SEMA News—May 2021

FROM THE HILL

Business-Unfriendly California

Proposed Changes to Proposition 65 Make It Harder to Do Business in the Golden State

By Daniel Ingber

California appears to be doing everything in its power to burnish its reputation as the least business-friendly state in the union. Exhibit A is California’s Proposition 65 (Prop. 65), a California law that gives consumers and attorneys the ability to sue businesses that do not include warning labels on products containing certain chemicals. Prop. 65 has been a boondoggle for plaintiffs’ lawyers, a burden on businesses nationwide that manufacture, distribute or sell products that go to California, and is of little use to California consumers—its intended beneficiary. Now, California is proposing regulations that would make Prop. 65 even more onerous on SEMA-member companies. Enough is enough!

Overview

First, a little background on Prop. 65. Prop. 65 was a ballot initiative enacted by California voters in 1986. It requires warning labels on products containing chemicals listed as known to cause cancer, birth defects or reproductive harm. There are more than 1,100 chemicals currently on the list. Prop. 65 doesn’t stop anyone from selling their products no matter what chemicals they contain—it is simply a law that requires consumer warning labels under certain circumstances.

Prop. 65 is not limited to businesses with a presence in California but applies to all businesses with 10 or more employees—wherever they are located—that sell products in California. Prop. 65 applies to everyone in the distribution chain from manufacturers to distributors and retailers, though the law tries to put the burden as high on the distribution chain as possible—meaning manufacturers are a frequent target of enforcement.

Although the state can pursue enforcement, most suits are brought by private parties (meaning trial attorneys) claiming to be “acting in the public interest,” who will then receive a portion of the fine or settlement ultimately assessed. These lawsuits, which are known as “bounty hunter” suits, are becoming more and more common, and are essentially lawyers shaking down small businesses for quick settlements. After all, most small businesses, when threatened with fines up to $2,500 per day per violation and daunted by the idea of spending money to hire their own attorney will pay a tidy sum to make the nightmare go away.

Prop. 65 Requirements

So, what does Prop. 65 require? The law requires you to label a product if it contains a chemical that the California Office of Environmental Health Hazard Assessment (OEHHA) lists as “known to cause cancer or birth defects or other reproductive harm” and the product exposes the consumer to the chemical in excess of the “safe harbor” amount of exposure, which is usually listed in micrograms/day (https://oehha.ca.gov/proposition-65/proposition-65-list). Even if your product has a significant concentration of the listed chemical (parts per million), it may create very little exposure to the consumer because the part is “under the hood” and rarely handled after installation. Aftermarket auto parts often fall into this category.

There are two chemicals that are frequent Prop. 65 targets for the specialty auto aftermarket: lead in brass parts and DEHP. DEHP is a phthalate used in the production of polyvinyl chloride (PVC) and plastics to make them softer, more flexible and durable. Phthalates are used in a variety of products from pipes to plastic wraps, artificial leather, electrical wire insulation and adhesives.

New rules for labeling products went into effect on August 30, 2018. Under these rules, a warning must contain:

• A graphic depiction of a yellow triangle containing an exclamation point;
• Specify at least one chemical for which the warning is being provided if the label is not included on the product or packaging;
• Include the website www.P65Warnings.ca.gov.

Under the 2018 rules, if the warning is placed directly on the product or product packaging, a “truncated” (short-form) label that does not include a specific chemical may be used. A warning must be given at or before the point of purchase. If a product is sold through a catalog or website, the warning must be listed next to the product or on the product-specific webpage. Under the 2018 rule, if a product contains a truncated warning, a truncated warning may also be used on the website or catalog. If an unlabeled product is sold at retail, a retail sign may be used.

Protecting Yourself

A business can protect itself from Prop. 65 liability by labeling its product or ensuring the product does not require labeling. Often, a company does not know what chemicals are in the products they manufacturer, distribute or sell, and, if a listed chemical is present, what level of exposure it creates. A business can usually best protect itself in the following ways:

Product Testing

Hiring a toxicology expert to evaluate your product for exposure amounts can be prohibitively expensive, costing up to $10,000 per product. Many businesses choose to have laboratory testing performed to determine the presence and concentration of a listed chemical in a product because it is relatively inexpensive and because plaintiffs’ attorneys usually rely only on lab testing when making a decision whether to pursue prosecution. Settlement agreements often contain provisions that commit a manufacturer to reduce the concentration of the listed chemical without any reference to exposure.

Contracts

Businesses can protect themselves through agreements with upstream suppliers or sellers requiring them to label a product, certify that a product does not require labeling, or indemnify the business for Prop. 65 violations.

