California Law Alert: California Transparency in Supply Chains Act

New disclosure requirements will take effect January 1, 2012 for manufacturers and retailers doing business in California with respect to the prevention of the use of slave labor by their international suppliers.

While the Act does not require companies to take any remedial steps to combat slavery or human trafficking, large retail sellers and manufacturing companies will be required to publicly disclose what, if any, efforts they have taken to eliminate slavery and egregious labor practices of foreign suppliers.

Who Must Comply

Any "retail seller" or "manufacturer" doing business in California and having at least $100 million in annual worldwide gross receipts is subject to the Act. The annual gross receipts required for a company to be subject to the Act—$100 million—are measured globally. Accordingly, a company based outside of California may still be subject to the Act, even if the extent of its California business is relatively small.

What Is Required

Any company subject to the Act must post a "conspicuous and easily understood" link on its web site to a statement that shall, "at minimum, disclose to what extent, if any" the retail seller or manufacturer:

• Engages in verification of product supply chains to evaluate and address risk of slavery in their labor practices
• Conducts audits of suppliers to evaluate supplier compliance with company standards for slavery and labor practices in supply chains
• Requires direct suppliers to certify that materials incorporated into the product comply with the laws regarding labor practices of the countries in which they are doing business
• Maintains internal accountability standards and procedures for employees or contractors failing to meet company standards
• Provides company management who deal with foreign suppliers with training, particularly with respect to mitigating risk

What Manufacturers and Retailers Should Do

Companies subject to the Act are merely required to disclose the extent to which they engage in specified acts designed to combat human trafficking and slavery. In theory, a company could simply state it did not take any action, but the negative public relations consequences would far outweigh the costs of implementing the policies necessary to support affirmative responses. The following actions are recommended:

1. Notify Suppliers

Companies should assess their supply chains and obtain a compliance commitment.

Proposed Notice to Suppliers:

The State of California has recently instituted new notification requirements for major manufacturers and retailers regarding slavery, human trafficking and egregious labor practices in their supply chains. We as a company have a strong commitment to ensuring there are no egregious labor practices involved in our supply chain.

Accordingly, we ask you to have an authorized representative of your company sign below to certify that the materials you supply to us comply with all applicable laws regarding slavery, human trafficking and labor practices in the country or countries in which you do business

We will be in touch shortly to discuss your supply chain for the materials you provide us.

1. Implement and Enforce Internal Policies and Procedures

Have in place internal accountability standards and procedures in the event egregious labor practices were to come to your attention. Establish various reporting options. Report any violation of laws by suppliers and others of which you become aware.

1. Create a Conspicuous Link on the Company Homepage

While there is no obligation to take action, covered companies must identify what they are doing on each of five points.

Proposed homepage verbiage: “Action to eliminate slavery and human trafficking from supply chains”

Keep in mind that this link needs to be live effective January 1 or there is a risk of a lawsuit by individuals looking to profit from this new law.

Proposed content of linked page:

The State of California has recently challenged companies doing business in California to join in its effort to identify and eliminate slavery and human trafficking in supply chains. In line with this effort, we as a company are initiating programs in the following ways to help ensure that no slavery or egregious labor practices exists within our product supply chains:

We are requesting our suppliers to provide details regarding their supply chains that may indicate a risk of slavery or egregious labor practices.

Although, based on current information, our supply chain is unlikely to incorporate slavery or egregious labor practices, if serious risks are identified, we will retain third-party investigators and conduct audits.

As we place new orders, we will be requiring our suppliers to provide certification that the materials incorporated into the product comply with all applicable laws regarding slavery or egregious labor practices in the country or countries in which those suppliers are doing business

Our company policies require our personnel to operate in accordance with applicable laws and to report any violation of laws by our suppliers and others of which they become aware. Accordingly, we have internal accountability standards and procedures in place in the event of any instances of egregious labor practices.

Company employees and management who have direct responsibility for supply chain management will be trained with regard to mitigating risks of slavery or egregious labor practices within the supply chains of products.

It is our goal that our efforts and those of other retailers and manufacturers will have the intended effect of minimizing the human trafficking, slavery or egregious labor practices in our supply chains.

Enforcement and Remedies

Companies that assess their supply chains will also be better prepared for similar legislation likely to come out of other states or the federal government. Enforcement of the Act is vested with the Attorney General. Every year, the Franchise Tax Board will provide the Attorney General with a list of retail sellers and manufacturers that meet the requirements for the Act, based on tax returns.

The only remedy available to the Attorney General for those companies that fail to comply is injunctive relief. We expect however, that California's aggressive class action plaintiffs' bar will vigorously pursue companies that make false or misleading representations that might form the basis of a claim under other California statutes.

Please contact Laura Worsinger at 213-457-1744 or your Dykema relationship attorney if you have questions or require assistance in implementing these new California employment laws.

---

_{As part of our service to you, we regularly compile short reports on new and interesting developments and the issues the developments raise. Please recognize that these reports do not constitute legal advice and that we do not attempt to cover all such developments. Rules of certain state supreme courts may consider this advertising and require us to advise you of such designation. Your comments are always welcome. © 2011 Dykema Gossett PLLC.}