Canada: Recalls 2008: Are You Ready?

Recall and Crisis Management

The number of recalls and public notices of voluntary product withdrawals that have been issued over the last year is unprecedented in Canada. These recalls and notices have resulted in a far greater visibility and awareness of product safety and quality issues. Ensuring product safety and quality – and reassuring the public that products are safe – have now taken on a significantly heightened prominence and importance.

CAN CANADIAN REGULATORS REQUIRE A COMPANY TO RECALL A PRODUCT?

In Canada, there are very few circumstances under which a regulator could require a company to recall a product. The Canadian Food Inspection Agency, for example, has the power to order a recall of a food if the CFIA reasonably believes that the food poses a risk to the public. There are also limited circumstances in which a manufacturer (or other participant in a production or distribution line) is statutorily required to notify regulators of a recall or a product safety issue.

Canadian regulators do, however, often have power to make other compliance orders. These powers include the ability to control the sale of suspect products by seizing or detaining products, stopping imports at the border and, potentially, taking other regulatory (and non-regulatory) action such as issuing public advisories. The effect of such compliance orders may, in the end result, be tantamount to a recall order. The impact of a public advisory, for example, is significant – it is notice to the general public that a regulatory authority considers the product in question to be unsafe. These notices may have a dramatic (negative) effect on product sales and on the reputation of the manufacturer.

VOLUNTARY ACTION BY MANUFACTURERS

Manufacturers and retailers regularly take voluntary, proactive steps to ensure that unsafe or suspect products are removed from the market. However, a recall or product withdrawal may also arise in the case of a non safety-related technical regulatory infraction. A manufacturer may also withdraw a product if that product fails to meet the manufacturer's high standards (which could, in fact, be higher than a regulated standard). Even if a recall or product withdrawal is precautionary (i.e., no safety issue exists) there could still be an impact on a manufacturer's, distributor's or retailer's reputation. In addition, to the extent that a manufacturer may be a product input supplier for a further manufacturer or a supplier for an end distributor or retailer, business relationships may also be negatively impacted.

HOW TO AVOID A RECALL – PROACTIVE STEPS

Proactive steps that a company could take to try to avoid the likelihood of a recall arising would include:

• comprehensive product testing and design assessment to ensure the product is safe;
• constant vigilance to ensure that changing regulatory standards (in all jurisdictions in which the product will be sold) are monitored and observed.

In addition, a company should also ensure that:

• consideration is given to adopting the most rigorous product standard – even though an international standard may be stricter than that required in Canada;
• product purchased from suppliers is re-tested before use to confirm it meets regulatory requirements;
• any third party processor, manufacturer or supplier used by the Canadian company can provide direct evidence of their adherence to quality standards and processes;
• any contracts for third party processing, manufacturing or supply incorporate quality standards, direct oversight by the ultimate manufacturer, employee training and audit rights;
• if a third party processor, manufacturer or supplier is outside Canada, consideration is given to hiring an independent party to periodically audit or review the foreign manufacturer's or supplier's facility;
• contractual audit rights are exercised as frequently as necessary and that any audit is thoroughly conducted; and
• consideration is given to incorporating random, unannounced inspections of suppliers to verify compliance with quality and safety controls and standards.

Apart from these steps, employee sensitivity to product quality and safety issues is essential – not only at a management level but at the level of employees who are actively involved in the manufacturing process on a day-to-day basis. Employee/management training should be specifically included in a company's compliance manual, undertaken for each new hire and regularly updated/renewed for employees and management (i.e., at least annually and more often if necessary).

PLANNING FOR THE DAY A RECALL OR PRODUCT WITHDRAWAL TAKES PLACE

In addition to the precautionary steps to avoid a recall, it is essential that manufacturers, retailers, suppliers, importers and distributors have in place a comprehensive recall plan that could be launched into action at the first indication of the need for a recall or product withdrawal. A recall management plan must ensure that a response/investigation is initiated immediately and must:

• have senior management support and "buy-in";
• set out, specifically, the recall team – including representation from all relevant business/manufacturing sectors, senior management, quality control/quality assurance, communications, marketing and legal;
• specify any notification/recall obligations that the company may have;
• identify relevant stakeholders for notification purposes;
• confirm the person responsible for notifying regulators if necessary or if the company decides to do so voluntarily;

• outline how the initial investigation will proceed;
• have been tested (to ensure the plan will work when needed); and
• have addressed, depending on the product, any immediate steps that could be taken while an investigation is pending – For example, should affected production lines be stopped temporarily? Should product be quarantined? Should alternative suppliers be engaged on a temporary basis?

AFTER THE RECALL/PRODUCT WITHDRAWAL HAS ENDED

Once the recall/product withdrawal has ended, the recall/withdrawal process must be reviewed to ensure that the recall management plan functioned appropriately and to assess whether:

• any changes need to be made to the recall plan or to the composition of the recall team;
• any employee disciplinary action or additional training is necessary;
• any third party contracts should be modified and/or whether audit procedures incorporated in those contracts are appropriate;
• the communications aspect of the plan ensured that all appropriate information was communicated to the public in a timely fashion; and
• regulatory authorities were advised as appropriate and the company responded appropriately to questions or information requests by such authorities.

At the end of the day, the equation is simple. The more active steps that a company takes to avoid a recall or to prepare itself for a recall, the more the company will be able to minimize the effect of the recall. Its response to a recall/product withdrawal must be swift, commensurate with the gravity of the issue(s) that gave rise to the recall and fully responsive to queries from regulators and the public.

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.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.