On December 20, 2023, Public Safety Canada ("PSC") published guidance (the "Guidance") on the application of the Fighting Against Forced Labour and Child Labour in Supply Chain Act ("Canada's Modern Slavery Act" or "CMSA") set to come into force on January 1, 2024.

The Guidance provides clarity on the following questions raised by entities subject to the CMSA.

1. DOES THE ANNUAL REPORT TO BE FILED UNDER THE CMSA NEED TO BE IN BOTH FRENCH AND ENGLISH?

Under the CMSA reporting entities can submit their annual report in either French or English. However, PSC recommends that the annual report be submitted in both Canadian official languages in order to make it accessible to the broader Canadian public. PSC also indicates that requests for translated copies of a report filed only in one of the official languages may be directed to the filing entity.

The Guidance also indicates that an entity filing a report under the CMSA will need to concurrently complete an online questionnaire (the "Questionnaire") which includes a series of open and close-ended questions. These questions address each of the requirements contained in subsections 11(1) and 11(3) of the CMSA which form the basis for the annual report content. Reporting entities will need to ensure that the information provided in the Questionnaire is consistent with the information provided in their report.

The Questionnaire includes mandatory and optional questions. Some mandatory questions collect information concerning the identity of the reporting entity, such as the relevant financial year for the filed report and the sector in which the reporting entity operates. The optional open-ended questions (limited at 1500 characters per answer) allow entities to provide additional information and elaborate on their responses to the mandatory closed-ended questions.

PSC strongly encourages reporting entities to fill out the optional open-ended questions as it expects that collecting this information over time will improve an entity's capacity to identify, prevent, reduce and address forced labour and child labour risks in its supply chain.

Reporting entities which are unable to complete the Questionnaire will need to submit their answers to the Questionnaire directly via email to an address provided by PSC in the Guidance.

2. IS THERE A SPECIFIC FORMAT TO BE ADOPTED TO PRODUCE THE ANNUAL REPORT?

The annual report must (i) include information addressing each of the legal requirements contained in subsections 11(1) and 11(3) of the CMSA; and (ii) receive the required approvals from the appropriate governing body which has the legal authority to bind the entity and include a signed attestation in a prescribed form provided in the Guidance. The annual report should not exceed 10 pages in length (or 20 pages for reports provided in both Canadian official languages), be in portable document format or PDF, and not exceed 100MB in size.

The Guidance indicates that the Questionnaire may be used as a report template or guide for developing the annual report and is designed to collect the information necessary to satisfy the requirements under the CMSA. More information and supplementary content such as graphs and charts may be included as long as the file size limit is not exceeded.

Reporting entities which have submitted a report under another jurisdiction's modern slavery legislation, for example under either the U.K.'s Modern Slavery Act 2015 or Australia's Modern Slavery Act 2018 may submit the same information as part of the annual report filed under the CMSA as long as it meets the mandatory criteria contained in subsections 11(1) and 11(3) of the CMSA. Reporting entities should indicate in their annual report whether they also report under the legislation of another jurisdiction.

3. ARE THERE ANY SPECIFIC DISCLOSURE RELATED TO A "JOINT REPORT"?

The CMSA allows an entity to submit a joint report covering its own actions and those of any entities it controls such as its subsidiaries, or that covers multiple entities belonging to the same corporate group. If a joint annual report is filed, it must clearly identify the legal name of each entity covered by the annual report.

A joint report should only be submitted if the information provided generally applies to all entities covered by the annual report. Whenever possible, the joint annual report should specify which information applies to which of the entities covered by the joint report. For example, a parent company reporting on behalf of itself and its subsidiaries could describe a forced labour and child labour strategy that applies to the group as a whole, as well as the specific measures taken by individuals subsidiaries.

A joint annual report should not be submitted in cases where entities have risk profiles or policies or have taken actions that diverge significantly from other entities included in the annual report and which would make it difficult to prepare a report describing accurately all entities.

4. WHERE ON MY WEBSITE SHOULD I BE PUBLISHING MY ANNUAL REPORT?

A reporting entity may use its discretion in determining the appropriate place to include the report on its webpage, but it must be visible and readily accessible to the public. Reporting 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.

