If you’re a manufacturer or supplier who does business in California, keep reading.
Effective January 1, 2012, the California Transparency in Supply Chains Act requires large manufacturers and suppliers who do business in California to add a link to their websites disclosing their efforts to eradicate slavery and human trafficking from their supply chains for all tangible goods offered for sale.
According to the California legislature, the Act is intended to “educate consumers on how to purchase goods produced by companies that responsibly manufacture their supply chains, and, thereby, to improve the lives of victims of slavery and human trafficking.”
Who is subject to the Act?
The Act, signed into law by Governor Schwarzenegger as Senate Bill 657 and enacted as Section 1714.43 of the California Civil Code and Section 19547.5 of the California Revenue and Taxation Code, applies to every retail seller or manufacturer that does business in California and has more than $100 million in worldwide gross annual receipts.
- A company will be considered a retail seller or manufacturer if it reports its primary business activity as retail trade or manufacturing on its California Franchise Tax Board returns.
- A company will be deemed to do business in California if it meets at least one of the following conditions from the California Revenue and Taxation Code:
- It is organized or commercially domiciled in California.
- Its sales in California for the applicable tax year exceed the lesser of $500,000 or 25 percent of the company’s total assets.
- The value of the company’s real and tangible personal property in California exceeds the lesser of $50,000 or 25 percent of the company’s total real and personal property.
- The amount paid by the company in California for compensation exceeds the lesser of $50,000 or 25 percent of the total compensation paid by the company.
- A company’s worldwide gross annual receipts, for purposes of the Act, will be determined by the worldwide gross annual receipts disclosed on the entity’s filings with the California Franchise Tax Board.
What does the Act require?
Every company subject to the Act must issue a disclosure statement detailing its efforts to eradicate slavery and human trafficking from its supply chains for all tangible goods offered for sale. A “conspicuous and easily understood link” to the disclosure must appear on the home page of the company’s website. At a minimum, the disclosure statement must set forth the company’s efforts (if any) to do each of the following:
- Engage in the verification of product supply chains to evaluate and address the risks of human trafficking and slavery. The disclosure must specify if the verification was not conducted by a third party.
- Conduct audits of suppliers to evaluate supplier compliance with company standards for trafficking and slavery in supply chains. The disclosure must specify if the verification was not an independent, unannounced audit.
- Require 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 the suppliers are doing business.
- Maintain internal accountability standards and procedures for employees or contractors that fail to meet company standards regarding slavery or trafficking.
- Provide training on human trafficking and slavery, particularly with respect to mitigating risks within the supply chains of products, to company employees and management personnel who have direct responsibility for supply chain management.
If a company does not have a website, it must provide all of the above information within 30 days after receiving a written request from a consumer. The sole remedy for any violation of the Act’s disclosure requirement is an action for injunctive relief brought by the California Attorney General.
What are other companies doing to comply with the Act?
Disclosure statements vary widely. Some companies issue short, simple statements that contain only the required information. Other companies incorporate the disclosure statement into existing reports concerning corporate social responsibility or use the disclosure statement to promote their efforts to manage their supply chains in an ethical, legal and socially responsible manner.
Corinne Sprague practices corporate law at the Michigan law firm of Warner Norcross & Judd LLP. She can be reached at email@example.com or (616) 752-2756.