California Enacts Law Requiring Many Businesses To Disclose Efforts To Eradicate Forced Labor In Their Supply Chains

November 18, 2010

The new California Transparency in Supply Chains Act (S.B. 657) will require retail sellers and manufacturers, doing business in California and having over $100 million in annual worldwide gross receipts, to publicly disclose their efforts to eradicate slavery and human trafficking from their direct supply chain for tangible goods offered for sale.  It is the first state law of its kind and will take effect on January 1, 2012.

Retail sellers and manufacturers will be required to post the disclosure on their internet web site with a conspicuous and easily understood link to the required information on the business’s homepage.  If the business does not have a website, consumers shall be provided the written disclosure within 30 days of a written request from the consumer.

The disclosure must indicate to what extent, if any, the business 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 must specify if the verification was not conducted by a third party.
  2. Conducts audits of suppliers to evaluate supplier compliance with company standards against 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.”

SB 657, Section 3(c)(1) to (5).

The new law does not require that any specific effort be undertaken, but requires the business to disclose to what extent, if any, it takes the above-identified actions.  (Separate from this new California law, since 2000, companies with contracts with the State of California to provide to state agencies equipment, materials, supplies, or garments or apparel, have been required by California Public Contract Code Section 6108 to certify that no items have been produced with forced or sweatshop labor and that the contractor and its subcontractors are in compliance with all labor and employment laws of the countries where the facilities are located.)  The new disclosure law applies to all retail sellers and manufacturers who do business in California, regardless of whether they sell anything to California state agencies.

The exclusive remedy for a violation of the disclosure requirements will be an action brought by the California Attorney General for injunctive relief for failure to make the required disclosure.  However, the law states that it shall not limit remedies available for a violation of any other state or federal law.  Based on tax returns filed, the California Franchise Tax Board will make available to the Attorney General each year a list of retail sellers and manufacturers required to disclose their efforts.

It is expected that interest groups will access and use a company’s disclosure to put public pressure on the company to modify its practices.  Companies seeking to influence suppliers’ practices will also want to be mindful of the possibility of litigation asserting that the company’s efforts made it a “joint employer” with legal responsibility for suppliers’ treatment of workers.  See 572 F.3d 677 (9th Cir. 2009) (rejecting joint employer claim on facts of that case).

Gibson, Dunn & Crutcher LLP

Gibson, Dunn & Crutcher’s Labor and Employment Practice Group is available to assist in addressing any questions you may have regarding these issues.  Please contact the Gibson Dunn attorney with whom you work, or any of the following:  

William D. Claster – Practice Co-Chair, Orange County (949-451-3804, [email protected])
Eugene Scalia – Practice Co-Chair, Washington, D.C. (202-955-8206, [email protected])
William J. Kilberg P.C. – Washington, D.C. (202-955-8573, [email protected])
Scott A. Kruse – Los Angeles (213-229-7970, [email protected])
Christopher J. Martin – Palo Alto (650-849-5305, [email protected])

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