California Proposition 65
Compliance:
Reducing Risk Along the
Supply Chain
California Proposition 65 Compliance:
Reducing Risk Along the Supply Chain
Table of Contents
1. Executive Summary
2. Introduction
3. Regulations and Responsibilities
4. Keys to Compliance
5. Conclusion
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California Proposition 65 Compliance:
Reducing Risk Along the Supply Chain
Executive Summary
There can be no weak links in a successful company’s supply chain. A product
manufacturer along with its suppliers, distributors and retailers are all dependent
upon one another simply to operate, let alone enhance competitiveness and gain
market share. They are also bound by legal obligations. If one partner in the
network fails to follow the law, or proves unable to demonstrate compliance, the
product and each business may be exposed and all could ultimately suffer
damages.
The challenge of complying with consumer protection laws like California’s
Proposition 65 reveals and increases the need for end-to-end collaboration.
Regular and comprehensive monitoring, collection, documentation and review of
relevant data, and a free exchange of timely information, are vital in
understanding and controlling risk, exposure and liability.
This white paper examines the impact of Proposition 65 on businesses operating
and distributing products in California. It explores ways the existing law—as well
as regular alterations in interpretation and enforcement, and changes in a
company’s inventory—can impact both exposure to litigation and the bottom
line. It also offers guidance on how to best navigate the requirements set forth in
this dynamic regulation and outlines best practices for achieving compliance.
Introduction
As the regulatory landscape evolves, material and product compliance has
become an increasingly complex and labor intensive undertaking involving a
growing number of stakeholders. The amount of information that has to be
collected and analyzed in order to support sound and timely business decisions is
daunting. The sheer volume of existing regulations on state, federal, and even
international levels can complicate even the most well-ordered business process.
New laws, amendments to existing law, and unanticipated changes in the
landscape further increase exposure and liability. Protecting your business
requires complete legal and procedural awareness, and rigid accounting of your
efforts. A compliant company is one which thoroughly manages, monitors,
documents and audits their entire supply chain network. Compliant companies
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California Proposition 65 Compliance:
Reducing Risk Along the Supply Chain
are fluent in the law and remain alert for inevitable crises and necessary
modifications. A successful company will understand how to best respond, and be
prepared and able to do so, either by reserving the resources or knowing how to
access them when necessary.
California, representing a $2.3 trillion gross state product in 2014, is a critical
market for business. California’s comprehensive legal statutes also make it the
nation’s most complex place to conduct that business. Without the proper
processes or guidance, or both, California law can be prohibitive. Ongoing,
thorough awareness of your business, with specific attention to your supply chain,
can be the difference between stagnation, litigation or a share of this significant
market.
Proposition 65, the Safe Drinking Water and Toxic Enforcement Act of 1986, was
enacted by California voter initiative, and is administered by the Office of
Environmental Health Hazard Assessment (OEHHA). Prop 65 details the
responsibilities of businesses operating in the state regarding human or
environmental exposure to a list of specified chemicals determined to cause
cancer or reproductive toxicity. The list currently includes over 890 potentially
harmful chemicals.
Prop 65 states: “A person in the course of doing business, who manufactures,
produces, assembles, processes, handles, distributes, stores, sells, or otherwise
transfers a consumer product which he or she knows to contain a chemical known
to the state to cause cancer or reproductive toxicity in an amount that requires a
warning shall provide a warning to any person to whom the product is sold or
transferred unless the product is packaged or labeled with a clear and reasonable
warning,” (California Proposition 65, Section 25603.)
If, through the use of your product or service, a person may be exposed to any
one of these substances beyond a specified “safe harbor,” you are required to
provide a warning on the product's label or other labeling, at the retail outlet
(through shelf labeling, signs, or menus), or through a system of signs, public
advertising, or any other system that provides clear and reasonable warnings.
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California Proposition 65 Compliance:
Reducing Risk Along the Supply Chain
For compliance, whether as manufacturer or any entity along the supply chain, it
is critical that your business have the proper framework in place to collect and
analyze all available information and determine your own exposure to potential
legal action. Your data must be current, accurate, and actionable, so you may
readily determine any concern and pursue the best course of action.
Proposition 65 Regulations and Responsibilities
To successfully comply with California’s regulations, a thorough understanding of
your product, materials and suppliers is a necessary foundation. However,
collection, analysis and efficient use of often overwhelming and elusive data are
typically beyond the capacity of individual businesses. Businesses which neglect
this part of the process put themselves at risk.
