180 fold higher fines in Dutch Commodities Act

On 11 September 2015 new legislation amending the current Commodities Act (in Dutch: Warenwet), partly entered into force. Under the new legislation the maximum administrative fine to be imposed on Food Business Operators (hereinafter: ‘FBO’s’) by the Dutch Food Safety Authority (NVWA) is increased dramatically compared to the prior maximum fine. The Dutch legislator has clearly increased existing fines to make them stronger and more effective to increase compliance with food safety regulations. The NVWA has more teeth, but will it bite?

The rationale behind the increased fines

A reason to increase the maximum fines can also be found in the battle against food fraud in general. Until recently the NVWA could impose a fine on an FBO on the basis of Article 32 of the Commodities Act. The maximum fine was set at € 4.500. According to its latest annual report, the NVWA imposed 2808 fines on FBO’s in 2014. The average amount of a fine was € 1.206,– and the total amount of imposed fines was € 3.413.893,–. Considering the costs of compliance with hygiene and administration standards, these penalties are merely peanuts for the average FBO and do not have the desired effect of contributing to compliant behavior as is confirmed by the statement further down in this post.

Fines linked to system under Dutch Penal Code

Fines in other areas such as data protection law are also subject to revision and they will both increase and expand (meaning an increased number of provisions will be subject to potential fines in case of non-compliance and those fines tend to increase as well). With a political climate both in the EU and in the Netherlands that leans towards stronger enforcement instruments, it was just a matter of time before the fines under the Commodities Act would be increased. The Dutch legislator seems to try to harmonize the several fines in different legal acts by referring to the categories of fines specified in the Dutch Penal Code. These categories are linked to the severity of the violation. The first category is the lowest and the sixth category the highest. The maximum fines are now set at the maximum of the sixth category: € 810.000,– (or 10% of the annual turnover). This means a 180 fold higher maximum fine!

In relation to the increase of administrative fines politician Sjoera Dikkers (Dutch Labour Party – PVDA) stated: “it is clear that a fine of € 4.500,– is cheaper for practically every company, then acting in compliance with hygiene practices in the Netherlands. For a fine of € 81.000,– this can be similar for big companies, depending on the nature of the infringement. That is why we would like to further increase the maximum penalty to the sixth category. This is the only way to scare companies enough to make sure they comply with hygiene requirements.”

The exact amount of the fine will have to be proportionate and therefore depend on factors such as the number of employees, the degree of culpability, the severity of the violation and/or the turnover of an FBO. The NVWA has to assess all individual circumstances in order to establish the amount of the fine.

Final thoughts

Although relatively low fines indeed might give rise to profit for FBO’s from non-compliance and fraudulent behavior, drastically increasing the fines could have a downside for both the NVWA and the FBO’s. Imposing higher fines requires more effort and expertise from the NVWA. For fines that exceed the amount of € 340,– additional procedural requirements, similar to criminal law, have to be met by the NVWA. For FBO’s a high fine could indeed have a significant impact and even potentially mean bankruptcy. As we have seen in Dutch cases relating to the horsemeat crisis, the NVWA can impose the execution of a recall that can lead to bankruptcy. We will keep you informed on how this potential powerful enforcement instrument of high fines in the hands of the NVWA is handled in practice and dealt with in court. Hopefully, this will serve FBO’s in establishing what should be done to avoid or annul the decision of the NVWA to impose such fines, which is a part of our active practice.

The author is grateful to Floris Kets, trainee at Axon Lawyers, for his valuable contribution to this post.