GIL

Are there any regulatory or compliance considerations associated with an exclusive distributor arrangement in Canada?

Created August 06, 2025 at 08:32 PM

Short answer:

Yes. An exclusive‑distribution agreement such as the one Gildan has entered into with S&S Activewear must be reviewed against a number of Canadian federal and provincial regulatory regimes – chiefly the Competition Act (anti‑trust/competition law), the Investment Canada Act (if a foreign‑owned distributor is involved), customs and import rules, consumer‑protection and labeling standards, tax and customs duties, intellectual‑property licensing requirements, and the securities‑law disclosure obligations that Gildan, as a public company, must satisfy.

Below is a comprehensive breakdown of the principal regulatory and compliance considerations that Gildan (and S&S Activewear) should keep in mind when structuring and operating an exclusive wholesale‑distribution relationship for the Canadian imprintables (print‑wear) market.

1. Competition (Anti‑trust) Law – Canada Competition Act

Issue	Why it matters for an exclusive distributor	Typical compliance steps
Abuse of dominance / exclusive dealing	The Competition Act (sections 47‑48) prohibits a firm with appreciable market power from entering into an exclusive dealing arrangement that substantially lessens competition, unless it can be justified on efficiency or other legitimate grounds. Gildan is a major player in the basic apparel and imprintables market; granting exclusivity to a single wholesaler could raise red flags if the combined market share of Gildan + S&S in a given product line or geography is high.	• Conduct a competition‑law risk assessment (market‑share analysis, substitution possibilities, duration and scope of the exclusivity). • Limit exclusivity to specific product lines, SKUs, or geographic territories (e.g., “Canadian imprintables market” but not all apparel). • Include performance‑based milestones (minimum purchase volumes, service standards) so that the arrangement can be defended as “efficient” rather than anti‑competitive.
Merger‑like consequences	While a distributor agreement is not a merger, the Competition Bureau can still review “de facto” mergers where a supplier gives a distributor the exclusive right to sell a large portion of its output.	• If the combined market share of Gildan’s imprintable brands and S&S’s wholesale footprint exceeds 30‑40 %, consider filing a voluntary notice with the Competition Bureau (see “review of exclusive dealing” guidance).
Pricing & resale	Gildan must avoid price‑fixing or resale‑price maintenance (RPM). The exclusive agreement cannot include provisions that set the resale price at which S&S must sell to retailers, unless it falls within a permissible “price‑maintenance” carve‑out (e.g., maximum resale price is sometimes allowed under certain conditions).	• Draft any price‑related clauses carefully, focusing on suggested retail price (SRP) rather than mandatory resale price. • Ensure any “minimum advertised price” (MAP) policy complies with the Competition Act.
Vertical agreements	The Agreement is a classic vertical arrangement (manufacturer–distributor). The Competition Act provides a “rule‑of‑reason” analysis for vertical contracts, but they are scrutinised for exclusionary conduct.	• Keep the term reasonable (e.g., 2–3 years with renewal options). • Avoid non‑compete clauses that prevent Gildan from using other distributors for the same market segment, unless justified.

Practical tip:

Obtain a written legal opinion from counsel experienced in Canadian competition law before finalising the exclusivity terms. The opinion can be used to demonstrate good‑faith compliance if the Bureau later investigates.

2. Foreign Investment & Ownership Review – Investment Canada Act (ICA)

Issue	Why it matters	Typical compliance steps
Foreign ownership of S&S Activewear	If S&S is foreign‑owned (e.g., a U.S. or European entity), the ICA may require a review for “significant investments” (generally CAD $5 billion for private investors, lower for strategic sectors). While apparel is not a “national‑security” sector, a large‑scale exclusive distribution network could be deemed “significant” if it gives the foreign‑owned distributor a strategic foothold.	• Verify S&S’s ownership structure. • If the transaction value (including future purchase commitments) exceeds the ICA threshold, file a voluntary notice with Innovation, Science and Economic Development Canada (ISED).
Net benefit test	The ICA applies a “net benefit” test for foreign investments that do not meet the “automatic approval” thresholds.	• Prepare a net‑benefit analysis (job creation, technology transfer, export potential). • Include it with the ICA filing, if required.
Reporting obligations	Public companies like Gildon must disclose material contracts and foreign‑related risks in their continuous disclosure filings (TSX/NYSE).	• Include a note in the MD&A discussing the ICA review and any related regulatory risk.

