Preparing for new Canadian forced and child labor reporting – Unpacking the new Government guidance

The first annual reports under the new Canadian Fighting Against Forced Labour and Child Labour in Supply Chains Act generally are due on May 31, 2024. On December 20, 2023, Public Safety Canada published guidance under the Act. The Guidance includes important information on both the form and content of reports that all reporting entities will need to take into account. In this post, we discuss the Guidance in detail, as well as provide takeaways for U.S.-based multinationals.

Public Safety Canada also has published the online questionnaire that reporting entities will need to submit with their forced and child labor report. The questionnaire is discussed in our separate post here.   

For a further discussion of the Act’s requirements, see our earlier Alert.

Determining applicability

An “entity” is defined in the Act as a corporation or a trust, partnership or other unincorporated organization that (1) is listed on a stock exchange in Canada or (2) has a place of business in Canada, does business in Canada or has assets in Canada and that, based on its consolidated financial statements, meets at least two of the following conditions for at least one of its two most recent financial years: (a) C$20 million in assets; (b) C$40 million in revenue; and (c) an average of at least 250 employees.

Place of business, doing business or assets in Canada

The Guidance indicates that entities should use the ordinary meaning of these words and the criteria applied by the Canada Revenue Agency since specific definitions and tests are not included in the Act. The Guidance notes that, for tax- and employment-related purposes, it should already be clear whether an entity has a place of business in Canada, does business in Canada or has assets in Canada.

The Guidance also indicates that doing business in Canada does not require having a place of business in Canada.

Calculating size thresholds

Under the Act, assets, revenue and employees are to be calculated based on consolidated financial statements. The Guidance indicates that asset and revenue values should be converted into Canadian dollars if those statements use a different currency.

The Guidance indicates that the size-related thresholds refer to total (global) assets, revenue and employees. Assets are not restricted to assets located in Canada, revenue is not restricted to revenue from business activities in Canada and the number of employees includes those residing or employed in Canada or in another jurisdiction.

Employees include people employed on a full-time, part-time or temporary basis. It does not include independent contractors. 

Determining whether an entity is a reporting entity

Under the Act, a reporting entity is an entity (1) producing, selling or distributing goods in Canada or elsewhere, (2) importing into Canada goods produced outside Canada or (3) controlling an entity engaged in an activity described in (1) or (2). The Guidance indicates that if an organization is not involved in any of these activities, it does not need to report, even if it meets the definition of “entity.”

“Goods” is not a defined term under the Act. The Guidance indicates that this term refers to goods that are the subject of trade and commerce, as understood in the ordinary sense of the word.

“Selling,” “distributing” and “importing” also are not defined in the Act. However, the Guidance notes that these terms are not intended to capture services that solely support the production, sale, distribution or importation of goods. These include, for example, marketing, administrative services, financial services and software services. According to the Guidance, entities should apply the ordinary sense of these words to determine whether they are engaged in any of these activities.

An entity is considered to be importing goods into Canada if the entity is responsible for accounting for the goods under the Customs Act. Purchasing goods produced outside Canada from a third party that is the importer for purposes of the Customs Act does not count as importing goods.

There is no minimum value threshold for the goods an entity produces, sells, distributes or imports for the Act to apply. However, the Guidance indicates that the terms as they are used in the Act should be understood as excluding very minor dealings.

Determining “control”

As noted above, an entity is a reporting entity if it controls another entity engaged in a covered activity. 

The Guidance indicates that control should be applied broadly in a manner consistent with the purposes of the Act. Control includes both direct and indirect control and extends down the organizational chain. The meaning of control also includes deemed control.

Whether an entity controls another entity may be determined in accordance with an applicable accounting standard (e.g., International Financial Reporting Standards or U.S. Generally Accepted Accounting Principles). Control is however not limited to applicable accounting standards.

Control should be considered in substance over form and may include situations in which an entity exercises joint control of an operation.

