New England Biz Law Update
An obscure new law that is best known for prohibiting lead in toys will affect a majority of businesses in New England — including those that have nothing to do with children’s products — in profound ways, say lawyers who have been tracking the legislation.
When Congress passed the Consumer Protection Safety Improvement Act, or CPSIA, last August, it resulted in a sea change in how the country approaches issues of consumer protection, William S. Rogers Jr., a partner at Greenberg Traurig in Boston, told New England In-House.
Rogers’ firm recently hosted a panel to educate Massachusetts businesses on their obligations under the law, which is already in effect but for which regulations are still being promulgated.
“Generally speaking, everybody is of a mind that the tide is turning,” Rogers said. “If you look at the economy and the very strong sense that a lack of regulation was responsible for a lot of the difficulties that we’re facing economically, there’s a similar sense that there’s been a lack of consumer product safety focus and a lack of enforcement. So I think that everybody who works on the legal side of these statutes thinks that the Obama administration is going to bring a renewed sense of vigilance and renewed focus on both regulation and enforcement.”
Many lawyers, Rogers added, are not even aware of the CPSIA. “But that will change once there is some more public enforcement of some of the particular regulations or statutory provisions. Once there is enforcement, the magnitude of likely penalties will get people’s attention outside of the industry sphere.”
Quin Dodd, a former staffer at the Consumer Product Safety Commission, which administers the new law, agreed that the CPSIA is more far-reaching than most attorneys realize.
The measure makes sweeping changes to the commission, giving the federal body greatly expanded authority and resources to police the safety of products sold in the United States, said Dodd, a lawyer at the Washington, D.C., office of Mintz, Levin, Cohn, Ferris, Glovsky & Popeo.
“Lawyers need to know that, in various ways, the CPSIA applies to about two-thirds of the American economy: manufacturers, importers, labelers, distributors, retailers of consumer products, etcetera,” he said. “A lot of firms who thought they were nowhere near this law are finding themselves right in the middle of it.”
The bottom line, according to Dodd, is that “folks [who] did not pay attention to the commission really must do so now. It’s been a small, rather obscure federal agency, and it is no longer to be taken for granted.”
Kids’ stuff
The law creates strict new rules for the sale and re-sale of products designed specifically for children under 12, a category that includes everything from apparel to furniture to books. Not only are lead and plastic-softeners, known as “phthalates,” essentially banned from these products, but most items designed for use by a child are required to be tested by a third-party laboratory and accompanied by a certificate stating that they comply with consumer protection laws.
The testing requirement has ruffled feathers, largely because testing each product is complicated — and costly.
“It’s unfortunately expensive when you consider that, in some cases, you have to test on a per-time, and in some cases a per-component, basis,” Rogers explained, adding that the law requires that all products be tested at “accredited and certified” laboratories.
Originally set for Feb. 10, the deadline for companies to implement third-party testing has been postponed to Feb. 10, 2010, following an outcry from groups as diverse as the American Library Association and independent toymakers.
But that postponement does not mean that companies are off the hook, said Amie Breton, a spokeswoman for Massachusetts Attorney General Martha Coakley.
“While testing requirements have been postponed, it remains a violation of the law to sell products that are not in compliance with the standards, regardless of the date of manufacture,” she wrote in a statement to New England In-House. “The CPSC has offered guidance on products made of substances [that] normally do not contain lead, for instance, and will be issuing more guidance over the months to come.”
The statute further contains extensive labeling requirements, which mandate that all
children’s products be accompanied by tracking labels that identify the manufacturer, the date of manufacture and other information. There are also more specific rules and regulations for durable nursery products, such as children’s cribs and beds, and for advertising toys and games.
But perhaps most important to lawyers and their clients is the punishment that awaits if a product or a company does not comply with the CPSIA.
“You have heightened penalty provisions,” Dodd said. “The maximum civil penalties under the CPSIA have increased from $8 million to $15 million, and, almost more dramatically, the violation per product limit has increased from $5,000 to $100,000.”
What that means, said Dodd, is that “even if you have just a few products that are violative, you are easily into the millions of dollars.”
