New rules ... Cotton On could be banned from selling children's nightwear.
Cotton On Kids has been fined $1 million for selling children's nightwear that breached fire safety standards.
Justice Richard Tracey of the Federal Court in Victoria ordered the discount children's clothing store to pay the Commonwealth $1 million within 15 months and contribute $5000 towards legal costs, following action by the Australian Competition and Consumer Commission.
The court also ordered that Cotton On Kids and a related company Cotton On be banned for four years from selling children's nightwear unless it gets written evidence from accredited fire-safety testers beforehand. And that both companies establish compliance programs for three years at their own expense. The directors face jail if they do not comply with the court orders.
The ACCC became aware Cotton On Kids was selling unsafe night gowns and pyjamas in 2010 and the clothing was recalled soon after.
However, Cotton On Kids continued selling the pyjamas into 2011, according to a fast-track statement lodged by the ACCC in October last year. The ACCC found that a particular nightdress and pyjama-set were larger and burned faster than allowed by Standards Australia.
It also found that Cotton On claimed the items were designed within fire safety regulations when they were not, and that writing on its "low fire danger" labels were not big enough.
"Since the incident was brought to our attention in November 2010, Cotton On has worked diligently to address the concerns raised by the ACCC in this case,'' a Cotton On spokeswoman said.
"We take the safety of our products very seriously and want to reassure our customers that we have taken all the necessary steps to resolve this issue."
Justice Tracey agreed to the compliance program because it "is designed to ensure that there is a company-wide awareness of the respondents’ obligations and responsibilities under the provisions of the Act which they have been found to have contravened.
The respondents employ a large number of staff and it is in the public interest that the compliance program be instituted so as to ensure on-going compliance with the Australian Consumer Law".
The $1 million penalty contains four fines. It includes a $400,000 penalty for selling 1105 nightdresses that were unsafe, $400,000 for selling 1131 pairs of pyjamas that were unsafe, $100,000 for the false and misleading representations made on the label of nightdresses and $100,000 for the same offence with the pyjamas. The ACCC could have sought a penalty as high as $4.4 million.
Justice Tracey agreed to the $1 million penalty proposed by both parties, noting that it was sufficiently large to deter other clothing retailers and that the Cotton On group is substantial enough to afford it.
He added that "Responsibility for ensuring compliance with relevant safety standards and the Act rested on senior managers of the respondents. They manifestly failed to perform this important aspect of their duties. The potential consequences were most serious. This is a factor which weighs in favour of a significant penalty".
The Cotton On group Cotton has 924 stores throughout Australia and employs 15,296 employees.