Corporate / 06.05.2019

Is It Worth Doing Business in California? Managing the Minefield of Prop 65 Liability

By John Archer

corporateBoasting the fifth-largest economy in the world, California offers a lucrative market for businesses. One would think manufacturers and retailers would target California due to its sheer size and opportunity. However, one retail giant – BJ’s Wholesale Club – temporarily put a stop to online sales due to California’s burdensome product labeling requirements. Known as “Prop 65,” it requires anyone who sells products in California to display a warning if the product contains levels of certain chemicals above a safety threshold. Lest you think Prop 65 does not apply to you, consider this example: if a tiny plastic component of your electronic or automotive product contains an additive on the Prop 65 list (which currently includes more than 900 chemicals and is growing each year) your product must include a warning if you sell in the state of California.

Prop 65 was created in 1986, after California voters approved the Safe Drinking Water and Toxic Enforcement Act by ballot measure as an effort to address concerns about exposure to toxic chemicals1. In the event of noncompliance, the penalties can be steep and enforcement unpredictable. While the language of the act provides for penalties of up to $2500 per violation per day, there is much uncertainty about how those violations might be counted.

Prop 65 allows private citizens to sue manufacturers, distributors or retailers for failure to comply with the law, and keep a portion of the settlements. As a result, professional plaintiffs or bounty hunters are now seeking their cut of the action. It does not matter if you aren’t located in California. What matters is whether your product is sold in California. As you are reading this article, there are probably individuals walking down the aisles of local California big-box retailers looking for non-compliant products and a potential profit. The only businesses exempt are those with fewer than 10 employees.

In 2018, BJ’s told online publisher Chemical Watch that it would no longer ship to California “due to a legal regulation called Proposition 65.” BJ’s is not alone in temporarily suspending shipping to California. In fact, many businesses have complained that Prop 65 exposes them to frivolous lawsuits and significant compliance costs. Sam Delson, from the Office of Environmental Health Hazard Assessment (OEHHA), has stated that he regularly gets information from consumers that many health and nutritional supplement companies cite Prop 65 as the reason they are no longer selling their product in California.

Even the coffee industry hasn’t been spared. Last year, Los Angeles Superior Court Judge Elihu Berle ruled that acrylamide, a carcinogenic chemical created when beans are roasted, was covered under Prop 65 and that warnings were required for all coffee sellers. There is pending litigation, however, challenging warning requirements due to the lack for scientific evidence that the amount of acrylamide in a cup of coffee causes a significant cancer risk. Nevertheless, California Starbucks locations have started to post warnings in their windows to avoid liability.

How have businesses traditionally managed prop 65 exposure?

One inexpensive way companies used to manage Prop 65 exposure was to over-warn. Rather than undergoing expensive testing to determine which chemicals might be in their product, businesses simply posted the following generic warnings on everything:  WARNING: THIS PRODUCT CONTAINS CHEMICALS KNOWN TO THE STATE OF CALIFORNIA TO CAUSE CANCER AND BIRTH DEFECTS OR OTHER REPRODUCTIVE HARM. After a while, the effect that the state wanted from the warning was seriously undermined. People just didn’t pay attention.

As reported in a December 2018 article by PracticalEcommerce, even Disneyland Resort posted the following sign to limit exposure from Prop 65 claims:

Millions of Disneyland guests presumably were not deterred from enjoying the amusement park, despite the large warning sign at its gates. Warnings signs such as the one at Disneyland can almost be viewed as a mocking response to the state’s efforts at informing its citizens of potential exposure to hazardous materials.

PROP 65 AMENDMENTS

In response to generic over-warning and other concern, beginning on August 30, 2018, Prop 65 warnings must now include:

  • The name of at least one listed chemical that prompted the warning;
  • The Internet address for OEHHA’s new Proposition 65 warning website, P65Warnings.ca.gov, which includes additional information on the health effects of listed chemicals and ways to reduce or eliminate exposure to them; and
  • A triangular yellow warning symbol on most warnings.

The most significant change is that Prop 65 warnings must now name at least one listed chemical that prompted the warning. That means manufacturers who want to sell into California will likely be forced to make a significant investment into product testing and packaging revisions. It will also force companies to make more meaningful warnings, which will cause increased burden on smaller businesses.

Complying with new warning requirements

An example of an acceptable new warning label for a product containing a chemical listed only as a carcinogen looks like this:

WARNING: This product can expose you to chemicals including (name of one or more chemicals), which is [are] known to the State of California to cause cancer. For more information, go to www.P65Warnings.ca.gov.”

If a chemical is listed only as a reproductive toxicant, an example of an acceptable new warning label looks like this:

WARNING: This product can expose you to chemicals including (name of one or more chemicals), which is [are] known to the State of California to cause birth defects or other reproductive harm. For more information, go to www.P65Warnings.ca.gov.”

If a product contains a chemical listed as both a carcinogen and reproductive toxicant, the warning looks like this:

WARNING: This product can expose you to chemicals including (name of one or more chemicals), which is [are] known to the State of California to cause cancer and birth defects or other reproductive harm. For more information, go to www.P65Warnings.ca.gov.”

There is a short-form warning option if you place the warning directly on the product (but there is a type size requirement). In the case of a product containing a chemical listed as both a carcinogen and toxicant a short-form warning may look like this:

WARNING: Cancer and Reproductive Harm – www.P65Warnings.ca.gov.”

Another change under the amended Prop 65 is that online sellers are now required to provide warnings on the same page for any item that would expose a California resident to chemicals that exceed threshold safe harbor levels, or communicated to consumers prior to purchase.

Businesses should note that the 2018 amendment instituted other changes to Prop 65 and should consult with an attorney if they have more specific questions.

So, is it worth it?

Although some sellers have chosen to cease doing business in California, most businesses will likely not be deterred by Prop 65. The California market is just too large. However, other states may also be adopting similar regulations in the near future, so it may not be possible to avoid Prop 65 requirements by ceasing sales to California.

If you have any questions, please reach out to John Archer at jpa@kjk.com or 216.736.7224, or contact any of our Corporate professionals.

 

1 Cal. Health & Saf. Code § 25249.5, et seq.

 

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