California's Supply Chain Law: Impacts and Compliance

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California's Supply Chain Law: Impacts and Compliance

On Jan. 1, 2012, The California Transparency in Supply Chains Act (Supply Chains Act or law) went into effect, requiring certain businesses to publicly disclose what specific actions, if any, they have taken to eliminate slavery and human trafficking from their product supply chains. The disclosure must be posted on the company’s website and clearly linked from its homepage.

Who Is Required to Disclose?

Retail sellers and manufacturers doing business in California with gross worldwide receipts of more than $100 million are subject to the requirements. Large retailers and manufacturers domiciled outside of California but doing business in the state will be affected, even if their operations in California are relatively small. A company is identified as doing business in California if any of the following is true: it's organized or domiciled in the state, its California sales for the applicable tax year exceed the lesser of $500,000 or 25 percent of the company’s total sales, it has California property worth more than $50,000 or 25 percent of the company’s total real and tangible property, or it has payroll in California greater than $50,000 or 25 percent of the company’s total payroll. It's estimated that 3,200 companies — approximately 3.2 percent of all companies doing business in the state — are directly subject to the Supply Chain Act.

It's likely that wholesalers and distributors, regardless of size, will be asked to comply indirectly with this law if their customers are required to disclose.

What are Companies Being Asked to Disclose?

Under the new law, companies will be required to disclose five elements related to human trafficking and slavery in their supply chain. 

• First, does the company verify that they are in compliance with their own policy and specifically do they use third parties to perform the verification?
• Second, do they perform impendent, unannounced audits of their suppliers?
• Third, do they require suppliers to sign certification regarding compliance with the company’s policies?
• Fourth, does the company have internal accountability standards for its employees and contractors? Finally, does the company provide training to its employees and management?

At this point, the law only requires companies to provide disclosure, however there appears to be increasing pressure from large retailers, trade groups, advocacy groups and consumers that companies do more than provide disclosure. According to Todd Van der Wel, partner at Moss Adams, "This disclosure law in California is an accelerant to the growing awareness of corporate and social responsibility in California and throughout the United States. We believe that the public will demand accountability and process from companies providing the disclosure so that this is more than just window dressings."

Next Steps

Impacted companies need to address and possibly monitor their supply chain immediately. If you have questions about how the Supply Chain Act may effect your business or how to comply with it, please contact Melissa Harman at melissa.harman@mossadams.com or Todd Van der Wel at todd.vanderwel@mossadams.com at the Moss Adams Los Angeles office.

Article written by Melissa Harman and Todd Van der Wel, Moss Adams

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