Opinion: California's Prop 65 is Encouraging Litigators to Destroy Small Businesses

Editor's Note: The following is an opinion written by Charles Moran, a small business owner and Chairman of Log Cabin Republicans of California.

Trial lawyers are giving small businesses the shakedown in California.

Profit-hungry litigators – aptly known as “bounty hunters” – are manipulating the letter of the law to make a quick buck, or much more. These Golden State bounty hunters are cashing in on a ubiquitous labeling law, Proposition 65. Small businesses are footing the bill.

Here’s how it works. Prop. 65 requires the State of California to maintain a list of chemicals that might – just might – cause cancer or birth defects. Today, this blacklist has grown to include more than 800 chemicals. Under Prop. 65, California businesses are obligated to warn customers if there is even a 1-in-100,000 chance that they could contract cancer or suffer birth defects at some point over the next seven decades if exposed to any one of these condemned chemicals on their premises – regardless of the amount or actual risk of exposure.

The law also contains a provision that allows private citizens to file lawsuits against businesses that they suspect to be in violation of the law. These filers are not required to prove that they have been injured by the violation that they are claiming. This means that if a private citizen can find just one of the 800+ chemicals listed on a single product in a store, they have pretext for a lawsuit – even if the amount or risk is negligible.

These provisions are a trial lawyer’s dream, paving the way for bounty hunters to file “gotcha” claims.

And Prop. 65 doesn’t just sanction these suits, it also actively encourages Californians to seek out opportunities to sue businesses, and then rewards them for doing so. Filers are promised one-fourth of the civic penalty paid by businesses found in violation of Prop. 65. And plaintiffs aren’t the only ones raking in cash: An active bounty hunter can make up to $100,000 a year through Prop. 65 litigation.

Theoretically, the lawsuits incentivized by Prop. 65 threaten every business owner. But in reality, small businesses are disproportionately vulnerable to Prop. 65 abuse.

You see, trial lawyers deliberately take aim at the small business owners that are least able to afford an expensive and lengthy legal battle. This means that even if the defendant is innocent – and could thus conceivably get the case dismissed – it’s safer for small businesses to settle out of court. And because plaintiffs can file claims without any proof of injury, it’s even more likely that law-abiding small businesses will face baseless lawsuits that almost always result in expensive settlements.

Unlike a large corporation that can usually saddle the costs of a trial or settlement, a Prop. 65 lawsuit can devastate a small business.

Last year, California legislators passed a bill reforming Prop. 65 in an effort to alleviate the law’s disparate burden on small businesses.

Under the new legislation, a business with fewer than 25 employees can avoid a lawsuit by putting up Prop. 65 signs and paying a $500 fine within a two-week period. The reform is a step in the right direction, but it’s not nearly enough: The new legislation only applies to a small subset of violators and still leaves businesses vulnerable to punitive fees.

Moving forward, California needs to seriously reconsider Prop. 65 and its unintended consequences. Because right now, the same lawsuits that are destroying small businesses are lining the pockets of bounty hunters. This creates a toxic economy that rewards corruption and discourages free enterprise.

And, as of today, California has one of the highest unemployment rates in the nation and ranks number one in poverty.

A state facing these challenges can’t afford to preserve a law hostile to small business growth: It’s time to California to dismantle its toxic Prop. 65.