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New Canadian Forced Labour laws: Direct Selling Companies Take Notice!
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The new year brings an important new reporting obligation likely affecting many Canadian and some US-based Direct Selling businesses – and sadly, the in-house Law Department and other Compliance Professionals they employ!
New Canadian Forced Labour Legislation / Reporting Requirements
Canada’s Bill S-211, Fighting Against Forced Labour and Child Labour in Supply Chains Act (the “FCLA” and “Forced Labour”), came into force on January 1, 2024. These new Forced Labour rules are broadly aimed at eradicating Forced Labour from Canadian supply chains, by establishing annual reporting requirements, banning related imports and increasing non-compliance penalties.
Affected Canadian & Non-Canadian Business “Entities”
The FCLA’s Annual Report requirements apply to “entities” – an especially convoluted term. Here are some basic rules. First, ALL corporations, partnerships, trusts and organizations (“Businesses”) listed on Canadian stock exchanges are “entities”. Second, and this is the convoluted part, other Businesses are also “entities” IF they meet BOTH of the following tests:
Nexus Test – To qualify, need any 1 of 3: (1) has a place of business in Canada (2) does business in Canada, OR (3) has assets in Canada.
Size Test – To qualify, need 2 of 3 in either or two preceding financial years, based on consolidated financial statements: (1) $20M in assets; (2) $40M in revenue OR (3) 250 employees.
Clear? Not to us!!
Notably, the “entity” definition could capture US Direct Selling businesses that “have assets” in Canada! What that means is still open to interpretation. Importing goods to Canada? Delivering goods DDU / DAP in Canada? Owning shares in a corporate subsidiary in Canada? Are we reaching? Maybe not, based on available administrative policy!
Canada’s new Forced Labour Reporting System likely applies to many Canadian Direct Selling businesses and could well also apply to SOME US based Direct Sellers IF carrying on or having a place of business in Canada or importing, delivering OR having assets in Canada!
Reporting Obligations, Enforcement & Penalties
Once caught, captured “entities” are required to file Annual Reports, first due May 31, 2024, and requiring information about things done to prevent / reduce Forced Labour in production or supply chains. Joint reports are permitted (e.g., Parent and Sub together), but all reports must be made public! Non-compliance with these rules and deadlines will be costly, with entities, officers, directors, and agents facing criminal charges and fines of up to $250,000.
The Bottom Line
The scope of Canada’s new Forced Labour rules is EXTREMELY broad and Annual Reporting is NOT limited to Canadian Businesses: many US and non-Canadian Direct Selling Businesses will be affected. Sadly, many in-house Law Departments and Compliance Professionals will be saddled with this new work – with time ticking!
Read the full text of the FCLA here.