Compliance with Prop 65 requires a comprehensive and detailed knowledge of
your business, all products, suppliers and processes. The law requires operators
and agencies to be aware if, in the course of doing business, they handle or if
their product contains any one of the more than 890 currently listed chemicals
known by the state to cause potential cancer or reproductive harm. Businesses
are required to determine the levels of each and the risk of exposure to a
California employee or consumer.
Thirty years after its initial passage, OEHHA remains active in proposing new
chemicals for the Prop 65 consumer-warnings list. Numerous chemicals are added
to the list every year; sometimes several in a single month. It is the ongoing
responsibility of every company operating within California, or whose products
end up in California, to be aware of amendments to Prop 65, and comply with
warning requirements within one year of an addition.
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California Proposition 65 Compliance:
Reducing Risk Along the Supply Chain
Exposure for the Consumer and the Company
The definition of a “product exposure,” set in the law, is broad and can add to the
difficulty in determining individual compliance. Prop 65 comprehensively targets
any “exposure that results from a person’s acquisition, purchase, storage,
consumption or other foreseeable use of a consumer good.” (Section 25602)
If it is determined or suspected that exposure to a listed chemical may occur, the
regulation states, said goods must be accompanied by a warning prior to any
exposure. Parties who manufacture, produce, assemble, process, handle,
distribute, store, sell or otherwise transfer a consumer product which requires a
warning shall provide or ensure a clear and reasonable warning is provided to any
person to whom the product is sold or transferred. (Section 25603)
Under the law, the majority of the obligation to provide warning notification falls
upon a product’s manufacturer and packager. A retailer may also be held liable if
the producer fails in their legal responsibility. It is thus in the interest of all parties
along the supply chain to be aware of the law, plus all product contents,
containers and labeling.
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California Proposition 65 Compliance:
Reducing Risk Along the Supply Chain
OEHHA has established certain “safe harbor” levels for more than 300 of the
listed chemicals; thresholds below which companies are not required to provide
exposure warnings. It is important for businesses to know the amount of
chemicals present in their products to determine the need for potentially costly
labeling. The burden of meeting established thresholds falls upon the business,
though the requirement is also a benefit. With proper testing and documentation,
there is less risk of litigation and compliant businesses may receive a more
favorable outcome in court.
Legal Obligation Spans the Entire Supply Chain
To meet the obligation set forth by the state, all parties are dependent upon the
availability and quality of information. This pertains to all material ingredients in a
product, but also to the process at every stage of production and along the supply
chain. Parties must remain aware of changes to the process. If a manufacturer
changes or enlists an additional supplier, corresponding materials and product
contents may also change. Compliance must be reassessed on an ongoing basis
every time alterations are made or suspected.
Companies are not advised to simply assume responsibility or compensate with
excessive product labeling. Improper or unnecessary warnings can give your
product the appearance of being unsafe, and can cause potentially significant and
long-lasting brand damage. Given the complexity of Prop 65 regulations and the
quantity of information necessary to ensure compliance along the supply chain,
OEHHA, the California regulatory body itself, recommends producers as well as
suppliers and retailers seek the assistance of qualified professionals. (California
Office of Environmental Health Hazard Assessment, “Proposition 65 in Plain
Language,” February 2013).
Noncompliance Hazards and Penalties
While operating in California, the burden of compliance falls firmly on the
business. Protection and enforcement are key components of Proposition 65, and
the law greatly favors the consumer. A public attorney is not required to bring suit
in a Prop 65 case. Any private citizen, acting in the public interest, can file a
lawsuit against a company for any alleged exposure without proper notification.
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California Proposition 65 Compliance:
Reducing Risk Along the Supply Chain
Companies found to be in violation of the law may be liable for fines of up to
$2500 per infraction per day. Numerous consumer groups exist specifically to
monitor and enforce Prop 65 protections. Additionally, continued successful
prosecution of the California law has given rise to a stream of law firms and
private attorneys who specialize in prosecuting Prop 65 cases.
When cited by a private citizen, private attorney or consumer advocacy group, a
company is issued a 60-day notice which allows the attorney general and other
enforcement authorities the option to take up the case. The case and alleged
violation, however, becomes public information immediately. Even if the
manufacturer fixes the issue, or is found to be compliant, even without a
judgment, the company is exposed to potential brand damage.
CA OEHHA states: “You are discouraged from providing a warning that is not
necessary and instead should consider consulting a qualified professional.”
(California Office of Environmental Health Hazard Assessment, “Proposition 65 in
Plain Language,” February 2013).
The Key to Compliance is in the Details
Limiting the unwarned exposure of consumers to Prop 65 regulated substances
and companies to Prop 65 penalties can be accomplished by collecting and
maintaining accurate substance, material and product level data.
