It’s springtime, which apparently means… that the California Department of Justice has begun what looks like enforcement measures with respect to California’s 2010 Transparency in Supply Chains Act.  If you are a manufacturer or a retailer who has received a letter inquiring about your compliance with this (relatively) new legislation, don’t be surprised.  It is apparently going around.  Although it has not indicated exactly how many letters have gone out to manufacturers and retailers, the answer is likely hundreds, if not thousands.

For those unfamiliar with this particular legislation, the California Transparency in Supply Chains Act of 2010 came into force in 2012.  It requires all “retailers” and “manufacturers” in California – as designated by companies in their California tax filings – to disclose the efforts that they have made to eradicate slavery and human trafficking from their supply chains.  This disclosure must be made via a “conspicuous and easily understood link” on companies’ web sites.

The Act applies to all retailers and manufacturers with worldwide gross sales of $100 million or more that are “doing business in California.”  Doing business in California means that (1) the business is organized or domiciled in California, (2) sales in California exceed the lesser of $500,000 or 25 percent of total sales, (3) the value of the company’s property in California exceeds the lesser of $500,000 or 25 percent of its total property, or (4) the amount paid by the company in California for compensation exceeds the lesser of $50,000 or 25 percent of the total compensation paid by the company.

The Act requires companies to disclose on their websites, at a minimum, whether and what extent they:

  • Engage in verification of their supply chains to evaluate and address risks of human trafficking and slavery, and whether any such verification is performed by a third party;
  • Audit suppliers to evaluate their compliance with company standards for human trafficking and slavery, including whether audits are independent and unannounced;
  • Require direct suppliers to certify compliance with laws regarding slavery and human trafficking in the countries in which they operate;
  • Maintain internal standards and procedures for employees and contractors that fail to meet company standards regarding slavery and human trafficking; and
  • Provide training on slavery and human trafficking to employees and management with direct responsibility for supply chain management, particularly with respect to mitigating supply chain risks.

Examples of various companies’ disclosures can be found here, here, and here.

The California letters generally request a report, within 30 days of the letter date, as to whether the receiving companies are complying with the Act, or, if they believe they are exempt, an explanation as to why.  At this time, violations of the Act are punishable only by an injunction action by the State to compel compliance.  However, the California law is likely a harbinger of things to come.  Similar legislation has been proposed in New York, and other states are sure to follow.

Helpfully, the California Attorney General released a report this week to provide businesses with guidance for complying with the law, entitled “California Transparency in Supply Chains Act: A Resource Guide.