California Transparency in Supply Chains Act Disclosure Suits

The California Transparency in Supply Chains Act of 2010 (Supply Chains Act) requires any retailer or manufacturer “doing business” in California (defined in Section 23101 of California’s Revenue and Taxation Code) with over $100 million in annual worldwide gross receipts to disclose on its website actions taken, if any, to “eradicate slavery and human trafficking from its direct supply chain.” More specifically, a qualifying business must post “a conspicuous and easily understood link to the required information” on its homepage, or if it has no online presence, provide consumers with a written disclosure within 30 days of receiving a consumer’s written request. At a minimum, a company must disclose whether it: (1) verifies its product supply chains, (2) conducts supplier audits, (3) requires supplier certifications, (4) maintains internal compliance procedures for employees and contractors, and (5) furnishes trainings to employee and management.

As with the UK Modern Slavery Act, which was modeled after the Supply Chains Act, a company is not required to implement new measures or introduce any operational changes to safeguard its supply chain from the utilization of slave labour—only to disclose what it does or does not do. Failure to disclose is a violation of law for which a company may be sued by the California Attorney General seeking relief in the form of injunction. The Act does not grant citizens a private right of action, but beginning last August a series of disclosure-based, putative consumer class action lawsuits was filed against various companies asserting misleading disclosures in violation of various California false advertising and consumer protection statutes. At the crux of the claims, brought for unlawful business practices, misleading and deceptive advertising, and unfair and deceptive practices, are companies’ attempts to comply with the Supply Chains Act and the scope of their disclosure statements.

Three of the cases –Barber v. Nestlé USA Inc.,Wirth v. Mars Inc., and Hodsdon v. Mars Inc.– have been dismissed. In two instances, the court held the claims were barred by California’s “safe harbour” doctrine, under which companies are shielded from liability when they truthfully and accurately comply with the limited disclosure obligations that the law mandates. In another case, the court declined to address the safe harbour doctrine, questioning its applicability to the facts, and instead found the company had no duty to disclose at the point of sale on its packaging the probability that child and/or forced labour practices had arisen in its supply chain. The court said the duty extended only to a product’s safety risks and defects and not to instances where more information might impel a consumer to buy a different product.

Three cases remain pending. One resulted, at least in part, from an in-depth journalistic investigation. It remains to be seen whether the claims will succeed. For now, companies should be aware of these disclosure-based actions, the Supply Chains Act, and their regulatory-required reporting requirements regarding verification, audits, certification, internal accountability, and training.