VIDEO: California's Proposition 65 - The Latest Developments and What They Mean for Business
Since its adoption in 1986, California's Proposition 65, which requires that businesses warn consumers about the presence of certain chemicals in products, has had an enormous impact on businesses operating in California. And the law continues to evolve. In 2013, California Governor Jerry Brown challenged the legislature and the regulatory agencies to change Proposition 65 in order to eliminate the threat of frivolous "shakedown" lawsuits by the plaintiff bar against industry. In response, the California Office of Environmental Health Hazard Assessment (OEHHA), the agency responsible for administering Proposition 65, has developed a series of proposed regulatory amendments to change the fundamental nature of Proposition 65's operation.
In this three-part video alert series, Crowell & Moring partner Kevin Mayer provides an overview of the proposed updated rules under Proposition 65, their potential impact on industry, including the plaintiffs bar's likely actions, the status of the proposed changes, and what business can expect next.
Part 1: OEHHA Proposed Regulations Overview
Part 2: Proposed Regulations Details and Impact on Industry
Part 3: Big Economic Impact of Proposed OEHHA Regulations
What is the status of Proposition 65 regulations and what are the significant proposed changes?
In 2013, California's governor, Jerry Brown, challenged the legislature and the regulatory agencies to change Proposition 65 in order to eliminate the threat of what he referred to as "shakedown" frivolous lawsuits by the plaintiff bar against industry. In response to that the California Office of Environmental Health Hazard Assessment, the agency which was responsible for implementing Proposition 65 has developed a series of proposed regulatory amendments to change the fundamental nature by which Proposition 65 works. There are four principle regulatory changes that OEHHA has proposed and which industry and other stakeholders have responded to.
The first would have to do with the elimination of the current regulatory regimen concerning the provision of so-called "clear and reasonable warnings." OEHHA proposes to actually eliminate the so-called Safe Harbor language that industry has relied on for many years and instead substitute a so-called voluntary or non-mandatory guidance to give industry some sense as to how it might develop warnings on its own to provide indications about Proposition 65-listed chemicals.
The second change would have to do with the provision of so-called supplemental information by industry to product consumers. Educating them both about the manner in which exposures to chemicals could occur and measures and means to be taken to avoid those exposures. All being expressed without diluting or diminishing the effectiveness of the warnings.
The third change has to do with the development of the so-called "list of 12 chemicals" that OEHHA will select based on a series of criteria that are set forth in the regulatory proposals. These have been criticized because they are not sufficiently stringent from a scientific perspective and are otherwise so vague as to provide very little meaningful guidance to the selection of those chemicals. The reason the list of 12 is being developed is because OEHHA contemplates that more specific warning information will have to be provided about those selected substances.
Finally, OEHHA proposes to provide further regulatory guidance on how warnings should be given, when they should be given, the use of foreign language to certain products in certain instances, and the manner in which warnings should be communicated, both for brick and mortar stores as well as Internet and other types of sales.
What happens next with the proposed regulations?
OEHHA has now received substantial public comments from all interested stakeholders. The next step is for OEHHA to take those public comments and revise their regulation proposals if they choose to do so. It is presently anticipated that by the Fall of 2015, OEHHA will either come out with a new set of draft regulations and submit those for public comment by all interested stakeholders or will issue final regulations that may then become the subject of court challenges by industry.
Specifically why should industry be concerned with the proposed OEHHA regulations?
The first is the companies may be required to scrap existing warnings that they have had on their products for many years in reliance on the current Proposition 65 regulations, because those would no longer be considered clear and reasonable based on the new regulations.
The second problem is that the proposed regulations may call into question the viability of previously negotiated settlement agreements and court-approved consent judgments arising out of litigation in which plaintiffs and companies arrived at agreements as to what warnings should be placed on certain types of products and what reformulation levels should be achieved in order to reduce or eliminate the presence of certain chemicals in those products.
The third concern is that companies would now be forced to replace their existing warnings with new warnings in order to comply with the so-called "non-mandatory guidance" provided by the OEHHA in the regulations, thereby leaving industry to guess as to what would be considered clear and reasonable under the circumstances.
Industry would also be required to perform new exposure assessments on their products in efforts to demonstrate that consumers would not be potentially exposed to an excessive concentration of a Proposition 65-listed chemical.
Given these proposed regulations, what would the plaintiff bar likely do?
All of these problems would, in turn, invite virtually certain law suits by the plaintiff bar and the bounty hunter organizations that they represent. Plaintiffs would be claiming that the product warnings developed by industry would not be clear and reasonable under the circumstances—that the supplemental information that they provided about exposure and means of avoiding exposure were inadequate. Plaintiffs' attorneys would also be expected to criticize the exposure assessments that were performed by companies in efforts to demonstrate that they were not exposing consumers to excessive concentrations of the chemicals—all in an environment in which the companies as defendants in Proposition 65 matters would have the burden of proof to demonstrate that their warnings were adequate, their exposure assessments were properly conducted and that they behaved properly. All of this, in turn, would double down on the current problem that exists with Proposition 65. The Hobson's choice that is faced by industry as to whether to pay settlements to plaintiffs as opposed to litigating through trial and verdict the claims that have been teed up by the plaintiffs' bar for alleged inadequate warnings or inadequate supporting information.
What is the likely economic impact of proposed OEHHA Regulations?
Despite OEHHA's claim that their new proposed regulations will not have any significant economic impact on industry, quite the opposite is true. In a recent independent study commissioned by the California Chamber of Commerce and various trade associations, a forensic accounting firm did a study of the actual economic impacts that would be expected to arise from these proposed amendments, and they have determined that industry will bear a financial burden of between $400M and $800M in the first 10-12 years alone, once these regulations are enacted, simply by trying to comply with the various vagaries of the regulatory scheme.
How can the proposed OEHHA regulations have such a significant economic impact?
By eliminating the clear and reasonable warning requirements that exist under the present statute and instead substituting what they refer to as non-mandatory guidance. This will actually result in a nightmare for American industry to decide how it can comply with Proposition 65 warning requirements. This, in turn, is likely to lead to a completely new arena of so-called bad warnings lawsuits brought by the plaintiff's bar and their bounty hunter organizations who will be criticizing the warnings that are put forth by industry regardless of what they say, regardless of how they were arrived at, and regardless of the exposure assessments that industry has done on their products to determine whether or not a warning should even be required for the product in the first instance.
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