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Doobie-ous Competition: How a Cannabis Company Can Use Employment Agreements to Protect Intellectual Property

In our prior posts, we discussed the two issues that should be at the forefront of any branding strategy:

  • Avoiding potential trademark infringement claims, and
  • Protecting the business’ brand through trademarks

In this post, we briefly discuss how cannabis businesses can implement employment agreements to further protect their intellectual property.

Terminating an employment relationship carries certain risks for any new or rapidly growing business. Former employees might:

  1. Start a competing business
  2. Join a competitor and share the knowledge, skills, and trade secrets acquired at your business
  3. Begin soliciting your customers

Depending on the state in which your business operates, you may be able to use certain employee agreements to mitigate this risk, such as non-compete agreements, non-solicitation agreements, and non-disclosure agreements. Notably, most state laws treat these agreements harshly and with great scrutiny because they can restrict a person’s ability to engage in their chosen livelihood. So, these types of agreements must be carefully drafted to be enforceable.

The cannabis industry presents a unique opportunity for former employees to misappropriate a company’s intellectual property. In the trademark context, for instance, an employee can quit their job at a Michigan cannabis company, move to California, and establish an identical cannabis company—using the exact same trademarks and branding. In this example, if the Michigan cannabis company has not taken any steps to protect its marks in California, fewer remedies (if any) are available to stop its brand’s misappropriation. Thus, carefully drafted employee agreements can help to protect a cannabis company’s intellectual property rights on a broader, nationwide scale—despite the fact that federal (national) trademark registration is not yet available.

The legal landscape in the context of recreational cannabis remains murky and riddled with pitfalls for unassuming business owners. That is why it is important to hire attorneys with trademark experience, who know the cannabis industry and how to navigate its thorny trademark issues. For any questions relating to the subject matter of this article, contact Mark Jotanovic or Kory Steen at Dickinson Wright PLLC.

Related Services

Trademarks | Cannabis 

About the Authors:

Mark Jotanovic is a member in Dickinson Wright’s Troy office. He can be reached at 248-631-2050 or MJotanovic@dickinsonwright.com. His bio can be viewed here.

 

Kory Steen is an attorney in Dickinson Wright’s  Detroit office. He can be reached at 313-223-3623 or KSteen@dickinsonwright.com. His bio can be viewed here.

 

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How To Protect Your Cannabis Trademarks in a Legal Landscape That Is Half-Baked

In our previous post, we discussed how a cannabis business can take steps to avoid potential trademark infringement claims. In this release, we will discuss how a cannabis business can use trademarks for brand protection – despite the fact that federal law prohibits filing a cannabis-related trademark.

Acquiring State Trademarks

The most obvious (and widespread) option to protect a cannabis trademark is to obtain trademark registrations in all states where the mark is being used. In trademark law, the first use of a mark within a territory typically establishes trademark ownership in that territory.

Registering and policing a state trademark is relatively straightforward. In Michigan, for instance, a certificate of registration is admissible as evidence of an applicant’s right to use the mark throughout Michigan (MCL 429.34(3)). Suppose a trademark is registered with the state. In that case, the registration is prima facie evidence that the mark is valid, and the burden of production shifts to a defendant to demonstrate that the mark is not valid.

Although state registration can provide trademark protection, such protection is limited geographically. Thus, cannabis companies are incentivized to register in other neighboring states – as another company’s mark in a different state may be substantially similar or identical, thus precluding later competition and/or expansion into the different state. However, to get protection in differing states, actual use of the mark in that state is required. Given the federal implications of cannabis use, this can create hurdles for protection in the neighboring states. But the upside is significant as precluding a copycat business from getting started in another state mitigates the risk of a race for federal registration once Congress legalizes recreational cannabis at the federal level. Indeed, expansion plans may be limited or thwarted by a competing claim for trademark ownership in a different territory, so growing cannabis companies should seek to address these trademark issues sooner rather than later.

Trademarking Other Goods or Services

Although federal trademark protections remain unavailable for cannabis companies, ancillary goods and services that do not contain a federally unlawful substance could be eligible for federal trademark registration. Navigating such registration is tricky, though, as the USPTO often requires companies to declare that ancillary products will not be used to market marijuana.

If a cannabis business’ trademark is already inextricably intermingled with products that contain cannabis, a related strategy is registering cannabis-related goods in states where recreational cannabis is still illegal – then later extending the trademark to goods that contain cannabis once it is inevitably legalized in that state. This strategy draws on trademark law’s “zone of expansion” doctrine.

The “zone of expansion” doctrine allows the first applicant to file and receive trademark protection in any product line to have priority over an intervening user in a new product line – so long as expansion between the two product lines is considered “natural.”  This is because trademark protection extends to products that customers reasonably expect the trademark owner to later sell and expand into (i.e., the “natural zone of expansion”). Thus, some cannabis companies sell CBD products, cannabis-related apparel (i.e., made from hemp and/or displaying cannabis-related graphics), and smoking accessories—and use these marks at trade shows and business conferences to build a foundation for their trademark, which will later encompass their cannabis products once legalized.

Using USPTO Filing Procedures and Loopholes to Gain Priority for Federal Trademark Registration

There are other strategies that cannabis companies can take advantage of, at the federal level, that are higher-risk and more aggressive—but the risk may be rewarded. For instance, cannabis companies can file an intent to use (ITU) application, which allows an applicant to secure its place in line without having to actually use the mark in commerce. After an ITU application has been granted allowance, the applicant has six months to file a statement of use, transforming the ITU allowance into a federal trademark. Significantly, ITU application can be extended for three years. So, a cannabis company can file an ITU application now, declaring that cannabis-related goods and services will be lawful, and then hope that the statement becomes true before the three-year window lapses. Notably, certain federal lawmakers have continued to signal that legalization is on the horizon, so a cannabis company would have an incentive to file such an application soon – given the lengthy timeline of examination/extension. If timed successfully, this tactic would confer a considerable head start to cannabis companies seeking nationwide, federal priority for their cannabis trademarks.

Alternatively, yet similarly, cannabis companies can apply for federal trademark registration, wait for an “Office Action,” respond, wait for a “Final Office Action,” and then, before the final response is due, refile the application to keep the application going (indefinitely). This would also confer priority over competing marks.

These tactics (and others like them) are just a few ways to ascertain widespread trademark protections, even though cannabis trademarks receive varying treatment throughout US jurisdictions. Competent trademark counsel can make all the difference when navigating through these murky areas of the law.

