By Leor Margulies and Kavita Pandya
Robins Appleby
The Liberal government has passed yet another piece of legislation that holds a place in “outrageous examples of wishful thinking by the Liberal government.” The Fighting Against Forced Labour and Child Labour in Supply Chains Act (the “Act”), formerly known as Bill S-211, comes into force after two derailed efforts from the Liberals to eradicate “modern slavery.” Earlier, Bill S-216 and Bill C-423 attempted to solve this issue, but never saw the light of the day.
The Act came into effect on Jan. 1, 2024. It imposes an obligation on certain government institutions and private-sector entities to report on the measures taken to prevent and reduce the risk that forced labour or child labour is used by them or in their supply chains. The first report under the Act needs to be filed with the Minster of Public Safety and Emergency Preparedness (the “Minister”), by no later than May 31, 2024. Public Safety Canada has released a guidance (the “Guideline”) in December last year on Act’s reporting requirements.[1]
This article is divided into three categories: (1) Who needs to report; (2) Contents of the report; and (3) Penalties.
1) Who needs to report
To be required to submit a report, businesses must not only meet the definition of Entity under section 2 of the Act but must also meet the criteria for being a Reporting Entity, as per section nine of the Act.
An Entity is a corporation, trust, partnership or other unincorporated organization that either:
- Is listed on a stock exchange in Canada; or
- has a place of business in Canada, does business in Canada or has assets in Canada and based on its consolidated financial statements, meets at least two of the following conditions for at least one of its two recent financial years:
- $20 million or more in assets
- $40 million or more in revenue
- an average of 250 employees or more.
Reporting obligation only applies to the Entity that is:
- Producing, selling or distributing goods in Canada or elsewhere;
- Importing goods into Canada; or
- Controlling an entity engaged in such activities. (the “Reporting Entity”)
This means that an Entity may be subject to the Act but not required to report if they do not meet the above criteria.
This criteria has exposed many developers with the reporting requirements. The guidance further clarifies two important things:
First, “doing business in Canada” does not require having a place of business in Canada. This would mean that international companies with minor presence in Canada may also require to file the report.
Second, under the Act, “producing,” “selling,” “distributing,” and “importing” goods is 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.
Most mid and large builders/developers don’t have 250 employees, the real key focus of child labour, but many meet the asset and revenue tests given the housing they produce and sell. And how are they to investigate the practices of their suppliers?
As a result, many builders may be caught by the obligation to report. Without looking at which industries may be needlessly obliged to report where direct employee numbers are low, and child labour non-existent, the federal government has once again made a major blunder with our industry that needs less regulation, not more. It bungled the foreign buyer legislation slightly more than a year ago. Then it imposed the T3 Trust/Beneficiary Reporting (Bill C-32) on condominium lawyers to root out terrorists hording cash in condominiums. And now, they are burdening the industry with needless reporting without purpose or gain.
2) Contents of the report
Reporting Entities are required to submit an annual report (the “Report”) that meets all the requirements of the Act, to the Minister by May 31 of each year. This report must detail the steps taken during the previous financial year to prevent and reduce the risk that forced labour or child labour is used by them or in their supply chains. Moreover, the report must also provide information on seven other supplementary information pertaining to the Entity.[2]
Once prepared, the report needs to be approved and attested by the appropriate governing body[3]. As per the guideline, in addition to filing the report, the Reporting Entities are also required to complete the online questionnaire. [4] Care should be taken to ensure that the information provided in the questionnaire is consistent with the information provided in their report.
This report shall be made publicly available by publishing each report in a prominent place on its website. The Act does not contemplate that an entity might not have a website. Federal corporations must also provide a copy of their annual reports to their shareholders together with their annual financial statements.
3) Penalties
Entity that fails to comply with certain provisions of the Act, including a failure to file and publish their report, are guilty of an offence punishable on summary conviction and liable to a fine of not more than $250,000. Further, the Act extends liability to an entity’s directors, officers, agents and mandataries to the extent that they directed, authorized, assented to, acquiesced in or participated in the commission of an offence.
Conclusion
The Act aims to increase the industry awareness and transparency and drive businesses to improve practices by imposing requirements to report annually on their supply chains and on forced labour. The idea is to discourage entities from engaging in such practices, by increasing compliance requirement. A laudable goal, but not applicable to the construction and housing industries. What this government needs to do is focus on finding ways to encourage and support new housing with less regulation, not more.
[1] Public Safety Canada, Forced Labour in Canadian Supply Chains -Public Safety Canada
[2] Supplementary information
[3] Defined in the Act as the “body or group of members of the entity with primary responsibility for the governance of the entity.”
Leor Margulies is a partner at Robins Appleby LLP and an executive on the BILD Board of Directors, Toronto. Kavita Pandya is an associate at Robins Appleby LLP. robinsappleby.com
