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Franchise Law

Is Your System Safe?

Published: 11/09/2009

By Frank Robinson, Geoffrey B. Shaw, Larry M. Weinberg

New Consumer Product Safety Regime in Canada May Affect Franchise Systems

In response to recent consumer product failures and the shift of consumer product manufacturing to foreign jurisdictions, the Government of Canada is moving to shift Canada’s consumer product safety framework to one that is more far-reaching, regimented and punitive.

The Canada Consumer Product Safety Act (the "Act"), on track to become law in the coming year, is likely to have a significant impact on the business and practice of Canadian manufacturers, importers, exports, advertisers and sellers of consumer products, both at the wholesale and retail levels. The Act does not deal with food products, regulation of which is governed by other legislation.

The purpose of the Act is to enhance public health and safety by modernizing the legislative framework that regulates participants in the Canadian consumer product supply chain. To achieve this end, the Act prohibits the manufacture, importation, advertising or sale of any consumer product which poses a danger to human health or safety. The Act also imposes restrictions on the packaging and labelling of consumer products.

Clearly, this is an expansive mandate, which, in application, will capture both franchisors and franchisees alike to the extent that they import, trade, market or sell consumer products at wholesale or at retail in Canada. In the lead up to Act’s proclamation, all franchise participants should conduct a review of their current consumer products, and begin to implement necessary compliance measures.

Components of the Act

The Minister of Health (the "Minister") can order a manufacturer, importer or supplier of consumer products to conduct tests on such products, and to compile information and documentation necessary for the Minister to determine if such products are in compliance with the Act. Suppliers will be required to maintain certain documentation relating to the identity of the parties from which products were obtained and the party to whom they were sold (apart from retail customers).

The Act confers broad discretionary powers upon inspectors appointed by the Minister to administer and enforce the Act. Indeed, inspectors may, at any reasonable time, enter a place, review and copy information, seize products, and issue various orders, including an order recalling a consumer product.

Where the Minister obtains confidential information from a business owner, it may disclose such information to a range of recipients without prior consent of, or notice to, the person to whose business the confidential information relates, provided the recipient agrees to keep the information confidential. The Minister may also disclose confidential information without obtaining a written confidentiality agreement in certain circumstances.

Contravening a provision of the Act, its regulations, or an order made under the Act is an offence which can result in significant sanction, including fines up to $5,000,000 and prison sentences of up to two years. However, the enforcement rubber hits the road where an "incident" involving a consumer product occurs. Enforcement officers can initiate a charge and obtain a conviction where such an incident occurs and where they are able to satisfy a "balance of probabilities" test – which is a lower standard than the "beyond a reasonable doubt" test which applies to an offence under the Act.

Penalties for convictions based on an incident are limited to monetary fines and compliance orders. Appeal rights are few, and incident-based proceedings are intended to be completed in a timely manner. The Minister believes that this two-tiered approach will add enforcement clout and promote compliance.

Next Steps

While the Act is yet to proceed through the legislative process (one more reading in the Senate is needed), now is the time for all concerned parties, including franchisors and their franchisees, to undertake a review of the consumer products in which they deal to determine:

• whether any of their products could be a "danger to human health or safety" within the meaning of the Act
• whether there have been any recall orders against any such product or any similar product anywhere (not just in Canada)
• whether existing labeling on any consumer product advertising would violate the Act
• what product records and documentation are currently being retained and what should be added to the list
• what procedures should be initiated to form the basis of a due diligence defence for their directors, officers and agents, in the case where charges are laid under the Act

Draft regulations under the Act are yet to be published, though it is certain that the regulatory regime which it is to impose on all aspects of the Canadian supply chain will be significant and costly, both in terms of compliance, and penalties for non-compliance.