Preparing your tech startup for a product recall
A product recall might be something that you haven’t yet considered for your tech startup. Often, we assume things will go to plan, but what happens when they don’t?
Over the years, there have been numerous big tech recalls from well known brands, which can cause a significant dent in the image and profits of these companies.
As a tech startup, it is important that in the case things do not go as expected that you have a plan in place for recalling products, and that you are aware of requirements and legalities of recalling products in Australia.
What are the reasons for a product recall?
- Becoming aware that a product presents a safety risk
- Minimising this safety risk and the risk of death or injury to users of the product
- Minimise the risk of property damage occurring due to the use of the product
- Support the reputation of your brand or of the supplier
- Avoid claims under the Australian Consumer Law (ACL), for example breach of consumer guarantee
How does a recall get initiated and who is responsible for managing it?
Under the ACL, any person who in trade or commerce supplies consumer goods or product-related services is responsible for complying with the product safety requirements, and provisions regarding product recalls.
Therefore, all suppliers must comply with these laws, including: wholesalers, hirers, retailers and manufacturers.
How to plan your product recall?
Most recalls are voluntary but it is possible for the Australian Competition and Consumer Commission (ACCC) to order a compulsory recall.
The ACCC expects that there be a pre-planned recall strategy.
This strategy is critical as it will firstly reduce safety risks, and also will lessen the impact of a recall on your tech startup and its image.
Therefore, it is important that before you are faced with a recall, you have a plan in place of how you will react if this situation does occur.
Different steps you can take:
- Keep details of customers and the best method of contacting them
- Identify all suppliers involved
- Record the key components of products
- Record and track batch numbers on products
- Determine how a product can be collected if recalled
- Determine how it will be either repaired or destroyed
- Consider providing incentives for customers to participate in the recall, for example by using gift vouchers
- Obtain insurance that covers recalls
- Obtain crisis management advice
- Determine who is responsible for each task in the recall
- Determine how you will cover the costs of the recall
These steps will ensure you are prepared for a potential recall and will lessen any impacts it could have on your business.
What is the process of a voluntary recall?
- Identifying the potential recall
- A hazard may be identified by a supplier, consumer, industry body, the ACCC or other regulators
- Investigating the hazard
- Conduct an initial investigation to determine how urgent the issue is and if it is a priority
- Assign staff to the investigation
- Determine if the incident report is accurate and is a valid risk
- Find out the cause of the defect and whether this has occurred in other products
- Determine whether there have been similar incidents involving this product or similar products
- Risk Assessment
- Suppliers are required to contact the ACCC when performing risk assessments
- Refer to the Australia Standard – Risk Management Principle and Guidelines when conducting a risk analysis
- Determining course of action
- Possible actions include using alerts or recalling products
- Under the ACL recalls are required if the product will or foreseeably could injure a person, if they do not comply with a safety standard, or if they are subject to a ban.
- Manufacturers and suppliers owe a duty of care to prevent products from causing harm to customers, even after they are sold
- ACCC Guidelines can provide guidance on the appropriate corrective action to implement
Who do we notify if we have to undertake a recall?
There is a statutory obligation on suppliers to notify the relevant Commonwealth Minister if there is a decision made to recall a product.
There are time limits on the notification and methods of notification, and failure to comply could be a criminal offence that may attract fines.
How do we report a recall?
Within two days of you becoming aware of an issue with your product, it must be reported to the Minister for consumer goods causing death, serious injury or illness.
Serious injury or illness is defined as ‘an acute physical injury or illness that requires medical or surgical treatment by, or under the supervision of a medical practitioner or nurse.’
How to communicate the recall of a product?
There are minimum requirements for a recall set out in ACCC guidelines, including:
- A description of the product
- A picture of the product
- Description of the defect
- Description of the maximum hazard the product poses, and associated risk
- A section providing information on what the consumer should do e.g. to receive a refund or replacement
- A contact details section providing details for the consumers to contact
The guidelines also provide an outline of the design of the communication such as size requirements, design components, size and style of fonts, among other things.
You should first attempt to directly contact your customers regarding the recall, but there is no specific way to communicate the recall at law. Therefore, there are a number of methods that can be used if you cannot reach the customers directly, such as:
- Social media
- Web forums and blogs
- Website announcement
- Electronic or printed mail
- Loyalty programs
- Speciality magazines
- Radio and TV
What is a compulsory product recall?
If a supplier appears to not have taken satisfactory action in preventing goods from causing injury to a person, a minister can call for a compulsory recall.
One or more of the following will apply in this case:
- It appears that the goods will or may cause injury to any person
- It appears reasonably foreseeable that use (including misuse) of the product will or may cause injury to any person
- They do not comply with an applicable safety standard in relation to the goods
- They are subject to an interim or permanent ban
If a minister proposes to order a compulsory product recall, they must first issue a proposed recall notice.
In the case that the compulsory recall relates to goods where there is an imminent risk of death, serious illness or serious injury, a minister may issue a compulsory recall notice ‘without delay’, and impose an interim ban on the product.
A copy of the compulsory recall notice must be provided to each person supplying the goods within two days of the publication of the notice and can require the suppliers to:
- Recall the goods
- Disclose the issue to a particular group of people
- Inform the public on how it plans to rectify the situation
What happens if a compulsory product recall is ordered?
- Suppliers are required to comply with the compulsory recall notice and must not supply goods to which the notice refers
- Not complying could be a criminal offence
- If anyone suffers loss or damage due to the non-compliance they are able to seek damages or compensation
- The ACCC may also seek disqualification orders
- If the notice provides that the suppler must repair or replace goods, the supplier is required to comply with this
How is a product recall implemented?
- the unsafe product must be recovered either from the consumers or the supply chain
- track the products and retain records of their movement through the supply chain
- create a process for the retrieval, repair, modification or replacement of the product, to make it simpler for the suppler and consumer
- if the product is of low value, you may need to provide an incentive such as a discount or gifts to encourage the recall
- recalled products should be destroyed to prevent and reduce the risk of the products being reused, resold or reshipped
Reporting and monitoring
If you are required to conduct a recall, you should develop a reporting schedule at the implementation of the recall. The data collected, should be able to measure the recall against its objectives including:
- The timeline
- The date of the communications
- Methods of communications
- Methods of contact with the consumers
- The response rate of consumers to the recall
- The amount of hazardous product that was identified and held within the supply chain
Closure of a product recall
There are ACCC guidelines that provide when a recall can be closed
A recall can be closed when:
- the supplier has taken all reasonable steps to mitigate the risk posed by the unsafe product
- there has been a final report submitted to the ACCC
There are requirements of what is required to go into the final report:
- Must provide the number or items supplied and the number of items that were recovered
- Provide evidence that any entities that are a part of the supply chain were notified
- Must provide information regarding the communication strategy
- Provide evidence on the action taken to identify and correct the safety hazard presented
- Provide information about the injuries or incidents that occurred as a result of the product
- The number of complaints/inquiries that were received regarding the recall or the product
- Information about the way in which the product was either destroyed or rectified
It is important that you have a product recall plan in place for your tech startup that complies with the relevant laws. Recalls can be damaging to your brand and profits and having a plan in case you are faced with this, will minimise the effects on your business.
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