Is the California Transparency in Supply Chains Act Doing More Harm than Good?

Since its passage in 2010, human rights advocates have wondered whether they could use the California Transparency in Supply Chains Act (CTSCA) to litigate against companies that use forced labor abroad. Hailed as ushering in a new era of legal corporate accountability, the CTSCA obligates any large company doing business in California to publicly disclose its efforts to eradicate forced labor and human trafficking in its supply chain. Here, we take a closer look at the CTSCA and how it has been used to date, and investigate whether a creative litigator could use it to benefit any of the estimated 21 million forced laborers around the world.

The CTSCA went into effect in January 2012, and it requires a company to disclose on its website to what extent, “if any,” it:

(1) engages in verification of product supply chains to evaluate and address risks of human trafficking and slavery; (2) conducts audits of suppliers; (3) requires direct supplies to certify that materials incorporated into the product comply with the laws regarding slavery and human trafficking of the countries in which they are doing business; (4) maintains accountability standards and procedures for employees or contractors that fail to meet company standards regarding slavery and human trafficking; and (5) provides employees and managementtraining on slavery and human trafficking.

The stated purpose of the CTSCA is to enable consumers to “force the eradication of slavery and trafficking by way of their purchasing decisions.” By this logic, if we don’t know who uses forced labor, or what measures companies are taking to avoid forced labor in their supply chains, we can’t “vote with our dollar” and buy a more ethical product.

Of course, we know consumers do not routinely go to companies’ websites to see their CTSCA disclosures prior to making a purchase. One sustainable consumption blogger recently made a compelling case that even when we do make more ethical consumption choices, the benefit is more personal than systemic.  We’re not recommending that you quit recycling and start shopping at Wal-Mart (please don’t), but rather suggest that our personal purchasing decisions are insufficient to change a global economy in which none of us can have clean hands, no matter how careful we are about what we buy. So long as forced labor-produced products come into the U.S. market, we will unwittingly (or even wittingly) buy them, and the cycle will continue.

But beyond our doubts about the rationale for the statute, the CTSCA has some other structural flaws. First, it does not consider whether companies are disclosing accurate and up-to-date information, and there are no penalties for non-compliance. So even the most scrupulous consumer may not get the necessary information to make good purchasing decisions as a result of this statute. Second, the Act excludes smaller businesses from its purview, applying only to those companies that identify as “manufacturers” and “retail sellers” on their tax returns and that generate worldwide annual revenues of $100 million or more. That’s a pretty big loophole.

If the CTSCA isn’t going to stop forced labor through influencing personal consumption decisions, does it contain any other mechanism to stop forced labor?

There are a few other uses of the statute human rights advocates have explored, but without much traction.

Litigation by victims of forced labor is off the table because this is fundamentally a consumer protection statute, written to protect consumers from being duped into buying forced labor-produced products, and does not criminalize or create civil liability for actual engagement in forced labor.

Litigation by consumers is also off the table, for two reasons. First, private individuals lack standing to bring claims under the CTSCA, whose exclusive remedy is an action for injunctive relief brought by the California Attorney General. Second, as mentioned above, compliance with the CTSCA only requires companies to make certain disclosures on their websites—a company can meet CTSCA standards even if it makes no effort to abolish slavery and trafficking from its supply chain.  By simply acknowledging their current inaction, or, even worse, the transparency and accountability practices they ‘aspire’ to put in place, companies are let off the hook.

Nevertheless, although they lack standing to personally enforce the CTSCA, consumers have attempted to incorporate the spirit of the Act into class action lawsuits brought under other California consumer protection laws. Seven of the eight cases that have made substantive reference to the CTSCA have been brought in federal district courts in California, and they resemble one another closely: consumer class-action lawsuits brought against companies on the basis of California’s Unfair Competition Law (UCL), False Advertising Law (FAL), and the California Legal Remedies Act (CLRA). These consumers argue that companies have a duty to inform consumers at the point of sale (i.e., on product labels) that their products may have been sourced with forced labor. However, in each case, the courts have held that the FAL, UCL, and CLRA do not require point-of-sale or product label disclosures of the sort the plaintiffs seek. Moreover, even if plaintiffs had standing to sue on the basis of the Supply Chains Act itself (which they don’t), the CTSCA also does not “clearly speak to product labels." 

What if plaintiffs stay within the bounds of what the CTSCA requires, instead arguing that a company’s online disclosures are false or misleading? In Barber, where plaintiffs were suing Nestlé over the manufacture of cat food, that argument was met with the court’s observation that the disclosures on Nestlé’s website are clearly “aspirational,” and that “no reasonable consumer who reads the . . . documents Plaintiffs identify in context could conclude that Nestlé's suppliers comply with Nestlé's requirements in all circumstances.” Here, the court’s reasoning also aligns with the CTSCA’s lax requirement that companies merely disclose their efforts, or lack thereof, to eradicate forced labor and human trafficking from their supply chains.

Is the CTSCA helping or hurting human rights goals?

Not only is the CTSCA yet to be used effectively in litigation, it may create a legal “safe harbor” for companies being sued for their failure to disclose inhumane labor practices on the basis of other consumer protection laws. “Safe harbors” are created where a legislature has expressly permitted specific conduct or has considered a situation and concluded that no legal action should lie. Safe harbors are often a risk when passing new legislation, and in this case, may mean the CTSCA results in a net loss for the movement to eradicate forced labor by insulating companies from the need to disclose more than what the CTSCA very minimally requires.

