California's Proposition 65 ("Prop. 65") requires businesses to provide warnings for any products that contain certain levels of chemicals determined by the State of California to cause cancer or reproductive harm. Prop. 65 is often enforced by private plaintiffs who target companies that are allegedly not providing necessary warnings. Companies with fewer than 10 employees are exempt from Prop. 65, but this exception is often more complicated than it appears. These companies can still be liable under Prop. 65 in certain situations.
For one, the definition of "employees" in Prop. 65 is borrowed from the California Labor Code and Unemployment Insurance Code, and this definition is surprisingly broad. It includes full-time and part-time employees, lawful or unlawful employees, officers or directors of a company, and some relationships that might be more commonly thought of as independent contractors. For example, there are various State law tests, such as the "ABC Test," to determine whether a worker is properly classified as an independent contractor or must be treated as an employee. Thus, determining who counts as an "employee" for purposes of Prop. 65 is not always straightforward.
Further, a small business may have fewer than 10 employees, but that small business could still find itself facing Prop. 65 liability on behalf of larger downstream distributors or retailers. Contracts with downstream entities often include a broadly drafted defense and indemnity provision, so a small business could find itself exempt from Prop. 65 and still contractually "on the hook" for Prop. 65 liability on behalf of a downstream entity.
If your small business is targeted by a Prop. 65 enforcement action, experienced legal counsel may be necessary to effectively navigate the nuances of Prop. 65 liability, including the "fewer than 10 employees" defense. We have significant experience representing clients who find themselves facing the complexities of asserting the under 10 employees exception.
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