3. Customs, Import & Export Regulations

Issue	Why it matters	Typical compliance steps
Tariff classification	Gildan’s products (e.g., blank tees, sweatshirts) are subject to HS Codes that determine duty rates. The exclusive distributor will be the importer of record for any goods shipped from Gildan’s overseas factories (e.g., Bangladesh, Honduras).	• Ensure S&S has customs brokerage arrangements and that the correct HS codes are used. • Verify that any preferential trade‑agreement (e.g., USMCA) origin criteria are met to claim reduced duties.
Labeling & marking	Canadian regulations (e.g., Consumer Packaging and Labelling Act, Textile Labelling Act) require country‑of‑origin and fiber content labels in English (and French, where applicable).	• Confirm that all Gildan‑branded apparel shipped for the imprintables market carries bilingual labels and complies with the Textile Labelling Regulations.
Restricted imports	Certain chemicals (e.g., azo dyes) are restricted under Canada’s Hazardous Products Act.	• Conduct a compliance audit of any inks, adhesives, or heat‑transfer materials used by end‑users that may be imported with the garments.
Record‑keeping	Importers must retain customs documents for 6 years.	• Set up a shared documentation portal between Gildan and S&S to store invoices, certificates of origin, and customs entries.

4. Consumer‑Protection & Product‑Safety Laws

Issue	Why it matters	Typical compliance steps
Flammability standards	Children’s apparel (including printed T‑shirts) is subject to Canada Consumer Product Safety Act (CCPSA) and specific flame‑resistance requirements (e.g., CAN/CGSB‑4.1 for children’s clothing).	• Verify that any garments destined for the imprintables market (especially those marketed to children) meet the applicable flame‑retardancy standards.
Bilingual consumer information	The Competition Act and Consumer Packaging and Labelling Act require English and French labeling and marketing materials.	• Ensure S&S provides bilingual sales literature, contracts, and warranty information.
Warranty & returns	Provincial consumer‑protection statutes (e.g., Ontario’s Consumer Protection Act) impose minimum warranty and return‑policy obligations on retailers. While Gildan deals with the wholesaler, any implied warranties may flow downstream.	• Include clear terms in the distribution agreement allocating warranty responsibility (e.g., “Gildan provides manufacturer warranty; S&S handles retailer warranty claims”).
Advertising standards	Any promotional material that Gildan supplies to S&S must comply with the Canadian Code of Advertising Standards (e.g., truthful claims about “eco‑friendly” or “organic” fabrics).	• Pre‑clear all marketing copy with Gildan’s compliance team before S&S distributes it.

5. Intellectual‑Property (IP) Licensing & Brand Protection

Issue	Why it matters	Typical compliance steps
Trademark licensing	Gildan is granting S&S the right to sell and market the Gildan®, Comfort Colors®, American Apparel® and Champion® trademarks in Canada. The agreement must expressly define the scope of the license (territory, product lines, duration, quality‑control standards).	• Include a brand‑use manual that sets out logo placement, color usage, and permissible co‑branding with print‑partner logos.
Quality control	Canadian law (common‑law “trade‑mark dilution” and Trademarks Act provisions) requires the licensor to maintain control over the quality of goods bearing its marks.	• Insert audit rights for Gildan to inspect S&S’s warehouses, retailer partners, and printed‑product samples.
Counterfeit risk	Exclusive distribution can sometimes attract counterfeiters seeking to bypass the sole channel.	• Require S&S to implement anti‑counterfeit measures (e.g., holographic security tags, serial numbers) and to report suspected infringements promptly.
Indemnification	The distributor may be liable for IP infringement committed by downstream printers or retailers.	• Draft an indemnity clause where S&S indemnifies Gildan for IP claims arising from S&S’s distribution activities, subject to Gildan’s prior written approval of any third‑party print designs.

