Recalls of consumer products and, in particular, food, continued to grow in number and severity in 2008. The safety of food and consumer products has taken on greater prominence in the media and in legislative policy in both Canada and the United States. The coming into force of the Consumer Product Safety Improvement Act in the United States and new regulatory initiatives in Canada herald an era of increasing public and regulatory scrutiny of food and consumer product safety.
Although all companies hope never to have to call upon corporate recall and crisis management strategies, such strategies are, in 2009, clearly necessary. Companies that fail to plan for an emergency will find themselves ill-equipped to cope with a crisis in the event one occurs. In the new economy, the impact of such a failure could be devastating to a company. Although strengthening or expanding product standards and compliance and crisis management protocols may result in increased costs, attempting to avoid such costs in the short term could prove to be a false economy.
The key considerations for 2009 are the following:
1. Know Your Product
A recall or crisis situation is not the right time to start learning about your products. As part of a company's recall plan, it is imperative to have a thorough understanding of the company's products, including:
- Knowing in which jurisdictions and by which regulatory authorities the product is regulated.
- Knowing which regulators must be notified, and when, if a product fails to meet regulatory or product standards. A careful balance must be struck between notifying the regulator too early (i.e., before key facts have been ascertained) and delaying notification.
- Understanding what the products are composed of and whether any components are subject to testing standards. In the event a product is subject to multijurisdictional regulatory requirements, a company must have accounted for the differing standards or have applied the most stringent standard to all its products.
- Employing an inventory control and document management system that will allow a company to know and track where the affected product has been distributed and to easily access batch records and sample testing results. Companies with such an inventory control system may be able to substantially limit the scope of the recall and avoid unnecessary costs and other effects of conducting a full-scale recall.
2. Emerging Contract Issues In The Wake Of Recalls
As the number of food and consumer product recalls rises, retailers and distributors increasingly seek assurances from manufacturers or raw ingredient suppliers that the products purchased from the manufacturer or supplier are in compliance with all relevant legislation and safety standards. Such assurances could include not only quality guarantees but also access to sample testing results, manufacturing sites and more. Relying on such assurances may, however, be problematic to the extent that the manufacturer may outsource part of the manufacturing process to a third party.
3. Don't Delay – Seek Recall Advice Immediately
Delays in seeking advice (including legal, communications and insurance advice) could not only delay the initiation of a recall, but may also result in:
- An increase in a company's liability – simply put, a delay in initiating the recall could mean a greater risk to an enduser and, accordingly, a greater possibility of harm.
- Denial or delay in insurance coverage if insurance terms are not observed (or if the company's insurance is not properly structured).
- A substantial increase in the expense and complexity of the recall, particularly if relevant documents are not immediately retrieved.
- Irreparable damage to a company's reputation and goodwill among consumers, commercial partners and other affected stakeholders.
4. Managing International Recalls
Despite possible similarities in legislation, response times and regulatory authorities in different jurisdictions, a company must plan for multinational recalls in a harmonized fashion. Consideration must be given to the possible negative impact of inconsistent recall practices across various jurisdictions. While the 'letter of the law' may delay the execution of a recall in one jurisdiction, it may be prudent to make a business decision to initiate the recall in all affected jurisdictions even if the recall has not been deemed to be legally required.
5. Seeking Closure
In the United States it is possible to obtain a letter from consumer product authorities confirming that the recall may be considered to be concluded. Not only does such a document provide closure to a company, but it also completes the documentary record of the "life" of the recall. In Canada, however, regulators do not typically issue letters of this nature and often companies are left without documentary closure of the recall. Companies seeking such closure might consider sending a letter to the regulator outlining the recall and advising that the recall has been concluded.
6. Recovery And Disposal Issues
When dealing with a recall, issues relating to the recovery and disposal of the recalled product could arise at all levels of the distribution chain. When potentially hazardous materials are involved, special consideration must be given to:
- Recovery – an effective communication strategy must be executed to advise all consumers and other stakeholders regarding the recovery of the product, if necessary.
- Storage – recovered products may need to be stored in an isolated area that is separate from other products.
- Disposal – due care must be taken to properly destroy and/or dispose of the recalled product in a manner that is compliant with municipal, provincial and/or federal environmental requirements. Municipal, provincial and/or federal waste management and environmental legislation and policies must be considered and will inform decisions concerning the disposal of the recalled product. For liability purposes, manufacturers must be aware of the issues relating to the disposal of the recalled product at all levels along the distribution chain: end-users, retailers, suppliers and, of course, at the manufacturing site.
7. Post Mortem Analysis – Lessons Learned
The drain of a recall on a company's management, staff and financial resources may be overwhelming. When the recall is complete, most companies are anxious to return to "normal" business operations. However, failing to conduct a careful post mortem analysis of the recall may be a critical error, for it is during the post mortem analysis that companies have a clear opportunity to assess and revise operating procedures and protocols and to set up new or expanded training programs. Auditing the recall process may also help avoid a future recall or, at least, help manage it more efficiently.
It is important to remember that once a recall has ended, there are still critical steps that must be undertaken to learn from the recall, such as:
- Determining whether the company's recall plan was effective and whether changes must be made.
- Assessing whether any changes must be made to product standards, standard operating procedures, supply contracts, outsourcing agreements, employee training and discipline.
- Reviewing the communication strategy to identify concerns commonly expressed and considering pre-emptive measures for addressing any such concerns in the future.
8. And Finally...Caveat Venditor – Canada's Proposed Consumer Product Safety Act
On January 29, 2009, the Canadian federal government re-introduced the proposed Canada Consumer Product Safety Act ("Bill C-6") intended to implement a comprehensive regulatory regime for all consumer products aside from those already regulated under specific federal statutes (such as food, drugs or motor vehicles). The legislation will also extend to anything used in the manufacturing, importation, packaging, storing, advertising, selling, labelling, testing or transportation of a consumer product.
Like its predecessor, Bill C-52, Bill C-6 is sweeping in scope, granting broad discretion to inspectors to issue recall and other remedial orders.
To view Ogilvy Renault's May 2008 commentary on Bill C-52, entitled Caveat Venditor, see: www.ogilvyrenault.com/en/resourceCentre_1884.htm.
About Ogilvy Renault
Ogilvy Renault LLP is a full-service law firm with close to 450 lawyers and patent and trade-mark agents practicing in the areas of business, litigation, intellectual property, and employment and labour. Ogilvy Renault has offices in Montréal, Ottawa, Québec, Toronto, and London (England), and serves some of the largest and most successful corporations in Canada and in more than 120 countries worldwide. Find out more at www.ogilvyrenault.com.
Ogilvy Renault is the International Legal Alliance's Canadian Gold Award winner for 2008 in M&A and Corporate Finance.