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(left to right: David Frost, Partner; Gajan Sathananthan, Associate; and Thomas Fung, Associate, McCarthy Tétrault, LLP)
The Fighting Against Forced Labour and Child Labour in Supply Chains Act (Supply Chains Act) passed its final reading in the House of Commons on January 1, 2024. The purpose of the Supply Chains Act is to implement Canada’s international commitment to fight against forced labour and child labour. The legislation implements reporting obligations on certain entities that produce, sell or distribute goods in Canada or elsewhere, or import goods into Canada.
Content and Applicability of the Supply Chains Act
The reporting requirement in the Supply Chains Act applies broadly to any entity that produces, sells, or distributes goods in Canada or elsewhere, to any entity that imports into Canada goods produced outside Canada, and to any entity that controls another entity engaged in such production, sale, distribution, or importation. Parent companies of ‘entities’ that produce, sell or distribute goods in Canada or elsewhere may therefore also be captured.
In the Supply Chains Act, an ‘entity’ is defined to include any business that is listed on a Canadian stock exchange. Entities also include businesses that have a place of business in Canada, do business in Canada or have assets in Canada, and also meet at least two of the following three conditions for a minimum of one of its two most recent financial years:
- the entity has at least $20 million in assets;
- the entity has generated at least $40 million in revenue; or
- the entity employs an average of at least 250 employees.
Public Safety Canada, which administers the Supply Chains Act, has provided some guidance regarding its interpretation of the Supply Chains Act (Guidance). The Guidance includes Public Safety Canada’s views on the applicability criteria described above and provides tips for best disclosure practices.
Reporting Obligation and Questionnaire
The key obligation contemplated by the Supply Chains Act is the annual publication of a report on diligence processes implemented by entities subject to the legislation that is aimed at “[preventing and reducing] the risk that forced labour or child labour is used at any step of the production of goods in Canada or elsewhere by the entity or of goods imported into Canada by the entity.” The report will also need to provide details on the entity’s structure, supply chains and due diligence processes in relation to forced labour and child labour, in addition to other required disclosure.
Each entity’s annual report is required to be submitted to the Minister of Public Safety and Emergency Preparedness (Minister) on or before May 31 of each year and is also to be published in a prominent place on the entity’s website. The first set of reports are therefore due on May 31, 2024.
It is possible for multiple entities, including parent and subsidiary companies, to submit a joint report. Each annual report must be approved by the entity’s governing body (generally, for a corporation, its Board of Directors) or, in the case of a joint report, by the governing body of each entity included in the report, or by the governing body of the entity that controls each entity included in the report. The report must also be attested to by a member of that governing body that has the authority to bind the entity.
Where an entity is incorporated under the Canada Business Corporations Act or any other Federal Act of Parliament, it must provide the report to each shareholder along with its annual financial statements. There is significant ambiguity about how this obligation should be implemented in practice and, unfortunately, the Guidance provides no insight on this process. Companies that are subject to this obligation are encouraged to seek counsel when developing a plan to comply with this obligation.
In addition to the annual report, Public Safety Canada has implemented a mandatory questionnaire (Questionnaire) that must be completed when filing a report with the Minister. As the Questionnaire is quite detailed, it will likely require some time and input from various departments of the business to complete. This additional obligation imposed by Public Safety Canada will be important for businesses to take into account when they are considering how to comply with the Supply Chains Act, particularly businesses that are reporting in multiple jurisdictions.
Penalties and Director & Officer Liability
Reporting entities that fail to comply with the Supply Chains Act are guilty of an offence punishable on summary conviction and liable to a fine of not more than $250,000, as are persons who knowingly make a false or misleading statement or knowingly provide false or misleading information to the Minister or to persons who are designated by the Minister.
Significantly, directors, officers and agents of entities who directed, authorized, assented to, acquiesced in or participated in the commission of an offence under the Supply Chains Act can also be found guilty of the offence and liable on conviction to the same penalties.
Conclusion
Given the broad range of entities that are covered under the obligations of the Supply Chains Act, businesses should carefully review these new measures to determine if these obligations apply to them and, if so, take action to prepare for the initial reports that are due by May 31, 2024.
In many cases, businesses may already publish ongoing reports that address human rights issues, including modern slavery, particularly where they are required for compliance with similar laws in other jurisdictions. In such instances, these businesses should consider seeking legal advice to assess whether and to what extent their existing reporting structures can be expanded to satisfy the requirements of the Supply Chains Act.
In all cases, companies should carefully review the Supply Chains Act and the Guidance to ensure they understand their obligations and seek out counsel if they need additional clarity.
David Frost is a Partner at McCarthy Tétrault LLP. This article was written by Gajan Sathananthan, Associate and Thomas Fung, Associate at McCarthy Tétrault LLP.