General preparation guidance

Language

The report must be in English or French, or both.

Length and file size

The report cannot exceed 10 pages, except that it can be up to 20 pages if in both English and French. The PDF file that is submitted cannot exceed 100MB.

Reporting period

The report should cover the activities of the financial year that ends no later than the reporting deadline.

Joint reports

An entity may choose to submit a joint report covering its own actions and those of its subsidiaries or that covers multiple entities in the same corporate group. Joint reports must clearly identify the legal name of each entity covered by the report. Wherever possible, the report also should specify which information applies to which of the entities covered by the report. 

A joint report only should be submitted if the information provided generally applies to all entities covered by the report. In cases where the information applicable to each reporting entity differs significantly, the Guidance encourages each entity to submit its own report and to complete the online questionnaire (discussed below) separately. The Guidance also indicates that a joint report should not be submitted if entities have risk profiles or policies or have taken actions that diverge significantly and in a way that would make it difficult to prepare a report accurately describing all entities.

Reporting in multiple jurisdictions

Many U.S.-based multinationals that will be required to report under the Act publish a modern slavery statement in one or more other jurisdictions. The Guidance acknowledges that many reporting entities are subject to modern slavery reporting in other jurisdictions. If the information submitted in a report produced for other jurisdictions also is relevant to the Canadian Act, entities may submit the same information as a part of their report. 

The Guidance indicates that, for transparency, entities should indicate in their report whether they also report under legislation in other jurisdictions.

Substantive reporting requirements 

The report is required to discuss the steps the reporting entity has taken during its previous financial year to prevent and reduce the risk that forced or child labor 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. More specifically, the report must also include the following information in respect of each entity subject to the report:

• its structure, activities and supply chains;
• its policies and due diligence processes in relation to forced and child labor;
• the parts of its business and supply chains that carry a risk of forced or child labor being used and the steps it has taken to assess and manage that risk;
• any measures taken to remediate any forced or child labor;
• any measures taken to remediate the loss of income to the most vulnerable families that results from any measure taken to eliminate the use of forced or child labor in its activities and supply chains;
• the training provided to employees on forced and child labor; and
• how the entity assesses its effectiveness in ensuring that forced and child labor are not being used in its business and supply chains.

The Guidance addresses both the general and specific reporting requirements of the Act, as discussed below.

Content generally

Reporting entities are expected to describe the concrete actions taken to address risks of forced and child labor, rather than making purely aspirational statements. The report should focus on actions taken during the previous financial reporting year, although it is recognized that some actions may span multiple years or lack a concrete start and end point. If entities have an action plan that includes goals and steps for the future, they are encouraged to mention that in their report, but the report is not intended to serve as a plan or mission statement.

There is no prescribed level of detail required in the report. The Guidance indicates that entities should use their judgment based on their size and risk profile.

The Guidance encourages the use of simple, clear language and explaining unfamiliar terms to make the report accessible.

Structure, activities and supply chains

The Guidance indicates that “structure” refers to the entity’s legal and organizational form. When reporting on structure, entities may include the following details:

• legal structure, including legal classification (i.e., corporation, trust, partnership, unincorporated organization, etc.);
• organizational structure (i.e., departmentation, chain of command, etc.);
• organizational mandate or role;
• number of employees, both in Canada and outside Canada;
• partner organizations, or membership in a group; and
• control of other entities, including what the controlled entities do and where they are located.

“Activities” include all pursuits undertaken by the entity in relation to the production, sale, distribution or importation of goods by the entity. When reporting on activities, entities may include information on: 

• production, manufacturing, growing, extracting, processing, sale or distribution of goods, both in Canada and outside Canada, including the kinds and volumes of goods produced, manufactured, grown, extracted, processed, sold or distributed;
• importation of goods into Canada, including the kinds and volumes of goods imported and the locations from which the goods are imported; and
• locations of operation (countries or regions). Entities should also describe the activities of any entities under their control. The Guidance indicates that entities are only required to report on the activities of subsidiaries that are entities with reporting obligations under the Act.

