Three months after the initial release of guidance (the "Guidance") from Public Safety Canada ("PSC"), the PSC has released updated guidance (the "Updated Guidance") regarding its implementation of the Fighting Against Forced Labour and Child Labour in Supply Chains Act (the "Supply Chains Act").
As we discussed when the Supply Chains Act was first passed, this legislation implements reporting requirements related to forced and child labour and applies broadly to covered entities that produce, sell, or distribute goods anywhere, or import goods into Canada. The Supply Chains Act itself left significant ambiguity in its application and the obligations it imposes, and the Guidance helped provide some clarity as to how PSC interpreted some of this ambiguity.
As noted below, the Updated Guidance provides some additional commentary, but its most significant change introduces additional confusion and questions on the application of the Supply Chains Act. We have summarized the key changes in the Updated Guidance below.
1) Updated Guidance downplays the application of the Supply Chains Act to selling and distributing
The most significant change in the Updated Guidance is how it addresses the concepts of selling or distributing, or, more accurately, how it fails to address these concepts. Specifically, the Updated Guidance has eliminated any reference to the concepts of distribution and selling. the Updated Guidance not only removes prior guidance on how these terms were to be interpreted, but it also removes them from discussions of the entities to which the reporting obligation in the Supply Chains Act applies.
More specifically, the Updated Guidance provides that:
Reporting requirements are for entities producing goods in Canada or elsewhere or importing goods produced outside Canada. Reporting requirements are also for entities controlling other entities engaged in these activities.[Emphasis added.]
This replaces the narrative in the prior version of the Guidance, which stated that:
Reporting requirements apply to entities: a. producing, selling or distributing goods in Canada or elsewhere; b. or importing into Canada goods produced outside Canada; or c. controlling an entity engaged in any activity described in paragraph (a) or (b). [Emphasis added.]
This change suggests that PSC may not view selling or distributing alone as grounds for reporting, despite the explicit reference to these activities in section 9 of the Supply Chains Act . It could also indicate that there is an intention to amend the scope of business activities that trigger a reporting obligation under the Supply Chains Act, such that it no longer covers selling or distribution.
Importantly, the Updated Guidance is not authoritative on this point, and the terms "selling" and "distribution" remains present in the Supply Chains Act. Entities involved in selling or distributing goods are therefore likely to remain subject to statutory reporting obligations. However, for businesses that were planning to report for this year based on a conservative view that they may be engaging in activities that could be considered selling or distributing, this change in the Updated Guidance only adds further ambiguity to their position.
2) Guidance on application of the Supply Chains Act
There were a number of other revisions to the Updated Guidance that reflect changes, additional clarity in the views shared by PSC on the application of the Supply Chains Act in the original Guidance. Some of the more significant updates are described below.
- Application of the Supply Chains Act to Crown Corporations
The Updated Guidance brings additional clarity to the application of the Supply Chains Act to crown corporations, particularly provincial and municipal crown corporations that fell outside the ambit of the definition of "government institutions". Specifically, the Updated Guidance states that:
Provincial and municipal governmental institutions are not subject to the reporting requirements as per the definition of "government institutions" in the Act. However, some provincial agent Crown corporations may be subject to the reporting requirements by falling under the definition of "entity." It is their responsibility to determine whether they are a reporting entity under the Act.
Although provincial and municipal crown corporations are not captured by the definition of "government institutions", it appears that PSC is of the view that they could still be considered "entities" for the purposes of the Supply Chains Act and therefore subject to the reporting obligations. Notably, provincial and municipal crown corporations will be required to adhere to the reporting and questionnaire requirements that were more tailored to non-governmental institutions.
- Guidance on Reporting for Subsidiaries
Additional clarity is also provided in the Updated Guidance with respect to the application of the Supply Chains Act to companies that are subsidiaries of covered entities. PSC has clarified that subsidiaries must independently assess if they have reporting obligations, considering their own financial statements rather than those of their parent company. This builds on the statements that were in the original guidance, which noted that entities are only required to report on the activities of subsidiaries that are themselves reporting entities – not all subsidiaries. This reinforces the view that the applicability of the Supply Chains Act must be considered on an entity-by-entity basis.
3) Format, length and deadline
The Updated Guidance has revised its requirement regarding the length of published reports. Previously, there was a strict limit of 10 pages. This has now been replaced as a recommendation only. This may allow for lengthier reports where the circumstances of the reporting entities require it.
While there is no longer a specific page limit, it is important to note that the PDF file size must not exceed 100 MB when submitting the report. Additionally, submitted reports will be made publicly available by PSC in a searchable online catalogue. Only PDF reports and select identifying information submitted through the online questionnaire will be published on the website.
The Updated Guidance also makes clear that the May 31 deadline does not apply to the requirement to publish an entity's report on their website. With regards to publishing reports on their websites, the Updated Guidance states that "entities should aim to publish their reports on their respective websites promptly after submission" but that the "May 31 deadline applies only to entities' requirement to submit their report and questionnaire" with PSC.
Finally, the Updated Guidance provides additional clarity on filing reports in both official languages. The Updated Guidance makes clear that this is not a requirement for reporting, but only a recommendation. The Updated Guidance also notes that entities filing in both official languages should file two separate PDFs (one PDF for each language) through PSC's filing portal – not one PDF for both languages.
Conclusion
The Updated Guidance and the changes it presents indicate that PSC is continuing to evaluate its administration of the Supply Chains Act. This is most notable in the removal of the terms "selling" and "distributing" in the Guidance and the possible implication that, at least in PSC's view, these activities alone are not sufficient for an entity to be subject to the reporting obligation despite the provisions in the Supply Chains Act to the contrary. This inconsistency demands careful consideration and will require further clarification from PSC, but that appears unlikely to arrive prior to the filing deadline for this first year.
As entities adapt to these changes, prioritizing timely compliance remains essential, especially with the impending May 31, 2024 deadline and in light of the time and resources required for completing the questionnaire and report, having the board review and approve the report, and having the attestation executed by at least one board member. It is imperative to thoroughly review the Updated Guidance and ensure alignment with the Supply Chains Act.
McCarthy Tétrault's International Trade and Investment Law Group has advised a large number of clients in a variety of industries on whether they are subject to the Supply Chains Act and how to respond and comply with its requirements. We will continue to monitor and report on any further developments in this space.
Thanks to Zainab Adewusi for her assistance in preparing this client alert.
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