6. Tax, Accounting & Reporting

Issue	Why it matters	Typical compliance steps
GST/HST & provincial sales tax	As a wholesale transaction, the supply is generally zero‑rated for GST/HST, but the distributor must be registered for the relevant taxes and remit them on downstream retail sales.	• Confirm S&S’s GST/HST registration numbers and that invoices correctly show zero‑rated status for the wholesale leg.
Transfer pricing	If Gildan and S&S are related parties (e.g., common ownership) the Canada Revenue Agency (CRA) requires arm’s‑length pricing for intercompany transactions.	• Conduct a transfer‑pricing study to document that the wholesale price reflects market rates.
Financial reporting	Gildan, as a public company, must disclose material contracts (including exclusive distribution agreements) in its annual report and any MD&A discussion of revenue concentration risk.	• File the appropriate Form 40‑F/10‑K footnote describing the S&S agreement, its term, and any associated risks.
Customs duties deferral / DCT	If S&S imports the goods for the first time in Canada, it may be eligible for a Duty Deferral Program.	• Explore the Deferral of Customs Duties (DCT) option to improve cash flow.

7. Employment & Labour Considerations

Issue	Why it matters	Typical compliance steps
Franchise‑like labour practices	If S&S’s distributors (or sub‑distributors) operate retail outlets, the relationship may be examined under provincial labour standards (e.g., minimum wage, overtime) and employment‑equity legislation.	• Ensure S&S’s downstream contracts contain compliance clauses with provincial labour statutes.
Health & safety	Warehousing and distribution activities are subject to Occupational Health and Safety (OHS) regulations (e.g., Canada Labour Code Part II for federally regulated workplaces).	• Require S&S to provide OHS policies and conduct regular safety audits of its distribution centres.

8. Environmental & Sustainability Regulations

Issue	Why it matters	Typical compliance steps
Textile waste & packaging	Canada is tightening rules around single‑use plastics and textile waste (e.g., Ontario’s Extended Producer Responsibility for textiles).	• Include in the agreement a clause that S&S will report on packaging waste and work with Gildan on recycling initiatives.
Chemical compliance	The Canadian Environmental Protection Act (CEPA) restricts certain dyes and finishing chemicals.	• Verify that any printing inks used by downstream printers (which S&S may recommend) comply with CEPA’s substance‑specific regulations.

9. Securities‑Law Disclosure (TSX/NYSE)

Issue	Why it matters	Typical compliance steps
Material contract reporting	The exclusive distributor agreement is likely material to Gildan’s revenue and market reach. Under National Instrument 51‑102 (TSX) and Rule 10b‑5 (U.S. securities law), Gildan must disclose such contracts promptly.	• Issue a news release (as has been done) and file a Form 6‑K/8‑K filing that includes the agreement’s key terms, duration, and any exclusivity risks.
Insider‑information handling	Employees privy to the agreement must observe insider‑trading policies.	• Restrict access to the agreement to a need‑to‑know basis, and remind staff of blackout periods for trading GIL shares.

10. Practical Checklist for Gildan & S&S

Area	Action Item
Competition law	Conduct market‑share analysis; limit exclusivity scope; embed performance milestones; obtain legal opinion.
Investment Canada Act	Verify S&S ownership; file ICA notice if thresholds met.
Customs & Import	Confirm correct HS codes; maintain bilingual labeling; retain customs documents 6 years.
Product safety	Validate compliance with CCPSA, flame‑retardancy standards, textile‑labelling rules.
IP & Brand	Draft detailed trademark‑license clause; set quality‑control audit rights; implement anti‑counterfeit measures.
Tax & Transfer pricing	Ensure GST/HST zero‑rating; run transfer‑pricing study; disclose contract in financial statements.
Employment & OHS	Require S&S to adhere to provincial labour standards and OHS policies.
Environmental	Include waste‑reduction and chemical‑compliance commitments.
Securities disclosure	File appropriate TSX/NYSE disclosures; update MD&A with risk discussion.
Governance	Assign a cross‑functional compliance team (Legal, Finance, Supply‑Chain, Sustainability) to monitor the agreement throughout its term.

Bottom‑line

While the press release simply announces the partnership, turning that announcement into a legally compliant, sustainable, and risk‑mitigated commercial relationship requires attention to multiple Canadian regulatory frameworks. By proactively addressing competition law, foreign‑investment review, customs and labeling, product safety, IP licensing, tax, employment, environmental, and securities‑law obligations, Gildan and S&S Activewear can minimize the chance of regulatory enforcement, protect their brands, and ensure the arrangement delivers the intended strategic benefits in the Canadian imprintables market.