Because of this, in most cases, the CTSCA has appeared not in support of plaintiffs’ consumer protection claims, but as a possible—and usually successful—defense. Four out of the seven CTSCA-related claims brought in California federal district courts have been dismissed on the grounds that the Act creates a safe harbor that protects companies that comply with the requirements of the CTSCA from other actions under California consumer protection statutes. The safe harbor doctrine has been applied to the UCL, the FAL, and the CLRA. For example, the plaintiffs in Barber did not allege that Nestlé failed to comply with the CTSCA; rather, they argued that Nestlé is obligated to make additional disclosures at the point of sale regarding the likelihood that its cat food contains seafood caught by forced labor. Nestlé argued, and the court agreed, that the California Legislature already considered which disclosures are required by large companies, and specifically elected to not require point-of-sale disclosures. 

Fortunately, this issue remains unsettled. Other cases have expressed doubt as to whether the CTSCA creates a legal safe harbor—a view that may be adopted by the Ninth Circuit when the above appeals are heard:

[A]mbiguity remains regarding how to determine whether the legislature “considered a situation and concluded no action should lie.” Here, for example, although there is evidence suggesting the legislature considered how to provide consumers with “reasonable access to basic information to aid their purchasing decisions,” the legislative history is silent about whether the legislature contemplated disclosures on labels. Finally, if a safe harbor exists here, an anomalous situation arises: businesses earning less than $100,000,000 in gross receipts worldwide may be subject to liability under the UCL and CLRA, while large corporations are not. In light of the absence of a duty to disclose as set forth above, these safe harbor issues need not be reached on this record.
Hodsdon v. Mars, 162 F. Supp. 3d at 1029.

So, while the risk of creating a safe harbor for companies using forced labor is real, we’ll have to watch how this plays out in the courts.

Is the CTSCA a dead letter?

Alexandra Prokopets suggests areas of improvement for the CTSCA including creating more sufficient disclosures, a standardized disclosure format, and adequate enforcement mechanisms. For example, the CTSCA requirements are vague in ways that may lead to insufficient disclosure. CTSCA section (3)(c)(3) asks companies to disclose whether and to what extent they require their “direct suppliers” to verify that their products are made in compliance with anti-slavery laws in the “country or countries in which [the companies] are doing business.” But what is a direct supplier? Whose countries’ laws do the supplier factories follow? And what kind of verification is required? The CTSCA also provides no standardized format for making disclosures, which makes it difficult for consumers to compare company to company—which is the entire reason the statute was created. Moreover, there’s no requirement to update CTSCA compliance information. Making disclosures on company webpages is less than ideal, because, for example, subsidiary companies may post their CTSCA disclosures on their parent company website, which consumers may not be familiar with. Like, do I have to check Unilever’s website if I’m considering buying a Lipton iced tea or a Klondike bar?

However, would further specificity of this sort actually help the CTSCA become a more viable right of action for either consumers or the Attorney General? Probably not, because the statute has a very weak enforcement mechanism: the CTSCA doesn’t monitor whether companies are disclosing accurate information, and there are no penalties for non-compliance. This problem doesn’t have to plague every disclosure program, but without attaching mandatory due diligence and independent monitoring, disclosure alone may create more problems than it solves. Given that that there’s a Federal bill modeled off of the CTSCA in the works, addressing the problems and efficacy of the CTSCA—and of disclosure regimes in general—seems especially timely.

Despite all of this, our job is to find constructive uses of statutes and not just to critique. In that spirit, here are a couple of ideas for how the CTSCA could be used to address the use of forced labor in the global economy:

  1. The Attorney General has standing to enforce the Act. Could we put pressure on Xavier Becerra, the current California Attorney General, to go after some of most notorious corporate users of forced labor? Nestle has been accused of using trafficked labor (and even trafficked children) in their pet food and chocolate supply chains. Becerra is in the best position to make good use of this Act, so regular old issue campaigning may have some effect here.

  2. What about creating a plug-in that allows online shoppers to see the CTSCA disclosure data automatically when they go to purchase products, even through third-party vendors like Amazon? This isn’t a bad idea, though a major flaw is that the actual disclosures made are pure public relations for these companies. For this to be even remotely effective (and again, as stated above, we don’t view personal purchasing decisions as the answer to forced labor in global supply chains), we would need to include data by watchdog organizations that independently monitor these companies. There is nowhere that this data is aggregated, so while the tech is doable, the data collection and aggregation would be a beast.

  3. Amend the statute. What if the statute gave consumers standing to sue, or victims of forced labor? Legislatively, this would be a hard sell, but hey, we can dream, can’t we?

  4. Convince the people of California to initiate a ballot proposition to amend the CTSCA. Politicians may be tough to convince, but all of those concerned consumers won’t be. C’mon, Californians, you only need 365,880 signatures!

So, on the whole, we’re unimpressed by the potential of the CTSCA to have any concrete impact on the use of forced labor in global supply chains, but we’d love to hear alternate perspectives. Can anyone sell us on why the CTSCA is a great thing, or how it could be leveraged to benefit either consumers or victims of forced labor?


Emma Cusumano is a J.D. candidate at the University of Richmond School of Law.

Charity Ryerson is a co-founder and legal designer for Corporate Accountability Lab.

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