- California Transparency in Supply Chains Act of 2010
- December 13, 2011 | Authors: Joshua S. Ganz; William N. Gerson; James R. Paine
- Law Firms: Kilpatrick Townsend & Stockton LLP - Atlanta Office ; Kilpatrick Townsend & Stockton LLP - Menlo Park Office ; Kilpatrick Townsend & Stockton LLP - Atlanta Office
On January 1, 2012, the California Transparency in Supply Chains Act of 2010 (the Act) goes into effect and will require that certain retailers and manufacturers doing business in California disclose their efforts to eradicate slavery and human trafficking from their direct supply chains for tangible goods. The policy underlying the Act is “to ensure large retailers and manufacturers provide consumers with information regarding their efforts to eradicate slavery and human trafficking from their supply chains, to educate consumers on how to purchase goods produced by companies that responsibly manage their supply chains, and, thereby, to improve the lives of victims of slavery and human trafficking.” The Act does not actually require that companies pursue any particular efforts with respect to the eradication of slavery and human trafficking other than to post certain disclosures on their websites. The disclosure requirement is intended to make the information available to the public in order to compel companies to consider the social consequences and potential market reaction to their supply chain practices.
Companies Subject to the Act
The Act applies to every “retail seller” and “manufacturer” that is “doing business” in California and has annual worldwide gross receipts of more than $100 million. Under the Act, a “retail seller” or manufacturer” is a company that listed manufacturing or retail trade as its principal business activity code on its California tax return.
A company is “doing business” in California if it is “actively engaged in any transaction for the purpose of financial or pecuniary gain or profit.” Beginning on January 1, 2011, a company will be deemed to be “doing business” in California for a taxable year if any one of the following conditions is satisfied:
(1) The company is organized or commercially domiciled in California;
(2) The company’s sales in California during the taxable year in question exceed the lesser of $500,000 or 25% of the company’s total sales (including sales by an agent or independent contractor of the company);
(3) The real property and tangible personal property of the company in California exceed the lesser of $50,000 or 25% of the company’s total real property and tangible personal property; or
(4) The amount paid by the company for compensation in California exceeds the lesser of $50,000 or 25% of the total compensation paid by the company.
A company required to comply with the Act must, at a minimum, disclose to what extent, if any, that it:
(1) Engages in verification of product supply chains to evaluate and address risks of human trafficking and slavery. The disclosure must specify if the verification was not conducted by a third party.
(2) Performs audits of suppliers to evaluate compliance by suppliers with company standards for trafficking and slavery in supply chains. The disclosure must specify if the verification was not an independent, unannounced audit.
(3 Requires direct suppliers to certify that materials incorporated into the products of the company 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 chain of products.
The disclosure must be accessible on the homepage of the company’s website via a conspicuous and easily understood link.
The exclusive remedy for a violation of the Act is an action for injunctive relief brought by the California Attorney General to enforce compliance. No private right of action is created under the Act.
As discussed above, the Act does not require that companies undertake any affirmative efforts to eradicate human trafficking and slavery. Technically, a company could post a disclosure that it does not undertake any such efforts, although such a disclosure would likely result in unwanted publicity. However, to avoid potential reputational damage, negative publicity and negative market reactions, a company without sufficient supply chain management policies and programs in place should seek to create such policies or update its existing policies in order to show that it is affirmatively taking steps towards the elimination of human trafficking and slavery from its supply chain. As part of such supply chain management policies and programs, a company should ensure that its supply chain contracts require vendors and suppliers to comply with the company’s human rights and child labor policies and provide for a certification and audit process by which the company may verify that its vendors and suppliers are in compliance with such contractual obligations.
 California Senate Bill 657 Section 2(j).
 See California Senate Bill 657 Sections 3(a)(2)(C) & (D).
 Section 23101(a) of the California Revenue and Taxation Code.
 See Section 23101(b) of the California Revenue and Taxation Code.
 See California Senate Bill 657 Section 3(c).
 If the company does not have a website, it must provide the required disclosures to any consumer that requests the disclosure within 30 days of receiving the request. See California Senate Bill 657 Section 3(b).