The Nickel Report

Uncertainty. Today nearly everything we thought we knew is uncertain. It’s good, then, that at least one regulatory program in California remains certain: Proposition 65. Plaintiffs continue to serve 60-day notices alleging violations, and the Office of Environmental Health Hazard Assessment (OEHHA) continues to tinker with safe harbor warning requirements. (Maybe certainty isn’t all that it’s cracked up to be).

60-Day Notices

In February, as the COVID-19 pandemic took hold, plaintiffs’ counsel served 265 60-day notices, a 27 percent increase over the 208 notices served in February 2019 (and a 62 percent increase from the preceding three-year average for February). And, proving they can work from home, plaintiffs’ counsel served 348 60-day notices in March 2020 (the first month stay-at-home orders were rolled out across California), an 87 percent increase over the 186 notices served in March 2019 (and a 77 percent increase from the average number of notices the previous three years in March).

While these numbers could start to decrease (notices served in April thus far are essentially the same as last year), with non-essential retail outlets closed, an increase in on-line sales could keep plaintiffs’ counsel busy for the foreseeable future, both serving new notices and negotiating settlements.

Safe Harbor Warning – Supply Chain

On April 1, 2020, with many supply chains across the world in crisis, new safe harbor warning regulations went into effect, affecting intermediaries in the supply chain. Prior to the amendment, Section 25600.2 of the Prop. 65 regulations (Responsibility to Provide Consumer Product Exposure Warnings) provided that a manufacturer, producer, packager, importer, supplier, or distributor could comply with warning requirements either by providing a warning on the product label or by providing a written notice directly to the authorized agent for a retail seller. This ignored the fact that in practice businesses often transferred a product to intermediaries along the supply chain and not directly to the ultimate retailer. This made strict compliance with warning requirements difficult, with businesses relying on the intermediaries to pass along written notice.

The new amendments allow a business to satisfy its warning obligation by providing a written notice to the authorized agent for a retail seller or to the authorized agent for the business to which they are selling or transferring the product (i.e., an intermediary). The only caveat is that the intermediary has to be subject to Prop. 65 (typically meaning the intermediary has at least 10 employees). And if the intermediary has no designated authorized representative, the business may serve the notice on the legal agent for service of process.

As noted, with many supply chains strained with the effects of the COVID-19 pandemic, the new amendments should help businesses ensure Prop. 65 compliance. They no longer will have to rely on intermediaries in the supply chain to pass along required written notices to the retail seller; manufacturers’ compliance now can be accomplished by providing the notice to the next business in line. (Note, however, that compliance issues may remain, for example where a purchaser – not subject to Prop. 65 – buys a product in bulk and offers it for re-sale online.)

Safe Harbor Warning – Internet Sales

On March 31, 2020, the comment period ended for another amendment to the Prop. 65 safe harbor warning regulations, this one seeking to “clarify” the warning requirement for internet (and catalog) purchases. As currently written, the safe harbor warning regulation for internet purchases could be read (at least according to comments submitted on the proposed rule – see below) to require only an internet warning provided via an electronic device or process, with no warning required on the product itself or at a point of display. However, according to OEHHA’s current FAQ regarding internet and catalog warnings, to comply with the safe harbor provision for internet purchases, a business needs to provide both a warning on the product or at a point of display and also provide an internet warning. The proposed rulemaking would give regulatory effect to this guidance. In its Initial Statement of Reasons for the current rulemaking proposal, OEHHA states the safe harbor regulations require an affected business to provide both a warning for sales on the internet and a warning with or on products delivered to consumers.

Because, according to OEHHA, it has received numerous inquiries, it determined “additional clarification of certain provisions of the safe-harbor regulations would be helpful to the regulated community.” OEHHA proposes to clarify that a product-specific warning provided via an electronic device or process is intended to apply to products purchased at retail locations and is separate from the warning required online for internet purchases. This means that, for internet sales for consumer-direct products (without a brick-and-mortar point of sale), affected businesses will not be able to rely on a warning provided by way of electronic device or process and instead will have to rely on a warning on the product (in addition to the internet warning). According to comments submitted by a broad coalition of business and industry groups (apparently the only comments received), OEHHA’s clarification will discriminate against online retailers in that they will now have to provide online warnings and on-product warnings while brick-and-mortar retailers will only have to provide label warnings (or warnings on posted signs, shelf tags, etc.)

Notwithstanding OEHHA’s position that the proposed amendment only clarifies existing safe harbor warning requirements, and that only one comment was received (albeit on behalf of a broad coalition of businesses), given the potential impact on online sales, and especially given current stay-at-home orders, it will not be surprising to see challenges brought if OEHHA adopts the amendments as proposed. No timeline has been announced for action on the proposed amendments.

Stay tuned for further developments.

In the meantime, see this site for more information about California's Proposition 65.