The “supply chain” includes suppliers of goods and services that contribute to the production of goods produced, sold, distributed or imported by the entity, from sourcing the raw materials to the final product. It includes direct and indirect suppliers and service providers, both in Canada and outside Canada. An entity’s supply chain does not include the end users or customers who purchase its products or services.

The Guidance indicates that, when describing their supply chains, entities should aim to identify to the greatest extent possible the source countries or regions of origin of each of the goods and services used at each stage of the supply chain.

The Guidance further indicates that entities should aim to provide a complete overview of their structure, activities and supply chains, meaning that they should not omit information about aspects of their structure, activities and supply chains that they have judged carry no risk of forced or child labor.

Policies and due diligence processes

The entity may in its report describe how its forced and child labor policies and due diligence processes relate to its ESG initiatives or to a broader organizational responsible business conduct strategy, policies or mandate.

Forced and child labor risks

The Guidance indicates that identifying parts of an entity’s activities and supply chains that carry a risk does not require indicating that forced or child labor was or is actually being used. Instead, entities are asked to show that they have considered the ways in which their activities and supply chains could potentially cause, contribute to or be directly or indirectly linked to actual or potential risk that forced or child labor is used by them or in their supply chains.

Entities may choose to volunteer information about instances of forced or child labor that have been identified. If this information is included, entities should ensure that their report does not compromise an individual’s privacy, such as by providing an anonymized case study.

The Guidance indicates that no sectors or industries involving the production, sale, distribution or importation of goods are assumed to be entirely free of forced and child labor risks.

Remediation measures

The Act requires reporting entities to discuss any measures taken to remediate forced or child labor. The Guidance indicates that, if an entity has assessed that its activities and supply chains do not carry a risk of forced or child labor and remediation is therefore considered to not be applicable, stating this in the report would be sufficient to address the disclosure requirement. Alternatively, an entity may indicate that no measures have been taken to remediate forced or child labor in its activities and supply chains if that is the case.

There is a separate requirement in the Act to discuss any measures taken to remediate the loss of income to the most vulnerable families that results from a measure taken to eliminate the use of forced or child labor in the reporting entity’s activities and supply chains. Consistent with the approach to disclosures relating to remediation measures generally, if the reporting entity has judged that vulnerable families have not experienced lost income due to steps the entity has taken to eliminate forced or child labor risks, or if no measures have been taken, then stating this in the report is sufficient to address this requirement.

Training

• The Guidance notes that training may take a range of forms, from formal training courses to awareness-raising activities. The Guidance contains a non-exhaustive list of topics that reporting entities may choose to discuss: whether the training is mandatory or optional;
• whether the training is organization-wide or only covers employees in specific departments or branches of the organization;
• which groups or levels of employees receive the training;
• the content of the training;
• how the training was developed, including whether it was developed internally or by an external organization;
• the length of the training;
• any mode(s) of assessment included in the training; and
• how many employees have received or will receive the training.

In addition to describing the training provided to an entity’s direct employees, entities may choose to describe training or awareness materials provided to partners or suppliers if applicable.

Assessing effectiveness

Entities are required to report on how they assess the effectiveness of their efforts relating to forced and child labor. The Guidance indicates that they are not required to provide the results of the assessment. In other words, notes the Guidance, entities should describe the policies, processes and other actions they have implemented to measure and track their success in preventing and reducing risks of forced and child labor in their activities and supply chains.

The Guidance indicates that entities alternatively may indicate that no actions have been taken to assess their effectiveness in preventing and reducing risks of forced and child labor.

Other content considerations

Commercially sensitive information

The Guidance indicates that reporting entities are not required to disclose commercially sensitive information that would expose them to legal risk or compromise the privacy of persons.

