Competition and Markets Authority Briefing Note for Independent Schools and Nurseries

The Competition and Markets Authority (CMA) launched the Covid-19 taskforce on 20th March 2020 to scrutinise market developments and identify harmful pricing practices as they emerge and take enforcement action if there is evidence organisations may have breached competition or consumer protection law. It has identified that a significant number of recent complaints relate to pricing and refunds at nurseries which is likely to include schools with nursery provision. The CMA regards this as one of the priority areas but it may expand into others in future. The CMA also in April 2020 expressed concern to independent school’s that they must not engage in discussions with other schools about levels of discounts and/or refunds on schools fees that could be applied as a result of Covid-19.

The CMA published the Coronavirus (Covid-19) pandemic, consumer contracts, cancellation and refunds guidance note on the 30th April 2020 summarising its view on relevant consumer protection laws. The key pieces of consumer protection legislation relevant to the CMA’s investigation are the Consumer Rights Act 2015 (CRA) and the Consumer Protection from Unfair Trading Regulations 2008 (CPRs). The CRA prohibits the use of unfair terms in contracts between businesses and consumers. The CPRs prohibit unfair commercial practices by businesses towards consumers.

The CMA’s view of the existing legal framework

The CMA’s view on relevant laws and their application is summarised in this section. In most cases, the CMA would expect a full refund to be offered by independent schools and/or nurseries if:

• An educational establishment has cancelled a contract without providing any of the promised goods or services;
• No service is provided by an educational establishment, because this is prevented by restrictions that apply during the current lockdown; or
• A parent cancels, or is prevented from receiving, any services because of the restrictions that apply during the current lockdown.

A key issue here is therefore whether independent schools and nurseries are continuing to provide services by way of remote learning. If so, it may be argued that they are broadly complying with their contractual obligations in the parent contract. Contractual terms that allows independent schools and nurseries to provide educational services remotely and require parents to co-operate and assist their children in the provision of remote education are particularly helpful in these circumstances.

The CMA anticipates that there will be limited exceptions to the requirement to make a full refund. If parents have already received some of the services they have paid for in advance, the CMA considers that parents would normally be entitled to at least a refund for the services that are not provided. However, where they have already received something of value, parents should generally be expected to pay for it and they will not usually be entitled to get all their money back.

In some cases, where Government public health measures prevent a business from providing a service or the consumer from receiving it, the business may be able to deduct a contribution to the costs it has already incurred in relation to the specific contract in question (where it cannot recover them elsewhere). In the CMA’s view, these cases are likely to be relatively rare, however, it may be suggested that independent schools have an annual fee, payable in three termly equal instalments for the benefit of parents (although more work may in fact be incurred in the first two terms and should therefore be recoverable).

The guidance specifically address ongoing contracts and provides that where a parent receives regular services in exchange for a regular payment, the CMA considers that consumer protection law:

• will normally require the parent to be offered a refund for any services they have already paid for but that are not provided by the business or which the parent is not allowed to use because of Government public health measures; and
• will normally allow the parent to withhold payment for services that are not provided by the business or which the parent is not allowed to use because of Government public health measures.

This comes back to the question of whether independent schools and nurseries are still providing a service in accordance with their contractual obligations. Where in reality, a level of service can no longer be provided (such as school lunches or in some cases remote learning for very young children) it will be helpful to point to offers of discounts that have been made to parents for school or nursery fees. The CMA’s view is that a business may be allowed to require payment of a small contribution to its costs until the provision of the service is resumed but only where the contract terms set this out clearly and fairly. It may be arguable that independent schools should be able to recover any reasonable costs incurred.

The CMA has raised questions as to the legitimacy of asking parents to pay a high sum in order to keep a place open for a child at a nursery. This will be investigated by the Covid-19 taskforce and so we would urge independent schools and nurseries to proceed with caution where remote services are not being provided.  If parents consider that they have been affected by unfair cancellation terms in the wake of Covid-19, they can report the school or nursery to the CMA using the online form available on the CMA website.

Investigation and Enforcement Action

A market investigation by the CMA is an in-depth investigation led by a group drawn from the CMA’s panel of members. It is undertaken independently of the CMA Board and the group are the sole decision-makers in the investigation. The CMA must conclude a market investigation in eighteen months from the date that the reference is made. This is extendable by six months in exceptional circumstances. Within that timescale, there are a number of stages to the investigation which will be set out in an administrative timetable published at the start of the investigation. These stages include:

• The publication of an early issues statement, setting out the proposed scope of the investigation and specific questions it will be addressing;
• Evidence gathering including hearings with parties and other interest groups; Publication of a provisional findings decision (after about 12 months);
• Further hearings; and
• The provisional decision on remedies (if required) before publication of the final report.

The CMA publishes a large amount of material during a typical investigation including submissions, summaries of hearings, as well as a number of working papers explaining its latest thinking on particular aspects of the market. We will watch out for these and report on the findings. Appeals against decisions made in connection with a market investigation (such as requiring remedial action) can be made to the Competition Appeal Tribunal (CAT).

The new guidance reflects the CMA’s view and takes a firm line in protecting consumers but the final decision ultimately rests with the Courts. The CMA has powers to take enforcement action if it considers that the law has not been complied with.The CMA has the ability to impose significant penalties of up to 10% of total turnover if competition law has been broken.

Conclusion

It is clear that the CMA will be actively looking out for any nurseries (which may include schools) who breach its understanding of the law and potentially bringing enforcement proceedings against them. From a practical perspective, independent schools and nurseries should continue to engage reasonably and fairly with parents in providing educational services. If any schools are in doubt over specific actions, please seek advice.