We note that guidance published under the U.K.'s Modern Slavery Act 2015 indicates that a "prominent place" means a "link that is directly visible on the home page or part of an obvious drop-down menu on that page." The U.K. guidance also recommends that the link be entitled "Modern Slavery Act Transparency Statement." We believe that a similar practice should be followed by reporting entities under the CMSA.

5. FOR WHAT FINANCIAL YEAR MUST I REPORT UNDER THE CMSA?

The Guidance indicates that all reports must reference the activities undertaken during the entity's previous financial year. An annual report should cover the activities of the financial year that ends no later than the reporting deadline. For example, if an entity's financial year follows the calendar year, then a report due on May 31, 2024 would cover the activities from January 1, 2023, to December 31, 2023. Given that the annual report to be filed under the CMSA will be made public and will be used by various stakeholders (ESG rating firms, investors, lenders, clients, etc.) to evaluate an entity's stage of preparedness in relation to any risks of forced labour and child labour, we have recommended in our previous MT Biosphere on the CMSA that reporting entities prepare and implement before this calendar year end the necessary measures and due diligence procedures required to establish a credible forced labour and child labour compliance program.

6. WHAT IS THE MEANING OF "PRODUCING, SELLING, DISTRIBUTING AND IMPORTING GOODS"?

Under section 9 of the CMSA, reporting obligations apply to entities (i) engaged in either producing, selling or distributing goods in Canada or elsewhere; (ii) importing into Canada goods produced outside Canada; or (iii) controlling an entity engaged in either of those activities.

First, the CMSA specifies that the "production of goods" includes the manufacturing, growing, extracting and processing of goods.

Second, the terms "selling, distributing and importing" are not explicitly defined in the CMSA, but the Guidance states that the terms as they are used in the CMSA are not intended to capture services that solely support the production, sale, distribution or importation of goods. Marketing services, administrative services, financial services and software services are examples provided by PSC of services excluded from the ambit of the CMSA. According to the Guidance, reporting entities should apply the ordinary sense of these words to judge whether they are engaged in any of these activities.

The Guidance also clarifies the meaning of "goods" by stating that it refers to goods that are the subject of trade and commerce, understood in the ordinary sense of the word. We believe that this clarification confirms our interpretation that a good is a tangible or physical product that someone will buy or can touch and that is homogeneous whereas a service is an intangible item that you cannot physically touch or store and is often bespoke. For example, professional services would not be goods.

The other important explanation provided by the Guidance deals with the question of determining when an entity will be considered to be "importing goods" into Canada. According to the Guidance, purchasing goods produced outside Canada from a third party, where that third party is considered to be the importer (i.e., this third party is responsible for accounting for the goods under Canada's Customs Act) does not count as importing goods. Consequently, simply buying from a distributor, whether based in Canada or elsewhere, a good for consumption or used in a manufacturing process in Canada will not be considered "importing goods" into Canada.

Finally, the Guidance indicates that there is no prescribed threshold for the minimum value of goods that an entity must produce, sell, distribute or import in order for the CMSA to apply. According to the PSC, the terms as they are used in the CMSA should be understood as excluding very minor dealings.

7. WHAT OTHER LEARNINGS CAN WE GAIN FROM THE GUIDANCE?

The annual report to be filed under the CMSA will be a public-facing document and reporting entities are encouraged to use simple, clear language in their responses and to explain unfamiliar terms in order to make their report accessible.

Reporting entities are expected to provide honest responses that describe the concrete actions that they have taken to address risks of forced labour and child labour, rather than purely aspirational statements. The annual report should focus on actions taken during the previous financial reporting year, with the recognition that some actions may span multiple years or lack a concrete start and end point. If reporting entities have an action plan in place that includes goals and steps for the future, they are encouraged to mention it in their report, but the report itself is not intended to serve as a plan or mission statement, such a statement would usually be contained in the entity's Modern Slavery Statement.

The CMSA does not require reporting entities to disclose commercially sensitive information that would expose them to legal risk or compromise the privacy of any persons. For example, reporting entities are not required to report on specific cases or allegation of forced labour or child labour.

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

CONCLUSION

PSC is organizing an information session on January 11, 2024, on the reporting requirements contained in the CMSA. Registration information can be found here.

PCS is currently developing additional guidance to support government institutions subject to the CMSA.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.