E-Newsletter, August 2009

In this issue:

  • The Consumer Product Safety Act of 2008 – How Companies Can Plan Ahead to Avoid Risk
  • GINA: An Overview and Understanding Of GINA’s Requirements for Employers

The Consumer Product Safety Act of 2008 – How Companies Can Plan Ahead to Avoid Risk

By Jan E. Simonsen, Ali A. Beydon and Kelly M. Lippincott

On February 10, 2009, the Consumer Products Safety Improvement Act of 2008 (“CPSIA”) became effective. Reacting to the well-publicized 2007 and 2008 recalls of imported toys with lead paint and other hazards, the CPSIA improves upon and creates new safety standards and limits on products aimed at children. Moreover, the CPSIA requires independent testing and certification, in addition to product registration and tracking labels, and orders new warnings in advertising and on Web sites for toys and games. Now that this new legislation is active, it is imperative that manufacturers and retailers educate themselves – and their staff – on how to be in compliance.

The CPSIA, which was signed into law on August 14, 2008, requires manufacturers and importers to certify that they have passed strict mandatory U.S. safety standards before the subject consumer goods hit store shelves. The certifications must be based on reasonable production testing of parts or finished products. The CPSIA makes it clear that its intended federal regulatory minimums are not preemptive of existing or new state regulation of product safety. Therefore, even companies following the many detailed requirements of the CPSIA are still responsible for complying with more restrictive state requirements where they exist.

The consumer products covered by the new provisions of the CPSIA range from children’s clothes to toys, and everything in between. Further, the CPSIA not only covers testing requirements for consumer products, but it also contains many provisions regarding the manufacturing, labeling and advertising of products. The stronger enforcement mechanisms in the CPSIA authorize the Attorney General with greater powers in the enforcement, but not interpretation, of consumer product safety laws. Ideally, these new powers will smooth the way to expeditiously remove dangerous products from shelves.

Changes in Recall Protocol with the 2008 CPSIA

The rules and provisions related to product recall are detailed under Section 15 of the 1972 Consumer Product Safety Act (CPSA), and have been recently revised by the Consumer Product Safety Improvement Act of 2008 (CPSIA). Under the earlier 1972 CPSA, companies that manufacture, distribute, import or sell consumer products in the US were required to notify the CPSC “immediately” (defined in the CPSC recall handbook as within 24 hours) if the company obtains information suggesting that their product fails to comply with any applicable consumer product safety rule or voluntary standard upon which the Commission has relied under the CPSA. A company faced with the possibility of needing to recall a product must alert the Commission if it finds that their product contains a defect that could create a substantial product hazard to consumers, or creates an unreasonable risk of serious injury or death. While the 2008 CPSIA does not fundamentally change these guidelines, it does expand them by stating a company must also comply with “any other rule, regulation, standard, or ban under this [2008] Act or any other Act enforced by the Commission.”

Following the filing of a report by the company, the CPSC goes through an evaluation process to make a determination on the product’s level of defect or risk. This evaluation process can take several weeks and the company may not agree with the final conclusion or the wording that is presented to the public. One way a company can avoid a potential adverse CPSC’s final determination is by having the company implement a “voluntarily” recall within 20 days of the company’s initial notification to the CPSC. This process, referred to as “Fast Track”, speeds implementation of the recall, and gives the company more control over what and how information is presented to consumers.

Once a recall is in effect, the 1972 CPSA requires customer notification by mailing notices to known customers and distributors or retailers and conducting joint press-release with the CPSC. The CPSC does review a recall plan proposed by the company, which often includes placing notices such as signs in retailer locations. Any additional efforts to reach customers is at the discretion of the company recalling the product.

One significant difference between the earlier 1972 CPSA and the 2008 CPSIA is that the latter revised Act increases notification requirements by now specifying that a company is:

‘‘To give public notice of the defect or failure to comply, including posting clear and conspicuous notice on its Internet website, providing notice to any third party Internet website on which such manufacturer, retailer, distributor, or licensor has placed the product for sale, and announcements in languages other than English and on radio and television where the Commission determines that a substantial number of consumers to whom the recall is directed may not be reached by other notice.”

