Litigation

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

 

January 6‚ 2012

California’s New Forced Labor Disclosure Law: Empowering Consumers while Burdening the Supply Chain

California slavery and human trafficking law affects more than mega-retailers and major manufacturers.

By Micha "Mitch" Danzig, Cynthia J. Larose, Benjamin B. Tymann, and Eric J. Eastham

California ushered in the New Year with the usual fanfare and revelry. But 2012 also uncorked new state disclosure requirements for retailers and manufacturers concerning the businesses’ efforts to eradicate human trafficking and slave labor from their supply chains.

At first blush the California Transparency in Supply Chains Act,1 which went into effect on January 1, appears to be confined to the 3000+ retailers and manufacturers doing business in California who have annual worldwide gross receipts of $100 million or more. However, each business subject to the new reporting requirements must disclose its efforts to analyze and assess forced labor risks throughout its supply chain — often involving dozens or more independent suppliers of component parts and materials.

The Act requires a business to provide a link to its human trafficking and slave labor disclosure on its company website.2  The object of the law is to enable discerning, socially-conscious consumers — armed with details concerning companies’ efforts to ensure their products are not tainted by forced labor — to make informed purchasing decisions.

In addition to the steps taken by a business to avoid slave labor in its supply chain, the disclosure must identify whether a business (1) offers training in human trafficking risk mitigation, (2) maintains internal accountability standards, (3) conducts audits of its suppliers, and (4) requires its suppliers to certify their components or materials are not associated with slave labor.

The Act also contains an enforcement provision. A business that fails to comply could face a lawsuit from the California Attorney General seeking injunctive relief to remedy alleged violations. Unfortunately, a lawsuit of this nature can lead not only to legal damages but, irrespective of the ultimate merits of such allegations, a potential PR nightmare and scores of fleeing customers.

While the law certainly has an honorable intention, suppliers can expect that much of the cost and other burdens of compliance faced by large retailers and manufacturers will be pushed downstream.

What does a supplier need to know about the new law?

The Act will likely spur businesses subject to the law to implement comprehensive and stringent procedures for policing their direct suppliers. Suppliers should take steps now to investigate, track, and document their own efforts to avoid the use of slave labor, so that they are ready when manufacturers and retailers come calling, especially in the event of a surprise audit. Even if they are not located in California, suppliers will be asked to guarantee that the materials or parts they provide comply with slavery and human trafficking laws in the country of origin. Suppliers that are unable to trace their components’ provenance could find themselves at a serious competitive disadvantage as compared with those companies that are able to comply.

Suppliers doing business with large California retailers and manufacturers can also expect to be presented with newly rewritten supply agreements, through which those manufacturers and retailers may seek contractual indemnity from their suppliers and a certification of a lack of human rights abuses. Failure to comply with these new terms could expose a supplier to litigation or simply a loss of business relationships with its retailers or manufacturers.

Suppliers should be cognizant of this new law and be prepared for their manufacturing and retailing customers doing business in California to push them to implement potentially costly and burdensome internal procedures, or risk jeopardizing profitable upstream relationships. Many suppliers, particularly those with bargaining power, will likely be prepared to push back against absorbing these added costs. But suppliers can also get ahead of this pressure by identifying and enhancing existing procedures now and, by doing so, proactively position themselves as industry leaders in compliance as compared with their competitors. 

* * *



Endnotes

1  The full text of the law is available at http://info.sen.ca.gov/pub/09-10/bill/sen/sb_0651-0700/sb_657_bill_20100930_chaptered.html

2  Or, if the company does not maintain a web presence, it must provide consumers with a copy of its disclosure upon request (within 30 days).


 

 

1570-0112-NAT-LIT