News & Insights

Businesses who initiate voluntary recall processes need to be aware of new requirements imposed by the ACCC.

Product recalls (whether voluntary or mandatory) are temporarily disruptive to the day to day operating of a business. We are sympathetic to businesses facing this process but also understand the duty of care to supply safe products to consumers. In our experience, our clients also take this duty very seriously.

The policy reasons for recall action are often sound and well considered, including protecting consumers from unsafe and defective products. Nevertheless, the expectations imposed on businesses by the ACCC need to be realistic and reasonable to balance the interests of suppliers and consumers alike.

When businesses initiate a voluntary recall, they must follow set processes outlined in the Australian Consumer Law in Schedule 2 of the Competition and Consumer Act 2010 (Cth). These include:

• developing a suitable recall strategy, including a relevant and effective communications plan
• notifying affected consumers
• retrieving the product
• reporting periodically on the progress of a recall.

A key focus of the ACCC has always been on the recall strategy developed and ‘return rate’ of the affected product. Historically, the return rate of recalled products has varied drastically (anywhere from 40% to 80%). The main reasons for this variance has been the type of product being recalled, the hazard posed by the product, consumers level of concerns in response to the recall and the type of communication used.

The ACCC plays a key supervisory role in the voluntary recall process, particularly by paying close attention to the progress reports provided by affected businesses.

Up until now, the ACCC would assess progress reports and all other available information. If satisfied that a business has conducted the recall effectively and made suitable attempts to contact affected consumers, the ACCC would close the recall (much to the relief of the compliant business).

However, recent communications with the ACCC indicate all current and future recalls will not be considered closed unless and until a 100% return rate is achieved. Our view is it is unrealistic to expect all recalls will obtain a 100% return rate.

Implications for businesses

From a business perspective, if a 100% return rate is not achieved, this will inevitably lead to a number of challenges, including:

• businesses will need to advise their insurers about when the recall action will be finalised – imposing this stringent 100% requirement will lead to greater uncertainty
• businesses will face a much lengthier period of time in which they advertise recall notices on their web content and other social media posts. Having undertaken second and third rounds of communication which are not resulting in further responses from consumers, it lacks commercial practicality to not be able to remove these notices which form part of their marketing material
• as part of the process, business are obligated to keep detailed records of their communication strategies and any remediation work during the recall period. It is unclear how long a business would be expected to maintain these records
• businesses typically engage lawyers to guide them through the recall process and their legal obligations – enforcing a 100% requirement creates uncertainty about when the matter will be closed, especially considering the Regulator may request a progress report long after the recall was first initiated
• businesses are generally advised to retain defective goods to allow the ACCC to inspect them if necessary. This latest development means it is unclear for how long such goods need to be retained. There are also significant financial costs involved with storing and retaining goods for potential ACCC inspection.

Going forward

We emphasise that this new requirement appeared to us in recent communications with the ACCC and we are currently in communication with the Regulator to determine their responses to the concerns listed above.

Whether this new 100% return rate is soon to be reflected in legislation or regulations is unclear. We will keep you informed, especially those businesses currently handling product recalls.

If you have any further questions about what this potential new requirement could mean for your business, or if you have any general queries relating to product recalls, do not hesitate to contact us.

This article was written by Patrick Smith, Lawyer – Commercial.