As we have previously discussed, retailers and manufacturers from across the country should be aware of the requirements of California’s Transparency in Supply Chains Act (“Supply Chains Act”). The law’s primary goal is to ensure that consumers receive information about the supply chains of certain retailers and manufacturers. Specifically, the Supply Chains Act requires that any manufacturer or retailer with at least $100 million in worldwide revenue that conducts a threshold amount of business in California¹ disclose on its website the level of effort taken to eradicate human trafficking and slavery from its direct supply chain. Although the Supply Chains Act focuses on reporting (it does not require any affirmative action on the part of retailers or manufacturers), subject companies should review their disclosures and ensure that they are compliant.

The Link

Retailers and manufacturers subject to the Supply Chains Act must place “a conspicuous and easily understood link to the required information” on their websites. This link should be placed at the top or bottom of the company’s home page, rather than a page related to corporate responsibility or to the supply chain generally. If a retailer has several brands, we recommend that links to the disclosures be placed on the home pages for each brand that conducts a threshold amount of business. The link from the home page should lead directly to the Supply Chain Act disclosures, and there should be no other content on the page.² Reducing the steps that a consumer must take to access the required disclosures helps ensure full compliance.

In addition, the link should be in conspicuous and easy-to-read text. Although the Supply Chains Act does not dictate the link’s appearance, the link should be no less visible than the surrounding content. To ensure that the link is “easily understood,” the title of the link should clearly indicate that the disclosures relate to the Supply Chains Act.³ We recommend including the name of the statute in the disclosure link.

General Requirements

Under the Supply Chains Act, retailers and manufacturers must disclose whether and the extent to which they engage in efforts to combat human trafficking and slavery in each of five areas. The Supply Chains Act does not require that retailers or manufacturers affirmatively take any action. In fact, a compliant disclosure might simply state that the retailer does not conduct any efforts in a particular area.⁴ Although the Supply Chains Act’s reporting requirements are minimal, best practice is to provide supporting details, if they are available.⁵

Verification

Subject companies are required to disclose whether they verify their product supply chains to evaluate the risks of human trafficking and slavery and whether those verifications are conducted by third parties. This disclosure should include a description of the company’s verification protocols, if any, and a brief discussion of how the verifications are conducted. Companies may also wish to include general data on the frequency of such verifications. A model disclosure for a business with a robust evaluation program might read as follows:

We engage a third-party monitor who uses a multi-level process to identify and evaluate the potential risks of human trafficking and slavery in our supply chain. Our monitor conducts an initial screening of new suppliers before we partner with them and annual initial screenings for current suppliers. The monitor’s evaluation is based on a variety of factors, including the business’s geographic location and manufacturing processes, workforce profile, the history of human trafficking and slavery in the sector, the U.S. Department of Labor’s list of goods identified as vulnerable to forced labor, and the supplier’s human rights record, if available. During the next level of review, our monitor requires prospective and current suppliers to respond in writing to questions regarding areas of concern raised during the initial screening process. The monitor assesses and reports on the suppliers with the highest risk of human trafficking. These high-risk suppliers are subject to annual audit.⁶

For a firm with a less robust evaluation program, a disclosure might read as follows:

We conduct biannual assessments of X percent of our product suppliers to verify that they are not at risk of violating antislavery and human-trafficking laws. We do not use a third party. Our internal risk management team heads the verification process and uses an internally developed, multi-part assessment.⁷

In addition, retailers and manufacturers should disclose the extent to which they verify and manage the risks associated with the presence of third-party labor brokers—those who serve as intermediaries in recruiting, hiring and managing workers—in the supply chain.⁸

Audits

Subject companies are required to disclose whether they audit their suppliers’ compliance with company standards for human trafficking and slavery and whether these audits are independent and unannounced. This disclosure should include a description of the company’s audit methodology and a high-level summary of how the company selects the suppliers to be audited and whether suppliers receive advance notice of the audits. In addition, retailers and manufacturers should include general statistics on the frequency and outcomes of any supplier audits conducted.⁹

An example of a disclosure reads as follows:

Each year, we audit X percent of our suppliers to determine whether they comply with company standards aimed at eliminating human trafficking from our supply chain. We decide which suppliers to audit based on an assessment of the level of risk for slave labor or human trafficking in the country where the supplier operates. We have completed a total of X supplier audits since 20XX. Approximately Y percent of our suppliers received at least one assessment in 2017, A percent of which were found to be in compliance with our standards and B percent of which were not. We monitor supplier behavior and compliance through our own internal auditors, who perform extensive announced and unannounced investigations. If and when our internal auditors report an instance of abuse, our company then engages a professional third-party auditing firm to independently evaluate.¹⁰

Certification

Subject companies are required to disclose whether they require their suppliers to certify their compliance with the laws regarding human trafficking and slavery in the countries where those suppliers do business. This disclosure should include a description of any applicable certification requirements and a description of how compliance with those certification requirements is monitored and enforced. In addition, retailers and manufacturers should detail any additional efforts they take to encourage their suppliers to comply with local laws and regulations, such as recordkeeping requirements or compliance reviews.¹¹

An example of a compliant disclosure for a business with an in-depth certification program may read as follows:

