Any company in the supply chain for a product sold in California need be aware of the law known as California’s Proposition 65. This is especially true because significant changes to Proposition 65 requirements go into effect on August 30, 2018, increasing potential liability.
Proposition 65 is well known in California but elsewhere many companies are not aware of this law’s broad reach and potential for liability. Enacted in the 1980s, Proposition 65 has three prongs: it prohibits certain chemical discharges into drinking water; it requires warnings about chemicals in certain workplace settings; and it requires companies to provide warnings with certain products. This article focuses on the third prong – consumer product warnings.
The basic structure of Proposition 65’s consumer warning provisions is as follows: no entity shall knowingly and intentionally supply a product to Californians that could expose Californians to a listed carcinogen or reproductive toxin, without providing a clear and reasonable warning. This prohibition/requirement applies to all companies in the supply chain for a covered product, regardless of whether they operate in California. Suppliers of raw materials, manufacturers, distributors, and retailers all may be subject to liability under Proposition 65.
The California agency that administers Proposition 65, the Office of Environmental Health Hazard Assessment (OEHHA), maintains a list of known carcinogens and reproductive toxins. There are currently over 900 chemicals on the list. For some of these chemicals, OEHHA has established a daily exposure level, commonly referred to as a safe harbor level; if a product contains a listed chemical but can only expose consumers at a level below the safe harbor level, then a warning is not required.
After a company determines that a product may contain a listed chemical (and poses a risk of exposure above any applicable safe harbor levels), the next issue is determining what warning information to convey and how to do so. Companies are free to draft their own warning language, but doing so poses a risk of having to litigate whether this language is clear and reasonable. Many companies instead use the “safe harbor warnings” that OEHHA has established, foreclosing some of the risk of litigation. Warnings may be provided via product stickers, shelf signs, etc., subject to certain regulatory requirements.
Complicating matters, numerous changes to the Proposition 65 warning requirements go into effect for products manufactured on or after August 30, 2018. If your company has been receiving Proposition 65-related questionnaires from other companies in your supply chain, these August 30 changes are almost certainly the cause. The August 30 changes are numerous and they will encourage plaintiff’s attorneys (discussed below), hoping to catch companies sleeping. Perhaps the most significant change is that many companies must amend their warnings so that they identify at least one listed chemical in a covered product.
Liability stemming from Proposition 65 may be significant. The law authorizes penalties up to $2,500 per day per violation. Furthermore, private plaintiffs can sue to enforce Proposition 65 and can recover their attorney’s fees and potentially a percentage of the penalties imposed. This structure has led to the development of a very aggressive Proposition 65 plaintiff’s bar. The California Attorney General reported 688 Proposition 65 settlements in 2017, representing more than $50MM paid in settlement payments and attorney’s fees.
Proposition 65 often requires companies to make difficult decisions, requiring careful strategy and analysis. Because of the structure of Proposition 65 and the practices of the Proposition 65 plaintiffs’ bar, Proposition 65 often does not allow companies to simply follow the letter of the law and rest assured that they have foreclosed all liability. Rather, Proposition 65 decisions often require the weighing of competing liabilities.
Some of the numerous decisions companies must make include:
- Whether to pay for costly product testing
- How to deal with earlier entities in a supply chain that refuse to take Proposition 65 seriously
- What to do when a company is uncertain whether a warning is required
- How to arrange for distribution of duties and liability amongst other entities within a supply chain
- How to respond to questionnaires from other entities in a supply chain