The California Attorney General’s (AG) office recently issued letters to more than 1,700 companies listed as manufacturers or retailers on their California state tax returns requiring them to notify the AG’s office that they are, or are not, in compliance with the California Transparency in Supply Chains Act (the Act). 

These letters appear to be an attempt to enforce compliance with the Act, which became effective on January 1, 2012, but has received little attention outside of the traditional retail sector. The letters have been received by companies across a vast array of industries that happen to have sufficient sales in California, catching many companies and their general counsel’s by surprise. The Act requires companies to make certain disclosures about their efforts to avoid forced and child labor in their supply chains. Any company that identifies as a retail seller or manufacturer on its California tax return and earns annual worldwide gross receipts greater than US$100 million must comply with the law. Violations of the Act can result in an action brought by the Attorney General for injunctive relief. 

The law creates no substantive requirements for companies not to engage in forced or child labor. Rather, the law only requires disclosures, and the California AG's office has issued guidance regarding where a company must make its disclosures and what a company must disclose.

On April 13, 2015, California AG Kamala D. Harris, who is running for the Senate seat vacated by Senator Barbara Boxer, issued a consumer alert to Californians on the “availability of critical information about the efforts that certain companies are undertaking to stop and prevent human trafficking and slavery in their product supply chains - in the United States and abroad.” The consumer alert states that “[b]y taking the time to read a company’s disclosures before making a purchasing decision, California consumers have another means of holding retail sellers and manufacturers accountable for the integrity of their products and enables consumers to distinguish companies that are taking steps to supply the marketplace with products free from the taint of slavery and trafficking.”

Law applies to companies that:

  1. Do business in California—interpreted very broadly
  2. Have annual worldwide gross receipts exceeding US$100 million, and
  3. Are identified as manufacturers or retail sellers on their California state tax returns 

Disclosures required:

The law requires companies to make five disclosures on their company websites:

  • Verification: A company must provide information about the extent of efforts to identify, assess, and manage the risks of human trafficking in its product supply chain, including general methodology and frequency of verifications. In addition, the company must state whether it uses a third party to conduct verifications.

  • Audit: A company must state whether it audits suppliers to determine whether supplies follow company standards for trafficking and slavery, including general methodology for audits and frequency of audits. In addition, the company must state whether audits are independent and unannounced.

  • Certification: A company must state whether it requires suppliers to certify that material parts of the product comply with trafficking and slavery laws in the country or countries in which they do business.

  • Internal Accountability: A company must disclose whether it has internal procedures to determine whether employees and contractors comply with company standards for trafficking and slavery, and describe those procedures.

  • Training: A company must confirm whether it provides training on mitigating trafficking and slavery for employees and management responsible for supply chains. In addition, the company should identify the category of type of employees receiving training, as well as topics, duration, and frequency of training sessions.

Even companies taking no actions must comply

The Act applies even to companies that take no actions related to these five disclosure categories. In this circumstance, a company could simply disclose that, as to each category, it does not take any actions. Companies without websites must provide a written disclosure within 30 days of receiving a written consumer request.