In addition, the 2008 CPSIA gives the CPSC more authority over a company’s recall action plan. For example, the CPSC can now require that a company give a refund, replacement and/or repair rather than allowing companies to choose which remedy to offer consumers. Further, if the CPSC determines the action plan is not being followed or is ineffective, it can revoke its approval of the plan.

Facing a Product Recall – What a Company Should Do

The decision of whether a company should initiate a product recall when one of its products has been the subject of a complaint submitted by the CPSC needs to be made swiftly, because under the new law a manufacturer only has 10 days to respond. The response must be carefully tailored as it will be posted on the CPSC searchable database, which can be easily be viewed by customers, plaintiffs’ attorneys, and shareholders. The decision of how to respond depends on a number of factors, including whether the defect affects safety, the risk of physical harm to customers, and the cost of remedies. While a product recall can be a costly endeavor for a company – often, much higher than production costs – the cost of no action relating to a potential recall can be even greater.

Under the new law, a company opens itself up to significant fines and even criminal penalties for allowing a dangerous product to stay on the market. And with the reporting requirements on the CPSC searchable database, the manner in which a company responds to information about a defective product will be readily accessible to the public, not a favorable scenario for a company to face.

If a recall is determined to be the best response to a complaint from the CPSC, there are many costs that the recalling company will face. In addition to the first-party costs, which may be very high depending on the size of the company, the number of products affected, and the number of its consumers, there are the costs associated with third parties. A company must consider its liability to purchasers and users of its products, but it also must consider its potential liability to other third parties, such as other companies that incorporate the component or ingredient into their own product. A recall of that component or ingredient may cause the third-party manufacturer to suffer an interruption to its business, loss of profits, and damage to its reputation because of the recall of the product.

Third-party liability might not be a concern if the company only sells its products under its own label or sells its product directly to consumers. If the product is incorporated into other products, however, then the recall’s affect on other manufacturers will likely increase the associated expense.

The CPSC would have the authority to remove or correct a complaint if it is found to be inaccurate. To ensure the workability of the system, manufacturers will be required to label children’s products with tracking information, using their own product appropriate systems that enable them to better identify recalled products. Obviously, it would be unlawful for retailers to sell a recalled product.

In fact, the biggest risk posed by the CPSIA to consumer product manufacturers is the requirement that, by no later than August 14, 2011, the CPSC develop and implement the aforementioned publicly available database on which the agency must post all reports of harm alleged to have been caused by a consumer product received from consumers, local, state or federal government agencies, health care professionals, child service providers and public safety entities. Under the Act, the CPSC will provide manufacturers five business days to provide any comments on a report prior to posting it, which comments will, if the manufacturer wishes, be added to the database. The CPSC must post the information within 10 business days of providing notice to the manufacturer. It is worth re-iterating, the database will be available to and searchable by the public at large.

Planning for these new provisions is essential. These provisions further emphasize the need for every consumer product importer, manufacturer, distributor and retailer to have in place a strong risk-management program that includes:

  • design and manufacturing controls to prevent potential defects,
  • effective quality control monitoring to enable immediate identification, evaluation, review and addressing of consumer complaints alleging injury,
  • regular review by upper management of reports of product damage, breakage or injury that may indicate an emerging problem,
  • strong surveillance programs to ensure that complaints received by the company (such as from retailers, retail website comments, media reports and other sources) are identified and addressed;
  • and a designated person(s) trained in and charged with evaluating the company’s compliance with reporting and other obligations to the CPSC.

