By Liz Blong
Effective January 1, 2012, approximately 3.2% of the retail sellers and manufacturers that do business in California will be subject to a new disclosure law, the California Transparency in Supply Chains Act of 2010. The law requires certain retailers and manufacturers to provide disclosure regarding "their efforts to eradicate slavery and human trafficking from their direct supply chains for tangible goods offered for sale, as specified."
Determining if a company is subject to the new law. Companies in the retail and manufacturing businesses will need to determine whether they are subject to this new law based on a three-part test, all three parts must be satisfied.:
1) Doing Business in the State of California: A retailer or manufacturer must be doing business in the state of California. Section 23101 of the California Revenue and Taxation Code defines "doing business in this state" to include companies
- organized or commercially domiciled in California;
- whose sales in California exceed the lesser of $500,000 or 25% of the company's total sales;
- whose real property and tangible personal property in California exceeds the lesser of $50,000 or 25% of the company's total real property and tangible personal property; or
- who pay compensation in California in excess of the lesser of $50,000 or 25% of the total compensation paid by the company.
2) Annual Worldwide Gross Receipts exceed $100,000,000
3) Is a Manufacturer or Retail Seller: determined by reference to the principal business activity code (either manufacturing or retail trade) on its tax return filed with the state of California.
If a company satisfies each of the three prongs described above, as of January 1, 2012, it must post the required disclosure on its corporate website through a "conspicuous and easily understood link." If the company does not have a corporate website, it must provide a written disclosure within 30 days to any consumer providing a written request for such disclosure.
Required Disclosure. The disclosure must, at a minimum, describe to what extent, if any, the company does each of the following:
"(1) Engages in verification of product supply chains to evaluate and address risks of human trafficking and slavery. The disclosure shall specify if the verification was not conducted by a third party.
2) Conducts audits of suppliers to evaluate supplier compliance with company standards for trafficking and slavery in supply chains. The disclosure shall specify if the verification was not an independent, unannounced audit.
(3) Requires direct suppliers to certify that materials incorporated into the product comply with the laws regarding slavery and human trafficking of the country or countries in which they are doing business.
(4) Maintains internal accountability standards and procedures for employees or contractors failing to meet company standards regarding slavery and trafficking.
(5) Provides company employees and management, who have direct responsibility for supply chain management, training on human trafficking and slavery, particularly with respect to mitigating risks within the supply chains of products."
Failure to provide the required disclosure. The new law provides that the exclusive remedy for violating the law is an action brought by the Attorney General for injunctive relief.