The trademark landscape in the context of recreational cannabis remains murky and riddled with pitfalls for unassuming business owners. That is why it is important to hire attorneys with trademark experience who know the cannabis industry and how to navigate its thorny trademark issues. For any questions relating to the subject matter of this article, contact Mark Jotanovic or Kory Steen at Dickinson Wright PLLC.

Related Services

Trademarks | Cannabis 

About the Authors:

Mark Jotanovic is a member in Dickinson Wright’s Troy office. He can be reached at 248-631-2050 or MJotanovic@dickinsonwright.com. His bio can be viewed here.

 

Kory Steen is an attorney in Dickinson Wright’s  Detroit office. He can be reached at 313-223-3623 or KSteen@dickinsonwright.com. His bio can be viewed here.

 

 

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Avoiding a Bad Trip: How Cannabis Companies Can Mitigate the Risk of an Infringement Lawsuit

Over a decade has passed since recreational cannabis began to see legalization at the state level. Yet cannabis businesses continue to grapple with protecting their brands, as trademark protection at the federal level remains unavailable. The current hodgepodge of state trademark regimes will undoubtedly result in litigation and a race to register federal marks once Congress legalizes cannabis. While there is no indication that Congress intends to account for cannabis trademark issues when passing legislation to legalize recreational cannabis at the federal level, these issues will undoubtedly affect businesses’ bottom lines and result in litigation.

For instance, in the aftermath of CBD trademarks becoming legal at the federal level, CBD companies from different states that had used similar marks quickly resorted to federal trademark litigation as in CBD Industries, LLC v. Majik Medicine, LLC, 2021 WL 6198664, February 12, 2021, WDNC, (litigation over the use of “CBD MD” trademark).

As cannabis businesses continue to evolve, two issues should be at the forefront of any branding strategy:

  • Avoiding potential trademark infringement claims
  • Protecting the business’ brand through trademarks

In this post, we will discuss how to avoid infringement claims. In subsequent posts, we will discuss how a cannabis business can use trademarks for brand protection as well as how a business can implement employment agreements to further protect their intellectual property.

To register a federal trademark with the US Patent and Trademark Office (USPTO), a trademark must be “lawful” under federal law. Therefore, marks used to identify cannabis products violate federal law (as cannabis is still a controlled substance at the federal level) and cannot be federally registered. And, notably, although trademarks for hemp-derived CBD products containing no more than 0.3% tetrahydrocannabinol (“THC”) are lawful under the 2018 Farm Bill, the Food and Drug Administration (FDA) has held that it is illegal under federal law to add CBD to any food or dietary supplements.

While federal trademark protections may be unavailable to cannabis companies, these companies are still at risk for federal trademark lawsuits. Indeed, cannabis companies are increasingly under scrutiny for using famous marks, which is a common practice in the cannabis space. For example:

  • Subway IP LLC v. Budway, Cannabis & Wellness Store (cannabis mark parodying famous Subway mark)
  • Wrigley Jr. Company v. Roberto Conde, et al. (cannabis mark parodying famous marks, such as “Skittles”)
  • Robert Kirkman, LLC v. The Toking Dead (cannabis company parodying the famous “Walking Dead” television marks).

Significantly, as cannabis companies grow, they need to be mindful of the fact that a larger customer base brings more public spotlight, which makes any instances of trademark infringement easier to identify (increasing the risk of trademark litigation). It is common for a growing business to be targeted by brands looking to make a statement and enforce their marks.

Sometimes, trademark infringement lawsuits are motivated by the concept of “dilution by tarnishment.”  Dilution by tarnishment occurs when the reputation of a famous mark is harmed through association with another similar mark or trade name. However, two relatively recent Supreme Court decisions have made it possible to potentially challenge the constitutionality of the dilution provisions set forth under federal trademark law (i.e., the Lanham Act). Unsurprisingly, the owners of famous marks usually police them vigorously, and, in many instances, these owners will balk at any perceived association or endorsement between their renowned mark and a cannabis product.

Put simply, cannabis companies should consider conducting due diligence before investing in brands that play off a parody. The longer the parodied product is on the market, the higher the exposure. Thus, the duration of the lifecycle of parodied products may be one of the most critical factors for cannabis companies to consider. Proper due diligence can keep a company apprised of potential trademark infringement claims relating to their business and product lines – especially as these companies grow their business and their products become better known. Indeed, the tendency of cannabis products to reference popular culture or parody a famous mark can create serious risks of potential trademark claims. Cannabis companies should be proactive about trademark infringement risks, or they will likely end up entangled in a trademark lawsuit.

The trademark landscape in the context of recreational cannabis remains murky and riddled with pitfalls for unassuming business owners. That is why it is important to hire attorneys with trademark experience, who know the cannabis industry and how to navigate its thorny trademark issues. For any questions relating to the subject matter of this article, contact Mark Jotanovic or Kory Steen at Dickinson Wright PLLC.

Related Services

Trademarks | Cannabis 

About the Authors:

Mark Jotanovic is a member in Dickinson Wright’s Troy office. He can be reached at 248-631-2050 or MJotanovic@dickinsonwright.com. His bio can be viewed here.

 

Kory Steen is an attorney in Dickinson Wright’s  Detroit office. He can be reached at 313-223-3623 or KSteen@dickinsonwright.com. His bio can be viewed here.

 

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Michigan Court of Appeals Strikes State PFAS Drinking Water Standards

On August 22, 2023, a split panel of the Michigan Court of Appeals held that the Department of Environment, Great Lakes, and Energy (EGLE) violated the Administrative Procedures Act (APA) by promulgating a new rule establishing drinking water standards for seven PFAS[1] compounds. The required regulatory impact statement (RIS) did not consider compliance costs associated with a change in cleanup standards that would automatically spring from adopting new drinking water standards.

The new rules became effective on August 3, 2020, but were promptly challenged by 3M Company. 3M claimed that EGLE had not fully accounted for the compliance costs associated with the rules, as required by the APA. While promulgated under Michigan’s safe drinking water law, Michigan’s general environmental cleanup law provides that a state drinking water criterion becomes the groundwater cleanup criterion if it is more stringent than a criterion established under the cleanup law.[2]  EGLE established groundwater cleanup criteria for two of the more well-studied PFAS compounds, PFOS and PFOA, under its cleanup law as a combined 70 parts per trillion (ppt) for drinking water. The new drinking water standards for these compounds would have lowered these criteria to 16 ppt and 8 ppt, respectively. Adopting the new drinking water standards would also establish cleanup standards for five other PFAS compounds.

