California Transparency in Supply Chains Act Takes Effect January 1, 2012

“… covered retailers and manufacturers must, at a minimum, disclose to what extent, if any, the retailer, seller or manufacturer does each of the following:

1. Engages in verification of product supply chains to evaluate and address risks of human trafficking and slavery. The disclosure shall specify if the verification was not conducted by a third party.

2. Conducts audits of suppliers to evaluate supplier compliance with company standards for trafficking and slavery in supply chains. The disclosure shall specify if the verification was not an independent, unannounced audit.

3. Requires direct suppliers to certify that materials incorporated into the product comply with the laws regarding slavery and human trafficking of the country or countries in which they are doing business.

4. Maintains internal accountability standards and procedures for employees or contractors failing to meet company standards regarding slavery and trafficking.

5. Provides company employees and management, who have direct responsibility for supply chain management, training on human trafficking and slavery, particularly with respect to mitigating risks within the supply chains of products.” (California Transparency in Supply Chains Act of 2010 (SB 657) by Venable LLP)

The California Transparency in Supply Chains Act of 2010 goes into effect on January 1, 2012. For retailers and manufacturers doing business in the state of California bringing in more than $100 million in annual gross receipts, that’s the date they must begin report on their efforts to eliminate slavery and human trafficking from their supply chains. For your reference, a Transparency in Supply Chains Act FAQ, from lawyers and law firms on JD Supra:

What is in the Transparency in Supply Chain Act?

“The California Transparency in Supply Chair Act, signed into law by Governor Schwarzenegger in September 2010 and effective on January 1, 2012, requires retailers and manufacturers doing business in California to disclose their efforts to eradicate slavery and human trafficking from their direct supply chains for goods offered for sale. The disclosure must be posted on the retailer or manufacturer’s website with a conspicuous and easily understood link from the homepage.” (California Requires Retailers and Manufacturers to Comply with Anti-Slavery and Human Trafficking Law by January 1, 2012 by Bryan Cave)

Who is subject to it?

“Covered entities are: (1) retailers or manufacturers; (2) doing business in California; (3) with annual worldwide gross receipts exceeding $100,000,000, and are defined by the entity’s filings with the California Franchise Tax Board (‘FTB’). Covered retailers and manufacturers are those entities reporting their primary business activity on their FTB returns as retail trade or manufacturing. This excludes, for example, wholesalers… Whether an entity has global gross annual receipts in excess of $100 million is determined by the amount disclosed on its tax return.” (California Supply Chain Law Affects Large Retailers and Manufacturers Doing Business in California by Littler)

How are authorities defining companies “doing business in California”?

“A company is doing business in California for taxable years beginning on or after January 1, 2011 if it meets any of the following four conditions:

  • The company is organized or commercially domiciled in California.
  • Sales in California for the applicable tax year exceed the lesser of $500,000 or 25 percent of the company’s total sales.
  • The value of the real and tangible personal property of a company in California exceeds the lesser of $50,000 or 25 percent of the company’s total real and tangible personal property.
  • The amounts paid by a company in California for compensation exceeds the lesser of $50,000 or 25 percent of the total compensation paid by the company.”

(What You Need to Know About the California Transparency Supply Chains Act by Sedgwick LLP)

Why was the law enacted?

“SB657 was enacted with the intent to inform consumers as to which companies are acting socially responsible so that consumers can choose not to patronize those that are not socially responsible, and to even the playing field for socially responsible companies that refuse to work with suppliers that use forced labor in competing against companies that have reduced costs because they do.” (California’s SB657: Lead Your Industry By Preventing Slavery and Human Trafficking In the Supply Chain by Jody Katz Pritikin, Esq.)

What do covered companies need to do?

“The [Transparency in Supply Chains Act ] will require certain companies with more than $100 million in annual worldwide gross receipts that do business in California to disclose via a “conspicuous link” on their main website their efforts (if any) to address risks related to slavery and human trafficking in their supply chains.” (New California Disclosure Requirements Regarding Slavery and Human Trafficking in Supply Chains to Take Effect on January 1, 2012 by Wilson Sonsini Goodrich & Rosati)

Are they required to resolve any problems they uncover?

“The TSCA only requires disclosure of a company’s efforts, if any, in this regard; it does not require a company to adopt particular policies related to slavery and human trafficking in their supply chains. A company subject to the TSCA could disclose that it does not do any of the foregoing. A company’s disclosures in this regard, however, likely will be scrutinized by consumers, human-rights organizations, and certain investors.” (New California Disclosure Requirements Regarding Slavery and Human Trafficking in Supply Chains to Take Effect on January 1, 2012 by Wilson Sonsini Goodrich & Rosati)

What happens to companies that do not comply?

“While the exclusive remedy under the Act for a violation is an action by the California attorney general for injunctive relief, the Act expressly states that nothing in the section shall limit the remedies available for a violation of any other state or federal law. Thus, the plaintiffs’ bar may seek to base claims for unfair competition or false advertising under Business & Professions Code sections 17200 et seq. and 17500 et seq., or purported violations of the Consumer Legal Remedies Act, Cal. Civ. Code section 1770 et seq., on allegations that retailers or manufacturers have made misleading statements in the disclosures called for by the Act.” (January 1, 2012 Deadline for Large Companies Doing Business in California to Publicly Disclose Efforts To Eradicate Slavery and Human Trafficking in Supply Chain by Reed Smith)

Are there other risks?

“…fair trade activists are likely to be aggressive in using the statute to shame corporations that have deficient anti-human trafficking programs. Such activists may push the envelope in litigation to try to find ways to use the statute without Attorney General involvement, or they may use extra-judicial methods to publicize violations. For this further reason, companies would be well advised both to have reasonable fair trade practices in place and, in complying with the statute, to disclose those practices accurately.” (Human Trafficking and Your Supply Chain: New Disclosure Requirements for Companies Doing Business in California by Luce Forward)

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