California’s “Transparency in Supply Chains” Act, Senate Bill 657 (the “Act”) requires retail sellers and manufacturers which do business in California that have annual worldwide gross receipts in excess of one hundred million dollars ($100,000,000) to disclose efforts they make to eliminate slavery and human trafficking from their supply chain. The Act did not attract widespread attention when it was enacted in 2010 or when it took effect in 2012. The Act addressed an issue that was not well-understood by many consumers and companies, who are often unaware of the degree to which global supply chains may be impacted by forced labor. In addition, the Act applies only to large global companies, and the exclusive remedy is a lawsuit by the California Attorney General for injunctive relief. As a result, not much has been heard regarding the Act since it became law.
The California Department of Justice (“DOJ”), however, has recently stepped up efforts to make sure that companies that may be subject to the Act are aware of the law and its requirements and are in compliance. DOJ has been conducting a compliance review, based on information provided by the California Franchise Tax Board as to which companies may be subject to the Act based on state tax returns. As a result, some companies may be receiving a letter from DOJ informing them that they may be subject to the Act and asking them to document their compliance via submittals through a link on the DOJ website, or provide information demonstrating that the company is not subject to the Act, most likely on the basis that its annual worldwide gross receipts are less than $100,000,000. It is not clear what the next steps by DOJ will be after companies make those submittals or whether the information submitted will be made public.
The Act requires that manufacturers and retail sellers subject to the Act provide disclosures on their company websites regarding their efforts in five topics relating to elimination of slavery and human trafficking in their supply chains, including upstream suppliers and manufacturers. In the unlikely event that the company does not have a website, alternative methods of providing the disclosures are allowed. The Act does not require that companies undertake actions regarding these five topics, nor does it set standards, it simply requires that the company disclose their level of effort, even if that is to disclose that no action was taken.
The five topics include:
- Verification. To what extent does the company evaluate its product supply chains to address risk of human trafficking, and if that verification was done by a third party.
- Audits. To what extent does the company conduct audits of its suppliers for compliance with company standards for human trafficking and slavery in supply chains, and if those audits are done by a third party
- Certification. Whether the company requires suppliers to certify that materials incorporated into the product comply with laws of the countries in which they do business regarding human trafficking and slavery.
- Internal Accountability. Whether the company maintains internal accountability standards for employees or contractors who fail to meet company standards regarding human trafficking and slavery
- Training. To what extent the company provides training on human trafficking and slavery to employees and management who have responsibility for supply chain management.
Although the Act does not require any actions beyond disclosure, companies that are subject to the Act are not likely to find disclosure that they do nothing on these five topics an attractive alternative, particularly when many major global corporations have already adopted Corporate Social Responsibility (“CSR”) policies that address a host of issues, including those covered by the Act. As such, the Act will likely have the effect of causing such companies to take actions to avoid making uncomfortable disclosures that they do nothing regarding these topics.
DOJ has created a section on its website focused on the Act and DOJ’s efforts to compel compliance, including publication of a “Resource Guide” to assist companies comply with the Act. See https://oag.ca.gov/SB657. Even with this guidance, there will undoubtedly be questions regarding whether a company is, in fact, subject to the Act and what they should provide to DOJ to either document compliance or demonstrate that they are not subject to the Act.