Canada’s Fighting Against Forced Labour and Child Labour in Supply Chain Act

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By: David S. Robinson (Shareholder) & Matthew P. Nestor Jr. (Law Clerk)

Canada’s Fighting against Forced Labour and Child Labour in Supply Chain Act went into effect on January 1, 2024, and the first annual filing is due on or before May 31, 2024. Any company doing business in Canada must file by the deadline, or face a penalty up to $250,000 for not filing or complying. Businesses operating in Canada must determine whether the Act applies to them, and prepare a filing in order to be compliant.

The Act was passed on May 11, 2023, and follows alongside many other nations in efforts to cut down the use of forced and child labor in any entity that does business in Canada. The filing requires certain businesses to report on steps taken to prevent this activity within their business to the Minster of Public safety on or before May 31, 2024. Non-filers will face penalties in the form of fines up to $250,000.

Who the Law Applies To

The organizations this law applies to are entities that produce, sell, or distribute goods in Canada; entities that import into Canada goods produced outside of Canada; and entities that control another entity engaging in the aforementioned activity. The law further defines  an “entity” as: a corporation or a trust, partnership or other unincorporated organization that either is listed on a stock exchange in Canada; has a place of business in Canada; does business in Canada; or has assets in Canada which meet certain requirements outlined in the law.

Further, if an organization has assets in Canada, and based on consolidated financial statements, meets at least two of the following three requirements, itmust make a filing by or on May 31:

(1) has at least $20 million in assets,

(2) has generated at least $40 million in revenue, or

(3) it employs an average of at least 250 employees.

Initially, the act did not explicitly define the categories of entities that have a place of business in Canada or do business in Canada. However, recently Canada posted some clarification in the form of a guidance to help businesses determine whether they “do business in Canada”, or “have a place of business in Canada.” The guidance states that an organization should consider its tax and employment related records, and may consider the location(s) where goods are produced, sold or distributed; the location(s) where employees are; the location(s) where deliveries, payments, purchases or contracts are made or assets acquired; and where assets and inventories or bank accounts are located. Based on this guidance, a business that has locations in Canada should prepare a report to be filed by May 31. A “permanent establishment” analysis under the United States =- Canada Income Tax Convention may also be instructive.

What is Required in the Filing?

If a business has determined that it is an entity that fits the requirements provided by law, the business must submit a detailed report to the Minister of Public Safety including all  steps the organization has taken in the last financial year to prevent and reduce the risk of using child or forced labor in goods produced or imported by the business. Other notable requirements in this report include the structure, activity, and supply chain of the entity; the entities policy regarding forced or child labor; the parts of the business that are at a risk of using forced or child labor; and the training and steps the entity has taken to reduce the risk of using child or forced labor. In addition, the act contains a provision suggesting that an entity should report any steps to remediate loss of income for the “most vulnerable families” that resulted from the abolition of forced or child labor.

How Will the Law Be Enforced?

In addition to the requirements for what businesses must report, and what information is required, the statute also gives the Minister of Public safety the ability to designate a person or persons to enforce the law. This enforcement power gives a designated person ability to enter any place in which they have reasonable grounds to believe that any activity relating to this act or documents relating to the act apply to the entity. Upon entry, a designated person may examine anything in the place including documents; use any communication within the place; use any computer within the place; examine, reproduce, and print any data within the computer; take photos within the place; remove anything within the place; prohibit access to any part of the place; and direct anyone to use or cease using any equipment within the place. Along with this power comes the duty of the owner of the place, or any person within the place to comply and give assistance to the designated person to carry out his power.

Summary

It is critical that any business operating in Canada determine whether it is required to comply with the Fighting against Forced Labour and Child Labour in Supply Chain Act, and if they are, to immediately prepare a filing.  If you have any questions regarding whether your company is required to file, or if you need assistance in preparing a filing, contact Maynard Nexsen as soon as possible.