California law requires disclosures about supply chain labor

A little-noticed California law passed late last year requires many retailers and manufacturers to report on their efforts to eliminate slave labor and human trafficking in their supply chains by Jan. 1, 2012.

California Senate Bill 657, the California Transparency in Supply Chains Act, requires retailers and manufacturers that do business in that state and have worldwide revenues exceeding $100 million to publish on their websites a report on how they are preventing and eliminating forced labor in their "direct supply chains." The report must be online no later than Jan. 1, 2012.

Under the law, retailers and manufacturers must publish information about five areas, according to Betty Hutchison, manager of social compliance for the independent auditing firm Bureau Veritas. Hutchison spoke at the Coalition of New England Companies for Trade (CONECT) annual meeting in Wrentham, Mass., on Sept. 22.

Those areas include:

• Verification of their efforts to assess the risk of slave labor and human trafficking in their supply chains
• Information about audits of their efforts to identify any use of slave labor and human trafficking in their supply chains
• Certification by "direct suppliers" that slave labor and human trafficking was not involved in production of materials that are incorporated into the products they make
• Accountability standards and procedures for employees and suppliers regarding the elimination of slave labor and human trafficking
• Training for management and employees with "direct responsibility for the supply chain" on mitigating risk related to forced labor

By Jan. 1, companies must state in an "easy to find" location on their websites what they currently are doing in each of those areas—and if they are not doing anything, they must say so, Hutchison said. Many retailers and apparel makers already are engaged in efforts to prevent the use of forced labor at factories overseas, and many of them have third-party auditors verify their suppliers' compliance with formal codes of conduct. But many companies do not, and those that post statements saying that they currently do little or nothing in regard to forced labor issues may come under pressure from consumers and social action groups to do more.

Some of the law is vaguely worded, and it's unclear exactly what legislators expect retailers and manufacturers to do, said Hutchison. For example, the law does not define "slave labor" or "human trafficking," nor does it specify what level of job function is meant by "direct responsibility for the supply chain."

Retailers and manufacturers want California's attorney general to define the terms used in the law and to clarify how companies should comply, as well as how the law will be enforced. In the meantime, she suggested, businesses could adopt definitions and language used by nongovernmental organizations that focus on the elimination of slave labor and human trafficking when making their disclosures.

Hutchison warned against thinking that the Transparency in Supply Chain Act is a California-only issue. If passed as currently written, she said, H.R. 2759, the Business Transparency on Trafficking and Slavery Act, would require publicly traded companies to divulge similar information in their annual filings with the Securities and Exchange Commission. That bill was introduced on Aug. 1 by Rep. Carolyn Maloney (D-N.Y.) and is currently being reviewed by a House Financial Services subcommittee.