It has become a pattern – for the second time in the last few months, the U.S. Consumer Product Safety Commission announced a settlement that requires a company to set up an expansive compliance system. The new system includes (1) written standards, (2) confidential employee reporting requirements, (3) mandatory communication of compliance-related policies to all employees, (4) making a senior manager responsible for compliance, and (5) retention of compliance-related records for at least five years. On the heels of pursuing a former CEO personally in an action over defective products, the CPSC is clearly trying out new enforcement tactics. Click here to view FBT's May legal update "CSPC Permitted to Join Former CEO Personally in Action to Recall Products."
Recently, Williams-Sonoma agreed to set up a new compliance program as part of a settlement, in which it also paid $987,500, to settle the CPSC's claim that it waited too long to notify the agency about a defect in wooden hammock stands. The CPSC alleged that before the company recalled the stands in October 2008, it knew of about 45 incidents, including reports of lacerations and fractured ribs.
Williams-Sonoma's program is identical to the compliance program that was mandated in a March settlement with Kolcraft Enterprises Inc. The terms of the programs are identical despite the products in the two settlements being very distinct, particularly as the Williams-Sonoma product was intended for adults, while the Kolcraft product was marketed for children. This trend is a shift from prior agency policy which had not required specific quality controls as part of settlements, indicating the CPSC may include compliance programs in most civil penalty actions in the future.
Although Republican Commissioner Nancy Nord voted to approve the Williams-Sonoma settlement, she voiced concerns that the compliance program requirement "smells of regulatory opportunism disguised as enforcement." She further stated the CPSC's use of the same language in both settlement agreements "suggests this ... represents a shift in agency policy that will stretch across all of our enforcement activity."
While the CPSC has not explicitly stated the settlement compliance programs are a blueprint for compliance programs generally, manufacturers and distributors of consumer products are taking notice and may modify their existing compliance programs in anticipation of future dealings with the agency.