By Catherine W. Johnson
Companies with fewer than ten employees are exempt from California’s Proposition 65 warning requirements but may nonetheless have a sophisticated distribution network for their product, making them an attractive target for Proposition 65 plaintiffs. What should you do if your company receives a 60-Day Notice of Intent to Sue (“Notice”), threatening to sue you for failing to make Proposition 65 warnings about your product?
In some cases, if the plaintiff is satisfied you have fewer than ten employees, they may agree not to file litigation or take any further action. Be wary, however, of providing certain information that plaintiff’s counsel may ask you to produce to prove you have fewer than ten employees – such as confidential business information or tax returns. In some cases, you may want to consider requiring the plaintiff to enter into a confidentiality agreement before providing any information, prohibiting the plaintiff or its attorneys from disclosing the information to third parties.
Establishing you have fewer than ten employees may be less straight-forward that it may initially appear. The definition of an "employee" under Prop 65 includes a broad range of persons that are not encompassed by the common understanding of who an "employee" is -- for example, for purposes of Proposition 65, employees may include officers and directors or partners of the company. Title 27, Section 25102(h).
Moreover, in general, the term “employees” for purposes of Proposition 65 incorporates the definition of employees under Section 3351 of the Labor Code and Section 621 of the Unemployment Insurance Code Section 621. Id. These two code sections list a broad swath of persons who could potentially be employees, including those involved in product production, "home workers," or those that have a "continuing relationship" with a business. Recent legislative changes have broadened those definitions.
For example, in 2019, the California legislature passed SB 5, codifying a California Supreme Court decision, Dynamex Operations West v. Superior Court (2018) 4 Cal. 5th 903, that overturned decades of precedent for determining whether a worker was an employee or independent contractor under the Labor Code. In 2021, Section 621 of the Unemployment Insurance Code was amended to significantly expand the situations under which workers – who were previously considered independent contractors – may now be considered employees under California law. Although the new legislation was primarily designed to target the gig economy – requiring companies to provide benefits to workers – Proposition 65 plaintiffs may assert these definitions also apply to Proposition 65.
In addition, if you distribute your product through retailers, including on-line retailers, who have ten or more employees, you should check your contract with the retailer for indemnity provisions (or any obligation to provide them with information about any Proposition 65-listed chemical in your products). If the plaintiff serves a Notice on the retailer, these indemnity provisions may be implicated. Under certain circumstances, if your product could expose persons to a Proposition 65-listed chemical above levels that are considered safe under Proposition 65, retailers selling your product must give a warning even if your company is not required to provide a warning. 27 CCR § 25600.2 (e)(5).
You may also want to evaluate whether an informal unwritten agreement from the plaintiff not to sue your company is sufficient or whether your company may have reasons why a more formal written resolution may be desirable (e.g., any actual or anticipated third-party contracts that may be implicated by an unresolved threat of litigation).
In conclusion, even companies with fewer than ten employees may become targets of threatened Proposition 65 claims or need to defend against such claims to honor indemnity obligations – and should evaluate how best to respond to the Notice depending on the facts of their situation.