What a Company Can Do to Avoid Risk

To be prepared in the event a complaint is registered with the CPSC, a company should organize a corporate team that will be responsible for receiving CPSC complaints and analyzing the accuracy and validity of any such complaints. Again, advanced preparation is key so that you are not caught in reactionary mode, but rather are ready to implement a plan that is already in place. The team also should be organized to respond to any complaints and to implement any remedies, including recalls, swiftly if necessary. Having a crisis management plan in place before a company is confronted with a CPSC complaint, or complaints from any other source, can minimize the costs of addressing the situation, reduce litigation, eliminate the risk of civil or criminal penalties, and prevent adverse publicity that can scar a brand name. In addition to satisfying the requirements of CPSC, a company’s quick response to a defective product is the key to reducing the risk of others being harmed by the product, thus reducing the company’s exposure to liability.

To ensure the safety of imports, the Act requires the CPSC to develop a plan to identify shipments of consumer products intended for import into the U.S. by improving information sharing among federal agencies, including U.S. Customs and Border Protection. Compliance with this provision requires companies to identify manufacturers and subcontractors in the supply chain to CPSC. Conversely, the CPSC would prohibit a U.S. entity from exporting a product that does not comply with consumer product safety rules unless the importing country has notified the Commission of its permission. This provision grants the CPSC greater oversight to prevent the entry of unsafe consumer products in the U.S.

Lastly, the Act presents many practical commercial and business risk management considerations for the manufacturing industry to contemplate. Companies subject to these new requirements may wish to consider implementing compliance policies and procedures regarding product development, conceptualization, and design. Moreover, product manufacturing and testing measures should include the establishment of enhanced supply chain management mechanisms to ensure that suppliers do not introduce non-compliant parts, subassemblies, chemicals, paints, glues, etc., into products. There are proper ways to shift risk in these relationships through contractual mechanisms, including partnerships with certified laboratories and contractually mandate them to keep their certifications current. These labs can advise the company on proper application of appropriate testing protocols and product standards.

A solid product risk management program must involve a commitment by a company – starting from the very top – for establishing and enhancing systems to carefully track and meaningfully respond to consumer concerns and complaints before they ripen into threatened or actual litigation. Companies must consider ways to establish or enhance document management systems to demonstrate compliance and ensure that proper pre-introduction product testing is undertaken and certified lab results are properly written, submitted, and retained.

All three authors are members of the Products Liability Practice Group of Washington, D.C.-based law firm Carr Maloney P.C. Jan E. Simonsen can be reached at jes@carrmaloney.com, Ali A. Beydoun can be reached at aab@carrmaloney.com, and Kelly M. Lippincott can be reached atkml@carrmaloney.com.

GINA: An Overview and Understanding Of GINA’s Requirements for Employers

By Tina M. Maiolo and Laelia U. Banks

Beginning November 21, 2009 hiring and employment decisions will become even more complex for employers. The Genetic Nondiscrimination Act (GINA), which was signed into law by President Bush on May 21, 2008, is intended to prevent employers, employment agencies, labor unions and health insurers from discriminating against individuals based on genetic tests and information. This article will focus on the effect GINA will have on employers and their hiring and employment decisions.

Who is Subject to GINA?

Similar to the well known anti-discrimination statute, Title VII of the Civil Rights Act of 1964, private employers with 15 or more employees are subject to GINA’s requirements. Unlike Title VII, however, GINA also covers certain public sector employers, such as the United States Postal Service and the Library of Congress, to name a few. Employment agencies and labor organizations are also subject to GINA.

GINA is a federal statute that offers a baseline level of protection for employees against discrimination based on genetic information and authorizes states to enact laws granting additional protection.

What Is Genetic Information?

The Act broadly defines genetic information to include (1) an employee’s genetic tests; (2) an employee’s family members’ genetic tests (3) the manifestation of a disease or disorder in the individual’s family members; (4) genetic tests of any fetus of an individual or family member who is pregnant, and genetic tests of any embryo legally held by an individual or family member utilizing assisted reproductive technology. Employers should pay particular attention to number (3) as the term “family member” includes varying degrees of relatives, such as the employee’s parents, siblings, children, first cousins, grand nephews and nieces and great-great grandparents, to name an few. For the purposes of GINA, genetic information does not include information about the sex or age of any individual.

