A Publication of Pepper Hamilton LLP
Sustainability, CleanTech and Climate Change Alert
New California Supply-Chain Disclosure Requirements Will Have Far-Reaching Implications
Monday, October 10, 2011
A new California law, poised to go into effect January 1, 2012, will impose disclosure obligations on all retailers and manufacturers that do business in California and have global gross receipts of $100 million per year. The California Transparency in Supply Chains Act of 2010 will require businesses to disclose on their Web sites their efforts to eliminate the use of slave labor and human trafficking from their supply chains. The law is an example of the recent trend in “name and shame” legislation, designed to use customer and shareholder pressure to force businesses to ensure their worldwide upstream suppliers comply with various policy objectives.
The new law will require the following disclosures:
- to what extent the company engages in verification of its supply chains to evaluate and address risks of slave labor and human trafficking, and whether this verification has the added measure of being conducted by a third party
- whether the retailer or manufacturer conducts audits of its suppliers to ascertain compliance with corporate policies on slavery and trafficking, including whether the audit was independent and unannounced
- what certifications, if any, the company requires its direct suppliers to make, attesting to their compliance with the laws on slavery and human trafficking in the countries in which they do business
- the internal accountability standards and procedures the company has put in place for employees and contractors that fail to meet standards on slavery and human trafficking, and
- what training is provided to company employees and management on slavery and trafficking issues.
The California Attorney General is authorized to seek injunctive relief against violators of the law. The legislation also directs the state’s Franchise Tax Board to provide a list of businesses that are subject to the law, to allow the attorney general to proceed against those failing to make the required disclosures.
Unlike another recent “name and shame” law – the conflict minerals provisions adopted in the Dodd-Frank Act, which the U.S. Securities and Exchange Commission is currently struggling to operationalize through rulemaking – the California Transparency in Supply Chains Act does not require companies to take affirmative action to trace and audit the materials in their supply chain, but it will bring attention to which business concerns are actively pursuing sustainability and social responsibility programs that address issues like human trafficking. While the new California law is not well known outside the state, its expansive scope – which will extend to many national and international retailers and manufacturers that do even a modest amount of business in the state – suggests that affected businesses should take steps to ensure compliance by January 1, 2012.
The California Transparency in Supply Chains Act of 2010 is codified at Cal. Civ. Code Section 1714.43. An unofficial copy can be viewed at https://www.nolo.com/law/CA-CIV1714.43.20105563.html.
Jane C. Luxton
Jane C. Luxton
The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.
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