New legislation that loosens the requirements for products sold in California to carry a 'Made in USA' label was signed into law in last week. The move gives apparel companies more flexibility in sourcing their products and could lower the likelihood of litigation.

Existing law prohibits the sale in the state of any merchandise bearing the words 'Made in USA' or 'Made in America' if any part has has been made, manufactured or produced outside of the United States.

The new law will allow merchandise to be labelled 'Made in USA' if at least 95% of the parts are manufactured domestically, and aligns more closely with the Federal Trade Commission standard for domestically-produced goods in 49 other states.

Specifically, Senate Bill No 633 - 'Consumer protection: “Made in U.S.A.” label' - says the label will apply if materials from outside the US do not constitute more than 5% of the final wholesale value of the product, or the manufacturer can show the articles, units, or parts from outside the US do not constitute more than 10% of the final wholesale value of the product.

Apparel companies have been “particularly vulnerable” to claims of violating the Californian law because items are typically made from many components sourced from all over the world.

In November last year, a federal judge declined to throw out a class action lawsuit arguing that US apparel companies using small amounts of non-domestic components in “made in USA” clothing are in violation of California’s famously strict false advertising law.

In Paz v AG Adriano Goldschmeid Inc et al, the defendant had asked the court to dismiss the suit on the basis that the Californian law conflicts with federal legislation, which offers more flexibility on the use of the “made in USA” label.

But the court held that apparel companies could comply with federal and Californian legislation by meeting the Californian standards within the state, and abiding by the federal law elsewhere – a potentially costly exercise.

Elise Shibles, an attorney at Sandler, Travis & Rosenberg, says that while the revised law should reduce the number of such cases in the future, she expects this and similar cases already underway to proceed because the changes will not take effect until 1 January 2016.

Click here to view the text of the bill.