California Proposition 65, or Prop 65, is a regulation that applies to nearly every type of product sold into California. Enforcement actions against allegedly non-compliant products (hundreds of Notice of Violations or NOV are issued every month) can cost companies tens of thousands of dollars for even just one product being targeted (ask us how that is avoidable!).

Very clearly in the regulations it is stated that companies with less than 10 employees are exempt from the requirements of Proposition 65. Full stop. Sounds straightforward right? Well that depends on a) if your small business can get off the hook for compliance liability and b) how you define an employee.

With regards to liability, even if your company is very clearly less than 10 employees, not only may your customers still ask about the compliance of your products with the regulation (to which you could reply “not applicable”) but larger retail customers may specifically require you to completely indemnify them from any enforcement activity liabilities related to Prop 65 and other regulations. For example, most of the very large online retailers require such agreements and as such, despite being very frequently included in the NOV being issued, they are never liable for another company’s products and it all falls on the manufacturer, including small businesses, to address and bear the financial costs of non-compliance. So either way, you may need to look into the compliance of your products!

The aspect of the “employee” definition may seem obvious, but enters a bit of a grey area when we dig a little further. The regulation states that both full-time and part-time employees count towards the exemption and are defined as per both the California Unemployment Insurance Code Section 621 and Labor Code Section 3351. However, the definition of an employee has undergone a change as per California Assembly Bill 5 (AB-5) that took effect January 1, 2020. This bill creates a requirement for companies to potentially define contract workers as employees, depending on parameters like who defines the role, performance, type of work being conducted (is this person actually independent?). The purpose of this bill was to help protect workers with employee rights that may otherwise have been excluded under the previous label of “contractors”. This bill has serious implications for companies that use a lot of freelance/gig-type workers (think ride-sharing!) but will also impact many other companies. If your company is a small business on the cusp of the 10-employee exemption, these considerations may play a role in your response to Proposition 65 compliance.

If you have questions about Proposition 65 compliance, contact us today!