Public Safety Canada’s Latest Guidance Provides Welcome Clarification to Forced and Child Labour Reporting Rules

Following the completion of the first submission cycle under the Fighting Against Forced Labour and Child Labour in Supply Chains Act, S.C. 2023, c. 9 (“FAFL”) at the end of May 2024, Public Safety Canada has updated its guidance on reporting requirements (“Guidance”) in a way that significantly clarifies its application, including with respect to the definitions of key terms such as “goods”, “asset” and “very minor dealings” and by stating that (i) entities solely involved in distributing and selling goods do not need to submit reports, (ii) only the “true importer” will generally be considered to be an importer for the purposes of FAFL and (iii) reports prepared under similar legislation of other jurisdictions may be submitted under FAFL if they address all Canadian requirements.

Public Safety Canada also released the 2024 Annual Report to Parliament on the Fighting Against Forced Labour and Child Labour in Supply Chains Act (the “2024 Annual Report”) on September 27, 2024, providing a summary of reports received during the first reporting cycle.

Key Changes to the Guidance

The changes to the Guidance include:

• Clarification on what constitutes a “good” for the purpose of FAFL: the updated Guidance clarifies the definition of “goods”, stating that the term refers to “tangible physical property that is the subject of trade and commerce, understood in the ordinary sense of the word.” For added clarity, the following are now expressly excluded from the definition:
  • real property;
  • electricity;
  • software services; and
  • insurance plans
• Guidance on factors to consider when assessing whether an entity has assets in Canada: previously, the Guidance stated that assets may include intangibles such as goodwill. Public Safety Canada now holds that “[a]n organization should not include intangibles such as intellectual property, securities and goodwill in its assessment, when determining whether it has assets in Canada.”
• Clarification on which business activities trigger a reporting obligation: entities solely involved in distributing and selling goods are not expected to report under FAFL. In these instances, the Guidance states that Public Safety Canada will not seek enforcement action.
• Guidance on determining if an entity is importing goods into Canada: the updated Guidance states an entity is importing goods if it is “…the true importer that, in reality, caused the goods to be brought into Canada.” It further adds that “…customs brokers, express couriers, trade consultants and other third-parties authorized to transact business on behalf of the importer, or to account for goods in lieu of the importer, will generally not be considered importers.”
• Clarification on very minor dealings: previous Guidance has stated that FAFL should be understood as excluding entities that have only very minor dealings (in their importation and/or production of goods). The updated Guidance provides further clarity on interpreting “very minor dealings” whereby the phrase “…may be interpreted in accordance with generally accepted principles of de minimis and evaluated within the context of each entity's business.” 
• Guidance on submitting reports that were developed to satisfy reporting obligations in another jurisdiction: the Guidance clarifies that entities may use the same report produced for other jurisdictions for its annual report so long as “…all reporting requirements of [FAFL] are included and it covers the appropriate reporting period.” Public Safety Canada has also removed the recommendation that entities indicate in its report whether they also report under legislation in other jurisdictions. This is now solely reflected as a part of the online questionnaire.
• Clarification on the purpose of completing the online questionnaire: both the previous Guidance and the updated Guidance note that entities may use the questionnaire as a resource when developing its reports. The updated Guidance adds that the questionnaire contains examples of measures and activities that can be undertaken by entities to prevent and reduce the risk of forced labour or child labour. Furthermore, where the questionnaire limits an entity’s ability to elaborate on complex information, the entity is encouraged to provide further clarification and detail in its annual report, as necessary.

Public Safety Canada’s 2024 Annual Report to Parliament

The 2024 Annual Report provides an in-depth analysis on the submissions it received during the first reporting period. Some highlights from the 2024 Annual Report are as follows:

• Report Statistics: As of the May 31, 2024 reporting deadline, Public Safety Canada received 5,795 reports in total. 5,650 reports were submitted by entities. Of these reports, 2,086 were joint reports that covered multiple entities in the same corporate group. While Public Safety Canada received 503 additional submissions after May 31, 2024, the 2024 Annual Report only analyzed the 5,795 reports submitted before the deadline.
• Enforcement Action: For the first year of reporting, Public Safety Canada prioritized raising awareness of the reporting requirements of FAFL to “…encourage meaningful action.” Accordingly, no order for corrective measures were made and no charges or fines were imposed for non-compliance. There is no guarantee, however, that Public Safety Canada will keep this perspective heading into the next reporting cycle. As such, enforcement activities may increase in 2025.
• Industry Breakdown: The largest reporting sector was manufacturing (38.3%) followed by wholesale trade (22.3%) and retail trade (21.8%).
• International Scope: Among the reporting entities, 81.9% stated they are headquartered or principally located in Canada. This was followed by 13.52% indicating they are located in the United States of America and 4.53% are from all other countries. Given that many reporting entities operate internationally, respondents were also asked to indicate whether they report under modern slavery or supply chain legislation in other jurisdictions. Of the 5,795 reports, 83.7% said they were not subject to other legislation while 13.7% were subject to other legislation. The remaining reports (2.5%) did not indicate if they were subject to other legislation.
• Risk Identification: As part of the online questionnaire, entities were asked whether it identified risks in its activities and supply chains. In total, 77.6% of entities identified risks (38.2%) or started identifying risks (39.4%) The most common risks related to the following parts of its activities and supply chains:
  • the raw materials or commodities used in the entity’s supply chains (1,308 responses);
  • the sector or industry it operates in (1,182 responses);
  • tier 1 (direct) suppliers (1,113 responses);
  • the locations of its activities, operations or factories (1,085 responses); and
  • the types of products it sources (1,061 responses).
• Assessing and Managing Risk: The most common steps that entities had taken to reduce the risk of forced labour and/or child labour were:
  • conducting an internal assessment of risks of forced labour and/or child labour in the organization’s activities and supply chains (2,816 responses);
  • developing and implementing due diligence policies and processes for identifying, addressing and prohibiting the use of forced labour and/or child labour in the organization’s activities and supply chains (2,545 responses);
  • monitoring suppliers (2,174 responses); and
  • developing and implementing anti-forced labour and/or -child labour standards, codes of conduct and/or compliance checklists (2,088 responses).

The most common step mentioned was regular auditing and monitoring which involved, for example, screening potential suppliers through software programs and conducting internal or third-party audits.

• Policies, Due Diligence, and Training: The majority of the entities (71.3%) reported having policies and due diligence processes related to forced labour and/or child labour. Less than half (44.4%) of entities indicated that they provide training on forced labour and/or child labour. The leading sector with respect to policies, due diligence processes, and training was manufacturing.
• Assessing Effectiveness: Monitoring key performance indicators (KPIs) and conducting annual reviews were the most common ways in which entities evaluated the effectiveness of its actions. Some KPIs mentioned included:
  • number of cases of forced labour and/or child labour reported and solved;
  • number of contracts with anti-forced labour and -child labour clauses;
  • number of employees taking relevant training;
  • age and number of hours worked per employee; and
  • number of suppliers, vendors and/or partners that have signed a code of conduct.

Key Takeaways

With both the updated Guidance and the 2024 Annual Report now published by Public Safety Canada, corporations, trusts, partnerships and other unincorporated organizations should reflect on these insights when preparing for the 2025 reporting cycle. It would be prudent for organizations to utilize this data to align itself with other reporting entities.

The authors would like to acknowledge the support and assistance of David Kumar, articling student at law.

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