In preparing the RIS, EGLE estimated the compliance costs associated with the operation of water supplies, including costs to sample for these seven PFAS compounds and to install and operate treatment systems to meet the standards in their drinking water supplies if necessary. Although recognizing that promulgation of these rules would also change the existing cleanup criteria for PFOS and PFOA, EGLE stated that it was not practical to determine the impact of that change. EGLE also did not estimate costs associated with cleanup criteria for the five other PFAS compounds, noting that these costs would already be reflected in the costs associated with the PFOS and PFOA criteria.

The Michigan Court of Appeals rejected EGLE’s arguments that (1) EGLE lacked the necessary information to estimate the cleanup costs, and (2) the Court should have deferred to EGLE’s determination that it could not estimate those costs. The Court held that the APA requires an agency to provide an estimate of the actual statewide compliance costs associated with adopting all new rules, and that difficulty in estimating those compliance costs was not a valid reason for failing to provide them. Therefore, EGLE’s failure to estimate the impact of the new drinking water rules on the costs of compliance with Michigan’s general cleanup statute was a failure to comply with its statutory obligations under the APA. The Court affirmed the underlying decision of the Court of Claims that had reached the same conclusion.

The trial court stayed the effectiveness of its decision pending the exhaustion of all appeals, so the drinking water rules remain in place while the State considers appealing to the Michigan Supreme Court. Even if this decision delays the adoption of the State’s new drinking water criteria and the establishment of cleanup standards for the five new PFAS compounds, any long-term effect on PFOS and PFOA-driven cleanups will likely be limited. EGLE has already established stringent groundwater/surface water interface (GSI) cleanup standards for these compounds of 11 ppt and 66 ppt, respectively,[3] which is the driver for many PFAS-impacted groundwater sites. EGLE is also aggressively using those standards, initially developed as discharge standards under Michigan’s water laws, to push for evaluation and remediation of stormwater discharges. Additionally, U.S. EPA has proposed federal safe drinking water standards for PFOS and PFOA at 4 ppt each, which, if adopted, would ultimately become the new drinking water and groundwater cleanup standards for PFOS and PFOA in Michigan. In the meantime, we can anticipate that EGLE will continue to identify and evaluate potential PFAS source areas throughout the State to prepare for the transition to more stringent cleanup levels in the near future.

For more information, please get in touch with one of our Energy & Sustainability or Environmental attorneys.

Related Services:

Environmental | Energy & Sustainability

About the Author:

Sharon Newlon is a Member and Environmental, Energy & Sustainability Practice Group Co-Chair in Dickinson Wright’s Detroit office. She can be reached at 313-223-3674 or snewlon@dickinsonwright.com and her firm bio can be accessed, here.

 

[1] PFAS refers to a group of per- and polyfluoroalkyl substances that have been widely used in firefighting foams, coatings, certain metalworking operations and numerous other commercial and consumer applications.

[2] See MCL 324.20120a(5)(a).

[3]  These are GSI standards for groundwater discharging to a drinking water source.  For discharges to a non-drinking water source, the criteria are slightly less strict at 12 ppt for PFOS and 170 ppt for PFOA.

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Nevada’s Cannabis Industry Takes Another Step Forward

Four significant bills that will undoubtedly impact cannabis regulation in Nevada were recently signed into law by Nevada State Governor Joe Lombardo (R). The legislation makes a series of amendments to the state’s existing cannabis laws, including minimizing penalties and fees, reforming sales tax law, doubling the legal personal possession limit, consolidating licensing rules, and enabling participation in the market by people with prior felony convictions.

  1. SB 195 – Penalties and Fees

Effective upon adoption, SB 195 was advanced successfully by the Nevada Cannabis Association with solid backing from cannabis operators, citing the need to address certain burdensome and costly practices implemented by the Nevada Cannabis Compliance Board (the “Board”). These changes aim to alleviate economic burdens on operators and incentivize operator compliance and collaboration. Cannabis operators hope SB 195 and other changes during the session will provide more certainty and fairness in the disciplinary process. Highlights include:

  • The maximum civil penalty the Board may impose may not exceed $20,000 for a single violation. Previously, the most serious violations carried civil penalties of up to $90,000 for a single violation.
  • The Board must characterize certain conduct as a “single alleged violation” instead of multiple separate violations based on the facts and circumstances to prevent stacking violations.
  • The Board may bill only costs and charges expressly authorized by statute to an operator and eliminates the practice of “time and effort” invoicing for ongoing activities of the Board, such as routine inspections, audits, or non-application-based investigations.
  • Identifies “mitigating circumstances” the Board must consider concerning a disciplinary matter, including whether the operator self-reported the violation, the corrective action taken, history of prior good faith efforts to avoid the violation in question, and cooperation during the investigation.
  1. AB 430 – Cannabis Sales Tax

AB 430 reforms the calculation of wholesale excise tax imposed on the sale of cannabis, applying the tax to the first wholesale sale and calculating the amount of the tax as 15% of the actual sales price in an arm’s length transaction. Historically, the tax was 15% of the “fair market value” set by the Nevada Department of Taxation, with the procedure for setting the FMV criticized as flawed and resulting in an inflated value. While the “fair market value” calculated by the Nevada Department of Taxation will still be applied to affiliates’ transfers, proponents believe this change will allow for a lower and more fair wholesale tax structure.

  1. SB 277 – License Consolidation

SB 277 calls for medical and adult-use cannabis licenses to be merged into one license category (unless adult-use is not permitted by local jurisdiction) and aligns the fee structure for medical and adult-use licenses to the lower amount paid for a medical license. Additionally, the bill provides a mechanism for individuals with “excluded felony offenses” who have, up until this point, been excluded from owning, controlling, or working in a cannabis establishment to petition the Board to allow an exemption to participate in the industry. The Board may only grant such an exemption if doing so would not pose a threat to public health or safety or negatively impact the cannabis industry. Other highlights include:

  • SB 277 increases the possession limit and daily purchase limit of cannabis from 1 ounce to 2.5 ounces and doubles the limit for cannabis concentrates.
  • The fees for initial licensing and renewal of an adult-use cannabis license were reduced, except for the initial issuance of an adult-use retail license, which remains unchanged at $20,000.
  • The initial and renewal fees for other categories of adult-use licenses were reduced to mirror the medical fees. For example, the initial application fee for an adult-use cultivation establishment was reduced from $30,000 to $3,000, and the renewal fee was reduced from $10,000 to $1,000.
  1. SB 328 – Unlicensed Cannabis Activities

SB 328 requires the Board to adopt regulations providing for investigating unlicensed cannabis activities and imposing penalties against persons who engage in such activities.

