New California law requires efforts to ensure supply chains are free of slavery

Effective January 1, 2012, California SB657, known as The California Transparency in Supply Chains Act of 2010, will mandate retail sellers and manufacturers doing business in California with annual gross receipts exceeding $100 million to conspicuously and clearly disclose their efforts and policies for ensuring that their supply chains are free from human trafficking and slavery.

The targeted companies are required to make these disclosures on their websites; if a company does not have a website, the information must be provided in writing within 30 days of a consumer request. Although the Act does not mandate any specific language, the disclosure must be easily understood and explain the procedures, if any, that the company has in place, in reference to:

    • Evaluating and addressing the human trafficking and slavery risks in its product supply chains (disclosure must state whether or not the company is using a third-party to assess these risks);
    • Requiring direct suppliers to certify that the materials used in the products comply with slavery and human trafficking laws in the countries in which they are doing business;
    • Conducting supplier audits to evaluate compliance with company standards on trafficking and slavery (disclosure must state whether or not the audits are independent and unannounced);
    • Maintaining accountability standards and procedures for employees or contractors who fail to meet company standards regarding slavery and human trafficking;
    • Training employees and managers who have direct responsibility with supply chain management on the mitigation of human trafficking and slavery risks.

While the Act has gained significant attention by California companies, its expansive jurisdictional provisions make it applicable to many large retail sellers and manufacturers that are organized or domiciled outside of California, as the $100 million gross receipts threshold for compliance is based on worldwide sales revenue. And since the threshold is relatively low and set in dollar amounts, it can be as triggered by earning less than 1% of that revenue in the state, owning some property or having even one employee or contractor here (see CA Revenue and Taxation Code Section 23101 for a full definition of “doing business in California.”)

California SB657 is a disclosure law and does not require companies to do things differently, but its deceptive simplicity brings into focus the importance of proactive risk management. And for many companies, it is a call to action to move beyond this law’s mere disclosure compliance and implement or strengthen their risk management programs not only for brand equity protection but also in recognition of their corporate social responsibility.

In our products portfolio, SI offers specialized background investigations for vendor/third-party engagements which include elements and search strategies designed to find, among other criteria, indications or records of slavery and human trafficking in supply chains.

The Act is a disclosure law and does not impose any substantive regulation on supply chain activities. Nor, unlike the “conflict minerals” provisions of the Dodd-Frank regulatory reform law, 9 does it impose any affirmative obligations on companies to perform diligence regarding the existence of slavery or human trafficking in their supply chains. Nonetheless, as a matter of corporate social responsibility as well as public image, companies may wish to consider whether it is appropriate to adopt policies or procedures to mitigate the risk that slavery or human trafficking exist in their supply chains.