With proper experience and practiced scrutiny, supply chain risks can be reduced
and regulatory reporting and compliance can be enhanced while vital decisions
are made and supported by actionable intelligence. Minimizing risk requires
conscious integration on every tier and throughout the supply chain. Regular
interaction between managers, suppliers, etc. helps ensure necessary
communication occurs in a timely manner, and that issues are made clear and
addressed before becoming problems. A supplier that does not directly ship
products containing Proposition 65 chemicals into California is less likely to bring
them to a customer’s attention unless both trained and asked.
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California Proposition 65 Compliance:
Reducing Risk Along the Supply Chain
In the event of an unavoidable infraction, exposure and penalties are often
reduced when a company provides proof of due diligence. If measures are taken
to achieve or are expended in the effort of compliance and can be sufficiently
presented, judgements are, depending upon the seriousness of the alleged
violation, often resultantly mitigated. This requires an in-place system or service
to track due diligence efforts.
If your product or business management is unwilling to warn with standard Prop
65 warnings, a product reformulation may be required to eliminate the listed
chemicals. This again involves acute supply chain monitoring and flexibility.
Reformulation takes time and recalling product can be a huge expense and risk in
itself.
Businesses can and should prepare for adverse events before they happen. If a
compliance issue is discovered, there may not be sufficient time to find and enact
the proper solution, especially if it requires a product redesign or significant
adjustment to your supply network. Dissecting, documenting and analyzing your
production processes is an integral first step. Test and determine your own
exposure and that of your suppliers. It is difficult and even unlikely that a
company can assemble, process and validate the necessary data in the event of a
problem before facing a fine or lawsuit without prior preparation.
Ingrain compliance into your production process with ongoing comprehensive
monitoring, documentation and auditing. When they channel relevant data with a
focus on the law, companies are better prepared to respond to litigation, or avoid
it altogether. With an understanding of the current and evolving regulations, and
their impact on your business, you may then leverage best practices to design a
sustainable due-diligence process, which is nimble and easily adaptable to
support reporting requirements.
Perform an internal (company-wide) and external (supply chain) risk diagnosis.
Does your company fulfil its compliance obligations? Are you even aware of them
all? Do you engage with your suppliers? Is the necessary information reaching
those who need it? How efficient are your systems? Are you auditing and is it
effective? Compliance is contingent on having the right process in place, and
keeping it current.
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California Proposition 65 Compliance:
Reducing Risk Along the Supply Chain
Best Practices Summary
With compliance as an ongoing process commitment, your company will have
consistently less exposure to risk. Establish and maintain Prop 65 materialscompliant internal protocols and processes. Document and freely distribute all
current, accurate and executable data. Subject your suppliers and entire process
to regular audits to ensure best practices are being followed and are
accomplishing the desired compliance goals.
Produce and maintain accurate substance-level inventories. Inventory product
ingredients including all materials and substances used. Require and maintain
similar data from your suppliers. Cross reference inventories with Prop 65
chemical lists to determine whether your finished goods are compliant or require
warnings.
Prepare for adverse events before they happen and well before the receipt of a
compliance notice. Keep current with regulations by renewing relevant company
certifications and request and maintain similar supplier documentation.
Prioritize company risk and perform an expert determination of exposure.
Document your compliance efforts. Be able to demonstrate compliance and
ensure suppliers can show no exposure with documentation.
Create an environment in which information flows freely up and down your
supply chain. Maintain a system whereby best practices are known, reaffirmed
and consistently reassessed.
CONCLUSION
A commitment to regulatory compliance, and specifically California Proposition
65, requires an environment, up and down the supply chain, where information
flows. Information must be clear and actionable for both the buyer and seller, and
it must pass freely between them. Create and facilitate relationships that
encourage this necessary exchange. Buyers and sellers have their own
requirements and responsibilities. The success of each, measured in output as
well as limited liability, requires constant interaction. The challenges must be met
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California Proposition 65 Compliance:
Reducing Risk Along the Supply Chain
internally or handled by a proficient and objective third party solution. California
law cannot be ignored.
Management commitment is also required. Without sufficient budgeting or
resources there is greater risk of nonconformance. Compliance requires a
comprehensive framework. It is best addressed as a holistic process, at every tier
of your business. A commitment to the finished product begins at the top and
follows the entire chain.
Material and supplier compliance, under Proposition 65 and in the global market,
is a matter of being able to make intelligent data-driven decisions. These, then,
are the product of systems technology, informational obtainment and regulatory
expertise. From the confluence of proper resources comes reliable, actionable
data, a more secure supply chain, safer products and reduced risk.
Should you need assistance augmenting and managing your supply chain
compliance program, 3E Company stands ready to help. Learn more about 3E
Company’s supply chain solution at 3ecompany.com.
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