New anti-slavery law causing confusion around entity scope and applicable business activity: lawyer

Reporting deadline is May 31

New anti-slavery law causing confusion around entity scope and applicable business activity: lawyer
Martha Harrison, McCarthy Tétrault

As the reporting deadline for Canada’s new anti-slavery, supply-chain transparency law looms, some companies are confused about some of the entities and business activities that will involve a reporting requirement.

The Fighting Against Forced Labour and Child Labour in Supply Chains Act has been in force since Jan. 1. The businesses and other organizations required to review and assess the working conditions in their supply chains must file their first annual report by May 31, 2024.

“It's fair to say that businesses are certainly prepared and willing to comply with obligations under the [act],” says Martha Harrison, partner in the international trade and investment law group at McCarthy Tétrault. “But there have been certain threshold issues that have made the initial stages of compliance more challenging.”

Under the law, organizations must assess their supply chains and report the actions they take to prevent or mitigate the risk of forced labour and child labour.

Some businesses are struggling with entity scoping and report filing procedures, says Harrison. Entity scoping confusion includes understanding how to assess the applicable financial thresholds and evaluating what constitutes an asset and what is a Canadian asset when determining whether the act applies.

Initially, Harrison says, some clients were unsure of the “business activity concepts” that would attract reporting obligations. These are: “production, manufacturing, growing, extracting, processing, sale or distribution of goods” and “importation of goods into Canada.”

Harrison says the act does not have a de minimis concept, so any level of business activity fitting those broad categories would put an entity under the act’s scope. She says there was confusion around the concept of “importing,” for example. Businesses were unsure whether importing a small amount of product – for example, office supplies for its employees – would bring an entity under the act's scope. Public Safety Canada tried to address the issue by indicating that “minor engagement” in listed activities would not necessarily be enough to create a reporting obligation.

The concepts of “selling” and “distributing” have also ignited discussions in the market, says Harrison. Some have questioned whether a foreign supplier selling online to a Canadian would count as “doing business in Canada” and fall under the Canadian reporting obligation. Recently released updated guidance eliminates reference to “distribution and selling” and focuses on importation and production. She says this change suggests Public Safety Canada may not use these concepts alone as reporting grounds, despite their explicit reference in the activities listed in s. 9 of the act.

“The law remains what it is at present, which still includes ‘distribution’ and ‘selling’ as business activities that are included for reporting purposes,” says Harrison. “But businesses who have been preparing their report and investing a lot of time and resources into this, who only operate as a distributor or seller, are left scratching their heads a bit, wondering if the act is actually meant to apply to them after all.

“So, entities involved in selling or distributing goods are therefore likely to remain subject to the statutory reporting obligation,” she says. “But for businesses that were planning to report for this year based on a conservative view, that they might be engaging in activities that could be considered selling and distributing, this could change their position. The change in the updated guidance really only adds further ambiguity to their position.”

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