Heightened Regulatory Enforcement Is a Reminder to All Manufacturers
As many manufacturers have become painfully aware, federal agencies from the National Highway Traffic Safety Administration to the Consumer Product Safety Commission have stepped up both their rulemaking and enforcement activities under the Biden administration.
In yet another example of this increased enforcement activity, the U.S. Food and Drug Administration announced June 23, 2022 that it was ordering leading e-cigarette manufacturer Juul’s products off the market.
This order comes two years after the FDA began an investigation into Juul’s products, in particular its flavored product offerings targeted to teens.
While Juul has previously voluntarily pulled certain flavored products from the marketplace in response to pressure from the FDA and the general public, the FDA’s decision is based on its finding that Juul failed to provide sufficient data for the FDA to evaluate the potential health risks associated with Juul’s products.
The FDA’s action against Juul should remind all manufacturers about the importance of being prepared before a federal agency comes knocking, especially when it comes to issues such as recalls and other enforcement actions.
The time to be prepared is well in advance of when a recall is necessary or when an agency begins an enforcement action.
At the very least, manufacturers should take this time to prepare.
Preparing for a Recall
- Know the federal and state agency or agencies that regulate your products, industry, or activities
- Familiarize yourself with the federal and state rules and regulations that governing your products and industry
- Familiarize yourself with industry standards governing your industry
- Join and participate in relevant trade and industry groups to stay up to date on regulatory changes, proposed changes, and industry best practices
- Designate a point person at the company to lead regulatory and best practices compliance
- Put an internal group in place consisting of members from a cross-section of the company to develop best practices, vet potential issues, and respond to enforcement actions
- Have a plan in place to address recalls and other agency enforcement actions
- Bring in outside expertise where necessary for advice and guidance
- Where possible build a relationship with individuals at relevant state and federal agencies
- Where it makes sense to do so, participate in agency proposed rulemaking through the notice and comment period
As we learn from an early age—practice prepares us for the game, fire drills prepare us for emergencies—in the case of manufacturers and regulatory agencies, preparation is likewise key to successfully navigating a potential enforcement action.
The spring of 2020, during the initial COVID-19 induced lockdowns, was the first time that many manufacturers had given much thought to the substance (and perhaps even the pronunciation of) force majeure clauses in their contracts or terms and conditions.
Things quickly changed as businesses sought to figure out if they had the necessary language to protect them from claims of breach of contract in the event of a pandemic related inability to perform.
Where existing terms and conditions fell short, manufacturers were quick to adopt new language to protect them in the future.
Now, well into the third year of the pandemic, force majeure remains a hot topic for manufacturers.
Not only do manufacturers still have to deal with the direct impacts of the pandemic—labor shortages, lockdowns, and the like, but now they are also dealing with historic and ongoing supply chain issues and rapid and rampant inflation, the likes of which have not been seen for nearly half a century.
Do these historic economic conditions coupled with the continued COVID-19 pandemic rise to the level of a force majeure event or are manufacturers required to unilaterally bear these burdens?
The short, and unsatisfying answer is that the courts have yet to address many of these novel issues.
Absence of Certainty
In the absence of certainty, manufacturers should continue to work with their customers and vendors to find equitable solutions for sharing the burdens created by these economic conditions—conditions that were certainly not foreseeable for contracts entered into before March of 2020 (or even thereafter).
The invoking of a force majeure clause or its Uniform Commercial Code counterpart—Commercial Impracticability (2-615)—should only be done as a last resort where efforts at an amicable and equitable resolution through negotiation have failed.
While force majeure clauses have grabbed the headlines when it comes to terms and conditions, now is also a good time for manufacturers to ask themselves some basic questions relating to terms and conditions.
- When was the last time that you revised or even looked at your terms and conditions?
- Most manufacturers have terms and conditions of sale, but what about terms of purchase?
- Do you regularly look at the terms and conditions that customers or vendors supply to you with purchase orders or invoices?
- How are your terms and conditions delivered?
- What about delivery of terms and conditions for electronic transactions?
- Are your terms and conditions posted on your website?
Depending on your answers to these questions, it is likely time to reevaluate and revise your terms and conditions and the process by which you send, receive and review terms during a transaction.
About the author: Jason Gagnon is a partner at Carmody Torrance Sandak & Hennessey LLP. His practice focuses on commercial litigation, with an emphasis on products liability, utility law, and employment law.
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