03.12.2012

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Updates

The California Transparency in Supply Chains Act of 2010 (the “Act”) went into effect January 1, 2012.  The Act requires retail sellers and manufacturers to disclose what efforts, if any, they are taking to eliminate forced labor and human trafficking from their supply chains.  The Act is not intended to require companies to change their policies.  Rather, it is designed to persuade the largest companies to disclose the efforts they are taking within their own supply chains to address the problem of forced labor and human trafficking.  Supporters of the Act hope that consumers will consider the disclosed information in making decisions about the companies with which they conduct business. 

Who Is Subject to the Act?

The Act's jurisdictional provisions make it applicable to many companies that are based outside of California.  Many out-of-state companies that traditionally would not be considered to be conducting business in California may be subject to the Act.  Your company is subject to the Act if it fits the following description:

    1. The company is a retail seller or manufacturer;
    2. The company does business in California, as defined by Section 23101 of the Revenue and Taxation Code; and
    3. The company has over $100 million in “annual worldwide gross receipts."

Companies that are not directly subject to the Act should be aware that if they supply goods to retail sellers or manufacturers that are subject to the Act, they may be asked to provide a certification to their customers regarding their efforts to ensure that the products they supply are not produced by victims of human trafficking or forced labor.  Companies subject to the Act may require further certifications from all suppliers in their supply chain and may condition the continuation of business on receiving those certifications.  In addition, retail sellers and manufacturers attempting to comply with the law may decide to audit their suppliers and demand a higher level of compliance than was previously required.  As a result, companies may want to review current policies and procedures now to determine what improvements could be made to better address concerns raised by the Act and to ensure that, if asked, they could provide a compliance certification.

Disclosure Requirements

Companies required to comply with the Act must, at a minimum, disclose whether and to what extent they take any of the following actions:

    1. verify product supply chains to evaluate and address risks of human trafficking and forced labor and disclose whether the verification was conducted by a third party;
    2. conduct audits of suppliers to evaluate suppler compliance with company standards for human trafficking and forced labor in supply chains, and disclose whether the audits were independent and unannounced;
    3. require direct suppliers to certify that their products comply with the human trafficking and forced labor laws of the countries in which the suppliers do business;
    4. maintain internal accountability standards for employees and contractors who fail to meet company standards on human trafficking and forced labor; and
    5. train company employees and management who have responsibility for supply chain management on dealing with human trafficking and forced labor, particularly with respect to mitigating risks within the supply chain or products.

The disclosures should describe the extent to which the seller or manufacturer engages in each of the above described activities.  The law does not set forth specific language or content for the disclosures, but the disclosures must be conspicuous, truthful and clear.  The disclosures should appear on the business’ website.  If a business does not have a website, the information must be provided in writing within 30 days after receiving a written request for disclosures from a consumer.

The California attorney general is empowered to enforce compliance with the Act.  Currently, the exclusive penalty for failure to comply with the Act is an injunction by the California attorney general to require compliance.  The Act does not create a private right of action.

Are You in Compliance?

Contact counsel for assistance in determining whether the Act applies to your business and, if it does, how to achieve compliance. 

Counsel can also assist in crafting a disclosure statement or a compliance certification for use with your own suppliers, or implementing or enhancing supply chain management programs or policies.

© 2012 Perkins Coie LLP