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April 23, 2014

California’s Transparency in Supply Chains Act

Earlier this year, California enacted a new law called the “Transparency in Supply Chains Act.” The law requires certain retailers to disclose their efforts to eradicate slavery and human trafficking from their supply chains.

Background

Over the past few decades, many retailers have faced considerable scrutiny with regard to human rights issues in their supply chains. The sourcing of materials and consumer products from developing countries frequently raises questions about the labor standards and worker protections applicable in those areas of the world. At times, these concerns have been expressed in the form of legislation. For instance, the Victims of Trafficking and Violence Protection Act, passed by Congress in 2000, established the President’s Interagency Task Force to Monitor and Combat Trafficking in Persons, a cabinet-level task force to coordinate federal efforts to combat human trafficking. In February of this year, California enacted the “Transparency in Supply Chains Act.”

The Law

The “Transparency in Supply Chains Act” goes into effect on January 1, 2012. It applies to any company that is in the “retail trade” that has annual worldwide gross receipts in excess of $100 million and annual California sales exceeding $500,000.

It requires a disclosure of the company’s efforts, if any, to eradicate slavery and human trafficking from its supply chain. Specifically, the disclosure must indicate the extent to which the retailer does the following:

  • Verifies supply chains, including whether verification is performed by a third party
  • Conducts audits of suppliers, including disclosure as to whether the audits are announced or unannounced
  • Requires certification by suppliers that materials comply with applicable laws
  • Maintains internal accountability standards and procedures
  • Provides training to those employees with direct responsibility for supply chain management

The law requires that the disclosure be posted on the company’s Internet homepage with a “conspicuous and easily understood link.” By its terms, the law is enforceable only through injunctive relief sought by the California Attorney General, although there may be misguided efforts to use it in private actions anyway. Each year the California Franchise Tax Board will give the Attorney General a list of companies required to make the disclosure.

Practical Advice

The law only requires disclosure. It does not mandate any efforts or particular certifications. It simply requires notice regarding the efforts that a retailer is currently undertaking. A retailer could, for example, disclose that it is not making any such efforts. Although that might have some reputational risk, it would be in compliance with the law. Because many of the retailers affected by the law are already addressing this issue, compliance will often involve identifying and summarizing the efforts a retailer is already taking.

Copyright © 2014 by Morgan, Lewis & Bockius LLP. All Rights Reserved.

About the Author

Partner

Gregory T. Parks is a partner in Morgan Lewis's Litigation Practice, with a focus on commercial, privacy and consumer matters for retailers, financial services organizations, and other businesses. Mr. Parks counsels and represents clients in a wide variety of matters, including consumer class actions, data privacy class actions, privacy and data security compliance, litigation involving retailers, disputes arising from mergers and acquisitions, contract and indemnification matters, and fraud lawsuits.

215-963-5170

About the Author

Partner

Diane L. Webb is a partner in Morgan Lewis's Litigation Practice. Ms. Webb's practice focuses on complex litigation matters, including contract disputes, antitrust, federal and state False Claims Act, and all forms of business torts involving unfair competition, false advertising, interference, misappropriation of trade secrets, and fraud, with an emphasis on healthcare, real estate, retail, and technology. Ms. Webb's background includes jury and bench trials, as well as arbitrations. She also has experience with complex, multidefendant litigation matters,...

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Partner

Joseph Duffy is a partner in Morgan Lewis's Litigation Practice. Mr. Duffy's practice focuses primarily on commercial litigation, products liability, and toxic torts, including complex mass tort litigation. His practice in this area includes acting as national, coordinating, and trial counsel. Mr. Duffy has trial experience in mass tort and products liability matters and has served as first or second-chair trial counsel on more than a dozen cases. Generally, he has represented chemical, pharmaceutical, manufacturing, and construction products companies in...

213-612-7378

About the Author

Associate

Ezra D. Church is an associate in Morgan Lewis's Litigation Practice. Mr. Church focuses his practice on a broad range of litigation matters, with a particular emphasis on complex commercial and class actions. He has represented both plaintiffs and defendants in nationwide litigation and major matters throughout the United States. Mr. Church has handled all aspects of litigation, from inception through trial and post-trial appeal.

215.963.5710

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