Recently, we learned that the California Department of Justice is sending out notices to entities that self-reported in their California tax return that they are a retail seller or manufacturer in connection with what the DOJ is referring to as its compliance review of disclosures required by California's Transparency in Supply Chain Act of 2010 (Act). The Act requires retail sellers and manufacturers doing business in the California and having $100,000,000 or more in annual worldwide gross receipts to disclose their efforts to eradicate slavery and human trafficking from their direct supply chains for tangible goods offered for sale, as specified. The Act was effective on January 1, 2012.

The Act defines "Retail seller" in Subdivision (a)(2)(D) of Section 1714.43 of the California Civil Code as "a business entity with retail trade as its principal business activity code, as reported on the entity's tax return filed under Part 10.2 (commencing with Section 18401) of Division 2 of the [California] Revenue and Taxation Code" and "manufacturer" in Subdivision (a)(2)(C) of this section as "a business entity with manufacturing as its principal business activity code, as reported on the entity's tax return filed under Part 10.2 (commencing with Section 18401) of Division 2 of the Revenue and Taxation Code."

The required disclosure is to be posted on the retail seller's or manufacturer's website with a conspicuous and easily understood link to the required information on the business' homepage or, if the retail seller or manufacturer does not have website, consumers are to be provided the written disclosure within 30 days of receiving a written request for the disclosure from a consumer. The disclosure is to, at a minimum, state to what extent, if any, that the retail seller or manufacturer does each of the following:

  1. engages in verification of product supply chains to evaluate and address risks of human trafficking and slavery, including whether the verification is conducted by a third party;
  2. conducts audits of suppliers to evaluate supplier compliance with company standards for trafficking and slavery in supply chains, including if the verification was an independent, unannounced audit;
  3. requires direct suppliers to certify that materials incorporated into the product 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; and
  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 chains of products.

The Act requires the California Franchise Tax Board to make available to the Attorney General a list of retail sellers and manufacturers required to disclose efforts to eradicate slavery and human trafficking pursuant to that provision, as specified. The exclusive remedy for a violation of the Act is an action brought by the Attorney General for injunctive relief.