Beware of Regulatory Bounty Hunters

May 03, 2018

What causes anxiety for EHS managers and may keep them awake at night? The top two answers would probably be worker injury or fatality, and regulatory non-compliance. This is expected. When a worker suffers an injury or fatality, it weighs heavily on the conscience of any EHS manager because there’s a human aspect beyond the operational, financial, reputational and legal ones.

What about regulatory compliance? While there is no similar human aspect, it’s still something that can cause worry and stress. Non-compliance can halt production, prevent entry into a specific market, harm corporate reputation, and bring financial consequences. An EHS manager could face the risk of losing his job due to the impacts of non-compliance.

For EHS managers who have to ensure compliance, there are many stakeholders to take into account, including the executive management, the Legal department, suppliers, customers, and last but not least regulatory authorities. EHS, compliance, safety, and product safety managers must also take into account regulatory bounty hunters. Let’s look at two examples to show what is a “regulatory bounty hunter”.

Professional “Food Vigilantes” in China

For most of you, this is the first time you’re coming across the term “food vigilantes”. It was the first time for me when I read an article about a food safety law in China that led to a rise in plaintiffs who sue food manufacturers and retailers. According to the article, a stricter food safety law in China, introduced in late 2015, has given rise to a cottage industry of professional complainers who challenge food manufacturers and retailers for compensation. For example, if the information on nutritional labels can be proven to be inaccurate based on the nutritional data, a court can award a compensation that is 10 times the purchase price of the product.

Companies like Carrefour and Walmart have been targeted by plaintiffs. Walmart received almost 4,000 food safety complaints in 2016, compared to about 700 in 2015. In 2016, as many as 90% of all food safety complaints received from local governments in Guangdong and Jiangxi provinces were from such plaintiffs. A Beijing court said 80% of food safety-related cases in 2015 were filed by plaintiffs who specialize in finding flaws. More than two-thirds of court cases involve labeling mistakes (e.g. font size too small, lack of Chinese translation). These types of lawsuits are now the top problem for supermarkets in China. Since the new food safety law took effect, more than $800 million have been spent hiring additional food safety personnel and bolstering monitoring facilities, the article says.

California Proposition 65 Citizen Lawsuits

Proposition 65 in California requires businesses to inform people about chemicals known to cause cancer, birth defects or other reproductive harm. California maintains a list of chemicals known to the state to cause cancer or reproductive toxicity. In 2016, California amended Prop. 65 with new requirements for “clear and reasonable warnings”. Companies were given two years to comply with the requirements, which will take effect on August 30, 2018.

Businesses that operate or sell products in California have to place a warning on their products if they contain any chemical listed under Prop. 65 (e.g. “WARNING: This product contains chemicals known to the State of California to cause cancer and birth defects or other reproductive harm.”). Under the new, more stringent requirements, warnings will have to include the name of at least one listed substance (as opposed to a vague warning about the presence of “chemicals”), a pictogram and the URL of the Prop. 65 website.

Prop. 65 also has a private enforcement provision allowing and encouraging citizens to file lawsuits against companies that fail to comply. If a lawsuit is successful, a citizen can keep 25% of any penalty recovered. These lawsuits are often the most expensive result of violations of Prop. 65, and it is anticipated that plaintiffs will look for companies that are too slow to adopt the new warnings by August 30. Also, cases often are brought against companies that are unaware that low levels of listed chemicals (e.g. lead, BPA) are present in their products. When confronted with a lawsuit, these companies often decide to settle the case by agreeing to provide a warning and paying a penalty in the range of $20,000-$150,000 or more, instead of facing litigation.

How to React?

What should organizations do to avoid financial costs and bad publicity from lawsuits filed by regulatory bounty hunters? The obvious answer is “make sure you’re compliant”. But there are other steps that must be taken.

First, EHS managers and any professional with a compliance responsibility must closely cooperate and communicate with the marketing and communications department to make them aware of the threat. This allows the company to develop a public relations strategy proactively, which would be deployed in the event of a lawsuit.

Second, they must make sure that the Legal department does not become complacent when regulatory authorities are not raising any issues. Even if compliance seems achieved, there is always the risk of frivolous lawsuits by regulatory bounty hunters, which can lead to additional legal costs.

In conclusion, while you can’t completely eliminate the threat of lawsuits from regulatory bounty hunters, you can prepare for them to minimize their impacts.

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