ALM Properties, Inc.
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Hazardous to Company Health
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."
The 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."