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A Pandemic Upsets Supply Chains as Proposition 65 Enforcement Soars and New Regulations Take Effect

April 21, 2020

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Key Points:

  • Since Governor Newsom announced a state of emergency due to the COVID-19 outbreak, private Proposition 65 enforcement has increased by about 50%.
  • Effective April 1st, new regulations clarify how manufacturers can satisfy their Proposition 65 warning obligations.
  • These new regulations also clarify when retail sellers assume the burden under Proposition 65 to warn Californians.

While the world endures economic shutdowns during the COVID-19 pandemic, businesses are struggling to manage uncharted supply chain disruptions. An added strain to this unprecedented challenge is a spike in private enforcement of California’s Proposition 65. Though a recent regulatory change helps clarify preexisting compliance issues under the law, this enforcement trend may create substantial problems for businesses that are facing an uncertain future.

Background

Proposition 65 requires that businesses, including manufacturers, suppliers, and retail sellers, warn California consumers when their consumer products sold in California cause significant exposures to chemicals known to cause cancer or reproductive toxicity. If a business fails to provide a clear and reasonable warning, then a private citizen may bring an enforcement action by first serving a 60-day notice of violation on the business, with a copy filed with government enforcers like the Office of the Attorney General.

Increased Enforcement During the Pandemic

Since Governor Newsom proclaimed a state of emergency in California on March 4, notices of violation from private enforcers have increased substantially. Compared to the same time last year, private enforcement has increased by about 55% (i.e., about 490 notices compared to about 318 notices in 2019). This also represents an increase of about 80% and 45% over the same time in 2017 and 2018, respectively. As citizen enforcement was trending upward just before March 4, the subsequent jump in enforcement is alarming but perhaps not unexpected. The notices allege exposures to acrylamide, arsenic, cadmium, mercury, and lead in a variety of food products, as well as a wide variety of other chemicals and types of consumer products.

Regardless of the reasons, this increased enforcement exacerbates an already difficult situation for businesses. Many are suffering from substantial losses in revenue. And even those enterprises with the most diversified and sophisticated supply chains are experiencing a substantial disruption—if not an outright breakdown—in their management of the flow of goods and services. Amid this confusing backdrop, these businesses must now respond to increased demands to address alleged Proposition 65 violations.

Regulatory Changes Clarify Methods of Compliance

Who will bear the brunt of the increased enforcement? Generally, Proposition 65 aims to place on manufacturers the primary burden to warn. So, prior to April 1, 2020, manufacturers could shift the burden of warning downstream by sending a written notice to the "authorized agent for the retail seller" and obtaining confirmation electronically or in writing of receipt of the notice. Such a notice could be renewed annually, although additional notice is required within 90 days when a different or additional chemical name or endpoint (i.e., cancer or reproductive toxicity) is included in the warning.

Effective April 1, the Office of Environmental Health Hazard Assessment amended its regulations to clarify these warning requirements.

The most significant change is that if a business receiving a notice “has not designated an authorized agent,” then the manufacturer “may serve the notice on the legal agent for service of process for the business.” (27 CCR § 25600.2(c)(2) (emphasis added).) While the word “may” suggests that service on the legal agent is optional, it likely will become the standard in the event of a dispute with the downstream customer/retailer who has not designated an agent to receive Proposition 65 notices. Note that confirmation of receipt is not required when the notice is served on the agent for service of process, as proof of service would be sufficient to confirm receipt. In other words, the manufacturer must comply with process serving rules for each designated agent.

Another amendment clarifies to whom the warning may be sent. Instead of sending the notice to the “retail seller,” the identity of which may not be known at the time of distribution, manufacturers and distributors now have the option of sending the notice 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.”

Of course, not all has been clarified. This form of warning may not be used if the recipient of the notice is “not subject to Section 25249.6 of the Act.” Proposition 65 applies to a “person in the course of doing business.” For example, the term “person in the course of doing business” does not include any person employing fewer than ten employees in his or her business. So if the downstream product recipient has less than ten employees, then the notice may not be effective. The regulations do not explain how one is supposed to know whether a business meets the criteria.

Lastly, the amendment narrows the scope of a retail seller’s responsibilities by redefining “actual knowledge.” Proposition 65 imposes on retail sellers the burden to warn in some circumstances when they have “actual knowledge” that a product is subject to Proposition 65. But does a retail seller have “actual knowledge” when any employee learns that a product may result in an exposure to a listed chemical?

The amendment answers this by redefining “actual knowledge” as applying only to information provided to “authorized agents” or other persons whose knowledge can be imputed to the retail seller. This narrows the definition by ensuring that “actual knowledge” does not impute onto the retail seller merely when any employee receives information about whether a product will result in an exposure to a listed chemical. Rather, that information imputes knowledge only when received by higher-level employees with authority to evaluate and act on the information.

Conclusion

While helpful, these regulatory changes are creating substantial traffic up and down the stream of commerce as businesses question one another about a product’s chemical content or as they seek to shift their burden of warning to others. Meanwhile, the heavy burden of responding to the ever growing number of 60-day notices of violation remains on manufacturers, suppliers, distributors, and retail businesses.

If you have questions about whether or how Proposition 65 may apply to your products or business, please contact our product liability and environmental law attorneys. For more information about our Proposition 65 practice, see our Proposition 65 Practice Group page.

For more information, please contact:

Merton Howard

415-995-5033 Direct Phone
415-995-3441 Fax

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Sean Herman

415-995-5899 Direct Phone
415-995-3429 Fax

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