To ensure that our suppliers and contractors respect and enforce our company standards, we include a contract clause in our commercial agreements with suppliers that stipulates that our suppliers must abide by our antislavery and human-trafficking standards. Thus, as a condition of doing business, suppliers must self-certify that (1) they comply with all applicable laws and regulations regarding the eradication of forced labor, human trafficking, and slavery; (2) their supply chains and materials comply with national and international laws that prohibit human trafficking and slavery; and (3) they agree to conduct business in compliance with all applicable labor laws. Our company requires each supplier and contractor to maintain records that are sufficiently detailed to substantiate that all materials supplied to us are produced in compliance with the human-trafficking and antislavery laws of the country or countries where they are produced. This includes records regarding proof of age for workers, employee records and timesheets, written documentation of the terms and conditions of employment, local health and safety evaluations, exemptions from any applicable laws, and records of employee grievances. These records must be produced to company auditors upon request. We also use independent country, commodity, and product risk data, which is provided by a global risk advisory firm, to score, rank, and evaluate the human trafficking risks associated with what we buy and where we buy it. The results help us decide whether direct suppliers should complete a self-assessment or whether an independent audit is justified.¹²

As noted above, if a firm does not require that its suppliers certify whether they comply with human-trafficking and slavery laws, the disclosure should so state. For example:

Currently, we do not require our direct suppliers to certify that they comply with antislavery and human-trafficking laws in the country or countries in which they do business.

Internal Standards

Subject companies must disclose whether they maintain internal accountability standards and procedures related to human trafficking and slavery. Specifically, this disclosure relates to any internal compliance programs that a retailer or manufacturer may have. It should describe what standards and procedures, if any, are in place and should identify those individuals responsible for monitoring compliance with those standards and procedures. In addition, retailers and manufacturers should detail the types of preventive or corrective actions taken to enforce the internal standards and should discuss any mechanisms in place to help employees understand the requirements. This may include whistleblower protections or other safeguards that ensure that internal investigations into supply chain practices are objective. If useful, companies may wish to provide a link to their codes of conduct.¹³

An example disclosure reads as follows:

Noncompliance with our company standards regarding slavery and human trafficking can result in corrective action or termination, depending on the number and severity of the instances of noncompliance found. Our team of internal auditors works with employees and contractors to develop corrective action plans for any instances of noncompliance. We reserve the right to terminate a business relationship with an employee or contractor if deemed necessary. In the last year, we conducted X visits to our supplier factories to audit internal grievance mechanisms. We evaluated existing communication channels in these factories, assessed their adequacy, and reviewed the frequency of grievances that were reported and resolved. We also evaluated the responsiveness of management in addressing anonymous complaints, as well as employee and privacy retaliation concerns.¹⁴

Employee Training

Subject companies must disclose whether they provide employees and managers with training related to human trafficking and slavery, including training regarding the mitigation of the risk of such activities in the supply chain. This disclosure should include information regarding the personnel who receive any such training, the general nature of the curriculum, and data on the duration and frequency of such training.¹⁵ Retailers and manufacturers who partner with third-party organizations to provide training should incorporate such information into their disclosures.¹⁶

As an example, a business’s disclosure may read as follows:

We conduct an annual, three-day seminar for employees and managers who are directly responsible for selecting and overseeing our suppliers, which includes one day devoted to mitigating the risks of human trafficking and slavery in our supply chain. We partner with XYZ Institute and experts from ABC Organization to provide the annual six-hour training to supply chain management staff, existing suppliers, and new vendors. Our supply chain management staff consists of two vice-presidents and one operations manager. Every member of our supply chain management staff receives training on all company policies, practices, and procedures designed to ensure that our supply chain is free from any forced labor, including how to spot warning signs of potential violations.¹⁷

_{1 A retail seller or manufacturer meets this threshold if it satisfies one of the following conditions: In a tax year, the retailer or manufacturer (1) has sales in California that exceed $500,000 or 25% of its total sales, whichever is less; (2) has real property and tangible personal property in California that exceeds $50,000 in value or 25% of its total property value, whichever is less; or (3) pays compensation in California that exceeds $50,000 or 25% of the total compensation it pays, whichever is less. CAL. CIV. CODE § 1714.43(a)(2)(A); CAL. REV. & TAX CODE § 23101(b).}

_{2 California Dep’t of Justice, “The California Transparency in Supply Chains Act: A Resource Guide,” at 5–7 (2015) (“Resource Guide”).}

_{3 Resource Guide at 7–8.}

_{4 For example, if a retailer or manufacturer does not provide training for its employees or contractors regarding the risks of human trafficking and slavery, a compliant disclosure might read as follows:
At present, our company does not provide employees or contractors with training regarding human trafficking and slavery.}

_{5 Resource Guide at 9-11.}

_{6 Adapted from model disclosures in Resource Guide at 11-12.}

_{7 Adapted from model disclosures in Resource Guide at 13.}

_{8 Resource Guide at 11-13.}

_{9 Resource Guide at 14-15.}

_{10 Adapted from model disclosures in Resource Guide at 14-15.}

_{11 Resource Guide at 16–17.}

_{12 Adapted from model disclosures in Resource Guide at 16–17.}

_{13 Resource Guide at 18–20.}

_{14 Adapted from model disclosures in Resource Guide at 18–19.}

_{15 Resource Guide at 20–21.}

_{16 Id. at 20.}

_{17 Adapted from model disclosures in Resource Guide at 20–21.}