Historically, Nevada’s regulated cannabis scheme has not provided the Board (or its predecessors) with any enforcement authority to address unlicensed cannabis operations, with the scope of authority extending only to licensed operators. Proponents believe this is a small but crucial first step in reducing the number of illicit operators in the Nevada marketplace and preserving market share for licensed operators.

  • SB 328 eliminates the Board’s exemption from NRS 233B, known as the Nevada Administrative Procedure Act (the “Act”).
  • The Board will now be required to submit regulations to the Legislative Counsel Bureau for formal review and revision before adopting any new regulations.
  • In contested matters, the Board will be subject to the adjudication procedures outlined in the Act, including judicial review afforded by the Act.
  • Staggers terms of Board members, limits the term of Board Chair to two years, and eliminates the Board’s authority to appoint and remove an Executive Director, with that authority now in the hands of the Governor.

Proponents of SB 328 believe these changes will improve the Board’s accountability and provide guardrails on its authority.

For more information, please get in touch with one of our Cannabis attorneys.

Related Practice Areas

Cannabis

About the Author

Melissa Waite is a member of the firm’s Las Vegas office. She advises clients on emerging legal issues related to marijuana establishments and ancillary marijuana businesses and regularly works with state and local agencies, monitoring new policies and changes in the law in order to help clients stay at the forefront as the cannabis industry continues to evolve. Melissa can be reached at 702-550-4435 or  MWaite@dickinsonwright.com. Visit her full bio here.

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Ohio Supreme Court Unanimously Affirms Siting Board Certificate for New Wind Farm

Emerson Creek project in Huron and Erie Counties Now Expected to Move to Construction 

On July 27, 2023, the Supreme Court of Ohio, in a 7-0 decision, affirmed the Ohio Power Siting Board (“Board”)’s decision to issue a certificate for environmental compatibility and public need (“Certificate”) to construct the Emerson Creek Wind Farm, effectively authorizing Firelands Wind LLC (“Firelands”) to proceed to construct the 297-megawatt wind-generation project in Huron and Erie counties.[1] In a unanimous decision authored by Justice Pat DeWine, the Court found the Board did not act unlawfully or unreasonably when evaluating the wind farm’s application and issuing a certificate to Firelands Wind.[2]

The Court rejected all of the arguments raised by project opponents, a small group of nearby residents, and the Black Swamp Bird Observatory (“Black Swamp”). They had contended that the Board failed to determine: the project’s probable environmental impact under R.C. 4906.10(A)(2), whether the project represents the minimum adverse environmental impact R.C. 4906.10(A)(3), and whether the facility will serve the public interest, convenience, or necessity under violated R.C. 4906.10(A)(6).[3]  Project opponents alleged that the project could disrupt the area’s water supply, create excessive noise and “shadow flicker” for residents near the wind farm, and harm bald eagles and migrating birds.[4]  They also claimed that the Board improperly delegated its duties to staff and other government agencies, failed to follow administrative rules, and should have required additional testing before granting the certificate.[5] We briefly summarize key aspects of the decision below.

Standard of Review Clarified

Before evaluating arguments from the residents and Black Swamp, Justice DeWine clarified how the Court’s statutorily mandated standard of review only allows the Court to reverse, modify, or vacate the Board’s order if the Board’s conduct is either “unlawful or unreasonable.”[6]

The decision explains that the law limits the Court’s review of what qualifies as unlawful to the review of legal questions, such as whether the Board correctly interpreted a statute. It further states the Court performs this type of review de novo (i.e., without consideration for the decision of an agency or lower court) and how the court is “never required to defer to an agency’s interpretation of the law.”[7]

When reviewing what is unreasonable, the opinion explains: “The agency’s exercise of its implementation authority must fall within the zone of permissible statutory construction.”[8] As such, if the statute gives an agency a degree of discretion, which is the case for the Board when determining whether to issue certificates, the court should:

“Examine the reasonableness of an agency’s decision about such things as whether a facility represents the “minimum adverse environmental impact,” or whether it will serve the “public interest,” by looking to whether the agency’s decision falls within that zone.”[9] (Citations Omitted).

Applying this standard, the opinion rejects each of the propositions of law raised by the residents and Black Swamp.

  1. Avian Impacts

Migratory Birds:

The residents and Black Swamp argued that Firelands failed to properly determine the impact the project would have on migrating birds, particularly “passerines.”[10] The residents and Black Swamp claim that without such a study, the Board could not determine “[t]he nature of the probable environmental impact.”

The Court rejected this argument, concluding that the record contained sufficient probative evidence for the Board to determine the nature of the probable environmental impact to passerines[11]:

Firelands conducted numerous site-specific studies, including surveys relating to migrating passerines, in accordance with the ODNR protocol and the USFWS guidelines. The board also reviewed hundreds of bird studies from existing wind farms. Firelands’ witness, Good, explained why Firelands did not conduct nighttime radar studies for this project: ODNR has mapped areas of Ohio that are high-risk for nocturnal migrating passerines, and the wind farm here does not fall within such an area. As the residents and Black Swamp’s own witness, Shieldcastle, acknowledged, ODNR only recommends that wind developers conduct nighttime radar monitoring for high-risk project areas. [12]

Bald Eagles:

The residents and Black Swamp contended that because the project will impact bald eagles, the Board failed to determine that the facility represents the minimum adverse environmental impact.[13] Firelands committed to (1) developing and implementing, prior to turbine construction, an “eagle conservation plan” in accordance with USFWS guidance for wind farms; and (2) apply for an “eagle take permit” from USFWS before the facility becomes operational.[14] An eagle-take permit authorizes unintentional eagle death resulting from an otherwise lawful activity.

