation

On December 20, 2023 Public Safety Canada released the much anticipated guidance on its updated website regarding the implementation of the Fighting Against Forced Labour and Child Labour in Supply Chains Act (Supply Chains Act).

The updated website offers the critical guidance on the Supply Chains Act that came into force on January 1st 2024.  It also introduced a new method for submitting the report by way of a detailed questionnaire, which may add a new dimension to the compliance process with the Supply Chains Act.  Companies are advised to thoroughly review both the guidance and the questionnaire on the website prior to filing their reports.  This proactive approach will help ensure that their reports and compliance strategies are in line with the expectations of Public Safety Canada, which is the overseeing regulatory body.

While the website provides comprehensive detail interpreting the Supply Chains Act and adhering to its requirements, our focus will be on highlighting key aspects of the guidance.  This is particularly relevant for our clients who operate across diverse sectors and industries, to aid in the understanding of the most significant elements of the implementation and compliance requirements of the Supply Chains Act.

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Guidance

On the website, there is a section titled “Prepare a report - Entities” (Guidance Section), which offers the initial guidance from Public Safety Canada on the Supply Chains Act.  This section elaborates on how Public Safety Canada interprets the scope of Supply Chains Act and outlines the specific information that is to be included in the reports prepared in order to be compliant.

As outlined in our Legal Insight The regulatory and legal implications of Canada’s Modern Slavery Act, reporting under the Supply Chains Act applies broadly to certain entities and government institutions that

  • produces, sells, or distributes goods in Canada or elsewhere,
  • imports into Canada goods produced outside Canada, and
  • controls another entity engaged in such production, sale, distribution, or importation.

The Guidance Section of the Public Safety Canada website elaborates on the interpretation of the above criteria under the Supply Chains Act providing some context to several terms used throughout the nomenclature:

  • The terms such as “selling,” “distributing,” and “importing” are not explicitly defined in the Supply Chains Act, and should be understood in their common usage. These terms are not meant to include service-based activities like marketing, financial, or software services that solely support the aforementioned activities.
  • The term “goods” is meant to refer to items that are part of trade and commerce, as commonly understood.
  • An entity is recognized as importing goods into Canada if it is accountable for those goods under the Customs Act.
  • While the Supply Chains Act does not specify a minimum threshold for applicability, the usage of terms in the Supply Chains Act is interpreted to exclude transactions of very minor significance.
  • Determining whether an entity controls another can be based on applicable accounting standards, but should not be strictly confined to these standards. This consideration should focus on the substance over form and may include scenarios where an entity exercises joint control over an operation.

These interpretations aim to clarify the applicability and scope of the Supply Chains Act, providing entities with a better understanding of the compliance requirements. 

The Guidance Section of the website does provide details on how to determine whether an organization is an entity and subject to reporting obligations under the Supply Chains Act.  The term “entity” is defined in the Supply Chains Act as any organization that is listed on a Canadian stock exchange, or an organization that has a connection to Canada (defined as having a place of business in Canada, doing business in Canada, or having assets in Canada) and also meets at least two of the following three conditions for a minimum of one of its two most recent financial years:

  • has at least $20 million in assets;
  • has generated at least $40 million in revenue; or
  • employs an average of at least 250 employees.

The Guidance Section provides insights into how the applicability test of the Supply Chains Act should be interpreted, including several key points:

  • Entities with headquarters and operations either in Canada or abroad could be subject to the reporting obligations
  • To determine if an organization is considered an "entity" due to its presence in Canada, the guidance suggests referencing criteria used by the Canada Revenue Agency and interpreting terms in their normal usage.
  • The threshold values for applicability (in terms of assets, revenue, and employee count) are based on global figures. Assets should be calculated on a gross basis, not net.
  • The definition of "employee" under the Act aligns with its meaning in Canadian common law, encompassing full-time, part-time, or temporary employees in any jurisdiction, but not independent contractors.

