The state of California has enacted the California Transparency in Supply Chains Act (the “CTSCA” or the “Act”), which takes effect on Jan. 1, 2012. The CTSCA requires retailers and manufacturers doing business in California with more than $100 million worldwide gross receipts to, on or before Jan. 1, 2012, disclose on their website the steps they are taking to ensure their supply chains are free from forced labor, slavery and human trafficking.Background
The human rights records of supply chain providers have become increasingly important and controversial issues for a variety of companies, especially those that rely on products that are manufactured overseas. The CTSCA is intended to educate consumers on how to purchase products from companies that responsibly manage their supply chains by limiting the use of forced labor and to provide similar information to investors interested in socially responsible companies. The legislature found that absent the publicly available disclosures required by the statute, consumers are at a disadvantage in distinguishing companies by their efforts to produce products free from the taint of slavery and human trafficking.
The CTSCA will impact both brand name retailers and manufacturers that have and continue to be scrutinized over human rights records in their supply chains as well as other companies that have not been the targets of such complaints. Notably, the CTSCA could apply to retailers and manufacturers organized or domiciled outside California, but that are “doing business in California” as defined by the California tax code, have more than $100 million in worldwide gross receipts and have supply chains for the sale of tangible goods.Companies Subject to the CTSCA
Companies subject to the CTSCA must be either a “retail seller” or “manufacturer” that is “doing business in the state” of California and has annual worldwide “gross receipts” in excess of $100 million. The Act does not provide an exemption for large companies conducting very limited business with California residents.
On or before Jan. 1, 2012, all companies subject to the CTSCA must post on their website a notice that discloses to what extent, if any, the company does each of the following:
The website posting must provide a conspicuous and easily understood link to the required disclosures. In the event that a retail seller or manufacturer does not have a website, it must provide the consumer with a written disclosure within 30 days of the consumer’s request.
The exclusive remedy for violating the CTSCA is an action brought by the attorney general of California for injunctive relief; however, the CTSCA is not intended to be construed to limit remedies available for a violation of any other state or federal law. The California Franchise Tax Board shall make available to the attorney general on an annual basis a list of retail sellers and manufacturers required to comply with the CTSCA based on their filed tax returns.
Companies subject to the CTSCA should be preparing their disclosures and considering additional steps that they may wish to implement to monitor and manage their supply chains, including the development or revision of human rights policies and procedures for suppliers and vendors, auditing and verification procedures, and internal training of company employees responsible for or involved with the entity’s supply chain.
If you have any questions concerning whether the CTSCA applies to your company or need assistance in developing the disclosures that must be posted on your website by Jan. 1, 2012, please contact the lawyer below.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:Wang-Catherine
This article was originally published by Bingham McCutchen LLP.