The California Transparency in Supply Chains Act of 2010, codified at California Civil Code Section 1714.43 (the "Act"), will go into effect on January 1, 2012.

The Act requires companies to report on their efforts, if any, to ensure that their product supply chains are free from slavery and human trafficking. The Act does not require a company to adopt particular policies related to slavery and human trafficking in their supply chains. However, the true intent behind the law is to raise public awareness so that companies will be encouraged (through pressure from consumers, shareholders, etc.) to voluntarily police their own supply chains.

Companies Subject to the Act

Any "manufacturer" or "retail seller" doing business in California with at least $100 million in annual worldwide gross receipts is subject to the Act.

A "manufacturer" is defined as any entity that lists manufacturing as its principal business activity code on its tax return. Cal. Civ. Code § 1714.43(2)(C). "Retail seller" is defined as any entity listing retail trade as its principal business activity code on its tax return. Cal. Civ. Code § 1714.43(2)(D). A company is considered to be "doing business in California" if it falls under Section 23101 of the Revenue and Taxation Code, which provides that : (i) it is organized or commercially domiciled in California; (ii) its sales in California for the applicable tax year exceed the lesser of $500,000 or 25 percent of the company's total sales; (iii) the real and tangible personal property of the company in California exceeds the lesser of $50,000 or 25 percent of the company's total real property and tangible property; or (iv) the amount paid in California by the company for compensation exceeds the lesser of $50,000 or 25 percent of the total compensation paid by the company. Cal. Rev. & Tax. Code § 23101.

To be subject to the Act, the manufacturer or retail seller doing business in California must have annual worldwide "gross receipts" in excess of $100 million. The Act does not provide an exemption for large companies conducting very limited business with California residents.

Required Disclosures Under the Act

Any company subject to the Act must post the information on its website, with a "conspicuous and easily understood link to the required information" on its website's homepage. The disclosure shall, "at minimum, disclose to what extent, if any" the company engages in each of the following:

Verification:

Does the company engage in third-party verification; has it identified the risk of slavery and human trafficking in its supply chain?

Auditing:

Does the company engage in independent, unannounced auditing of its suppliers to check on adherence to its standards on slavery and human trafficking?

Certification:

Does the company require its direct suppliers to certify that the materials incorporated into its product comply with the laws on slavery and human trafficking of the country or countries in which they are doing business.

Internal accountability:

Is the company holding its employees and contractors accountable to its company standards on slavery and human trafficking?

Training:

Does the company train its employees directly responsible for supply chain management on mitigating the risk of slavery and human trafficking in its supply chain?

If a retailer or manufacturer does not have a web site, consumers must be provided with a written disclosure containing the above information within 30 days of submitting a written request.

Enforcement and Remedies

Enforcement of the Act is vested exclusively with the Attorney General, and the exclusive remedy is injunctive relief. Cal. Civ. Code § 1714.43(d). However, the Act is not intended to be construed to limit remedies available for a violation of any other state or federal law. The California Franchise Tax Board shall make available to the Attorney General on an annual basis a list of companies required to comply with the Act based on their filed tax returns.

Companies subject to the Act should be working on their disclosures so that they will be in compliance with the Act as of January 1, 2012. They also should consider taking additional steps to aid them with their compliance, including developing human rights policies and procedures for suppliers and vendors, instituting supplier audits and verification procedures and creating an employee training program.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.