Small Business and Prop 65: Free Pass? Not So Fast

Aug 29, 2019 | Prop 65

California’s Proposition 65 (Prop 65) has a major exception for small businesses: the law does not apply to businesses employing fewer than ten employees.  Such small businesses, however, should be cautious as traps abound for the unwary in the realm of Prop 65.  For example, a small business may have an indemnity provisions with a downstream retailer that employs ten or more employees.  When that retailer is hit with notice of Prop. 65 violation regarding the small business’s product, that otherwise exempt business can find itself facing liability.  Small businesses must also be mindful of who counts as an employee, and that definition may soon include a lot more people.

The regulations for Prop. 65 state that all full- and part-time employees at the time of the alleged “discharge, release or exposure” must be counted.  The regulations further state that “employee” has the same meaning as the term is defined in both Unemployment Insurance Code Section 621 and in Labor Code Section 3351.  It has been an open question as to whether workers in the “gig economy” are “employees,” an issue that has been hotly litigated in California and around the country.

With the growing ubiquity of the “gig economy,” the question of whether certain workers are employees or independent contractors went to the California Supreme Court in the 2018 Dynamex case.  The Court greatly expanded the definition of employee with its so-called “ABC” test.  Dynamex, however, has been held to apply only to certain wage-related matters in employment litigation.  As it stands, Dynamex does not necessarily apply to Prop. 65.  That may be about to change.

The California Legislature is debating whether they should codify or amend the results of the new “ABC” Dynamex test.  California Assembly Bill 5 (AB 5), which has passed an Assembly vote and is now before the Senate, “would provide that the factors of the ‘ABC’ test be applied in order to determine the status of a worker as an employee or independent contractor for all provisions of the Labor Code and the Unemployment Insurance Code” according to the text of the Legislative Counsel’s Digest.  Indeed, if passed in its current form, the text of Section 3351 will be amended to include a reference to Dynamex.  As currently drafted, AB 5 states: “a person providing labor or services for remuneration shall be considered an employee unless the hiring entity demonstrates that all of the following conditions are satisfied:

  • The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
  • The person performs work that is outside the usual course of the hiring entity’s business.
  • The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

This has huge implications for California’s gig economy generally; sweeping up freelancers of all types.  In the world of Prop. 65, while it will certainly be litigated if enacted, AB 5’s effect on Prop. 65’s reach may expand to include otherwise exempt small businesses that hired what had previously been thought of as independent contractors.  So, for example, a small winery or farm that hires workers throughout the year for harvest might now have more than 10 “employees.”  If you have a small business that may be on the cusp of exceeding 10 employees, it is time to evaluate your obligations under Prop. 65.

CMBG3 Law has represented clients in matters with warning label issues for many years. Our attorneys in California are well-versed on Prop 65 issues and requirements. Proposition 65 does not lend itself to a one-size-fits-all approach. If you believe that you fall under the regulations of Proposition 65, we recommend seeking legal advice to address your individual situation as the information at this site is not, nor is it intended to be, legal advice. While we invite you to contact us, and welcome you to do so, contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until an attorney-client relationship has been established. If you have any questions or would like more information, please contact Gilliam Stewart (email him or 415-957-2322).

1 Comment

  1. Deron Yee

    Great article. I just received a propagation 65 intent to sue notification. I am a very small business with not more than 4 employees. We repackage Chinese food products and sell locally.
    What can I do? We never directly sold to California so I don’t know why they sent me the notice.


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