Entities are also not required to report on specific cases or allegations of forced or child labor. The descriptions of identified forced and child labor risks and any remediation measures taken is not required to reference specific instances, persons or groups.

Providing additional information

Entities can provide additional information to supplement responses through links to relevant websites and publicly available documents. The Guidance notes that, for example, entities may provide links to (1) an action plan, (2) a policy, (3) a code of conduct, (4) the report from a risk-assessment or supply chain mapping exercise, (5) the results of an internal or external review or audit, (6) a public supplier list or (7) any relevant public disclosures or statements.

Entities also can include a description of other aspects of human rights due diligence, ESG initiatives and other aspects of responsible business conduct as they relate to the Act. They also may connect the description of their actions in the current reporting year to foundational work undertaken in previous years.

Attestation of the report

The report is required to be approved by its applicable governing body(ies). Approval of the report must be evidenced by a statement indicating whether it was approved pursuant to the Act and the signature of one or more members of the governing body of each entity that approved the report.

The Guidance indicates that the attestation should use the following format:

“In accordance with the requirements of the Act, and in particular section 11 thereof, I attest that I have reviewed the information contained in the report for the entity or entities listed above. Based on my knowledge, and having exercised reasonable diligence, I attest that the information in the report is true, accurate and complete in all material respects for the purposes of the Act, for the reporting year listed above.”

Full name

Title

Date

Signature, accompanied by the statement “I have the authority to bind ‘Name of Entity.’"

The Guidance also indicates that the signed attestation must be included in the submitted PDF.

The questionnaire also requires the same attestation for it to be submitted. 

Online questionnaire

Public Safety Canada has published an online questionnaire that reporting entities also will need to submit with their forced and child labor report. That questionnaire is discussed in our separate post here.   

The questionnaire may be used as a report template or guide for developing reports.

The questionnaire requires reporting entities to upload their attested report in PDF format.

Government registry

A copy of the report uploaded through the questionnaire will be made publicly available by Public Safety Canada in a searchable online catalogue.

Website posting

The Act indicates that an entity must make the report available to the public, including by publishing it in a prominent place on its website. The Guidance indicates that reporting entities have discretion over placement, but the report must be visible and readily accessible to members of the public.

Entities that do not have a website may be required to provide a copy of the report to any member of the public who requests it in writing.

Five quick takeaways

We provide the following takeaways for U.S.-based multinationals that already are subject to modern slavery reporting requirements in other jurisdictions.   

• Most U.S.-based (and other) multinationals that wish to do so should be able to continue to prepare a single, global statement in 2024 that addresses the requirements of both the Canadian Act and pre-existing modern slavery transparency statutes. Most will likely want to do so for efficiency and to ensure disclosures are consistent. 
• Be mindful of the Canadian due date. Reports are due on May 31, 2024. This will require many U.S.-based (and other) multinationals that prepare a global statement to pull forward their completion date. Even if a multinational does not prepare a global statement, if it is managing to multiple similar reporting requirements, it will need to align substantial completion of all its statements to ensure that disclosures are consistent. 
• Start early. Incremental Canadian Act content will require additional preparation time. Incremental work also will be required to respond to the online questionnaire and to ensure that the questionnaire response and the statement are consistent. Questionnaire responses will likely result in changes to some existing “evergreen” modern slavery statement disclosures. The granularity of the questionnaire also will in some cases lead to program enhancements that companies will want to be able to note in their 2024 statement.     
• With new, enhanced Canadian reporting and attestation requirements, consider whether existing controls relating to forced and child labor disclosures are sufficient.
• The Canadian page limit (ten pages) will require some companies to be more judicious in what they include in their global statement. Page length may in some cases be able to be managed by linking to more extensive information that sits outside the statement, and by jettisoning cover and table of contents pages. In addition, companies that report under multiple regimes should be able to exclude from their Canadian submission the signature pages and other annexes to their global statement that are specific to those other jurisdictions.          

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