15 Apr 2021

Product safety 101: Managing a recall to avoid crisis management

By Andrew Morrison, Greg Williams, Will Atfield and Alex Corsaro

When undertaking a product recall, it is important to act fast to maximise consumer safety and notify the ACCC of the action being undertaken within the applicable two-day time limit.

The Chair of the ACCC, Mr Rod Sims, recently announced that the Australian Competition and Consumer (ACCC) would use additional resources from the Australian Federal Government to increase its product safety capabilities by building upon its current team, and moving it into a dedicated stand-alone division. This is a clear message that the ACCC is very serious about protecting Australians from unsafe goods. The ACCC's product safety priorities for 2021 demonstrate the ACCC's consistent focus in this space.

Manufacturers and suppliers should be reminded now, more than ever, of the considerations involved when a product safety event makes recall action inevitable.

What is a recall?

Under the Australian Consumer Law (ACL), the responsible minister has the power to order a manufacturer or supplier to recall goods that may cause injury to any person of it appears to the minister that the supplier has not taken satisfactory action to prevent the goods from causing injury. This is known as a “compulsory recall” which, to date, have been rare in Australia. A supplier has little control over how a compulsory recall is carried out – the ACCC dictates how the recall will be undertaken and how customers and consumers will be notified.

To avoid a compulsory recall, many manufacturers or suppliers voluntarily remove goods from the market after becoming aware that their product, or that a reasonably foreseeable use or misuse of their product, will or may cause an injury. The main drivers in deciding to undertake a voluntary recall are consumer safety, and residual product liability and associated risks from leaving unsafe products on the market. However, a voluntary recall will require consideration of other factors including public relations and customer management issues.

Does a voluntary recall have to be notified to the ACCC?

Notice must be provided to the relevant minister within two days after beginning a voluntary recall of goods because of a risk or injury, breach of a mandatory safety standard or breach of a product ban. The type of actions which trigger the notification obligation are not specified in the ACL. However, depending on the particular circumstances they may include such as software updates and even safety warnings communicated to customers privately, so long as they are directed at remedying a safety issue.

Those who do not meet the two-day notification deadline will be exposed to risk including:

  • an offence, or civil pecuniary penalty, under the ACL attracting a fine on conviction of $16,650 for a body corporate; and
  • increased scrutiny from the ACCC on the recall action in question, and depending on the seriousness of the breach, on the manufacturer's or supplier's conduct with respect product safety and compliance matters more broadly.

Notwithstanding the two-day time limit, the ACCC in practice expects that recalling parties engage with it before the recall commences so that, among other things, it can oversee the preparation of the recall notice which is published on the ACCC's website.

The voluntary recall process – a general guide

Each product recall is different depending on the particular type of product and supply chain involved. However, most recalls involve five key steps. The first step is stopping the supply of the product to the market, which typically involves alerting all entities in the supply chain to the safety risk and quarantining affected products.

The second step is notifying the ACCC within the two-day time limit mentioned above. In practice, this is done by an online submission.

The third step is alerting consumers about the recall and associated safety risk. In practice, the supplier must submit a recall notice for the ACCC to review and approve. The ACCC publishes recall notices online through its website and social media channels. The ACCC expects that the recall notice is in its standard form template and includes:

  • A product description (including an image of the product).
  • A clear description of the defect and risk which can result.
  • A statement about the action that consumers should.

The fourth step is removing the product from the market and offering consumers a remedy. Typically, this involves consumers returning the goods to the place of purchase in exchange for a refund, replacement or repair. The chosen remedy must also account for the operation of any statutory and contractual product warranties.

The final step is reporting on the progress of the recall to the ACCC. The ACCC will periodically seek a progress report and assess performance. In a progress report, the supplier must provide an update on key aspects of the recall, such as uptake rate and details of any safety incidents. If the recall is not progressing well, the ACCC may request further information and / or require changes to the recall strategy, such as more targeted advertising. When the ACCC is satisfied that all reasonable steps have been taken to remove the product from the market, the ACCC will close out the recall. Increasingly, the ACCC expects a high uptake rate in order to demonstrate all reasonable steps have been taken.

How to reduce the impact of the recall on your business

Although it's an outcome no manufacturer or supplier hopes for, when a recall does become necessary, the following pre-emptive steps will mitigate the impact to the business:

  • capturing comprehensive product tracking data in the normal course of business, including the widespread use of batch numbers, dispatch records, and serial numbers.
  • preparing a crisis management and recall strategy that can easily be adapted to meet a specific recall.
  • recording contractual supply agreements in writing and keeping open lines of communication with other entities in the supply chain.
  • considering how best to alert your customers if a recall becomes necessary. For example, existing data could be leveraged to effectively target your consumers, subject to any privacy issues.

Ultimately, when a product safety issue arises and a voluntary recall becomes necessary, it is important to act fast to maximise consumer safety and notify the ACCC of the action being undertaken within the applicable time limit.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.