Despite these clarifications, some aspects remain uncertain. For instance, businesses might interpret terms in their "ordinary sense" differently, leading to varied conclusions. It is also not clear whether the internal import or distribution of goods within an organization falls under the scope of the Supply Chain Act. Furthermore, the requirement for entities incorporated under the Canada Business Corporations Act to present their reports to shareholders alongside annual financial statements is yet to be fully elucidated. This leaves businesses with the task of navigating these ambiguities and making their own determinations about the applicability of the Supply Chain Act to their operations.

Report content

The Guidance Section provides specific recommendations on the composition of reports in compliance with the Supply Chains Act, detailing both format and content. Key elements include:

  • Report Length: The report should not exceed 10 pages or 100 MB in size.
  • Attestation Requirement: A member of the governing body with authority to bind the entity must include an attestation in the report. This attestation confirms that the information in the report is reviewed, and to the best of their knowledge and after reasonable diligence, it is true, accurate, and complete as per the requirements of the  Supply Chains Act.
  • Utilizing Reports for Multiple Jurisdictions: If a report submitted to another jurisdiction meets the standards of the Supply Chains Act, it can also fulfill the reporting obligations under the Supply Chain Act. However, it's important to ensure that requirements of the questionnaire are also completed.
  • Confidentiality and Privacy: The Supply Chains Act does not mandate the disclosure of commercially sensitive information that would expose them to legal risk or compromise the privacy of any persons.
  • Reporting Scope: Entities are also not required to report on specific cases or allegations of forced labour or child labour. The description of the forced labour and child labour risks identified and the description of any remediation measures taken need not reference specific instances, persons or groups.

Additionally, the Guidance Section elaborates on responding to the seven specific reporting requirements as outlined in subsection 11(3) of the Supply Chains Act. It's crucial to note that beyond these guidelines, the preparation of the report is significantly influenced by the new questionnaire introduced by Public Safety Canada as detailed in the following section.

Questionnaire

The recent update on the website about the Supply Chains Act revealed the introduction of a mandatory questionnaire (Questionnaire) necessary for report submission to the Minister of Public Safety. This Questionnaire adds a new layer to the reporting responsibilities for entities under the Supply Chains Act and includes both mandatory and optional questions.

Key elements of the questionnaire include:

  • Introductory Section: Entities must outline their applicability under the Act, clarifying their definition as an "entity" and the activities prompting the reporting requirement. This section is particularly pertinent for entities uncertain about their obligation to report but choose to file a report as a precaution.
  • Supply Chain Due Diligence and Risk Assessment: The Questionnaire seeks extensive information on how entities manage and assess risks related to forced and child labour in their supply chains, aligning with the reporting criteria of the Supply Chains Act report. However, it predominantly uses a "check-the-box" format, potentially limiting entities' ability to comprehensively describe their processes and procedures in their own terms. This may necessitate an analysis to ensure that the provided options accurately reflect their activities.
  • Detailed Nature and Online Format: Completing the Questionnaire will likely be a time-intensive process, requiring input from various business departments. Currently available only as an online form, all questions can now be viewed at the “Submit a report” section.
  • Comparison with Other Jurisdictions: This approach of using a detailed questionnaire is not commonly observed in other regions with similar reporting obligations, such as Australia and the United Kingdom. Unlike these jurisdictions, Public Safety Canada's additional requirement of completing a detailed questionnaire may necessitate special attention from businesses, especially those reporting in multiple jurisdictions.

This unique implementation by Public Safety Canada underlines the importance for businesses to carefully consider and adapt their compliance strategies to align with the specific demands of the Supply Chains Act, particularly when operating across different international reporting frameworks.

Takeaway

The comprehensive nature of the Supply Chains Act, along with its broad applicability to a diverse range of businesses, is well-addressed on Public Safety Canada’s website, which offers valuable insights into its approach to enforcing the Supply Chains Act. For businesses tasked with submitting reports under the Supply Chains Act, it is crucial to thoroughly review the website, with special focus on the Guidance Section and the Questionnaire. Integrating this information into their compliance strategies is key to effectively meeting their obligations under the Supply Chains Act.


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Shelley Gilberg

Shelley Gilberg

Markets Leader, Managed Accounts, PwC Canada

Tel: +1 250 882 0437

Kara Ann Selby

Kara Ann Selby

Risk and Regulatory Platform Leader, Partner, International Tax, PwC Canada

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