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INSIGHTS

Back
 1. 
 2. Insights
 3. Seven lessons learned after year one of supply cha...


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July 02, 2024


ARTICLE


SEVEN LESSONS LEARNED AFTER YEAR ONE OF SUPPLY CHAIN REPORTING IN CANADA

For many businesses operating in Canada, May 31, 2024 marked the first annual
deadline for filing annual reports under Canada’s Fighting Against Forced Labour
and Child Labour in Supply Chains Act, formerly known as Bill S-211 or the
Modern Slavery Act (the Act). As we have previously discussed, the Act casts a
wide net with respect to the businesses that are subject to its reporting
obligations, which requires disclosure of the steps taken during the previous
financial year to reduce the risk of forced labour or child labour in the
business’ supply chain.

Given the short timeline between implementation of the Act and the reporting
deadline, reporting entities and government institutions were required to move
quickly to prepare their reports, often in the face of unclear and/or changing
guidance. Now that the dust has settled, it is important to consider the
takeaways and next steps to affect a seamless reporting period next year. 


1. ASSESS APPLICABILITY EARLY… AND ANNUALLY

Assessing whether the reporting requirements of the Act apply to a business has
proven to be a complex issue requiring time and thoughtful analysis. Failure to
determine whether the reporting requirements apply to your organization in a
timely manner can impact your ability to file a fulsome and compliant report
before the annual reporting deadline.

Determining whether your business has reporting requirements under the Act is a
two-step analysis: first, does your business meet the definition of an “entity”
under the Act? If so, is your entity engaged in an activity that triggers
reporting, namely producing or importing goods into Canada? In 2024, this
assessment was particularly difficult for foreign companies who lacked a
substantial nexus to Canada. Additionally, there were many questions about
calculating financial thresholds.

Notably, determining that your business is or is not a reporting entity in one
calendar year does not guarantee the same result in the next year. For example,
a business that did not meet the applicable financial thresholds to be an entity
in year one may meet those thresholds in the following year. Similarly, an
entity may change the nature of its business operations or supply chains such
that it no longer imports goods into Canada and therefore doesn’t engage in
reportable activities. Finally, issuers with new stock exchange listings will
automatically become “entities” under the Act. As such, assessment of the
application of the Act must be undertaken on an annual basis.

Given the complexity of assessing the extent to which the Act applies to a
company, we encourage businesses to conduct this assessment as early as possible
prior to the filing deadline.


2. THE DEADLINE IS THE DEADLINE

The Act requires reporting entities to file a report on or before May 31 of each
year. Unfortunately, the Act does not contemplate late filing. While immediately
following the May 31 filing deadline this year, Public Safety Canada’s online
filing portal was closed to new reports, Public Safety Canada has indicated that
it will continue to accept late submissions and publish reports received past
the May 31 deadline to the online catalogue and the filing portal has been
amended accordingly. However, submitting a late report may still carry
enforcement risk, and the government’s online database will indicate whether a
report was submitted after the deadline.

The Act makes late filing after the May 31 deadline a strict liability offence,
however Public Safety Canada’s appetite to enforce the Act in this first
reporting year may be limited as there has been some indication that they will
primarily focus on education and transparency in 2024. Relatedly, the Act
requires the Minister of Public Safety, on or before September 30 each year, to
prepare a report containing information derived from the reports filed by
entities and government institutions under the Act. This requirement makes the
May 31 reporting deadline important to Public Safety Canada and may impact its
treatment of late reports. Entities that were unable to meet the May 31 deadline
should consider the business risks associated with late filing.

Going forward, reporting entities should begin drafting and/or updating their
annual reports well in advance of May 31 each year. Entities should be mindful
that reports must be approved by their governing bodies (in most cases, their
boards of directors) and plan to have a draft report ready for their regularly
scheduled board meetings and/or add approval of the report to the board’s annual
governance calendar. Entities should also allow enough time to complete the
mandatory questionnaire that accompanies the report’s submission. 


3. IT IS POSSIBLE TO REVISE A FILED REPORT

While the Act does not contemplate the filing of late reports, it does
specifically address revised reports. For reporting entities that filed reports
on or before May 31 this year but wish to improve, update or amend such reports,
they may do so through Public Safety Canada’s online filing portal. A revised
report must include all of the information required in a report under the Act
and must indicate the date of the revision and a description of the changes made
to the original report. The requirements for board approval and attestation of
the report will equally apply. 