Preemptive Warnings

Even if a business is not certain whether a product requires warning, it can choose to comply with the Prop. 65 warning requirements as a preemptive measure. Under the 2018 rules, if it is possible to place the warning directly on the product or product packaging, a business can use the truncated warning that does not require the listing of a specific chemical (and in such cases, may also use the truncated warning in its catalog or on its website). In cases where on-product or on-packaging warnings are not feasible, a business may choose to provide a preemptive warning listing the chemical most likely to be in the product (for example, if a tool has PVC handles, a warning for DEHP). One must tread carefully, because if the product does not contain the chemical that is subject to the warning requirement but contains another chemical that is, the warning will not be compliant.

Under the 2018 rules, preemptive warnings appear to be the favored avenue of compliance. Often, the cost of providing a warning is lower than the cost of laboratory testing and can help insulate a business from being sued. Although the California Attorney General looks at “over-warning” with disfavor, SEMA is unaware of any cases brought against a business for labeling a product that does not require one. In some cases, a preemptive warning may be the most cost-effective way to mitigate risk. And as mentioned above, many aftermarket products are only handled at installation and do not create any exposure to the consumer regardless of the presence of listed chemicals.

Proposed New Short-Form Warning Regulation

Relying on the 2018 Prop. 65 rules, many businesses retooled their packaging and labeling processes, at significant cost, to include a short-form warning directly on the product or product packaging. In January 2020, OEHHA blindsided the business community with new proposed regulations that would impose new costs on businesses transacting in California. If implemented, the new regulation would include the following:

• Only allow use of the short-form warning on products with 5 sq. in. or less of label space.
• Eliminate use of short-form warnings for internet and catalog warnings.
• Require that the name of at least one chemical be included in the short-form warning.

These regulatory changes would impose significant costs on SEMA members who currently rely on the 2018 rules to affix a short-form warning directly on their product and product packaging that has more than 5 sq. in. of label space. The proposed regulations would also force companies that rely on printed catalogs to place a longer warning on their catalog pages, which would occupy precious space. Infuriatingly, OEHHA stated that the proposed rules “will not have a significant adverse economic impact affecting businesses[.]”

SEMA anticipates that these regulations will lead most businesses to continue to preemptively label products and list the chemicals most likely to be in the products that are most frequently the target of enforcement. (There are 12 chemicals that make up the vast majority of Prop. 65 enforcement, and aftermarket auto parts notices of violation have been focused almost entirely on DEHP and lead). The proposed regulations impose significant costs on businesses that recently incurred costs to comply with the 2018 rules and provide little benefit to California’s consumers.

What is SEMA Doing to Help?

SEMA and its members submitted comments to OEHHA in March and has joined forces with the California Chamber of Commerce to oppose the proposed regulations. We anticipate that the new rules will be finalized in the second or third quarter of 2021 with a one-year phase-in period after the regulation is finalized to make appropriate changes. SEMA will continue to update its members on the final regulations and other changes to Prop. 65.

SEMA is active in the Proposition 65 Coalition of the California Chamber of Commerce to promote legislation and regulations to decrease the cost of Prop. 65 compliance. Substantive changes to the law itself require a two-thirds vote from each chamber of California’s legislature, making legislative changes difficult to accomplish. Nonetheless, SEMA and the Proposition 65 Coalition are looking at every opportunity to create a friendlier environment for doing business in California.

Source

For more information about Proposition 65 and Prop 65 warnings, visit: www.oehha.ca.gov/proposition-65 or www.p65warnings.ca.gov.

Proposed New Short-Form Warning Label

Example of a new short-form warning for a consumer product exposure to the carcinogen Di(2-ethylhexyl)phthalate (DEHP) would read:

WARNING: Cancer Risk From Di (2-ethylhexyl) phthalate (DEHP) Exposure—www.p65warnings.ca.gov.

Examples of acceptable warning labels under current regulations:

Cancer

WARNING: This product can expose you to chemicals, including [name of one or more chemicals], which is [are] known to the State of California to cause cancer. For more information, visit www.p65warnings.ca.gov.

Birth Defect

WARNING: This product can expose you to chemicals, including [name of one or more chemicals], which is [are] known to the State of California to cause birth defects or other reproductive harm. For more information, visit www.p65warnings.ca.gov.

Combined Cancer/Birth Defect

WARNING: This product can expose you to chemicals, including [name of one or more chemicals], which is [are] known to the State of California to cause cancer or birth defects or other reproductive harm. For more information, visit
www.p65warnings.ca.gov.

Current Short-Form Warning

WARNING: Cancer and Reproduction HARM— www.p65warnings.ca.gov.

Type Size: The warning text must be the same size as other consumer information presented on the package and may not be smaller than 6-point type.