Proposition 65, the passing of which required all products to be labeled if they contain potentially harmful ingredients, might have just forged a new link between the law and small business bankruptcies.

Proposition 65 and the Link to Small Business Bankruptcies

California voters approved Proposition 65 almost three decades ago. And when they did, it required state regulators to create a list of chemicals (a list that has grown to almost 900 items) that “known to the state of California to cause cancer” or reproductive harm. Any business selling these products in California then had to label their products as potentially harmful, regardless of how large or small the risk is, or else face fines. While the signage might go unnoticed amongst most consumers, the law also created a field day for citizens looking to file lawsuits against non-compliant businesses. While some larger businesses might be able to shoulder the financial load, it places smaller businesses in a very difficult position. Hefty fines can push even a medium-sized business into bankruptcy.

Reform of Prop 65

Last year Prop 65 was reformed to lessen the disproportionate burden that falls small businesses. With the reform came the law that for small businesses (fewer than 25 employees) can avoid falling prey to lawsuits by clearly demonstrating Proposition 65 signs. If found in violation they are able to avoid a lawsuit by paying a $500 fine within a two-week period. That can still be a hefty fine for a small business.

Small Business Bankruptcies

For large businesses that operate throughout multiple states, Prop 65, is just a regulation that occasionally causes headaches. But for small businesses, a violation can mean bankruptcy, especially if it goes to court, resulting in multiple fees and settlements.

Sources: The Sacramento Bee, Proposition 65 can spell bankruptcy for many California small businesses, November 17, 2014