2020 Regulatory Amendments Attempt to Simplify Proposition 65 Warning Obligations

Jones Day

In Short

The Situation: New regulatory amendments to Proposition 65 went into effect on April 1, 2020. These amendments: (i) allow manufacturers, distributors, and suppliers of consumer products to satisfy Proposition 65's warning requirements by warning the next distributor in the supply chain; (ii) permit manufacturers and vendors to contract for legal liability; and (iii) clarify a retailer's obligation to warn.

The Result: While these new amendments provide some clarity on warning obligations for these entities, businesses are still subject to significant legal risk emanating from Proposition 65.

Looking Ahead: To reduce legal risk, consumer product manufacturers, distributors, suppliers, and retailers should monitor the California Office of Environmental Health Hazard Assessment's ("OEHHA") list of Proposition 65 chemicals, and participate in the required public comment period when appropriate. Additionally, when they determine a Proposition 65 warning is required for one of their products, they should provide that warning, ideally with a printed label on the product itself or the product packaging.

Background on Proposition 65

As relevant here, Proposition 65 requires manufacturers, distributors, suppliers, and retailers of a consumer product containing a listed chemical to provide consumers with "clear and reasonable" warning if exposure to that listed chemical poses a significant risk of cancer or reproductive or developmental harm (based on "safe harbor" thresholds established by OEHHA or other authoritative bodies). (Cal. Health & Safety Code § 25249.5 et seq.). OEHHA maintains a list of chemicals it has determined cause cancer or reproductive/developmental harm that potentially require a warning (depending on the exposure). This list is updated annually. Today, it includes more than 900 chemicals, thereby implicating a variety of manufacturers, distributors, suppliers, and retailers transacting in an array of consumer goods.

Since its enactment in 1986, Proposition 65's citizen suit provision has imposed compliance burdens and legal risk on businesses. Under the provision, private parties acting in the public interest may bring Proposition 65 lawsuits if: (i) they have provided the business, Attorney General, and district attorney at least 60 days' notice of the alleged violation; and (ii) public prosecutors have not taken action on the alleged violation within 60 days. (Cal. Health & Safety Code § 25249.7(d)). In these cases, private enforcers who prevail in their Proposition 65 lawsuits may recover 25% of the civil penalties plus attorneys' fees. In 2019, actions by private enforcers resulted in 302 judgments, amounting to $312,167 in combined civil penalties and attorneys' fees. Notably, the lawsuits resulting in these 302 judgments were initiated by only 39 private enforcers—including consumer protection and environmental advocacy groups.

Amendments to Proposition 65 Warning Regulations

The April 1 amendments relax regulatory burdens for consumer product manufacturers, intermediate distributors and suppliers, and final retailers. Throughout the public comment period, OEHHA emphasized that the amendments were intended to align regulatory demands with an "increasingly global marketplace where a manufacturer may never know who the end seller of its products will be." (California Office of Environmental Health Hazard Assessment, Final Statement of Reasons Title 27, California Code of Regulations, Section 25600.2 (proposed November 16, 2018) (to be codified at 27 CCR § 25600.2)).

Impact on Manufacturers/Producers and Intermediate Distributors

These latest amendments clarify warning requirements for consumer product manufacturers, distributors, and suppliers. Whereas Proposition 65 previously implied that manufacturers were directly responsible for warning the consumer of the potential chemical exposure, the new amendments allow these entities to satisfy Proposition 65's warning obligations by warning the next distributor in the supply chain. The amendments state that:

"[M]anufacturer[s], producer[s], packer[s], importer[s], supplier[s], or distributor[s] of a product may comply with [Proposition 65] by: 1) providing a warning on the product label, or 2) providing a written notice directly to the authorized agent for the business to which they are selling or transferring the product, or to the authorized agent for a retail seller, so long as the business to which they are providing the notice is subject to [the Act]." (27 CCR § 25600.2(b)).

This means that, subject to certain caveats discussed below, manufacturers and intermediate distributors need only provide a warning label or written notice to the next business in the supply chain of the consumer product, and are not responsible for warning the consumer. Rather, this responsibility falls on the last distributor in the supply chain who is subject to the Act.

The revised regulations also create greater flexibility for manufacturers and upstream distributors by allowing these entities to contract with downstream vendors to "allocate legal responsibility among themselves for providing a warning for the product." (27 CCR § 25600.2(i)). In such cases, the terms of the agreement supersede Proposition 65's warning obligations. These private agreements, however, are enforceable only if the consumer actually "receives a warning that meets [the Act's] requirements." (Id.). Therefore, consumer product manufacturers and upstream distributors who have contracted with downstream suppliers may still be liable for Proposition 65 violations if the consumer is not ultimately warned of the potential chemical exposure.

