Background
Prop 65 requires, among other things, that regulated companies provide clear and reasonable warnings to individuals prior to exposing them to consumer products sold into California. Warnings may be triggered by any of approximately 900 regulated chemicals known to the state to cause cancer or birth defects. This creates business risk for parties in the stream of commerce who may not know the constituents of products they are purchasing or the ultimate destination of the consumer products they are selling.
The amendments at issue are located in Title 27, Cal. Code of Regs., section 25600, et seq. Specifically, section 25600.2 (“Responsibility to Provide Consumer Product Exposure Warnings”). This regulation describes obligations of parties in the chain of commerce to provide warnings to downstream customers and ultimately to consumers.
OEHHA determined clarification is needed because in some situations, the original manufacturer, distributor, importer, or others in the chain of commerce may not know where or by whom the product will ultimately be sold to a California consumer. The modifications clarify: a) that a business may comply with the warning requirement if it provides written notice of the warning requirement to the next business in line that is subject to Proposition 65; and b) that intermediate sellers may enter into a written, private agreement to provide the warning and notice in an alternative manner. The modifications also clarify the level of specificity required for a retailer to have “actual knowledge” of an exposure, and clarify the persons whose specific knowledge of a consumer product exposure can be imputed to the retail seller.
Summary of amendments
Upstream notifications
Manufacturers and other intermediate parties in the stream of commerce (e.g., importers, wholesalers and distributors) may comply with their Prop 65 warning obligations by providing their notice and warning materials to: a) the designated agent for the business to which they are transferring or selling the product; or b) the ultimate retail seller. OEHHA clarified that compliance is satisfied if the business to which the authorized agent for a retail seller provides the written notice is subject to Proposition 65’s warning obligation, which “requires persons in the course of doing business to provide clear and reasonable warnings to individuals whom they knowingly and intentionally expose to chemicals known to the State to cause cancer or reproductive toxicity” (emphasis added).
Renewal warning notices
OEHHA also clarified that intermediate parties in the chain of commerce have the option of renewing the warning notice with confirmation from either: a) the authorized agent of the business to which they are selling or transferring the product; or b) the authorized agent of the retail seller.
Confirmation of receipt and any renewed notices must be received electronically or in writing from the authorized agent to which the manufacturer, producer, packager, importer, supplier, or distributor of the product sent the notice. Where a business has not designated an authorized agent to receive Prop 65 notices, the notice may be served on the business’s legal agent for service of process.
Retailer “actual knowledge” clarification
Previously, retailers complained that while they had “actual knowledge” that they were selling a product, for purposes of Proposition 65, they may not have had “actual knowledge” that the consumer product they purchased from a vendor or distributor contained a listed chemical requiring a warning on the part of the retailer.
The modified regulations clarify the level of specificity required for actual knowledge:
“actual knowledge means 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. Such knowledge must be received by the retail seller, its authorized agent or a person whose knowledge can be imputed to the retail seller.”
The regulations also clarify that where the “source” of the retail seller’s knowledge is a “60 day notice letter” from a would-be plaintiff attempting to act as a private attorney general, the retail seller does not have actual knowledge until “five business days” after receipt of the notice – an important opportunity for retailers to avoid claims by either removing product from sale into California or properly labeling the product for sale into California during this limited window of opportunity.
This five day provision does not apply to manufacturers or other businesses upstream from retail sellers. OEHHA concluded that those parties are in a stronger position to know what is in the product and therefore have a greater burden to provide an initial warning to downstream customers.
Vendor-supplier written agreements
Finally, the revised regulations make it easier for businesses to meet their warning obligations by dealing directly with their immediate downstream customers via private agreement. Previously, the regulations allowed for upstream parties to meet their warning obligations by entering into a written agreement with the ultimate retailer (so as to shift responsibility to the retailer). Now, any upstream party can meet its warning obligation by entering “into a written agreement with the business to which they are selling or transferring the product” (emphasis added). If such a private agreement is created, it will supersede the otherwise default statutory warning obligations of Prop 65.
This revision could result in more behind-the-scenes vendor-supplier agreements with specific language that allocates Prop 65 warning obligations between parties. However, commercial transactions triggered through high level purchase orders will likely not be impacted by this change.
Looking ahead
These OEHHA clarifications may help intermediate parties in the supply chain determine how to comply with Prop 65 obligations when they do not wish to label products, but instead want to merely notify their customers.
The clarifications regarding the basis of actual knowledge may be helpful to retail sellers trying to determine whether they have Prop 65 obligations. The amendments narrow the circumstances where a retail seller is required to provide a Prop 65 warning. For example, a lower level employee who has knowledge but who does not fully understand (“sufficiently specify”) Prop 65 issues will not impute knowledge to the retail seller and give rise to a duty to warn. Retailers are reminded of their narrow five day window after receipt of a 60 day notice to avoid exposure by removing the targeted product from sale or to appropriately labelling the targeted product.
Reed Smith has an active Proposition 65 practice, working proactively to counsel clients on cost-effective compliance strategies, as well as defending and resolving disputes in cases where 60 day warning letters or complaints have already been issued.
Client Alert 2020-019
