California Supply Chain Disclosure Deadline Approaching

The deadline to comply with the California Transparency in Supply Chains Act of 2010, California Senate bill 657, is less than three months away. The bill, which requires retail and manufacturing companies that do business in California to publicly disclose their efforts to eliminate slavery and human trafficking, has a compliance deadline of January 1, 2012.

Beginning in January, retail sellers and manufacturers doing business in California, and with more than $100,000,000 in worldwide sales, will be required to publicly document their efforts to eliminate slavery or human trafficking from their supply chain. It is important to note that, while slavery and human trafficking are crimes under state, federal and international laws, S.B. 657 does not explicitly require a company to remove these activities from their supply chains. The California Transparency in Supply Chains Act only requires that a company disclose its effort, if they exist, to eliminate these crimes.

While the number of corporations directly impacted will be limited due to the high revenue level, effects of the law will be felt by many companies across a wide variety of markets. Businesses with a relatively small presence in California can still be subjected to the law. For example, having as little as $500,000 in sales per year in the state marks a company as "doing business in California," pursuant with Section 23101 of the California Revenue and Taxation Code.

Smaller businesses can also be impacted due to the disclosure regulations. Larger companies that elect to audit their supply chain will in effect disclose the supply chain for any business they source product from. Importers and decorators who do not fall under the law's requirements could then feel pressure to comply or risk losing those clients. Because of this, companies with under $100,000,000 in sales or that do not do business in California may still have their supply chains scrutinized and reported.

The disclosures must, at minimum, state to what extent the company does each of the following five activities:

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.

California's legislature has stated that it hopes the bill, which was signed by former Governor Schwarzenegger, will encourage companies not under its jurisdiction to voluntarily monitor and adjust their supply chains to meet the state's standards. Similar legislation is being considered in other states, such as the Business Transparency on Trafficking and Slavery Act, H.R. 2759, recently introduced in New York.

For more information, view the California Transparency in Supply Chains Act of 2010 bill here (PDF).