4. PRIORITIZE CONSISTENT PROGRESS MONITORING

Looking forward, when your entity prepares reports for subsequent years, it
should look to evaluate its year-on-year progress. New reports should be
consistent with or update progression with the forward-looking statements and
goals stated in previous reports, if any. As reports are made publicly
available, businesses may benefit reputationally from new reports demonstrating,
at a minimum, consistency or, ideally, improvement. Generally, entities should
exercise caution when making forward looking statements or future commitments in
their reports as there is potential liability under the Act for misstatements.


5. INTRODUCE NEW POLICIES AND PROCEDURES NOW

If you are looking to show improvement in your next year’s report, the time for
implementing new policies and procedures related to forced labour and child
labour is now. This is particularly the case for reporting entities with a
calendar fiscal year (January to December) as they are already half-way through
the year that will be the subject of their next reports. As governance and
operational policies and procedures take time to develop and integrate,
developing them early on is the difference between a report reiterating
intentions to institute new policies (or stating that you have no policies) and
a report demonstrating marked progress in eradicating forced and child labour
from a business’ supply chain.

Remember, the Act does not require businesses to file reports for the sake of
filing. Rather, it aims to encourage entities doing business in Canada to
develop and enforce internal policies to eradicate exploitative practices from
their supply chains. Experience from other jurisdictions has shown that external
stakeholders and civil society will scrutinize entities’ reports, and there are
both business and legal risks in failing to make a report that is sufficiently
fulsome. However, it is the policies and procedures described in the reports
that are ultimately the most important to a business’ supply chain practices and
failures with respect to the use of forced or child labour can become public
knowledge, particularly when enforcement actions are launched. As such,
companies may have a competitive advantage by implementing appropriate and
effective policies that actually work to insulate the company’s supply chain
from illegal and unethical behaviour.


6. CONSIDER THE IMPACT ON TRANSACTIONAL AND COMMERCIAL AGREEMENTS

Failure to comply with the reporting obligations under the Act can impact, and
should be considered in, an entity’s transactional and commercial agreements.
Such agreements may require an entity to represent and warrant that it is in
compliance with all applicable laws which will necessarily include its
compliance with the Act.

Moreover, in the M&A context, purchasers must be alive to the reporting
obligations that may be triggered by the acquisition of a business. If a
purchaser acquires a business in the fiscal year about which they are reporting,
the purchaser may become a reporting entity or, if it already was a reporting
entity, may need to modify its report to account for the activities of its new
acquisition. Purchasers will need to have proper access to records about the
acquired entity and/or personnel who can speak to the target’s supply chain
practices. There may also be supply chain diligence that is warranted in the
transaction given the new reporting requirement.  


7. THERE ARE POTENTIALLY SERIOUS ENFORCEMENT RISKS AND CRIMINAL PENALTIES
ASSOCIATED WITH NON-COMPLIANCE

Filing accurate and timely reports must be a priority for businesses, given the
reputational and enforcement risks associated with non-compliance. Any person or
entity that fails to comply with certain provisions of the Act, including a
failure to file and publish report or knowingly filing a report containing false
or misleading statements, is guilty of an offence punishable on summary
conviction and liable to a fine of not more than $250,000. Furthermore, any
person or entity’s directors, officers, agents and mandataries who directed,
authorized, assented to, acquiesced in or participated in the commission of an
offence is also guilty of an offence, whether or not the person or entity has
been prosecuted or convicted.

Reporting entities would be wise to thoroughly scrutinize their supply chain
partners, even where they are not sourcing directly from vendors in high-risk
regions. Reporting entities who exclusively source goods from the U.S. may feel
inclined to assume they have no supply chain risks. However, a recent rise in
child labour enforcement cases brought by the U.S. Department of Labour
demonstrates the risks of forced and child labour pervading supply chains into
the U.S. and Canada.


CONCLUSION

To date, just over 4,000 reports have been published to Public Safety Canada’s
online catalogue, with more being added each day. With the above lessons in
mind, we will continue to monitor the addition of new reports as well as
developments and changing guidance with respect to the Act. We also eagerly
await the Minister of Public Safety and Emergency Preparedness to table his
report to Parliament reflecting on the reports submitted this year.

 * By: Laura Levine, Benedict S. Wray, Nasra Moumin


 * Services: Capital Markets, Environmental, Social and Governance (ESG),
   International Trade & Investment, International Business & Human Rights,
   Labour & Employment


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