When does an everyday product like bleach become hazardous
waste that requires special handling when disposed of by stores? This is not an
academic question; companies that lack policies to adequately address it could
face large fines or even criminal charges.
Case in point: On May 28 Bentonville, Arkansas–based
Wal-Mart Stores Inc. agreed to pay more than $80 million after pleading guilty
to six counts of violating the Clean Water Act in California and one count of
violating the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) in
Missouri.
The six Clean Water Act charges were filed by the U.S.
attorney's office in Los Angeles and San Francisco and consolidated in the
Northern District of California. According to documents filed in the U.S.
district court in San Francisco, before January 2006 Wal-Mart did not have a
program in place and failed to train employees on proper hazardous waste
management and disposal. As a result, products like cleaners and aerosols were
placed in municipal trash bins or poured into the local sewer. Hazardous waste products
were also transported without proper safety documentation to return centers.
In the western district of Missouri, the retailer admitted
that between 2006 and 2008, it trucked more than 2 million pounds of pesticides
and household products from return centers to a recycling facility, where the
pesticides were mixed and processed for reuse without the required
registration, ingredients, or use information.
The company was slapped with civil and criminal
penalties—the first time a case of this type resulted in criminal charges.
Combined with the civil penalties it paid earlier in California and Missouri
for the same acts detailed in the federal cases, the total financial penalty
Wal-Mart racked up was more than $100 million.
And it could have been worse. Clean Water Act violations
require an automatic suspension and debarment from federal contracts. But in
this instance, according to Michael Jacob Steel, a partner at Morrison &
Foerster, Wal-Mart was able to get assurances that there would be no impact on
its government contracts. Joseph Johns, chief of the environmental crimes
section of the U.S. Attorney's Office for the Central District of California
and lead prosecutor of the federal case, would not comment on the criminal
charges or penalties. He did say this: "Federal laws apply to every
company in the nation without regard to the size of the company. It is simply
unacceptable for any business to manage its hazardous waste by dumping it down
the drain or dumping it in the trash."
Environmental law can be a difficult area for companies to
navigate. "Environmental regulations can be very complex and expensive to
comply with," says Johns. "While a bottle of nail polish may be
harmless sitting on a shelf, if broken in the store or returned after being
opened, it becomes a hazardous waste that must be properly stored, managed,
transported, and disposed of."
Wal-Mart is not the first major retailer to face penalties
related to waste disposal. Morrison & Foerster's Steel, who specializes in
environmental compliance and enforcement defense, says that one of his first
cases settled in August 2007, when The Home Depot agreed to pay almost $10
million in a civil case over its failure to properly store and transport
hazardous waste.
Since then, other companies have entered into similar
agreements, including Costco ($3.6 million), CVS ($14.6 million), Kmart ($8.7
million), Save Mart ($2.6 million), Target ($22.5 million), and Walgreens
($16.6 million). (Asked to comment, only CVS responded, saying that it has taken
steps to "bolster" its program by establishing reporting requirements
and revising employee training for handling hazardous materials in its retail
stores.)The numbers alone should get the attention of retailers. "When you
add the recent fines in the Wal-Mart case," says Steel, "these are
big numbers that are only going to generate the increased interest of
regulators."
Until the federal case against Wal-Mart, Steel says that all
the cases were civil actions, mainly involving California. There are reasons
the bulk of the cases came from there, he says. One is the long-standing
partnership between local prosecutors and county health departments, which
share information and coordinate environmental compliance investigations.
"California also has a special test for toxicity called
the 'Fish Kill' test," says Steel. "Investigators will pour the
product into a fish tank to see how long they will survive. If the fish die,
it's a hazardous waste, even if federal law says it is not."
T
he best way that companies can avoid problems is by
creating rules and training employees. Steel works with in-house attorneys,
including those at Kmart and Costco, to develop and implement compliance
policies. "Many companies already have policies and programs in place; those
that don't are putting themselves at risk," says Steel. "Creating a
plan takes time, costs money, and is complex and should not be done in crisis
mode after receiving a call from a prosecutor." David Rieser, special
counsel at Much Shelist, says compliance programs should include two
components: one on storing damaged goods and another on handling customer
returns. "Everyone in the stores must be trained, from managers to those
stocking the shelves," says Rieser. Codes must be created to identify the
materials, and bins set aside for disposal, he adds.
Wal-Mart created a program to address these issues in 2006.
According to a press release, it includes employee training and a compliance
office made up of, among others, former officials with the Environmental
Protection Agency. "We continue to run the same program in every store and
club that was deployed years ago," Phyllis Harris, chief compliance
officer at Wal-Mart U.S., said in a statement. Johns says simply having a
policy isn't enough. "Corporate counsel must take extra steps to conduct
rigorous internal audits, correct any violations identified, discipline
employees responsible for the violations, and then disclose the shortcomings to
federal regulators," he says.
"There are safe harbor provisions in place to shield a
company from charges identified during an internal audit," he adds.
"But for a company to avail itself of the shield, regulators must be
notified."
Sherry Karabin
Corporate Counsel
2013-08-12 00:00:00.0
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