Prohibited Conduct and Enforcement Actions

The kinds of Prohibited Conduct under PACA (also called Unfair Trade Practices), are explained below. If PACA thinks a company has engaged in prohibited conduct, PACA can take Enforcement Action to revoke or suspend the company’s PACA license, or fine the company.

Operating Without A License

The Licensing section explains who must be licensed and the penalties for operating without a license.

Unfair Activities

PACA lists the unfair activities a produce company cannot engage in when buying or selling. They include any misrepresentations or failures to perform contractual duties in connection with any purchase or sale of produce.

Rebates

Rebate programs are legal. However, rebates must be disclosed in writing to assure that “cost-plus” buyers are not paying based on a cost that is later reduced by the rebate. A statement in writing, at the start of the relationship, which discloses the existence of the rebate, is usually sufficient. For example, “price subject to rebates.”

Commercial Bribery

Under certain circumstances, giving something of value to an individual employee of a company violates PACA. Those circumstances are when the payment or gift to the employee is unknown to the employer, and is for the purpose of inducing the employee to continue purchasing from the seller.

For example, if an individual buyer for a produce company arranges to personally receive 25¢ from the seller for each package the company buys from the seller, PACA considers this to be illegal if the employer did not know of it.

PACA views these types of arrangements as unfair trade practices that merit license revocation. However, not every gift from a seller to an individual buyer at a company is illegal. For example, a holiday turkey or a bottle of liquor to a buyer would not be considered commercial bribery.

Failing To Pay or Paying Slowly

These are the most common violations of PACA. If there is a failure to pay, then like the saying about a mortgage, “If you don’t pay, you don’t stay (in the produce industry).”

Slow pay violations are more complex. If payment is not made within terms, then there is a violation. See Most Common PACA Payment Terms. However, it is impossible for PACA to take action on every slow pay violation. So PACA focuses on chronic slow payers. These are companies that are always months overdue on their bills. They come to PACA’s attention because sellers repeatedly file complaints against them.

Failing to Maintain the Trust

A company violates PACA by not having sufficient assets to cover the trust claims of unpaid sellers. This prohibition is enforced in conjunction with no-pay or slow pay violations. When PACA performs an investigation into a company’s pay practices, it also reviews whether the trust is being maintained. However, PACA does not collect trust assets for sellers. See Collecting Under the Trust.

Using Disapproved Trade Name

PACA controls the names of produce companies to avoid confusion in the trade, and to assure a company does not use the name of a suspended or revoked licensee. Use of a disapproved trade name is a violation. It is rare when PACA disapproves a trade name.

Employing Restricted Persons

A produce company may not hire a person who was a partner, officer, director, or >10% shareholder of a corporation, or manager or member of an LLC that violated the PACA for certain time periods after the company is found to have violated PACA. See Employment Restrictions.

Failing To Maintain Records

PACA requires documents and records on produce transactions be kept for two (2) years from the date of the transaction. Every licensee must keep sufficient records which show what actually happened in every transaction. Many specific records are mentioned in the regulations for various types of operations, e.g., shippers, receivers, retailers, brokers and growers’ agents. However, common sense and a little experience are sufficient guides here–keep all records in a retrievable format.

Licensees must also keep records showing the true ownership and management of the company for the preceding four (4) years.

If PACA finds that a licensee is not keeping proper records, and no fraudulent activity is involved, PACA issues a warning and does a later follow-up visit to assure records are being kept properly.

Refusing To Allow PACA to Review Records

If PACA decides to review records, a PACA investigator visits the premises of the company (sometimes with advance notice, often without) and presents a list of records for review. If the company fails to provide the records, PACA issues a letter giving the company a reasonable time to comply before PACA suspends its license. The company can seek a stay of the suspension order, and continue to conduct business, if it challenges PACA’s right to review the records in a court. See Investigations.

Misbranding

It is improper to misbrand anything about a commodity in any way. This includes the grade, quality, quantity, maturity, weight, condition or origin of the product.

A company which does not know of the misbranding or cannot correct it is not liable for a misbranding violation, unless it is the first licensee in the chain of distribution. This seems unfair if the first licensee had no knowledge of the violation or lacked the ability to correct it. However, this rule is taken directly from the law, and PACA has no authority to change the law. The reason for this provision is to make sure someone in the chain of distribution, who is a PACA licensee, is accountable for misbranded product.

Altering Inspection Certificates

PACA will move to suspend or revoke a license if it determines a company altered an inspection certificate. Alterations usually consist of changes in the date of inspection, product temperatures or percentage of defects. This is less of a problem than in the past because the inspection service now sends copies of inspections directly to the seller, and inspections are available online.