This year Canada joins many other jurisdictions in requiring businesses to report on human rights risks in their supply chains. David Dunbar provides his insights on the reporting requirements and the questions businesses will need to consider.  

Similar to California’s Transparency in Supply Chains Act, or Germany’s Supply Chain Duty Act — Lieferkettensorgfaltspflichtengesetz in the original German — Canada’s new Fighting Against Forced Labour and Child Labour in Supply Chains Act obliges businesses to disclose information related to forced and child labour risks in their supply chains. 

The deadline for the first of these reports is coming up quickly; businesses caught by the new legislation must complete a mandatory online questionnaire and file their reports by May 31, 2024. 

So, how do you know if your business will need to file at all? While the reporting obligation is widely cast, not all businesses are included in the legislation’s reporting requirement. 

Here’s what you need to know:  

Your company or organization will have to comply if it meets two sets of requirements, one regarding the size and structure of your business, the other relating to your business activities: 

1) Is Your Business an “Entity”? 

Only businesses that meet the Act’s definition of an “entity” must file a report. Unfortunately, the definition provided in the Act is somewhat complicated: 

“Entity” means a corporation or a trust, partnership or other unincorporated organization that, 

(a) is listed on a stock exchange in Canada;

(b) has a place of business in Canada, does business in Canada or has assets in Canada and that, based on its consolidated financial statements, meets at least two of the following conditions for at least one of its two most recent financial years:

(i) it has at least $20 million in assets,

(ii) it has generated at least $40 million in revenue, and

(iii) it employs an average of at least 250 employees; or

(c) is prescribed by regulations. 

Let’s break this down: 

First, let’s look at public companies in Canada. 

Is your business listed on a Canadian stock exchange? If yes, then the conclusion is straightforward: your company is an “entity” for the purposes of the Act. It doesn’t matter how small your business is — even relatively modest concerns listed on the TSX Venture Exchange can be entities. What’s more, all Canadian listed companies are caught by this rule, even if they’re headquarted and operating outside of Canada. 

For private businesses, the test is a little more complicated, and has three parts: 

i) Is your business a corporation, a partnership, a trust or any other kind of unincorporated organization?

The Act appears to have been drafted to apply broadly regardless of its legal structure. So whether you’re incorporated, a non-profit, or a partnership, this new legislation has the potential to apply to you. 

ii) Does your business have a Canadian connection?

To be an “entity”, your unlisted business must: 

• Have a place of business in Canada, or
• Do business in Canada, or
• Have assets in Canada

These are quite broad categories and can catch businesses that you might not think of as “Canadian”. Foreign businesses that have assets here in Canada, or that simply do business here can meet this requirement to be an “entity”. 

iii) Assuming your business has a Canadian connection, is it big enough? 

Finally, to qualify as an “entity”, in one of the last two fiscal years your business must have had:  

• $20M CAD in assets, and
• $40M CAD in revenue, and
• An average of 250 employees

Note that these requirements can apply to assets, revenue or employees from outside of Canada. In other words, even if your business has a small footprint in Canada, it may still have to file a report if it has sufficient assets, revenue and employees on a worldwide basis. 

If your private business meets all three of these requirements, then it’s an entity according to the Act’s definition. However, not every entity has to file a report. 

Remember, your company or organization will have to comply if it meets two sets of requirements. The second is as follows: 

2) Does Your Business Entity Involve a Supply Chain? 

Does your business entity: 

• Produce, sell, or distribute goods in Canada or anywhere else?
• Import goods into Canada?

If the answer to either question is “yes”, then you must file a report. Generally, businesses that don’t deal in physical goods and have no supply chain involvement are most likely to be exempted from the Act’s requirements. 

In instances where there are multiple entities and the controlled entity produces, sells, distributes or imports goods, then the controlling entity will also have to file a report. The good news, however, is that these two entities may be able to file a single joint report. 

But what about minor business activities that may fall within the ambit of the Act? To take an extreme example, let’s say your business is completely virtual — you don’t produce, sell, or distribute any physical goods, and you don’t import anything… well, except for the occasional bottle of fancy Italian fountain pen ink that the CEO is partial to. Does this mean you have to file a report? 

That’s not entirely clear under the Act, but fortunately, the Department of Public Safety has given some practical guidance for this situation. Their webpage says: 

There is no prescribed threshold for the minimum value of goods that an entity must produce, or import in order for the Act to apply. The terms as they are used in the Act should be understood as excluding very minor dealings. 

So, taking Public Safety at their word, it looks like the boss can continue to special order that ink without triggering the need to file a report. 

If you would like a more detailed consideration of your business’s situation regarding new supply chain reporting requirements or want help in preparing your report, get in touch with us today! David and the Caravel team are here to help!