The attorney general of California recently started issuing notification letters to manufacturers and retailers requesting information regarding their compliance with the California Transparency in Supply Chains Act of 2010 (Sen. Bill No. 657 (Steinberg)) (the “Act”), despite the fact that the Act has been in effect since Jan. 1, 2012. The Act is designed to address the trade in goods and products tainted by slavery and human trafficking.
Human trafficking is a serious concern for manufacturers with global operations. Even the federal government amended the Federal Acquisition Regulation and the Defense Federal Acquisition Regulation Supplement regarding human trafficking on Jan. 29, 2015, effective March 2, 2015, with an aim to significantly augment the existing human trafficking prohibitions.
The Act requires that “retail sellers” and “manufacturers” doing business in California with annual worldwide gross receipts that exceed $100 million make certain disclosures regarding their efforts, if any, to eradicate slavery and human trafficking from their supply chains.
Whether a company is a “retail seller” or “manufacturer” depends in large measure on how the company classifies its principal business activity for purposes of the California Franchise Tax forms. Doing business in California is defined in Section 23101 of the Revenue and Taxation Code1. If a company pays California franchise taxes and classifies itself on the forms as a retailer or manufacturer, and if the company has worldwide gross receipts in excess of $100 million, then the company is subject to the Act. It is important to realize that the Act applies even if the company has no physical presence in California.
The disclosures required by the Act must be posted on the company’s website. If the company does not have a website, the required disclosures must be provided to any person requesting such disclosures in writing within 30 days of the request. A retailer or manufacturer subject to the Act must post disclosures on five specific categories: human trafficking verification, audit, certifications, accountability and training in the company’s supply chain.
The Act does not contain punitive provisions. The remedy is for the attorney general to file an injunction to ensure compliance. Nevertheless, it is critical that the disclosures be accurate to avoid liability for false advertising or other similar claims.
If your company has been provided a notice by the attorney general of California regarding the Act, or if your company does business with manufacturers and retailers subject to the Act, we may be able to assist you in analyzing whether you are subject to the Act and/or what your company needs to disclose in order to comply with it.
For more detailed information or to address a specific question regarding The California Transparency in Supply Chains Act, please contact one of the Taft professionals listed here.
1A company does business if any of the following conditions are satisfied:
- The company is organized or domiciled in California.
- The company’s sales in California exceed the lesser of $500,000 or 25% of the company’s total sales.
- The company’s property in California or payroll in California exceeds the lesser of $50,000 or 25% of the company’s total property or payroll.