Under the new California Transparency in Supply Chains Act of 2010, beginning January 1, 2012, retail sellers and manufacturers conducting business in California with over $100 million in annual worldwide gross receipts will be required to disclose what efforts, if any, are being made by the company to address and eliminate slave labor and human trafficking in their direct supply chains for tangible goods. The Act also requires the Franchise Tax Board to provide the Attorney General with a list of retail sellers and manufacturers required to disclose their efforts and intentions to eliminate slavery and human trafficking in supply chains according to the provisions specified in the Act.

To comply with the Act, a qualifying company must make, at a minimum, the five following disclosures listed in Section 1714.43 to the Civil Code:

  1. Verification Process: Whether it verifies its product supply chains to evaluate and address the risks of human trafficking and slavery, including disclosure of how the verification is performed through an internal or independent party.
  2. Audit Process: Whether it conducts audits of suppliers to evaluate their compliance with company policies and procedures regarding slavery and human trafficking, including disclosure if the audit is not performed by an independent third party on an unannounced basis;
  3. Certification Process: Whether it 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. Accountability Standards: Whether it maintains internal accountability standards and procedures for employees or contractors failing to meet company standards regarding slavery and human trafficking.
  5. Training: Whether it provides training on human trafficking and slavery to company employees and management who have direct responsibility for supply chain management, , particularly with respect to mitigating risks within the supply chain of products.

Under the Transparency in Supply Chains Act, companies will be required to include their disclosures on company websites (companies without a website must make this information available in writing within 30 days of a customer request for their disclosure). The Act requires no other action beyond disclosing whether the employer has made efforts in the five areas listed. It is anticipated that activists and investors will use the disclosures to pressure companies to take further action in this area. Moreover, retailers and others may require their suppliers to engage in these actions. If a company fails to make the requisite disclosures, action may be taken by the Attorney General for injunctive relief. We do not yet know how the Attorney General intends to enforce the law.

If you are interested in examples of corporate disclosures or advice on the applicability of specific measures, please contact the Seyfarth attorney responsible for your work.