Is your business a transportation, cargo and/or container company or do you own or manage a retail or manufacturing operation? Do you do business in California and maintain worldwide gross sales of at least $100 million? If you’ve answered “yes” to these questions, then this article, which outlines the California Transpar- ency in Supply Chains Act and how to comply with it, is for you.
In October 2010, former California governor Arnold Schwarzenegger signed into law Senate Bill 657, the California Transparency in Supply Chains Act, which requires all retailers and manufacturers in California to disclose their efforts to eradicate slavery and human trafficking from their supply chains. Since going into effect on January 1, 2012,1 it is likely that hundreds, if not thousands, of retailers and manufacturers have received letters from the attorney general inquiring about their compliance with this legislation.
ABOUT THE ACT
The stated purpose of the Act is “to educate consumers on how to purchase goods produced by companies that responsibly manage their supply chains and thereby improve the lives of victims of slavery and human trafficking.”2 Some groups have suggested that the Act will provide companies in California with the opportunity to lead the fight against human trafficking and empower consumers to reward companies that proactively engage on these issues.
The Act applies to all retailers and manufacturers (as designated by companies in their California tax filings) the purpose of financial or pecuniary gain or profit, as defined in the California Revenue and Taxation Code.3
APPLICABILITY TO THE TRANSPORTATION INDUSTRY
Although the Act does not specifically target the transportation, cargo and/or container community, as an integral part of retailers’ and manufacturers’ supply chains, these companies, whether doing business inside or outside California, should be aware of the statute’s requirements. While suppliers to companies located outside of California are not legally bound to comply with the Act, they will be affected by their business partners’ requirements to adhere to what is expected to become a de facto standard of performance for all companies throughout the country.
A myriad of transportation, cargo and/or container companies are responsible for moving goods and services cross-border on a daily basis. It is not clear how the Act will directly impact these companies; however, we believe that given the definition of “supply chains,”4 with worldwide gross sales of at least $100 million that do business in California. A company is “doing business the Act will likely apply to them as well.
At a minimum, the Act requires companies to publicly disclose steps they are taking in the following areas:
- Engaging in verification of product supply chains to evaluate and address risks of human trafficking and slavery, specifying if the verification was not conducted by a third party
- Conducting audits of suppliers to evaluate compliance with company standards for trafficking and slavery in supply chains, specifying if the verification was not an independent, unannounced audit
- Requiring 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
- Maintaining internal accountability standards and procedures for employees or contractors that fail to meet company standards on slavery and trafficking
- Identifying company employees and management who have direct responsibility for supply chain management and training on human trafficking and slavery, particularly concerning the mitigation of risk within supply chains.
The required disclosures must be posted on a company’s website with a “conspicuous and easily understood link.” If a company does not have a website, it must provide written disclosures within 30 days of receiving a written consumer request for the information.5 For examples of how and where disclosures should appear on company websites, you can visit the websites of three automobile companies known to be compliant with the Act – BMW, Mercedes and Rush Truck Centers.
While the exclusive remedy under the Act for a violation is an action by the California attorney general for injunctive relief,6 the Act expressly states that nothing in the section shall limit the remedies available for a violation of any other state or federal law.7 This presents the opportunity for a government regulator, private citizen or competitor to pursue an action, such as an unfair business practices claim, against a company for noncompliance.
SUMMARY AND NEXT STEPS
Increasing regulation related to slavery in supply chains is coming at state, national and international levels. There are currently no actions or pending prosecutions against companies deemed noncomplaint; however, given California’s reputation for being a legislative leader at pushing progressive agendas, it is foreseeable that other states will continue to pass similar legislation.
For instance, H.R. 2759, Business Transparency on Trafficking and Slavery Act was introduced by Rep. Carolyn Maloney in New York to compel disclosures in annual reports filed with the SEC to identify and address forced labor, slavery, human trafficking and child labor issues in supply chains. Furthermore, consumers are turning to social media and other platforms to voice their desire for socially conscious business practices. Investors are also growing concerned with the risks associated with human rights violations within a company’s supply chain.
Like many people, you may be thinking that the Act is vague. However; whether the Act applies to your company or not, disclosing your supply chain practices is simply the right thing to do and may – on a practical level – make good business sense.