The Court explains that the question before the Board is whether the facility represents “the minimum adverse environmental impact, considering the state of available technology and the nature and economics of the various alternatives, and other pertinent considerations,” R.C. 4906.10(A)(3) and does not question the reasonableness of the Board’s determination. The Court concluded:

Firelands’ application represented that the project’s anticipated short- and long-term operational impacts on wildlife were expected to be minor. The application described ways in which Firelands had designed the facility to minimize or mitigate bird mortality, including siting turbines so as “to avoid bald eagle nests and areas of concentrated eagle use.” And the stipulation ensured that the wind farm would be built and operated in accordance with USFWS guidelines for protecting bald eagles. We cannot say that the board’s determination that the facility represents the minimum adverse environmental impact was unreasonable.[15]

  1. Economic Impact

The residents and Black Swamp claim that Firelands’ economic impact study was inadequate because it failed to account for potential negative economic impacts. The Court disagreed and explained the applicant met the applicable rule:

The administrative code provision did not require Firelands to specifically quantify potential losses to tourism, farmers, or other energy providers. And nothing prevented the residents and Black Swamp from submitting evidence of such potential losses. The rule required only that Firelands provide an estimate of the economic impact on local commercial and industrial activities, which it did. We find nothing unlawful about the board’s interpretation of the rule and nothing unreasonable about its determination that the project “will serve the public interest, convenience, and necessity,” R.C. 4906.10(A)(6). [16]

  1. Shadow Flicker

The residents argued that the Board failed to require Firelands to meet the shadow-flicker standard set forth in the Ohio Administrative Code.[17] The Board determined that the project would not cause adverse shadow-flicker impacts, based on (1) a requirement in the stipulation that Firelands submit a final study 30 days prior to construction showing that the shadow-flicker impacts will not exceed 30 hours per year at any nonparticipating receptor, and (2) Firelands’ ability to employ mitigating measures to maintain shadow flicker within the permissible limit.[18] The residents contended that because Firelands’ study did not show compliance with the administrative-rule shadow-flicker standard, the Board should not have approved the project.

The residents argued that allowing Firelands to submit a post-certification study violates their right to participate in the review process and divests the board of its nondelegable duty under R.C. 4906.10(A) to make required findings. [19] The Court disagreed, stating the applicable administrative rule requires only that an applicant design the facility “to avoid unreasonable adverse shadow flicker effect” and that “the facility * * * be operated so that shadow flicker levels do not exceed thirty hours per year at any” nonparticipating receptor. (Emphasis added).”[20] Thus, the Court concluded the Board acted lawfully when it conditioned its approval on Firelands’ submission of a study showing that the shadow-flicker requirements would be met.

  1. Sound

The residents argued the sound assessment was unlawful and failed to comply with Ohio Adm.Code 4906-4-09(F)(2), which establishes the maximum increase in nighttime average sound levels for areas surrounding the project. The residents contended the sound assessment did not comply with the rule since two sound monitors (out of nine) were installed just outside of the project area and were not representative of the sound level in the project area

The Court disagreed. After interpreting Ohio Adm.Code 4906-4-09(F)(2) and pointing out the rule does not specify how to calculate nighttime average sound levels, the Court found the Board did not act unlawfully since the rule did not require the Board to adopt a specific methodology for performing sound assessments.[21]

  1. Evaluation of Impact on Water Supplies

The residents argued that Board erred by failing to require Firelands to conduct a hydrogeological study at each turbine site rather than the geotechnical survey provided in support of the application. The Court, looking to the language of the administrative rule and the geotechnical report provided in the application determined that the residents failed to show that the Board violated its obligations to determine the nature of the probable environmental impact of the project and that the facility represents the minimum adverse environmental impact under R.C. 4906.10(A)(2) and (3).

Dickinson Wright attorneys Christine M.T. Pirik, Matt McDonnell, Terrence O’Donnell, and Jon Secrest represented Firelands Wind through the siting and litigation phases of the project. Jon delivered oral argument at the Ohio Supreme Court for the firm’s client.

For more information, please contact the following attorneys:

 

[1] In re Application of Firelands Wind, L.L.C, Slip Opinion No. 2023-Ohio-2555; Justice Patrick R. DeWine authored the opinion with Justices Sharon L. Kennedy, Patrick F. Fischer, Michael P. Donnelly, Melody Stewart, Jennifer Brunner, and Joseph T. Deters concurring. Firelands Wind was also supported by amicus briefs from the Ohio Environmental Council and the Ohio Chamber of Commerce.
[2] Id at ¶ 3.
[3] Id at ¶ 9
[4]  Id at ¶ 2.
[5] Id at ¶ 2.
[6] Id at ¶ 11.
[7] Id. at ¶ 13; Quoting TWISM Ents, L.L.C. v. State Bd. of Registration for Professional Engineers & Surveyors, 2022-Ohio-4677.
[8] Id. at ¶ 15.
[9] Id.
[10] Passerines are a wide variety of small birds, mostly songbirds. See Id at ¶ 47.
[11] Id. at ¶ 52.
[12] Id. at ¶ 52.
[13] Id. at ¶ 59.
[14] Id. at ¶ 60.
[15] Id. at 68.
[16] Id. at 58.
[17] “Shadow flicker” refers to the moving shadows that a wind turbine casts on a building when the turbine is between the sun and the structure.
[18] Id. at 42.
[19] Id. at 48.
[20] Id. at 33.
[21] Id. at ¶ 37.

 

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IRS Issues Alerts and Begins Audit Activity Related to the Employee Retention Tax Credit

The Employee Retention Tax Credit (“ERC”), enacted as a part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), is a fully refundable tax credit for employers, up to $26,000 per eligible employee. Because of the potentially significant value of the ERC to employers, the Internal Revenue Service (“IRS”) has warned of “blatant” attempts by promoters to “con” ineligible employers into claiming the credit based on “inaccurate information related to eligibility and computation of the credit.” The IRS listed these false promotions as part of its “Dirty Dozen” list of tax scams and is stepping up enforcement action involving ERC claims.

Employers considering making an ERC claim, or those that have already made an ERC claim, should carefully consider whether the claim is justified under the guidance issued by the IRS on the ERC. Employers may consider consulting with an experienced tax professional, especially if significant diligence was not done on an ERC claim.

Warning Signs of Aggressive ERC Marketing

The IRS has identified the following warning signs to watch out for in aggressive ERC marketing from promoters:

  • Unsolicited calls or advertisements mentioning an “easy application process.” Promoters often point to similar employers that “applied for” and were “approved for” the credit when, in reality, there is no “application process.” An employer simply claims the credit but bears the burden of proof that the claim was justified upon audit from the IRS.
  • Statements that the promoter or company can determine ERC eligibility within minutes. An actual interview process should generally be conducted to understand how a business operated before the COVID-19 pandemic and then during each quarter.
  • Aggressive claims from the promoter that the employer qualifies before discussing the employer’s specific situation. In reality, the ERC is a complex credit that requires careful review.
  • Lack of a written narrative to comprehensively explain to an IRS examiner which provisions in a governmental order applied to the operations and how those provisions caused the business to be suspended.
  • Wildly aggressive suggestions from marketers urging employers to submit claims because there is “nothing to lose” or “before funds run out.” In reality, improperly claiming and receiving the credit may amount to tax fraud with substantial penalties and interest due. Additionally, there is no “set amount of funds” set aside for ERC claims that is liable to run out. Employers have until April 15, 2024, to file a 941-X return to claim the ERC for any quarter in 2020 and until April 15, 2025, to file a claim for any quarter in 2021. Aggressive promoters are erroneously attempting to generate a false sense of urgency.

