• Retailer Readiness is Key to Compliance with California’s Transparency in Supply Chains Act
  • November 1, 2011 | Author: Mark S. Askanas
  • Law Firm: Jackson Lewis LLP - San Francisco Office
  • On January 1, 2012, retailers must be in compliance with the California Transparency in Supply Chains Act of 2010.  Compliance with the Act is relatively simple:  retailers are not required to take any affirmative action to ensure that products in their distribution channel do not emanate from companies that rely on slave labor, but must post on their website what, if anything, they are doing to eliminate slave labor from their supply chains.

    What is Required
    The Act specifies the contents of the notice that retailers must post on their Internet site.  They include:

    1. A statement showing how the retailer verifies its product supply chains to evaluate and address risks of human trafficking and slave labor.
    2. A description of the audits the retailer conducts to ensure that its suppliers adhere to company standards.
    3. A certification by the retailer’s direct suppliers that materials used to make a product are from countries that do not engage in slavery and human trafficking.
    4. The internal accountability standards maintained by the retailer for employees or contractors that fall short of the company’s requirements.
    5. An assurance that employees who are responsible for supply side management receive training on human trafficking and slavery, with a focus on the risks within supply chains.

    Retailers with Modest California Presence may be Covered
    All retailers doing business in California must determine the Act’s applicability to them.  To come within the purview of the Act, a retailer need only have one site in California.  There is no requirement that the retailer be a California company.  Similarly, the Act’s $100-million-in-revenue requirement does not need to be attributed only to business transacted in California; it is based on revenue earned worldwide.  These requirements are triggered by retailers having filed a California tax return in 2011 and checked either “manufacturing” or “retail trade” as their principal business.

    Failure to Comply
    On its face, the Act seems rather benign.  The only consequence specified for not posting a disclosure statement is a possible injunction by the California Attorney General to mandate the posting.  However, the most ominous aspect of the Act for retailers may be the public relations nightmares it can cause.  There are already strong indications from watchdog groups that they will seek to shame companies into compliance by identifying those retailers who do not maintain a compliant statement on their website.

    Moreover, similar measure may be on tap elsewhere.  Representative Carolyn Maloney of New York has introduced the “Business Transparency on  Trafficking and Slavery Act” in the House of Representatives (H.R. 2759), which would require disclosures in annual reports filed with the Securities and Exchange Commission that would identify the steps taken by retailers to address these issues.

    Emerging Best Practices
    Prudent companies are shoring up written policies on their website and conducting training for employees who have management responsibility for supply chains and distribution centers.  Responsibility for compliance with the Act should be clearly identified in internal guidance, for example, the Senior Vice President of Supply Chain Logistics working with Legal Department.

    Without question, the most immediate requirement for a covered company is to post a “No Forced Labor” provision on its website, stating that suppliers must not use forced labor, whether indentured, bonded, prison or obtained through slavery and human trafficking (including forced child labor).

    Suppliers or contractors also should be required to attest to their compliance with the slavery and human trafficking laws of the countries in which they do business.  To this end, the retailer should state in its supplier guidelines how it ensures that suppliers are made aware of the guidelines, annually or periodically.

    Finally, the retailer should review its internal accountability and verification mechanisms.  Statements such as “we have the right to have third party monitors visit suppliers’ sites” should be given substance by the retailer by actual visits.