After almost five years since passage, California’s Attorney General has finally produced guidance on The California Transparency in Supply Chains Act of 2010. With the Attorney General at last weighing in (the Resource Guide is a hefty 50 pages) on this somewhat arcane legislation, covered companies may want to revisit posted disclosure statements in light of the new guidance.

Is my company covered? The law requires certain retailers and manufacturers doing business in the Golden State to disclose their efforts (or the lack thereof) towards eliminating human trafficking and slavery at every stage of production from acquiring raw materials to assembling finished goods. Your company may be covered if:

  • It identifies as a “manufacturer” or “retail seller” in its principal activity codes on California tax filings; and
  • Its worldwide gross receipts exceed $100 million, no matter where the company is domiciled; and
  • It is “doing business in California,” as defined in the California Revenue and Taxation Code (a complicated multi-part definition that includes paying just over a threshold of $50,000 for compensation in California or owning property worth just over $50,000 in California).

Every year, the California Franchise Tax Board furnishes the California Attorney General with a list of companies FTB believes are covered.

What must covered companies disclose? Covered businesses must disclose—conspicuously on their websites and within 30 days of a request—their efforts (or lack thereof) in five areas:

  1. Verification of product supply chains to evaluate and address the risks of human trafficking and slavery in production, including whether performed in-house or by a third party. The new guidance suggests this means disclosing the details of specific activities undertaken. Per the Attorney General, this disclosure should include methodology and frequency.
  2. Audits of suppliers. While the statute addressed disclosing whether audits were independent and unannounced, the new guidance describes disclosing more specific details, such as: how suppliers are selected for audit, the percentage of suppliers audited in a year, frequency of audits, the numbers of announced vs. unannounced audits, etc.
  3. Suppliers’ certifications. The Resource Guide also suggests disclosing the content of any certification (such as whether suppliers agree to comply with the labor laws of the countries in which they operate) and the consequences for supplier violations of the certification.
  4. Internal accountability. The new Guide indicates companies should disclose who within the company has the responsibility for monitoring supplier compliance, whether the company has a “code of conduct” addressing the issues, and what anti-retaliation protections exist for employees who report violations.
  5. Training programs. Finally, the Resource Guide discusses identifying the employees who receive training on this topic (by category or job title), a description of the subject matter covered, credentials of trainers and the duration and frequency of training.

The new Resource Guide also contains model disclosures, screen shots of correctly conspicuous placement and fonts, and examples of content considered inadequate.

Location, Location, Location. The Attorney General has advised that the link to the disclosure information should be on the website main page or homepage and click directly onto the disclosure page—no multiple clicks. Placement should be prominent (top or bottom of the page) and the font needs to be conspicuous—no fine print. As a name for the link, the AG suggests “California Supply Chains Act.” The Resource Guide suggests devoting a whole web page to the disclosures rather than combining required content with other corporate responsibility subjects such as environmental sustainability or charitable giving.

What happens if my company doesn’t comply? The Resource Guide states that it does not supplement, replace, or supersede the statute and that it does not create enforceable rights. The statute itself, found at California Civil Code Section 1714.43, provides that the exclusive remedy for a violation is an action brought by the Attorney General for injunctive relief. We have seen indications that the AG’s office is reviewing the list of covered employers and writing letters to companies about compliance. Whether there will be active enforcement against companies based on inadequate disclosures remains to be seen.