California Transparency in Supply Chains Act

Who must comply with the California Transparency in Supply Chains Act?
If the company answers "yes" to the following three questions, it is subject to the Act:

1. Is the company a "retail seller" or "manufacturer?"
   As self-reported on its California tax return, a "retail seller" is "a business entity with retail trade as its principal business activity code," and a "manufacturer" is "a business entity with manufacturing as its principal business activity code."
2. Is the company "doing business in California?"
   Doing business in California is defined as "actively engaging in any transaction for the purpose of financial or pecuniary gain or profit."
3. Does the company have annual worldwide "gross receipts" that exceed $100,000,000?
   "Gross receipts" include "gross amounts realized … on the sale or exchange of property, the performance of services, or the use of property or capital … in a transaction that produces business income, in which the income, gain, or loss is recognized … under the Internal Revenue Code..." It does not include, even if business income, items identified in California Revenue and Taxation Code Section 25120(f)(2)).

What disclosures are required under this new law?
The Act requires, at a minimum, disclosure of what actions the company is taking, if any, in five areas:

• Engaging in verification of product supply chains to evaluate and address risks of human trafficking and slavery, specifying if the verification was not conducted by a third party.
• Conducting audits of suppliers to evaluate compliance with company standards for trafficking and slavery in supply chains, specifying if the verification was not an independent, unannounced audit.
• Requiring 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.
• Maintaining internal accountability standards and procedures for employees or contractors failing to meet company standards regarding slavery and trafficking.
• Providing 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.

How must the disclosures be made?
The required disclosures are to be posted on the company's website with a "conspicuous and easily understood link" to the required information on the website's homepage. If the retail seller or manufacturer does not have a website, consumers are to be provided the written disclosures within 30 days of receipt of a written request.

When must the disclosures be posted?
The disclosures required by the Act must be posted starting on January 1, 2012.

Who is entitled to enforce the Act?
The exclusive remedy for a violation of the Act is an action brought by the Attorney General for injunctive relief. This section, however, is not intended to limit remedies available for a violation of any other state or federal law.

What else do you need to know?
The Franchise Tax Board will also be required to make available to the Attorney General a list of retail sellers and manufacturers that would be covered by the Act.

Additional resources

Click here to read the Oct. 4, 2011, Pillsbury Client Alert titled, "Retailers, Manufacturers Must Disclose Efforts to Combat Slavery, Human Trafficking as of Jan. 1."

Click here to read the text of the legislation, SB 657, including guidelines.

Click here to read the February 16, 2010, Pillsbury Client Alert titled, "CA Bill Would Require Manufacturers and Retailers to Combat Human Trafficking."