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Sellers Beware: Surge in Online Sales During the COVID-19 Pandemic Increases Retailers’ Exposure to Proposition 65 Claims

by Renée D. Wasserman and Suhani Kamdar

It should come as no surprise that stay-at-home orders during the COVID-19 outbreak and the temporary closure of many brick-and-mortar stores have significantly increased online sales.  For example, Forbes cited a 70% increase in March 2020 for online sales of home goods and athletic equipment over the same period in 2018.[1]  Online alcohol sales alone reportedly grew a staggering 387% for the week ending April 11, 2020, less than one month after several stay-at-home orders across the country began taking effect.[2]  As the nation’s stores gradually open for business, online sales may ebb, but they are likely to remain robust in the foreseeable future given anticipated “second waves” of the novel coronavirus.  While a boon for e-commerce retailers, increased internet sales present risks for businesses selling online to California consumers.

Online retailers seeking to take advantage of safe harbor provisions for sales of products requiring a warning under the Proposition 65 Warnings Regulations must provide internet warnings on their website, either on the product page or by creating a hyperlink on the product page to the warning.[3]  In addition, the product or its packaging must contain a warning.[4]

Although the new Warnings Regulations took effect on August 30, 2018, the Office of Environmental Health Hazard Assessment (“OEHHA”), the regulatory agency authorized to implement Proposition 65, has proposed additional amendments clarifying the requirements for providing safe harbor warnings for products sold on the internet.[5]  These amendments, for which the comment period ended on March 31, 2020, capture OEHHA’s prior guidance to businesses regarding internet warnings[6].  In addition, the proposed amendments track provisions of a recent Attorney General consent judgment with online retail sellers and delivery services, to clarify that for alcoholic beverages sold online and delivered to California consumers, both internet and on-package warnings are required[7].  In keeping with the consent judgment, the proposed alcoholic beverage amendments set forth a practical alternative to on-package warnings for alcohol deliveries—warnings by email or text receipt.[8]  For online alcohol sales and subsequent delivery, the proposed option to provide a warning via email or text is a welcome addition, as industry stakeholders had questioned how third-party providers who facilitate transactions but do not take physical possession can feasibly provide on-package warnings.[9]

The current regulatory landscape does not change for general internet warnings.  Internet retailers seeking safe harbor protections should ensure that they comply with the requirement to provide both an internet warning and a warning under one of the four methods enumerated in section 25602(a) or, in the case of alcoholic beverages, on an email or text receipt prior to delivery.

Despite the COVID-19 pandemic, the number of Proposition 65 60-day notices sent during the first five months of 2020 totaled 1,078—only three fewer than the number of notices sent during the same period in 2019.  The sustained focus on potential Proposition 65 violations should prompt retailers to review warning methods for all products sold online.

 

For Internet Sales, Retailers Must Provide Warnings Both on Their Website and Either on the Product/Package or at the Point of Sale

Section 25602(a) specifies four different safe harbor methods of providing warnings: (1) on a posted sign, shelf tag or shelf sign; (2) through any electronic device or process that provides the warning to the customer prior to or during the purchase; (3) on a label; or (4) on the product/product packaging.[10]  Section 25602(b) separately addresses online sales: “For internet purchases,” a warning “must also be provided” by including, on the product display page, (i) either the warning itself or a hyperlink using the word “WARNING”; or (ii) by otherwise prominently displaying the warning before the purchase is complete.[11]  OEHHA explained in its 2018 guidance for business, “Proposition 65 Clear and Reasonable Warnings—Questions and Answers for Businesses: Internet and Catalog Warnings” that “[t]o comply with the safe harbor provision for internet purchases, a business would need to use one of the four methods described in Section 25602, subsections (a)(1)-(4) and also provide an internet warning prior to the completion of the purchase of the item, as described in Section 25602(b).”[12]  The new amendments clarify this intent and address what appeared to be industry confusion about the meaning of “electronic device or process.”

The proposed revisions to section 25602(a) make clear that one of the four permissible methods for providing a warning is a product-specific warning provided at the physical retail location via any electronic device or process.[13]  The amendments continue to require an additional warning for internet sales, including “purchases through mobile device applications.”[14]  The internet warning requirement flows from the current operative language in subsection 25602(b) and is not a new requirement.[15]

For retailers with both an online presence and physical locations in California that remain closed, not only are internet warnings required under section 25602(b), but the only practicable option for complying with section 25602(a) is to provide the required warning on the product or its packaging.[16]  Therefore, retailers seeking safe harbor protection must ensure that product packaging complies with Proposition 65 warning requirements.

 

Proposed Amendments Regarding Online Alcoholic Sales Include an Additional Option in Lieu of On-Product/Package Warnings

The proposed amendments also address warning requirements for alcoholic beverages sold online and delivered to California consumers.[17]

Currently, section 25607.4 sets forth a specific alcoholic beverage warning[18], and for alcohol sold or distributed through “package delivery services,” section 25607.3 requires the specific warning to be provided on or in the package of alcoholic beverages.[19]  As reflected by a consent judgment involving more than 10 settling defendants, including 7- Eleven, DoorDash and Postmates, there was industry confusion over which businesses and types of deliveries are encompassed by the term “package delivery services.”[20]  The proposed revisions to 25607.3 track the consent judgment’s provisions by deleting reference to “package delivery services” and making clear that the provision applies to alcoholic beverages “delivered to consumers in California at a location other than the point of sale.”[21]

The proposed changes to section 25607.3 also provide that for alcoholic beverages sold online, purchasers must receive an internet warning and an additional warning prior to or with the delivery of alcoholic beverages.[22]  The second warning can be provided in one of two ways:  (i) either on or in the shipping container or delivery package, as currently prescribed[23]; or, (ii) as a new option, on the electronic receipt or confirmation.[24]  Businesses currently required to provide on or in-package warnings will have the more viable alternative of providing the required alcoholic beverages warning on a text or email receipt.

