Proposition 65 Small Business Exemption: Thresholds and Notices

California’s Proposition 65 small business exemption removes any business with fewer than 10 employees from the law entirely. No warnings, no discharge rules, no registration, no paperwork. The exemption lives inside the statute’s definition of a regulated “person in the course of doing business,” so a qualifying business simply is not covered.¹ The hard part is not the rule itself. It is counting employees correctly and keeping records that prove the count.

Who Qualifies

The exemption applies to any business that employs fewer than 10 people. “Fewer” matters here. A business with exactly 10 employees is covered; only businesses with 9 or fewer sit outside the law. The exemption covers both the warning requirement and the prohibition on discharging listed chemicals into drinking water sources.²

Government agencies at every level — city, county, state, and federal — are also outside the definition, no matter how many people they employ.³ Nonprofits get no special treatment. A nonprofit with 10 or more employees is subject to Proposition 65 like any for-profit company.

There is nothing to apply for. A qualifying business does not file anything with OEHHA or any other agency. The exemption is automatic and self-executing.

How to Count Employees

This is where most small businesses get it wrong. Every person on the payroll counts as one employee, regardless of hours. Two part-time workers putting in 10 hours a week each count as two employees, not one full-time equivalent. Seasonal and temporary staff count while they are on the payroll. The relevant headcount is the number of employees at the time the alleged exposure or violation occurred, not an annual average.³

Owners and partners who are not technically on the payroll as employees of the entity generally do not count toward the total. A sole proprietor with 9 workers still has fewer than 10 employees because the owner is not an employee. Genuine independent contractors are also typically excluded from the headcount, but only if they really qualify as independent under California’s worker classification rules. California presumes a worker is an employee unless the hiring entity can show the worker is free from the company’s control, performs work outside the company’s usual business, and has an independently established trade. Calling someone a contractor on paper will not shrink the headcount if the classification would fall apart under scrutiny.

When You Lose the Exemption

A business crosses the threshold the moment it brings on its 10th employee. There is no grace period, no transition window, and no application process. From that day forward, the business is a regulated entity subject to both the warning requirement and the drinking water discharge prohibition.¹

Seasonal hiring is the most common accident. A retail shop with 8 year-round employees that brings on 2 holiday workers is at 10 and fully subject to Proposition 65 during that period. If the headcount drops back to 8 in January, the business was still covered while it had 10 or more people on staff and can be pursued for violations that occurred during the covered weeks. Owners sitting near the threshold should track every hiring change rather than discover the problem through a legal notice.

One provision gets confused with the small business exemption often enough to flag. After a chemical is added to the Proposition 65 list, every covered business has 12 months before the warning requirement kicks in for that chemical.⁴ That grace period has nothing to do with a business growing past 9 employees. A business that hires its 10th worker must immediately comply with warnings for every chemical that has already been on the list for more than 12 months.

Out-of-State and Online Sellers

Proposition 65 reaches any business “doing business in California,” which includes out-of-state companies selling into the state. There is no exemption for internet retailers based elsewhere.⁵ An e-commerce operation with 10 or more employees anywhere, shipping products with listed chemicals to California customers, must provide warnings.

Warnings are only required for exposures that happen in California. A national seller does not need Proposition 65 warnings on every product, only on those going to California buyers. One accepted method is a warning pop-up triggered when a purchaser enters a California shipping address, shown before checkout is completed.⁵ Out-of-state sellers with fewer than 10 employees qualify for the small business exemption and can disregard the whole thing.

If You Receive a 60-Day Notice

Receiving a 60-day notice does not mean a business is liable. Private enforcers drive most Proposition 65 cases and must send a 60-day notice to the alleged violator, the Attorney General, and the local district attorney before filing suit. The notice includes a certificate of merit stating the enforcer consulted someone with relevant expertise and reviewed facts supporting the claim.⁶

For a business with fewer than 10 employees, the notice is often resolved quickly by demonstrating exempt status. OEHHA’s guidance recommends reading the notice carefully, confirming the headcount, and informing the noticing party that the exemption applies.⁷ Do not ignore the notice. Failing to respond can produce a default judgment if the enforcer sues and the business never appears. A prompt response with headcount documentation often leads to the notice being withdrawn.

Retailers get an extra protection. When a retail seller first learns about an exposure only through a 60-day notice, the retailer has five business days to either add a Proposition 65 warning to the product or stop selling it.⁷ A retailer asked to identify the manufacturer, importer, or distributor must provide that information to the extent it is reasonably available.

Documentation That Proves You Qualify

The strongest evidence of headcount comes from California Employment Development Department filings. Form DE 9, filed quarterly, reconciles wages and tax payments. Form DE 9C reports individual employee wages each quarter, giving a name-by-name record of who was on the payroll.⁸ Together these forms create an official government record of workforce size that an enforcer will struggle to challenge.

Payroll registers and timecards fill the gaps between quarterly filings, showing exactly who worked during a specific week or month. When the count sits close to the limit, 1099 forms and written contracts help distinguish real independent contractors from workers who could be reclassified as employees. These records need to line up with each other. Discrepancies between EDD filings and internal payroll weaken a business’s position in any settlement discussion.

Keep the documents organized by date and hold them for at least four years so you can respond to allegations covering any recent period. Proof of headcount is the single most effective defense a small business has against Proposition 65 claims, and clean records regularly end matters before a lawsuit is filed.

1
Justia. California Health and Safety Code 25249.5-25249.13 – Safe Drinking Water and Toxic Enforcement Act of 1986 – Section: 25249.11 Definitions
2
Justia. California Health and Safety Code 25249.5-25249.13 – Safe Drinking Water and Toxic Enforcement Act of 1986
3
Office of Environmental Health Hazard Assessment. Businesses and Proposition 65
4
Office of Environmental Health Hazard Assessment. Safe Drinking Water and Toxic Enforcement Act of 1986
5
Proposition 65 Warnings Website. Frequently Asked Questions for Businesses
6
California Office of the Attorney General. File a 60-Day Notice
7
Office of Environmental Health Hazard Assessment. Guidance for Small Businesses that Receive a 60-day Notice for a Consumer Product
8
Employment Development Department. Required Filings and Due Dates