The California Transparency in Supply Chains Act of 2010 (“TSCA”) went into effect on January 1, 2012. Retailers and manufacturers doing business in the state of California bringing in more than $100 million in annual world-wide gross receipts must report their efforts to eliminate slavery and human trafficking from their supply chains.
The California Legislature found:
(1) that consumers and businesses are inadvertently promoting and sanctioning these crimes through the purchase of goods and products that have been tainted in the supply chain;
(2) Absent publicly available disclosures, consumers are at a disadvantage in being able to distinguish companies on the merits of their efforts to supply products free from the taint of slavery and trafficking. Consumers are at a disadvantage in being able to force the eradication of slavery and trafficking by way of their purchasing decisions; and
(3) It is the policy of this state to ensure large retailers and manufacturers provide consumers with information regarding their efforts to eradicate slavery and human trafficking from their supply chains, to educate consumers on how to purchase goods produced by companies that responsibly manage their supply chains, and, thereby, to improve the lives of victims of slavery and human trafficking.
The California TSCA requires retailers and manufacturers doing business in California to “disclose their efforts to eradicate slavery and human trafficking from their direct supply chains for goods offered for sale.” The disclosure must be posted on the retailer’s or manufacturer’s website with a conspicuous and easily understood link from the homepage.
Covered entities are: (1) retailers or manufacturers; (2) doing business in California; (3) with annual worldwide gross receipts exceeding $100,000,000, and are defined by the entity’s filings with the California Franchise Tax Board (FTB). Covered retailers and manufacturers are those entities reporting their primary business activity on their FTB returns as retail trade or manufacturing. This excludes, for example, wholesalers. Whether an entity has global gross annual receipts in excess of $100 million is determined by the amount disclosed on its tax returns.
The TSCA defines a “manufacturer” as a business entity with manufacturing as its principal business activity code, as reported on the entity’s tax return filed under Part 10.2 (commencing with Section 18401) of Division 2 of the Revenue and Taxation Code. A “retail seller” is defined as a business entity with retail trade as its principal business activity code, as reported on the entity’s tax return filed under Part 10.2 of Division 2 of the Revenue and Taxation Code.
A company is doing business in California for taxable years beginning on or after January 1, 2011 if it meets any of the following four conditions:
(1) The company is organized or commercially domiciled in California.
(2) Sales in California for the applicable tax year exceed the lesser of $500,000 or 25 percent of the company’s total sales.
(3) The value of the real and tangible personal property of a company in California exceeds the lesser of $50,000 or 25 percent of the company’s total real and tangible personal property.
(4) The amounts paid by a company in California for compensation exceeds the lesser of $50,000 or 25 percent of the total compensation paid by the company.
The TSCA will require certain companies with more than $100 million in annual worldwide gross receipts that do business in California to disclose via a conspicuous link on their main website their efforts (if any) to address risks related to slavery and human trafficking in their supply chains.
The TSCA only requires disclosure of a company’s efforts, if any, in this regard; it does not require a company to adopt particular policies related to slavery and human trafficking in their supply chains. A company subject to the TSCA could disclose that it does not do anything. A company’s disclosures in this regard, however, likely will be scrutinized by consumers, human-rights organizations, and certain investors.
While the exclusive remedy under the TSCA for a violation is an action by the California attorney general for injunctive relief, the TSCA expressly states that nothing in the section shall limit the remedies available for a violation of any other state or federal law. Thus, the plaintiffs’ bar may seek to base claims for unfair competition or false advertising under Business & Professions Code sections 17200 et seq. and 17500 et seq., or purported violations of the Consumer Legal Remedies Act, Cal. Civ. Code section 1770 et seq., on allegations that retailers or manufacturers have made misleading statements in the disclosures called for by the TSCA.
Some fair trade activists are likely to be aggressive in using the statute to shame corporations that have deficient anti-human trafficking programs. Such activists may push the envelope in litigation to try to find ways to use the statute without Attorney General involvement, or they may use extra-judicial methods to publicize violations. For this further reason, companies would be well advised both to have reasonable fair trade practices in place and, in complying with the statute, to disclose those practices accurately.