The California Transparency in Supply Chains Act Will Come Into Force on January 1, 2012

December.02.2011

Commencing on January 1, 2012 the California Transparency in Supply Chains Act of 2010 (the “Act”) will require certain large companies doing business in California to make public disclosures regarding their efforts, if any, to ensure that their product supply chains are free from slavery and human trafficking

The Act aims to curb the problems of slavery and human trafficking through transparency and consumer choice.

Identifying Whether This Act Applies To Your Company

The legislation applies to companies that (1) do business in California as set forth in Section 23101 of the Revenue and Taxation Code; (2) submit tax returns with a "principal business activity code" that falls within the category of “manufacturing” or “retail trade;” and (3) have annual gross global receipts exceeding $100,000,000 U.S. dollars. If a company meets all three criteria then it must provide the disclosures described in the following section.

What To Do If This Act Applies To Your Company

A company covered by the Act must disclose on the company’s website homepage the extent, if any, the company makes efforts to ensure slavery-free products by providing at least the following information as to whether the company:

  1. Performs verification of product supply chains to evaluate and address risks of human trafficking and slavery and whether or not such verification was conducted by an independent third party;
  2. Conducts audits of suppliers to evaluate supplier compliance with company standards for trafficking and slavery in supply chains and include whether or not such audit was 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; and
  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.

The disclosure must be a conspicuous link to the required information. If a company does not have a website, the information must be made available in writing within 30 days of a consumer’s written request for such disclosure. The disclosure requirements will be effective from January 1, 2012.

Implications Of The Act

It is estimated that over 3,000 companies will be required to comply with the Act, including companies whose supply chains have not historically been subjected to human rights scrutiny. In addition, many suppliers will be required by covered companies to identify what steps they are taking to ensure that their own product supply chains are free from slavery and human trafficking.

How Is This Act Enforced

The exclusive remedy for a violation of the Act is for the California Attorney General to bring an action for injunctive relief to address violations of the Act. Annually, the Franchise Tax Board will make available to the Attorney General a list of those retail sellers and manufacturers subject to the mandatory disclosure required under the Act. Covered companies should ensure that the statements that they make on their website in response to the Act are not untrue or misleading which could give rise to a claim under Section 17200 of the Business and Professions Code. The Act can be found at California Civil Code Section 1714.43.