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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 © 2018 by Morgan, Lewis & Bockius LLP. All Rights Reserved.

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About this Author

Gregory Parks, privacy and cybersecurity lawyer, Morgan Lewis
Partner

Gregory T. Parks counsels and defends retail companies and other consumer facing clients in matters related to privacy and cybersecurity, class actions and Attorney General actions, consumer protection laws, loyalty and gift card programs, retail operations, payment mechanisms, product liability, waste management, shoplifting prevention, compliance, antitrust, and commercial disputes. If it is important to a retail company, Greg makes it his business to know it. He handles all phases of litigation, trial, and appeal work arising from these and other areas. Greg is the co...

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Joseph Duffy, litigation attorney, Morgan Lewis
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A nationally recognized litigator, Joseph Duffy defends class actions in US federal and state courts. As co-head of the litigation practice’s Retail Industry Initiative, he focuses on the unique challenges facing retail companies, representing retailers in consumer class actions, contract disputes, and compliance and privacy matters. He also litigates class actions for financial services companies involving lending practices, foreclosure activity, and debt collection. Joseph earned recognition as a Class Actions and Mass Torts “Powerhouse” in BTI’s Litigation Outlook...

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Ezra Church, Litigation Lawyer, Morgan Lewis
Partner

Ezra D. Church focuses his practice on class action lawsuits and complex commercial and product-related litigation, with particular emphasis on the unique issues facing retail, ecommerce, and other consumer-facing companies. Ezra also focuses on privacy and data security matters, and regularly advises and represents clients in connection with these issues.

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