Impact on Retailers

The April 1 amendments also clarify when a retailer has an obligation to warn. Under the regulations, a retailer is responsible for the placement and maintenance of a warning if the retailer: (i) sells the product under a brand or trademark owned by the retailer or one of its affiliates; (ii) knowingly introduces a listed chemical into the product, or knowingly causes the chemical to be created in the product; (iii) covers, obscures, or otherwise alters a warning label already printed on the product; (iv) receives a notice and warning about the exposure; or (v) has "actual knowledge" of the chemical exposure. (27 CCR § 25600.2(d)). The April 1 amendments clarify that "actual knowledge" requires "that the retail seller receives information from any reliable source that allows it to identify the specific product or products that cause the consumer product exposure." (27 CCR § 25600.2(f)(1)). The amendments further clarify that this knowledge standard is met only when such information is received by "the retail seller, its authorized agent, or a person whose knowledge can be imputed to the retail seller." (Id.). Finally, the amendments specify that when the source of the retail seller's knowledge is "a 60 day notice letter" alleging a violation, "actual knowledge" is not imposed upon the retailer until five business days after the receipt of the notice, which allows the retailer to correct the alleged violation before it can be sued. (27 CCR § 25600.2(f)(2)).

Moving Forward

Proposition 65 continues to impose warning obligations on consumer product manufacturers, distributors, suppliers, and retailers. These entities should take the following steps to achieve compliance.

First, manufacturers, distributors, suppliers, and retailers of consumer products should continue to monitor OEHHA's list of Proposition 65 chemicals for new additions and participate in the public comment period for new listed chemicals when appropriate. A chemical will be added to the Proposition 65 list if either OEHHA or another authoritative body, such as the International Agency for Research on Cancer or the Environmental Protection Agency, determines that the chemical causes cancer, birth defects, or other reproductive harm. All proposed listed chemicals must be published to the California Regulatory Notice Register for 30 days and are subject to a public comment period. Consumer product manufacturers should submit comments if they have grounds to object to the proposed chemical listing. Chemical manufacturers have had recent success challenging proposed listings, including Monsanto in its successful challenge to OEHHA's proposed listing of glyphosate as an alleged carcinogen. (See Nat'l Ass'n of Wheat Growers v. Becerra, No. 2:17-CV-2401 WBS EFB, 2020 WL 3412732, at *14 (E.D. Cal. June 22, 2020).) Once a chemical is added to the Proposition 65 list, consumer product manufacturers, distributors, suppliers, and retailers are afforded a 12-month grace period before they must provide a warning.

Second, consumer product manufacturers and intermediate distributors selling products to small vendors cannot rely on a written notice to such small vendors that they must provide a warning. The April 1 regulatory amendments state that a product manufacturer that notifies a downstream distributor that a warning is required satisfies Proposition 65 compliance only if the notified distributor is itself subject to the Act ((27 CCR § 25600.2(b)). Importantly, businesses with fewer than 10 employees are exempt from Proposition 65. (Cal. Health & Safety Code § 25249.5). This means that manufacturers or distributors that do business with small vendors with fewer than 10 employees are still obligated to directly warn consumers of exposure to listed chemicals. Consumer product manufacturers and distributors in this position should provide Proposition 65-compliant warning labels on their products or product packaging.

Third, to mitigate legal risk, consumer product manufacturers should place warning labels directly on the product or product packaging to satisfy Proposition 65 obligations. As discussed above, the manufacturer of a consumer product may be liable for Proposition 65 violations if it does not directly warn the next business in the consumer product supply chain. In many cases, a warning label is more likely to fulfill this obligation than a letter or other written communication, which may be misplaced or damaged. Therefore, consumer product manufacturers are advised to place warnings directly on their products or product packaging, rather than other written communications, to satisfy Proposition 65 requirements.

Five Key Takeaways

  1. Proposition 65 has historically posed legal and regulatory risk for manufacturers, distributors, suppliers, and retailers of consumer products. The latest series of amendments, effective April 1, 2020, clarify certain of the Act's requirements. The amendments also create more flexibility for consumer product manufacturers and upstream distributors by allowing these entities to contract for legal liability.
  2. Risk of violating Proposition 65 has grown as OEHHA's list of Proposition 65 chemicals has expanded, and private enforcers continue to issue notices of violation and file suit in place of public prosecutors. All proposed additions to OEHHA's list of chemicals are subject to public comment. Consumer product manufacturers should closely monitor OEHHA's proposed additions to its listed chemicals and be prepared to submit comments—and, if necessary, file suit challenging the proposed listing—in response.
  3. The April 1 amendments clarify when a retailer must provide a warning.
  4. While the amendments also allow a consumer product manufacturer to satisfy the warning requirement by notifying a downstream distributor or retailer that a warning is required, the recipient of this notice must be "subject to the Act." Businesses with fewer than 10 employees are not subject to the Act.
  5. As a general matter, the best way to ensure compliance with Proposition 65's warning obligations is for consumer product manufacturers to place a warning directly on the product itself or its packaging.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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