Additionally, promoters sometimes claim to be familiar with members of Congress that drafted the statute, suggesting that “all employers are eligible” without evaluating an employer’s individual circumstances. This is simply not true, as eligibility for the ERC is a highly factually intensive analysis, and many employers do not meet the eligibility requirements.

Properly Claiming the ERC

Eligible taxpayers can claim the ERC on an original or amended employment tax return for qualifying wages. To be eligible, an employer must have:

  1. Sustained a “full or partial suspension” of operations due to an order from an appropriate governmental authority limiting commerce, travel, or group meetings because of COVID-19 during 2020 or the first three quarters of 2021;
  2. Experienced a “significant decline in gross receipts” during 2020 or the first three quarters of 2021; or
  3. Qualified as a “recovery startup business” for the third or fourth quarters 2021.

Improper claims for the ERC tend to be based on promoters taking an aggressive position on “full or partial suspensions” without thoroughly analyzing the taxpayer’s situation.

Under IRS Notice 2021-20, an employer that experiences a “full” or “partial” suspension due to orders from an appropriate governmental authority is eligible to claim the ERC during the suspension dates.

The suspension test is a two-part test in which an employer must establish:

  1. The employer is subject to a “governmental order” in effect; and
  2. The order has a “more than a nominal impact” on the business operations, either due to fully suspending them or requiring modifications to them.

A “governmental order” requires a federal, state, or local government order, proclamation, or decree that limits commerce, travel, or group meetings due to COVID-19. A government must issue the order with jurisdiction over the employer’s operations. The order must also be mandatory to qualify—statements by government officials or mere declarations of emergency do not suffice.

For a suspension, an employer must show that “more than a nominal portion” of business operations were affected. There are two available safe harbors for demonstrating this under Notice 2021-20:

  1. The gross receipts from that portion of the business suspended make up at least ten percent of the employer’s total gross receipts (both determined using the gross receipts from the same calendar quarter in 2019); or
  2. The hours of service performed by employees in that portion of the business make up at least ten percent of the employer’s total employee service hours (both determined using the service hours performed by employees in the same calendar quarter in 2019).

For a modification, employers must show that the modification caused “more than a nominal effect” on business operations. Under Notice 2021-20, a modification will have a “more than nominal effect” if it results in a ten percent or more reduction in an employer’s ability to provide goods or services in its normal course of business.

Improper “Full or Partial Suspension” Positions

Many ERC promoters have advanced similar unjustified positions for claiming the ERC. This includes citing:

  • Guidance and recommendations from federal bodies such as the Centers for Disease Control and Prevention (“CDC”) do not qualify as suspension orders because that guidance is not mandatory.
  • Increases in costs to successfully maintain pre-pandemic levels of operations are not a factor in IRS guidance.
  • Shutdown orders do not apply to the employer itself (i.e., shutdown orders applicable to employer customers), which do not qualify under Notice 2021-20.
  • A voluntary shutdown of an employer that was not required to close due to a governmental order. Many “critical infrastructure” or “essential” businesses exempted from most or many state and local governmental orders chose to close offices or branches during the height of the pandemic, but unless they were ordered to do so by a governmental order, this alone would not justify an ERC claim.
  • A governmental order that closed an employer’s workplace, but the employer could continue operations comparable to before the closure via telework.
  • Modifications to operations that do not rise to the level of a “partial suspension” because the modification did not have a “more than nominal effect” on the employer’s business operations, meaning that it did not result in a reduction in an employer’s ability to provide goods or services in the normal course of business of not less than ten percent.
  • Reliance on broadly applicable “supply chain issues” without specific citation to a governmental order that, under the facts and circumstances, led to a lack of supply of critical goods or materials that caused the inability of the employer to operate.

Additionally, employers are only permitted to claim the ERC for a “full or partial suspension” for the specific days a governmental order was in force. Employers may not claim the credit for an entire quarter, let alone the entire year, if a governmental order ceased to be effective during a quarter.

Issues Raised on Audit

Employers who are audited on their ERC claims should expect the IRS to demand the following, which have been raised on ERC audits thus far:

  1. A list of employees who were paid wages for which the ERC was claimed.
  2. Whether any of the employer’s employees who received wages under the ERC are related to owners.
  3. The amount of wages paid to each employee for which the ERC was claimed.
  4. Documentation that operations were fully or partially suspended due to an appropriate governmental authority due to COVID, including copies of each governmental order.
  5. Documentation demonstrating how the employer determined that either “more than a nominal” portion of the business was suspended, or that a required modification had a “more than nominal impact” on business.
  6. Copies of income tax returns, employer tax returns, and Form W-2s for all related entities if the employer is part of an aggregated group of employers.

Five-Year Limit on Civil Actions for Recovery of Erroneous Refunds

Internal Revenue Code (“Code”) Section 7405(b) allows the government to bring a civil action to recover any portion of a tax imposed that was erroneously refunded. Under Code Sections 7405(d) and 6532(b), the statute of limitations for bringing such an action is two years from making the refund, and extends for five years for any cause of fraud or misrepresentation of a material fact. Therefore, the statute of limitations for the IRS to bring an action to reclaim an ERC refund will not end until at least two years after the refund is made.

The Payment of a Claim Is Not IRS Acquiescence

The fact that the IRS pays an employer’s claim for the ERC does not mean that the IRS actually agrees that the employer is entitled to the credit. Only when the relevant statute of limitations has expired, and the IRS’ ability to bring a civil suit has expired can an employer feel comfortable knowing that the government will not challenge the claim.

Consequences of Taking Aggressive Positions

The Code provides for many different penalty provisions that could apply in the case of an erroneous ERC claim. Some of these include, but are not limited to: penalties for inaccuracy (20%), penalties for erroneous claim for a refund (20%), penalties attributable to fraud (75%), or evasion of employment taxes (100%). Taxpayers always bear the burden of substantiating reasonable cause to avoid penalties and must exercise ordinary business care and prudence in reporting proper tax liability.

Therefore, potential penalties (as well as interest on the ERC credit) could total much more than the original ERC credit received in the first place.