Runs the gamut
But what makes the law so pervasive is that its provisions apply to more than just children’s toys.
The CPSIA incorporates a bevy of other federal consumer protection laws into its language, including ones that address poisonous packaging, flammable fabrics, hazardous substances, and even pools and spas. Those laws are now part of the CPSIA as well, which means that they have been given beefed up penalties and enforcement powers.
The statute, according to Rogers, “authorized a much larger consumer product safety commission, authorizes activity by consumer product safety inspectors — even going beyond the borders of our country into the manufacturing facilities of companies that manufacture abroad — and authorizes larger appropriations for the CPSC.”
For example, Dodd said, the act governs imports and exports of all products, not just those intended for children 12 and under.
“There’s a presumption for all imports, non-children’s products included, that if they violate a CPSIA standard, they will not only be seized but destroyed at the point of entry at the importer’s expense,” he said. “That cost can be very, very high. It can be multiples of the value of the products themselves.”
Another provision of the law requires that all products that are subject to the commission’s rules be accompanied by a “general conformity certificate.”
“Not only do you have to meet the standards,” Dodd said, “but you have to have a piece of paper that says so. That’s for everything covered by a mandatory standard. For example, there’s a flammability standard for clothes, so everything, even non-children’s clothes, are required to comply.”
According to the Massachusetts Attorney General’s Office, this means that businesses involved in selling, handling or processing products that are manufactured abroad should carefully examine their supply chain. And that is something that corporate counsel must set in motion.
“Businesses that should be particularly concerned are any businesses who sell, import or manufacture goods for which they have no real direct knowledge of compliance by their suppliers or subcontractors,” wrote Breton. “It is important to conduct due diligence as much as practicable, to find out how and where products are made, the experience and track record of the manufacturer/supplier, and the efforts made by those manufacturer/suppliers to comply with the law. Lawyers can assist their clients by familiarizing themselves with their client’s sources of product, and the testing that may or may not have been performed on the elements that go into the manufacture of the product.”
That process is not easy, said William C. Rennie, legal counsel for the Retailers Association of Massachusetts.
“It’s certainly been a difficult process to follow for us,” he said. “People think, ‘Oh, I don’t sell toys,’ or ‘I don’t sell specific stuff just for children.’ But it really impacts almost any retailer and, of course, manufacturers, importers and wholesalers. It runs the whole gamut.”
AGs and whistleblowers
Several elements of the measure that have received little attention may give corporate counsel big headaches, Dodd warned.
First, the CPSIA grants state attorneys general extensive power to enforce the federal law in a proactive, rather than reactive, fashion, he said.
“This is a huge new development for product safety law in general in this country,” Dodd said. “Now, state AGs, particularly activist ones like the one in the state of Massachusetts, can seek independent enforcement of the statute in federal court. If they think there is a violation of a CPSIA standard, even if the CPSC doesn’t think so or doesn’t think it is a priority to pursue, a state AG can go to federal court and seek injunctive relief under that standard.”
Rogers agreed.
“It’s safe to say that regulators have more ammunition, if you will, than they had before, and it stands to reason that they will use that ammunition if they feel it’s necessary to protect the health and safety of the citizens of the commonwealth,” he said.
But the AG’s Office in Massachusetts is not giving many clues as to how it will use its expanded powers.
“We will consider legal action in cases involving patterns of unfair or deceptive behavior, and we will, consonant with our customary practice, take into account all facts involved in any particular case, in order to evaluate our response,” stated Breton. “Action short of a lawsuit may be appropriate in certain situations, and one of the most important factors to consider is always a speedy response taking into account public health and safety.”
Another significant provision in the measure is its whistleblower section, which Dodd called “a huge sleeper issue in this law.”
The law prevents retaliation against employees who complain that an employer may be violating the CPSIA to an incredible extent, Dodd said.
“If you, the employee, allege that you were retaliated against for blowing the whistle, you automatically keep your job,” he said, “until your case is resolved by the Department of Labor.”
Dodd said he believes that provision is “the most significant expansion of whistleblower protection that … has ever occurred in this country in the private sector.”
