California's Proposition 65 (Prop 65)—officially titled the "Safe Drinking Water and Toxic Enforcement Act of 1986"—requires product sellers to provide warnings to Californians about exposure to chemicals in their products that can cause cancer, birth defects, or other reproductive harm. Cal. Health & Safety Code §§ 25249.5–25249.13. Prop 65 also requires the State of California to publish a list of such chemicals, which the state must update once per year.
The California Office of Environmental Health Hazard Assessment (COEHHA) administers the Prop 65 program and determines which chemicals should be on the official Prop 65 list. That list has grown to include about 900 chemicals since it was first published in 1987. COEHHA has added two new chemicals to the Prop 65 list so far in 2017; it added 16 new chemicals to the list in 2016.
Although it was a popular concept to require businesses that use chemicals with the potential to cause certain health problems to warn consumers—California voters approved it in 1986 by a 63 percent to 37 percent margin—Prop 65 has received criticism for setting the bar too low in determining which chemicals are worthy of receiving a warning label.
Businesses who fail to apply the required warnings to their products face civil penalties of up to $2,500 per day for each violation. Cal. Health & Safety Code § 25249.7(a). And they face lawsuits, not just from the state, but from private citizens. Id. § 25249.7(d). Private enforcers of Prop 65—who are often called "bounty hunters"—get to keep 25 percent of the penalties collected and can also recover their attorneys' fees and costs. Cal. Health & Safety Code § 25249.12. Indeed, according to the California Attorney General's office, in 2015 (the most recent year for which data is available) businesses paid over $30 million to settle Prop 65 lawsuits, with over $21.5 million (72 percent) of that amount going toward payment of attorneys' fees and costs.
As a result of this structure, a robust Prop 65 private enforcement practice exists in California. Product manufacturers and retailers must therefore be extremely cautious when selling products in the California market.
Prop 65's implementing regulations are supposed to "minimize the burden on retail sellers of consumer products" to provide the required warnings, but retailers can still face liability for failure to warn. Cal. Health & Safety Code § 25249.11(f). Small businesses—those with less than 10 employees—are technically exempt from Prop 65's warning requirements. Id. § 25249.11(b). However, many small businesses sell their products through larger retailers. Those small businesses are often subject to standard indemnification provisions in those retailers' purchase orders and, therefore, may face indirect liability for failure to comply with Prop 65's warning requirements through contractual indemnity. Those businesses that assume Prop 65 does not apply to them do so at their peril.
California, which is by far the largest market in the United States, is obviously an attractive market for business. But it has also been ranked as the worst state for small businesses because of its regulatory burden.
Businesses selling their products in California must pay careful attention to the requirements of Prop 65, ensuring that their products are properly labeled if they contain one of the nearly 900 chemicals on the continually-expanding Prop 65 list.