As of last year, the California Transparency in Supply Chains Act requires qualifying businesses to disclose their efforts to eradicate human trafficking and slavery from their direct supply chains.

Which Business Qualify Under the Act

Under the Act, all retail sellers and manufacturers doing business in California with annual worldwide gross receipts exceeding $100 million are required to disclose their efforts to eradicate slavery and human trafficking from their global supply chain.

Who Is a “Retail Seller”?

A business entity with retail trade as its principal business activity code, as reported on the entity’s tax return.

Who is a “Manufacturer”?

A business entity with manufacturing as its principal business activity code, as reported on the entity’s tax return.

What Does “Doing Business” Mean?

A company is deemed to be “doing business” in California if: (1) the company is organized or commercially domiciled in California; (2) sales in California for the applicable tax year exceed the lesser of $500,000 or 25 percent of the company’s total sales; (3) the real property and the tangible personal property of the company in California exceed the lesser of $50,000 or 25 percent of the company’s total real property and tangible property; or (4) the amount paid in California by the company for compensation exceeds the lesser of $50,000 or 25 percent of the total compensation paid by the company.

What Do Qualifying Companies Need To Do?

A qualifying company must post on the homepage of their website to what extent (if any), the company does in each of the following five categories.

  1. verifying product supply chains to evaluate and address risks of human;
  2. trafficking and slavery (and disclosing whether the verification was not conducted by a third party);
  3. auditing suppliers to evaluate their compliance with company standards for human trafficking and slavery in supply chains (and disclosing whether the verification was not an independent, unannounced audit);
  4. requiring direct suppliers to certify that materials incorporated in the product comply with the laws regarding human trafficking and slavery of the country or countries in which the suppliers are doing business;
  5. maintaining internal accountability standards and procedures for employees or contractors failing to meet company standards regarding human trafficking and slavery; and
  6. training company employees and managers, who have direct responsibility for supply chain management, on human trafficking and slavery, particularly on mitigating such risks within supply chains of products.

If the company does not have a website, the company must provide a written disclosure to a consumer within thirty (30) days of a written request.

What About Non-California Businesses?

Similar federal legislation may be looming. For example, Congress introduced the Business Transparency on Trafficking and Slavery Act in 2011. Unlike the California Act, the proposed federal legislation would apply to any publicly traded or private company (with receipts exceeding $100 million) currently required to submit annual reports to the SEC.

Although the federal legislation or similar federal legislation has yet to pass, non-California businesses should begin considering the possibility that they could become subject to such legislation if, or when, passed.