By now, businesses that operate in the global marketplace should be well aware of the expanding collection of ‘name and shame’ regimes that multiple governments have adopted, imposing supply chain transparency obligations on companies within their jurisdiction. These programmes include conflict minerals reporting requirements and human trafficking/slavery diligence mandates at the federal and state level in the United States and, increasingly, other countries. While compliance with the basic terms of these legal obligations is challenging enough, new types of business and legal risk are emerging as third parties closely scrutinise – and are finding ways to act upon – what they see as false claims or underperformance by reporting companies.

One area posing specifically increased risk relates to the California Transparency in Supply Chains Act of 2010. This law, which went into effect in 2012, directs companies that have $100m in annual gross receipts worldwide and manufacture or sell products in California to disclose on their websites what steps they have taken to eliminate human trafficking and slavery in their supply chains, using a format set forth in the law and elaborated upon in a Resource Guide published in 2015. The only enforcement authority under this law is injunctive action by the California Attorney General, which has yet to be invoked. Seeking sharper ‘teeth’, citizen-activists have now turned to California anti-fraud and consumer protection laws to bring class action litigation against companies they believe are not properly complying with the Transparency Act or are otherwise making false or fraudulent claims related to the use of forced labour in their supply chains. These cases, discussed below, bear close watching; if these claims survive motions to dismiss, more litigation of this type is sure to follow.

Jan-Mar 2016 Issue

Clark Hill PLC