The Supply Chains Act

What you need to know about the Fighting Against Forced Labour and Child Labour in Supply Chains Act

What is it?

The Act was introduced to contribute to the fight against forced labour and child labour through the imposition of a reporting requirement. The Act came into force on January 1, 2024.

To whom does it apply?

The Act has a two part test. The Act will apply to you if you satisfy one element in each of the following two parts.

The first part:

You are an entity (i.e. a corporation, trust, partnership or other, non-incorporated entity) that:

• produces, sells or distributes goods (not services) in Canada or elsewhere; or
• imports into Canada goods produced outside Canada; or
• controls another entity that does either of two above things.

The second part:

You are an entity that:

• is publicly traded; or
• has a place of business in Canada, does business in Canada or has assets in Canada, and (based upon your consolidated financial statements) met at least two of the following conditions in at least one of your two most recent financial years:
  • $20M in assets;
  • $40M in revenue; or
  • Average of 250+ employees.

In assessing the financial thresholds, direction has been given that amounts are gross, not net, and are on a global and consolidated basis, and should not just consider assets located in Canada. Further, when calculating asset value, you should include intangibles such as intellectual property and goodwill.

If you satisfy one element of the first test, and one element of the second test, you are considered a "Reporting Entity" under the Act.

So I'm a Reporting Entity, what does that mean?

Reporting Entities must make publicly available reports, which include certain prescribed information. The Act does not require that Reporting Entities make any changes to their supply chains—instead the Act relies on transparency to encourage better practices (together with the threat of reputational risk).

What steps must a Reporting Entity take?

1. You must prepare a report each financial year that discloses the steps taken to prevent and reduce the risk that forced labour and child labour is used in your operations and supply chains (the "Report");
2. Your board must approve and attest to the Report;
3. You must complete an online questionnaire with Public Safety Canada; and
4. You must publish the Report prominently on your website and if you are a CBCA corporation, you must additionally distribute the Report to all of your shareholders together with your financial statements annually.

Reporting Entities are required to complete the above steps by May 31st of each year. While the first deadline (May 31st, 2024) has passed, it is important to complete the above steps as soon as possible, and while the grace period for compliance still permits.

What sort of information must be disclosed in the Report?

• Your structure, activities and supply chains;
• Your policies and due diligence processes in relation to forced labour and child labour;
• The parts of your business and supply chains that carry a risk of forced labour and child labour and the steps it takes to assess and manage that risk;
• Measures taken to remediate forced labour and child labour;
• Measures taken to remediate the loss of income to the most vulnerable families that results from the measure taken to eliminate the use of forced labour and child labour;
• Training provided to employees on forced labour and child labour; and
• How you assess your effectiveness in ensuring that forced labour and child labour is not being used in your business and supply chains.

What happens if I don't comply with the Act?

Non-compliance under the Act is an offence under the Act and is punishable upon summary conviction, with each offence carrying a fine of up to $250,000.

Additionally, and perhaps more chillingly, if a Reporting Entity commits an offence under the Act, any director, officer, agent or individual who participated in the offence is a party to the offence and each such individual is also punishable upon summary conviction and subject to the same fines as the Reporting Entity. These individuals can be held liable whether or not the Reporting Entity has been prosecuted or convicted.

What can we do for you?

1. Assist in assessing whether you are a Reporting Entity;
2. Assess if a single or joint report is required;
3. Prepare compliant board resolutions, attestations and reports; and
4. Review questionnaire responses prior to submission.

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.