 

Conclusion

There is no current timeline for OEHHA to submit the proposed amendments to the Office of Administrative Law for approval.  At the earliest, the amended regulations would become effective on October 1, 2020.[25]  These amendments will clarify industry confusion over internet warnings at a time when clarity is much needed and increased online sales may be here to stay.

 

How We Can Help

Rogers Joseph O’Donnell specializes in working with its corporate clients on compliance with regulatory and environmental laws that impact their business and has formed a taskforce dedicated to steering businesses during this unprecedented time.  For compliance advice or defense of claims, attorneys Renee D. Wasserman, J. Robert Maxwell, Suhani Kamdar, and Alecia Cotton are available to assist.

 


Disclaimer:

The materials provided at this site are offered for informational and educational purposes only and are not offered as and do not constitute legal advice or legal opinions.  The transmission or receipt of information through this website, or communications with Rogers Joseph O’Donnell via email through this website, does not constitute or create an attorney-client relationship between us and any recipient.

 

[1] Moore, Kaleigh, Retailers Selling Non-Essentials See Double & Triple-Digit Increases in Online Sales During COVID-19 Crisis, Forbes, April 17, 2020

[2] Valinsky, Jordan, People Are Buying More Booze Online Than Ever Before, CNN, April 22, 2020

[3] 27 CCR § 25602(b).  Regulations under Title 27

[4] 27 CCR § 25602(a).

[5] The proposed amendments are available here.

[6] OEHHA, “Proposition 65 Clear and Reasonable Warnings Questions and Answers for Businesses: Internet and Catalog Warnings,” (Rev. March 2018)

[7] The proposed amendment to 27 CCR § 25607.3.

[8] Id.

[9] OEHHA, “Initial Statement of Reasons Title 27, California Code of Regulations, Proposed Amendments to Article 6 Clear and Reasonable Warnings Sections 25602, 25607, 25607.1 and 25607.3” (Jan. 2020).

[10] CCR § 25602(a)(1)-(4).  Note that the use of the term “electronic device or process” in subsection 25602(a) appears to have generated confusion.  The sole comment to OEHHA’s proposed amendments was submitted by an industry coalition, which argued that because an internet warning provided under subsection 25602(b) is essentially given via an electronic process, an internet warning satisfies the warning method described in 25602(a)(2) and thereby fulfills the warning requirement under subsection 25602(a).  OEHHA’s past guidance for businesses offers the agency’s countervailing interpretation.  See Comments to Proposed Amendments to Title 27, California Code of Regulations, Sections 25602, 25607, 25607.1, and 25607.3, submitted by The Consumer Brands Association, the California Chamber of Commerce, et al.

[11] 27 CCR § 25602(b) (emphasis added).

[12] OEHHA, “Proposition 65 Clear and Reasonable Warnings Questions and Answers for Businesses: Internet and Catalog Warnings,” Response No. 3 at p. 3 (Rev. March 2018), (emphasis in original).

[13] The proposed amendment to section 25602(a)-(b).

[14] Id.

[15] 27 CCR § 25602(b); see also OEHHA, Final Statement of Reasons Title 27, California Code of Regulations Proposed Repeal of Article 6 and Adoption of New Article 6 Regulations for Clear and Reasonable Warnings, Response to Comment 127 at p. 83.

[16] 27 CCR § 25602(a).

[17] The proposed amendment to 27 CCR § 25607.3.  Subsection 25607.3(2) addresses alcoholic beverages delivered to consumers in California at a location other than the point of sale.  A product-specific warning provided to the purchaser or delivery recipient prior to or during the purchase of the product is required.

[18] Under 27 CCR § 25607.4, a warning for alcoholic beverages, including beer, malt beverages, wine and distilled spirits, complies with safe harbor requirements if it is provided using one or more of the methods required in Section 25607.3 and includes all the following elements: (1) The word “WARNING:” in all capital letters and bold print; and (2) The words, “Drinking distilled spirits, beer, coolers, wine and other alcoholic beverages may increase cancer risk, and, during pregnancy, can cause birth defects. For more information go to www.P65Warnings.ca.gov/alcohol.”

[19] 27 CCR § 25607.3(4).

[20] Consent Judgment in People of the State of California v. 1800 Flowers.com et al., Case No. 37-2020-00009417-CU-TT-CTL (lodged on or around February 20, 2020), awaiting approval by the Superior Court of the State of California for the County of San Diego.

[21] The proposed amendment to 27 CCR § 25607.3.  In particular, see the proposed language for subsection 25607.3(2) (emphasis added).

[22] Id.  In particular, see the proposed language for subsection 25607.3(3)(A).

[23] Id.  In particular, see the proposed language for subsection 25607.3(3)(A)1.

[24] Id.  In particular, see the proposed language for subsection 25607.3(3)(A)2.

[25] Comments to the proposed amendments were due by March 31, 2020.  OEHHA received only one comment.  The agency website does not indicate whether OEHHA has completed its review of the one comment received or forwarded the regulations to the Office of Administrative Law for approval.  If the proposed amendments are filed between June 1 and August 31, 2020, they will become effective October 1, 2020.  If filed between September 1 and November 30, 2020, they will become effective January 1, 2021.

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