Canada publishes modern slavery reporting guidance

On December 20, 2023, Public Safety Canada released its long-awaited guidance on Canada’s modern slavery reporting legislation, the Fighting Against Forced Labour and Child Labour in Supply Chains Act (“Act”). We had previously provided an overview of the Act here.

The Guidance provides insights into the expectations of Public Safety on certain reporting requirements included in the Act, and sets out guidance that goes beyond what is required in the Act. We summarize the key elements of the Guidance here.

In terms of new reporting elements included in the Guidance, we note the following:

• Public Safety Canada will require reporting entities to fill out a questionnaire before submitting their reports. The Guidance notes that answering all the mandatory questions included in the questionnaire and submitting the attestation is sufficient to meet the legal requirements. However, entities may also draft their own report. Notably, reporting entities should consider whether simply answering the questionnaire or developing their own reports better suits their needs. These considerations will include whether reporting entities want to post the questionnaire on their website and whether the responses on the questionnaire are an accurate reflection of an entities policies, practices and procedures so to not be offside the false or misleading statements obligation.
  
• Reports should be limited to 10 pages. This limitation is not prescribed in the Act, it is thus purely administrative guidance. There is no penalty for reports that are longer than 10 pages, if entities have more robust reports developed for other jurisdictions or to meet voluntary reporting standards.

In terms of substance, the Guidance underlines that there is no prescribed level of detail required in a report. Entities should use discretion in determining the appropriate level of detail proportionate to their size and risk profile. Further, the Guidance is clear that reporting does not require the disclosure of commercially sensitive information or for any entity to report on specific cases or allegations of forced labour or child labour in a manner that would create legal or privacy concerns.

A. Key threshold issues for determining if you must report

The Guidance provides some clarity on who needs to report under the Act. For reference, entities must meet the following criteria to report:

a) Is listed on a stock exchange in Canada; or

b) 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:

i. It has at least CA$20 million in assets,

ii. It has generated at least CA$40 million in revenue, and

iii. It employs an average of at least 250 employees.

In addition, for the reporting obligations to apply, an entity must also produce, sell or distribute goods in Canada or elsewhere, or import into Canada goods produced outside Canada; or control an entity engaged in one of those activities for the reporting obligations to be applicable to them. In other words, entities engaged only in selling services are not subject to the reporting requirement.

The Guidance further clarifies the definition of entity under Act as follows.

• Size-related thresholds (assets, revenue and employees) should be calculated based on consolidated financial statements, with asset and revenue values converted into Canadian dollars if those statements use a different currency.
  
• The use of consolidated financial statements means that the reporting entity’s revenue, assets and employees include the revenue, assets and employees of any entity it controls (i.e., its subsidiaries). The reporting entity’s revenue, assets and employees do not include the revenue, assets and employees of any entity that owns or controls it (i.e., its parent).
  
• The size-related thresholds refer to total (global) assets, revenue and employees. This means that 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 any other jurisdiction.
  
• Assets are any property owned by a person or business. Assets include money, land, buildings, investments, inventory, cars, trucks, boats or other valuables that belong to a person or business. They also may include intangibles such as goodwill. Assets are to be calculated on a gross basis, not a net basis.

Meaning of producing, selling, distributing and importing goods

In relation to the meaning of producing, selling, distributing or importing goods the Guidance provides the following clarifications:

• Production of goods includes the manufacturing, growing, extracting and processing of goods.
  
• The terms selling, distributing and importing are not explicitly defined in the Act. However, the terms as they are used in the Act 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. Entities should apply the ordinary sense of these words to judge 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 those goods under the Customs Act. Purchasing goods produced outside Canada from a third party, where that third party is considered to be the importer for the purposes of the Customs Act, does not count as importing goods.

More generally, for the purposes of the Act, goods refers to goods that are the subject of trade and commerce, understood in the ordinary sense of the word.

There is no prescribed threshold for the minimum value of goods that an entity must produce, sell, distribute or import in order for Act to apply. However, the terms as they are used in the Act should be understood as excluding very minor dealings.

In addition to a statement noting that the report has received board approval the Guidance does state that a report should include the following language for the attestation.

B. Board approval/director attestation/joint reports

The Guidance also provides wording for the required attestation. It suggests the following:

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.”

In the case of a joint report, the report must be approved by either the governing body of each entity included in the report, or by the governing body of the entity, if any, that controls each entity included in the report.

C. Guidance on the substantive elements of the report

In addition to Guidance on threshold application issues, Public Safety has also published the following guidance on the required substantive content of the reports. The reporting elements below are in addition to a required general statements on what steps a reporting entity takes to reduce or prevent forced and child labour in their supply chains.

i. Entity structure, activities and supply chains

In terms of entity structure, the Guidance suggests that the following be included in a report:

• 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;
• Control of other entities, including what the controlled entities do and where they are located.

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;
  
• Locations of operation (countries or regions).

The Guidance notes that supply chains include 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. The Guidance notes 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.

ii. Policies and due diligence processes

The Guidance notes that an entity may choose to describe how its policies and due diligence processes on forced labour and child labour relate to its ESG initiatives or to a broader organizational responsible business conduct strategy, policies or mandate. Notably, the Guidance highlights the OECD Due Diligence Guidance for Responsible Business Conduct as a best practice for companies that may be looking to review or adopt diligence policies. This can involve the following:

• Embedding responsible business conduct into policies and management systems;
• Identifying and assessing adverse impacts in operations, supply chains and business relationships;
• Ceasing, preventing or mitigating adverse impacts;
• Tracking implementation and results;
• Communicating how impacts are addressed;
• Providing for or cooperating in remediation when appropriate.

iii. Forced labour and child labour risks

In terms of risk assessment, the Guidance underlines that this criteria is descriptive, meaning entities must detail how 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 labour or child labour is used by them or in their supply chains.

For example, entities should explain how they have identified risks (i.e., mapping supply chains, conducting a risk assessment, etc.) and how they have dealt with the risks identified. Entities may do this for each risk identified, or choose to provide a general description of how they assess and manage risks.

iv. Remediation measures/ remediation of loss of income

Remediation and remedy refer to both the processes of providing remedy for an adverse impact and to the substantive outcomes (i.e., remedy) that can counteract, or “make good,” the adverse impact. In the case of business and human rights, which includes forced labour and child labour, remedies provided may take a range of forms, the aim of which will be to counteract or make good any human rights harms that have occurred. 

If entities have assessed that their activities and supply chains do not carry a risk of forced labour or child labour being used, and the question of remediation is considered not applicable, then stating this in their report would be sufficient to address this requirement. Alternatively, entities may indicate that no measures have been taken to remediate forced labour or child labour in their activities and supply chains, if that is the case.

v. Training

When reporting on the training that entities may provide to employees, the Guidance notes the following non-exhaustive list of elements that may be included in a report:

• 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 (e.g., whether the training covers senior management/executive-level staff);
• The content of the training, including whether it covers forced labour, child labour or both;
• 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;
• How many employees have received or will receive the training.

vi. Assessing effectiveness

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 labour and child labour in their activities and supply chains. Notably, this requirement does not include providing any results of any assessment that may be performed.

If you have any questions, please feel free to reach out to Paul Lalonde, Sean Stephenson with any inquiries.

This article is part of a series of business and human rights articles. For questions on Business and Human Rights, please reach out to Sean Stephenson.