Furthermore, genetic information includes any request for, or receipt of, genetic services or participation in clinical research that includes genetic services (genetic testing, counseling, or education) by an individual or family member. The statute further defines “genetic test” as an analysis of human DNA, RNA, chromosomes, proteins, or metabolites that detects genotypes, mutations, or chromosomal changes. GINA does not protect routine tests that do not measure DNA, RNA, or chromosomal changes, such as complete blood counts, cholesterol tests, and liver function tests. Also, under GINA, genetic tests do not include the analysis of proteins or metabolites that are directly related to a manifested disease, disorder, or pathological condition
that could reasonably be detected by a health care professional with appropriate training and expertise in the field of medicine involved.

What Acts Are Prohibited Under Gina?

GINA, like Title VII, prohibits discrimination in hiring, termination, and decisions related to compensation, as well as other terms and conditions of employment. Specifically, it prohibits employers from requesting, requiring or purchasing genetic information on an employee or the employee’s family members. There are, however, exceptions to this prohibition which an employer should be familiar with. Some limited examples of these exceptions include inadvertent requests or requirements for an employee’s family medical history and family medical history information requested in compliance with Family and Medical Leave Act certification procedures.

Furthermore, when the exceptions, like the ones listed above, apply, the employer must keep the genetic information confidential. More specifically, when an employer maintains genetic information concerning and employee or family member, the employer must keep the information on separate forms and in separate files as a confidential medical record. These medical records can be disclosed under limited circumstances, such as at the employee’s request, pursuant to court order, or to determine compliance with GINA and other non-discrimination statutes like the Family Medical Leave Act. Genetic information is also subject to HIPPA privacy requirements.

GINA also protects employees from retaliation for opposing or complaining about unlawful employment practices and it protects it employees from retaliation for filing a GINA claim.

What are the Remedies Under GINA?

GINA’s remedies are much like those in Title VII. An employee can recover compensatory damages, which are capped at $300,000 for employers with 500 or more employees, and punitive damages, which have no cap. An employee can also be entitled to recover back pay, reinstatement and attorney’s fees.

What Does GINA Mean For Employers?

Employers need to be familiar with the Act’s requirements to ensure that their business is in compliance with GINA as well as any similar state laws, since it is possible the state law will afford an employee more protection than the federal law. Furthermore, employers will need to assess their compliance with GINA in relation to their obligations under other employment anti-discrimination laws such as ADA, FMLA and PDA.

Finally, GINA can mean more complicated hiring and firing decisions for employers.

Consider these examples:

  1. An employee takes FMLA leave to care for a mother suffering from Alzheimer’s disease. The employee uses all of his/her protected leave and returns to work so that there is no FMLA violation. Six months later the employee is terminated. Under GINA, the employee could sue the employer based on the fact the employer knew the employee’s mother had a genetic disorder and the employer terminated the employee before she became inflicted with Alzheimer’s disease as well.
  2. An employee has decided to get the BRCA gene tests done to determine whether she is at a higher risk for developing breast or ovarian cancer. The employee requests time off from her job to attend the appointment and tells the employer the reason for needing the leave, which is that she is getting a BRCA gene test. The employer allows the employee to take the time off and the employee promptly returns to work. After the employee receives her results, she shares with some co-workers that the BRCA gene tests came back positive and she is at a higher risk for breast cancer. Six months later the employee is terminated. Under GINA the employee could sue based on the fact that the (1) the employer fired her because she is more susceptible to breast cancer or (2) the employer assumed she was more susceptible to breast cancer and that breast cancer ran in her family since she decided to have the elective genetic testing done.

As if the current anti-discrimination laws did not give employers enough to think about when hiring and/or firing employees, GINA will add a whole new level to this decision making process. As such, employers need to be informed regarding the requirements of this new law.

Tina Maiolo and Laelia Banks are attorneys with the of Washington, D.C.-based law firm Carr Maloney P.C. Ms. Maiolo can be reached at tm@carrmaloney.com and Ms. Banks can be reached at lub@carrmaloney.com.