Consider Engaging a Tax Professional Familiar with the ERC

Employers that have claimed the ERC but have concerns about the justification of the claim should consult a tax professional who is familiar with the ERC to examine the sufficiency of the claim. To the extent that an employer voluntarily amends a Form 941-X and repays an ERC claim to the IRS before an audit, the employer may be able to avoid interest and penalties, as well as the expense of an audit. Alternatively, a thorough review could reveal that the claim is justified based on the facts and analysis, and will enhance the taxpayer’s demonstration of ordinary business care and prudence in making an appropriate claim.

Dickinson Wright PLLC is available to assist clients with the analysis of ERC claims and with IRS audits on ERC claims.

Related Services:

Taxation | Employee Benefits 

About the Author:

A member in the firm’s Troy office, Eric W. Gregory assists clients with federal, state and local tax implications of compensation programs and corporate transactions. Eric can be reached at 248-433-7669 or EGregory@dickinsonwright.com. Visit his full bio  here.

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U.S. EPA Adopts ASTM 2021 Phase I Standard for Parties Seeking New Owner/Operator Liability Defenses Under CERCLA

On December 15, 2022, U.S. EPA issued its final rule adopting the ASTM E1527-21 standard for Phase I environmental site assessments as meeting the All Appropriate Inquiries (AAI) requirement to qualify for new owner and operator defenses against liability under CERCLA.[1]  The rule becomes effective February 13, 2023.  U.S. EPA is sunsetting the use of the prior ASTM E1527-13 standard one year after the new rule goes into effect.  State programs adopting innocent purchaser and/or bona fide prospective purchaser defenses may need to evaluate how the new rule affects their programs.

U.S. EPA had initially proposed adopting the 2021 Phase I standard on March 14, 2022, under a direct final rule that would have allowed compliance with either the 2021 or 2013 standard to meet the AAI requirements.  However, many adverse comments were received, including those suggesting that the dual standards would create confusion, so U.S. EPA withdrew it as a final rule on May 2, 2022.

One motivation for U.S. EPA’s adoption of the updated standard appears to be its reference to emerging contaminants.  The standard states that consideration of emerging contaminants may be included in a Phase I assessment at the user’s request,[2] particularly in states identifying those contaminants as hazardous substances under state law.  This provision is significant in the case of per- and polyfluoroalkyl substances (PFAS), where many states have progressed faster than U.S. EPA to recognize PFAS as hazardous substances.  It also enables the Phase I standard to be flexible in reacting to new contaminants identified in the future.

In addition to identifying emerging contaminants as potential business environmental risks or non-scope considerations, the 2021 standard includes more stringent requirements for the review of title work and historical information sources.  In our blog post, 2021 Revision of the ASTM Phase I Environmental Site Assessment Standard Approved, we summarized other key revisions in the 2021 Phase I standard.

Since the release of the ASTM standard and U.S. EPA’s proposed rule, many parties have been requesting, and consultants have been offering, Phase I assessments that meet the requirements of both standards.  Despite initial concerns, the new standard does not appear to have profoundly affected Phase I timing and pricing.  However, it may be premature to assess the impact prior to its exclusive application.

[1]See https://www.federalregister.gov/documents/2022/12/15/2022-27044/standards-and-practices-for-all-appropriate-inquiries

[2] The User is the party for whom the Phase I assessment is being performed, often the prospective owner or operator.

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U.S. EPA Proposed Listing of PFOA and PFOS: The Effects and Costs of Forever Chemicals

On September 6, 2022, the U.S EPA’s long-awaited proposed rule to list perfluorooctanoic acid (PFOA) and perluoroocanesulfonic acid (PFOS) as CERCLA hazardous substances was published in the Federal Register (Proposed Rule).[1]  This triggers a 60-day public notice and comment period. As the first compounds ever proposed for hazardous substance listing under Section 102(a) of CERCLA, and as the first two of potentially thousands of related “forever chemicals” to be considered by U.S. EPA, it is appropriate to evaluate the roads this element of U.S. EPA’s PFAS Strategic Roadmap may be leading us down. Whether due to the increase in social media or the ubiquity of PFAS in household products, PFAS has captured the general public’s attention in a manner rarely seen for CERCLA substances.

Historic Listing

While Section 102(a) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) authorizes the U.S. Environmental Protection Agency (U.S. EPA) to promulgate regulations designating compounds as “hazardous substances,” U.S. EPA has never done so until now. However, PFOA and PFOS exposure has been linked to alleged effects on the immune system, cardiovascular system, human development, and cancer at extremely low levels. Human epidemiology studies resulted in U.S. EPA’s release of interim updated drinking water health advisories in June 2022 of 0.004 parts per trillion (ppt) for PFOA and 0.02 ppt for PFOS, replacing the prior 70 ppt levels established in 2016 with levels below current detection limits. PFOA and PFOS are ubiquitous compounds, historically used not only in firefighting foams and industrial applications, but also in a wide variety of consumer products to inhibit the effects of water, grease, and stains. These compounds were useful, in part, because they are resistant to breaking down. They have been found in air, water, soils, domestic and wild animals, and in a high percentage of the U.S. population.[2]  Therefore, U.S. EPA has determined that their release into the environment “may present substantial danger to the public health or welfare or the environment.”  CERCLA Section 102(a).

What Would the Listing Trigger?

The default reportable quantity for release reporting under Section 102(b) of CERCLA is one pound within a 24-hour reporting period, and the proposed rule confirms that a one-pound reportable quantity will apply to releases of PFOA and PFOS absent a new rulemaking. Though the principal manufacturers of PFOA and PFOS phased out their production in the early 2000s, the rule may trigger reporting obligations for industries where PFOA and PFOS remain present in materials previously manufactured. The proposed rule includes a non-exhaustive list of 21 industries which it anticipates will be potentially affected by this listing, including textile mills, paper mills, landfills, and wastewater treatment plants.[3]

Perhaps more important than tracking new releases, the listing is anticipated to substantially increase U.S. EPA’s ability to respond to historical releases of PFOA and PFOS. U.S. EPA will be able to require potentially responsible parties to address PFOA or PFOS that poses an imminent and substantial endangerment. U.S EPA and private parties will be able to seek cost recovery for addressing PFOA and PFOS impacts. Additionally, the listing will trigger notifications and assurances of the completion of all necessary remedial action in conjunction with the transfer of federally-owned property if PFOA or PFOS was stored, released, or disposed of at the property.[4] CERCLA Section 120(h). DOT will also be required to list these substances as DOT hazardous materials.

