The CMA published an open letter to nurseries and early years providers on the 28th July 2020 together with guidance to help clarify how consumer law applies to their arrangements with parents during the Covid-19 pandemic. The sector was identified in April as one where the CMA would be investigating complaints about cancellations and refund practices. The advice does not introduce new laws for providers but rather explains how the current law applies in the present circumstances. In particular, the advice addresses specific issues which have been drawn to the CMA’s attention by consumers. The CMA is therefore asking providers to consider their contracts with parents and take any necessary steps to ensure they comply with the law.
The CMA has identified three main themes which have caused some problems in the sector. In summary the issues are:
- Providers requiring full or excessively large fees for services which are not being carried out due to the pandemic restrictions and government guidance.
- Providers relying on unfair cancellation terms, such as requiring unreasonable notice to be given, or high cancellation fees in cases where the nursery or early years setting is unable to provide the service.
- Providers putting unfair pressure on consumers to agree to make payments by threatening that the child’s place will be lost or the provider will go out of business.
An important point to note is that even where parent contracts are agreed, should any of these contract terms be considered “unfair” under consumer law they will not be binding on the consumer and you cannot rely upon them. A term may be unfair for example because it unduly favours your business, or it otherwise has an effect which is an unwelcome surprise to the parents. Such terms are particularly likely to be unfair if they are not prominently brought to the parents’ attention before entering the agreement, however, some terms are so unfair that even actively flagging them is not enough.
The CMA guidance addresses the three issues highlighted above as follows:
Issue 1: charging high or full fees for services not provided during lockdown
A significant number of complaints made to the CMA have been from parents alleging that, despite the closures, nursery and early years settings continued to demand full ongoing payments, or payment of a very high percentage of normal fees (more than 50%+) during the lockdown period. In the case of ongoing contracts, the CMA’s view is that: the consumer should not normally have to pay early years providers for childcare services that cannot be provided for a period for any reason; a term requiring a consumer to continue to pay when the provider is unable to or is otherwise not providing any service is likely to be unfair and unenforceable; and consumers should be offered a refund for childcare services paid in advance which are then not provided by the business because of those restrictions. It is obviously a different situation where remote learning has been provided by early years settings and it can be argued that your contractual obligations have been fulfilled although we appreciate that has undoubtedly been more difficult for younger children.
Some early years contracts may provide for a payment of a contribution to cover costs during a temporary interruption in service. Other terms being relied on may allow for breaks in service through unforeseen events beyond the business’s control (‘force majeure’ clauses). The CMA’s view is that terms which seek to allow a business not to perform any of its obligations but require parents to continue to perform theirs substantially are likely to be unfair. We would strongly recommend that you take advice before relying on any force majeure clause in a parent contract to ensure it is correctly invoked. The CMA would, however, be unlikely to object to a term which allows a business to request payment of a small contribution to its costs while the provision of the service is disrupted where: the level of the contribution is low, no more than the unavoidable direct costs incurred, reflects savings the business can be expected to make (such as by furloughing staff) and takes into account compensation the business receives from other sources such as insurance; there is a maximum period of liability agreed with the parents; and the parents have the option to exit the contract and so avoid payment.
The CMA is aware that early years businesses and parents may both agree to revise their obligations under the contract and some parents may agree to voluntarily continue to make some payments during temporary breaks in service. The CMA is unlikely to object to such a voluntary arrangement freely entered into by consumers. However, where there is a term in the contract that allows the business to unilaterally change the agreement to impose new terms, or unreasonably increase prices, it is a term which is likely to be unfair. Such a term is likely to be especially open to objection where the early years setting is not required to give reasonable notice, or the customer is unable to end the contract and avoid the changes.
Issue 2: The CMA has seen complaints about early years settings using excessive cancellation fees or lengthy notice periods, to make the parent continue to pay even where no service is provided.
Nurseries and early years providers should not use terms requiring notice to be given or payment of cancellation fees where you are unable to provide the service as agreed in the contract. Notice periods and cancellation fees may be appropriate in normal circumstances where the business is able to provide a service but the customer decides they want to stop receiving it. However, such terms must be fair: the notice period should be no longer than reasonable for the business to find a replacement child (where an early years setting has an extensive waiting list, only a very short notice period (a few days) is likely to be justifiable). Where the parent keeps their child in the early years setting during the notice period, no further cancellation fees should be charged. If the child is removed from the early years setting, the fees should be reduced to take into account savings the setting can reasonably expect to make (such as savings on food).
Issue 3: The CMA is aware of complaints from parents who were told they must continue to make full or substantial payments on the condition that, if they failed to pay, their child’s place would be lost after lockdown ended.
The CMA’s view is that parents are likely to be invested in their child continuing to attend the nursery or early years’ service they have chosen. Under such circumstances the business holds a significant influence over the parents, especially where places are limited and alternatives scarce. The CMA guidance therefore states that the practice of warning or threatening to remove a child’s place under such circumstances is likely to be an aggressive commercial practice under the Consumer Protection from Unfair Trading Regulations 2008.
The CMA has also raised examples of where early years settings have expressed their fears to parents that their service will not continue unless full (or substantially full) payments are continued to be met. Such a request may infringe a specific prohibition in consumer law that a trader must not require a consumer to buy a service on the basis that should they not do so the trader’s business or livelihood is at risk. It is important to take particular care in your communications with parents to avoid breaching these provisions. You should also make clear to parents if there is a risk that even with their continued payments, your business may ultimately not be in a position to re-open.
Although nurseries and early years settings have mainly re-opened, there can be no certainty that there will not be future lockdowns, particularly on a localised basis. We would suggest that providers of early years services should examine their agreements with parents and ensure that they comply with consumer law. Parents affected by unfair practices may pursue their rights through the courts for claims such as breach of contract, the applicability of allegedly unfair terms, or certain infringements of the Consumer Protection from Unfair Trading Regulations 2008. If you are not compliant you may also risk action by the CMA under consumer protection law.
Do feel free to contact us for legal advice if you have any further questions on the subject.