Legal supplement

Posted on 9 Sep 2010 by The Manufacturer

Introducing TM’s legal supplement, finding a legislative framework that increasingly governs the minutiae of UK manufacturers’ operations. Given that legislative compliance governs virtually every aspect of a company’s operations, all manufacturers would do well to retain a working knowledge of legal precedent. Read on to find out more…

Profit/loss; lean operations; benchmarking; employee relations; ERP; logistics; product lifecycles. For the manufacturing manager, feet on desk, wearily loosening his tie at the end of another recession-battered week, grappling with the obtusely-worded provisions of the Companies (Inspection and Copying of Registers, Indices and Documents) Regulations will justifiably come a distant last on his ‘to do’ list.

However, given that legislative compliance governs virtually every aspect of his company’s operations, the manufacturer, regardless of sector, would do well to retain a working knowledge of those statutory changes which affect his day-to-day remit. Ignorance of the legal provisions which apply to his business can result in a fine without limit, not to mention an extended stay — life, in the most extreme cases — at Her Majesty’s pleasure.

Clearly, this is best avoided. By placing the understanding of legal compliance alongside those operational core competencies which have traditionally remained critical to successful manufacturing, companies of all sizes can effect a more robust corporate framework, improve employee relations, and avoid litigation, fines and prison terms.

Safety does it…
With more than 300 work fatalities and anything up to 30 million days lost each year due to occupational ill health and injury, it is a foolish manufacturer indeed who chooses to ignore. “Companies need to operate a two pronged strategy to address health and safety,” advises head of manufacturing at Pinsent Masons LLP, Alison Bond.

“On the one hand, businesses need to be consistently vigilant in relation to the maintenance and implementation of policies and procedures — from the shop floor to boardroom. On the other, there is a requirement to ensure that businesses can adequately demonstrate the steps that they have taken, should the worst happen.” With the Health and Safety Offences Act 2008 making individuals liable for up to two years imprisonment for a breach of duty, moreover, “The days of only the company being prosecuted are over,” says Lisa Wilson of Eversheds LLP — whose article on the myths of health and safety law can be found at page 90. Indeed, under the Health and Safety at Work Act 1974, duties and responsibilities are imposed on directors, managers and employees as individuals; there really is nowhere to hide, it seems.

CASE STUDY – British Sugar
When three workers died at British Sugar in 2003, the organisation — which hitherto considered health and safety a key priority — realised a swift change of focus was needed. It carried out a comprehensive, boardroom-led review of its arrangements, including: the chief executive assigning health and safety responsibilities to all directors; monthly reports on health and safety going to the board; more effective working partnerships with employees, trade unions and others; overseeing an audited behavioural change programme; publishing annual health and safety targets, and initiatives to meet them.

As a result, the company saw a:
• 43% drop in time lost to injuries over two years;
• 63% reduction in major health and safety issues in one year;
• Greater understanding among directors of health and safety risks.

Producing liabilities
Product liability, defined as the legal responsibility of manufacturers, wholesellers and retailers to the buyers or users of damages or injuries caused by the use of defective products, hit the headlines in earlier this year with the recall of 1.8 million Toyota vehicles across Europe due to faulty accelerator pedals, including 200,000 or so in the UK.

Similarly, in February the European Commission published guidelines for the management of the Community Rapid Information System (RAPEX), its consumer product safety reporting mechanism. Widely praised, and with product recall figures quadrupling since 2005, “The practical implications for product manufacturers and suppliers will [nonetheless] be significant,” says Rod Freeman, a partner at Lovells LLP.

“In the case of a voluntary recall, this will mean either that manufacturers and suppliers will have to provide proactively to the national authorities a much greater level of detail when making notifications around Europe, or they will have to expect to deal with more detailed inquiries from national authorities in all potentially affected markets.”

A practical view
There is a significant rise in findings that warning labels are not always sufficient protection from liability for retailers or manufacturers, says Victoria Curran, product liability lawyer at Weightmans LLP. “Moreover, the courts are taking a practical view of what the reasonably expected behaviour of a consumer should be — and wearing eye protection while loading the washing machine hardly counts as such,” she says, referring to a case in which the claimant suffered blurred vision, sensitivity to light and a possible tear in the eye due to faulty washing liquid.

Damages awarded in claims brought against retailers under the Consumer Protection Act are being passed on to the product’s manufacturers, with contracts between the parties frequently allowing for such arrangements. “Manufacturers often have little say regarding the terms of their contracts with larger retailers,” says Curran.

“Indeed, a worrying number of manufacturers end up agreeing to accept clauses indemnifying the retailers in full to maintain their supplier status.” With liability resting largely on their shoulders, manufacturers can seek to protect themselves by carrying out regular adequate tests and assessments of their products. Producing up to date documentation on product testing and demonstrating compliance with specifications and any relevant standards is thus paramount in defending product liability claims.

According to Weightman’s Curran, if a claimant is successful in establishing that a product has a defect, a label alone is unlikely to provide protection in court. Being able to demonstrate that everything practicably possible was done to assess and minimise risks to consumers is therefore key. “In some cases,” she says, “the courts have held that large manufacturing firms or retailers have the resources to provide an improved level of protection for the consumer, with significant damages awards being made against those that don’t.”

CASE STUDY – Sainsbury’s
After an external audit highlighted the need for a more unified approach to employee welfare across the company, Sainsbury’s rethought its health and safety vision — set out by the group HR director and backed by a plan that included targets over three years. As such, all board directors were given training on health and safety responsibilities, with safety concerns now regularly featuring on board agendas.

The business benefits included:
• 17% reduction in sickness absence;
• 28% reduction in reportable incidents;
• Improved morale and pride in working for the company, as indicated by colleague surveys

Legislating for legislation Given that they are not — for the majority at any rate — legal beagles, it is understandable that those in manufacturing will not be glued to the weekly law reports. Indeed, for firms without inhouse counsel, keeping abreast of the multifarious statutory provisions that directly affect their operations can prove particularly difficult.

It is unlikely, however, that the sheer volume of legislation will cease to flow on their account, says David Woods of Greenwoods Solicitors LLP.

As a result, manufacturers must avoid developing a culture of minimal fulfillment with regard to the implementation of such provisions.

Although understandably onerous to do so effectively, recognition of the necessity for full compliance will ensure that the manufacturing sector does not develop into an overly litigious industry, while maintaining the optimum employee relations which remain so critical to successful business practice.