The Struggle Between Suppliers and Retailers Over Responsibility to Issue Warnings

The new amendments to the Prop 65 warning regulations adopted by the Office of Environmental Health Hazard Assessment (OEHHA) may cause more confusion and discord between manufacturers and retailers over who is primarily responsible for complying with the regulations. The new regulations, which amend the rules for providing clear and reasonable warnings, also establish a shift in liability for providing warnings under Article 6, “Responsibility to Provide Consumer Product Exposure Warnings.”

The statutory Prop 65 warning obligation itself does not distinguish among entities in the supply chain; every entity, from manufacturers to retailers, are subject to Prop 65 unless exempt. Nevertheless, since its enactment in 1986, Proposition 65 has required that manufacturers bear the burden,“to the extent practicable,” to provide warning materials such as labels “in order to minimize the burden on retail sellers of consumer products.”Manufacturers frequently do place warnings on their product labels, if only because the majority of large retailers already have contractual requirements (including indemnity agreements) placing Prop 65 warning obligations directly on suppliers and manufacturers.

The new warning regulations now establish: (1) how a supplier may shift the burden to warn onto the retailer, and (2) the specific circumstances in which a retailer is primarily responsible for providing a Prop 65 warning. The amended regulationsestablish that a supplier discharges its warning obligation either by placing warning labels on consumer products or by providing a formal notification to retailers transmitting warning materials in accordance withnew Section 25600.2(b) and (c). And, Section 25600.2(e) of the new warning regulations now establish the specific circumstances in which the retailer, rather than the manufacturer, bears the primary burden to warn:

(1) The retail seller is selling the product under a brand or trademark that is owned or licensed by the retail seller or an affiliated entity;

(2) The retail seller has knowingly introduced a listed chemical into the product, or knowingly caused a listed chemical to be created in the product;

(3) The retail seller has covered, obscured or altered a warning label that has been affixed to the product;

(4) The retail seller has received a notice and warning materials for the exposure pursuant to Section 25600.2(b) and (c) and the retail seller has sold the product without conspicuously posting or displaying the warning; or

(5) The retail seller has actual knowledge of the potential consumer product exposure requiring the warning, and there is no supplier who may be held liable (e.g., the supplier employs less than 10 employees and is exempt from Prop 65). Actual knowledge is defined as “specific knowledge of the consumer product exposure received by the retail seller from any reliable source.” The issue of actual knowledge is certain to be debated in future disputes over liability.

These clarifications – and for retailers, the apparent narrowing of their Prop 65 warning obligations – may be

a welcomed change particularly for small retailers who lack the financial means to conduct toxicological evaluations of the products they sell or to litigate Prop 65 claims. For their part, manufacturers may use the new regulations to address a common problem: manufacturers would prefer not to place Prop 65 warnings on products that may be sold outside of California. But manufacturers cannot always control where their products are ultimately sold, and therefore labeling all products, irrespective of final destination, may be the only way to ensure Prop 65 compliance in California. The formal retailer notification process set forth in Section 25600.2(b) and (c), whereby the manufacturer advises the retailer of the Prop 65 warning obligation and provides warning materials, would appear to be a perfect solution, since only those products sold in California would have to bear a warning.

But not surprisingly, retailers of all sizes are resisting the shift in warning responsibility resulting from the formal retailer notification procedure. Such retailers object to the administrative burdens and resource requirements imposed by the need for them to label individual product units and/or ensure that warning signs are put up at points of display – and stay up. Under the new regulations, it would appear that a retailer who simply receives the notification would then bear the primary burden to warn, whether or not the retailer subsequently objects to the notification. In the end, the consequences of all this back and forth ultimately will depend on what the parties’ contract states, and the desire of the companies to continue to do business with each other.

Grimaldi Law Offices has been advising clients for over 20 years on chemical and product law. For knowledgeable advice and in-depth analysis on your Prop 65 compliance obligations, contact Grimaldi Law Offices at (415) 463-5186 or email us at [email protected].

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