U.S. EPA will likely include PFAS in its five-year reviews of historical CERCLA sites in addition to newer sites, and the listing of PFOA and PFOS may provide U.S. EPA with the ability to reopen existing CERCLA settlements. It is not yet clear what impact the listings may have on statutes of limitations periods triggered by past settlements with U.S. EPA. Still, if U.S. EPA identifies PFOA or PFOS as a basis for reopener, that should allow participating parties to argue that the settlements did not resolve their CERCLA liabilities, such that they may pursue contribution and cost recovery claims. Certainly, the regulated community can expect that these listings will lead to an increase in CERCLA administrative and civil actions, potentially to rival the late 1980’s and early 1990’s.

Does Cost Matter?

On August 12, 2022, the Office of Management and Budget’s (OMB’s) approval of the Proposed Rule’s included a determination that this proposed rulemaking is an economically significant action, requiring U.S. EPA to conduct a regulatory impact analysis and to include consideration of the Proposed Rule’s potential direct and indirect costs and benefits before it can take effect. In the Proposed Rule, U.S. EPA takes the position that because cost was not designated as a part of the standard for determining whether to list a hazardous substance pursuant to Section 102(a), it is neither a required nor permissible factor in determining whether PFOA and PFOS should be listed. Instead, the Proposed Rule suggests that cost considerations can be determined in evaluating appropriate response actions.[5]  Moreover, U.S. EPA noted that the only automatic private party obligation flowing from the listing was the obligation to report releases, estimated at an annual cost of $370,000.[6]  The OMB’s determination indicates that the Proposed Rule is anticipated to impose costs of $100 million or more annually. U.S. EPA has prepared an economic analysis of the potential costs and benefits, which will be posted in the docket for this action, and U.S. EPA is seeking comments on its interpretation of the need for and manner of considering such costs.[7]

Any Exit Ramps?

CERCLA offers few exemptions from liability for the release of hazardous substances, but some existing exemptions may be particularly interesting in the context of the PFAS listings and their impact on historical discharges. These include exemptions for federally permitted releases, such as discharges pursuant to water and air permits,[8] and the exemption for normal fertilizer application.[9] Owners and operators of landfills and wastewater treatment works are lobbying for further exemptions from CERCLA liability for PFAS on the basis that they merely receive PFAS in wastes from others, and controls are best placed on those generating PFAS-containing waste and wastewater.  Otherwise the costs of cleanup will be placed on the public, in opposition to the “polluter pays” philosophy of CERCLA. When passed by the House in July 2021, H.R. 2467, which would require the U.S. EPA Administrator to list PFOA and PFOS as hazardous substances and evaluate all other PFAS for listing, did not include such exemptions. However, the bill has yet to be taken up by the Senate, so these industries remain hopeful. Whether its interest in PFAS may enhance or soften the general public’s reaction to the anticipated costs of addressing it has yet to be determined.

In the meantime, the PFAS Strategic Roadmap continues to drive on, expanding the regulation of PFAS across all environmental programs. U.S. EPA is:

  • Pursuing national primary drinking water standards for PFOA and PFOS;
  • Finalizing a risk assessment for PFOA and PFOS in biosolids;
  • Regulating a broad range of PFAS under other agency programs;[10]
  • Considering further CERCLA listings; and
  • Determining how PFAS should be incorporated into environmental justice efforts.

Clearly, the regulation of these “forever chemicals” is here to stay.

Related Services:

Environmental | Regulatory Compliance

About the Author:

Sharon Newlon is a Member and Environmental, Energy & Sustainability Practice Group Co-Chair in Dickinson Wright’s Detroit office. She can be reached at 313-223-3674 or snewlon@dickinsonwright.com and her firm bio can be accessed, here.

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California Proposes Further Changes to Proposition 65 Short-Form Warnings

On December 13, 2021, the California Office of Environmental Health Hazard Assessment (“OEHHA”) issued another notice in its efforts to amend the short-form warning regulations under the Safe Drinking Water and Toxic Enforcement Act of 1986, commonly known as Proposition 65.

Beginning in 2018, companies could comply with Proposition 65 by using the short-form warning.  While OEHHA originally intended this warning to be used for small products that could not accommodate the long-form warning, the Proposition 65 regulations did not prohibit the short-form warning on larger products.  Many companies use the short-form warning option because, unlike the long-form warning, the short-form warning does not require the identification of any chemicals, and this allows companies to use the same warning across all product lines.  For companies with thousands of different products, it can be cost-prohibitive to try to grapple with developing and applying unique labels for each product and chemical combination.

Earlier this year, OEHHA became concerned that the short-form warning was being overused on products of all sizes and was not providing any specific chemical information to consumers.  Thus, on January 8, 2021, OEHHA proposed to amend the short-form warning regulations to require the identification of at least one chemical, and to limit its use to products with five square inches or less of label space and where the total size of the package could not accommodate the full-length warning.  OEHHA received over one hundred comments to its proposed amendments.  In response to comments, OEHHA issued another proposed amendment to the short-form warning regulations.  While OEHHA retained the requirement from the January proposal to identify at least one chemical in the warning, it modified the proposed regulation to, among other things, increase the maximum surface area of the label available for consumer information from five square inches to 12 square inches, continue to allow use of the short-form warning on the internet or in catalogs where the short-form warning is used on the product label, and provide additional warning language options.

Further, new signal word options were added in several sections to allow businesses to make clear that the Proposition 65 warning is being given pursuant to California law.  Currently, the warning must include the word “WARNING.”  Under the proposal, companies also would have the option of using “CA WARNING” or “CALIFORNIA WARNING.”  Because most companies use the same labels for products sold in California and elsewhere, this reference to California may explain the presence of the warning for non-California consumers that are unfamiliar with Proposition 65.

As proposed, the amendments would become operative one year after the effective date.  Thus, manufacturers would have one year after the effective date to revise their Proposition 65 warnings.  Additionally, there is an unlimited sell-through period for products manufactured up to the operative date.  Alternatively, businesses may use the amended warning prior to the operative date.

OEHHA is accepting comments on the proposed amendments until Friday, January 14, 2022.  If you would like to submit comments, or if you have any questions regarding Proposition 65, please contact AnnMarie Sanford.

Related Services

Environmental Law

About the Author

AnnMarie Sanford, a Member in Dickinson Wright’s Troy office, is primarily engaged in environmental remediation, regulatory issues and counseling clients regarding compliance with federal and state chemical regulations. She can be reached at 248-205-3246 or asanford@dickinsonwright.com, and her biography can be accessed here.