Small Business Commissioner: BEIS consults on payment complaints scheme for small businesses

Practical Law UK Legal Update w-004-0608 (Approx. 8 pages)

Small Business Commissioner: BEIS consults on payment complaints scheme for small businesses

by Practical Law Commercial

The Small Business Commissioner

The Small Business Commissioner was established by the Enterprise Act 2016. The Commissioner's role is to support small businesses resolve disputes over payment and other issues. By encouraging a culture change in how businesses deal with each other, it is hoped that the Commissioner will help reduce the frequency of disputes between small business and larger businesses.

The Commissioner's main functions will be:

To publish and provide general advice and information to small businesses in connection with their supply relationships with larger businesses, including, among other things, dispute resolution, contract principles, and options for resolving disputes other than via the court or a tribunal.
To direct small businesses to appropriate services, such as relevant sector ombudsmen or regulators, existing independent advice services, or, for business-to-business disputes, to approved alternative dispute resolution providers.
To provide an in-house complaints handling function (complaints scheme) for small businesses who are experiencing payment issues in connection with the supply of goods or services to a larger business.

The Commissioner has not been appointed yet.

For further background on the Small Business Commissioner, see Legal update, BIS publishes government response to Small Business Commissioner consultation.

The Regulations

The detail of the Commissioner’s complaint handling function will be set out in regulations (Regulations). Read together with the Act, the Regulations will provide the parameters within which the Commissioner’s complaints scheme will operate.

This will ensure there is transparency around key processes for businesses, both for small businesses which will use the Commissioner’s services, and larger businesses which may be the subject of a complaint.

The consultation

In the consultation, BEIS:

Sets out its proposals for how the complaints scheme will operate.
Seeks views on key issues that underpin how the complaints scheme will operate.

The complaints scheme proposals

General

BIS proposes that the complaints scheme will cover complaints from a small business supplier about payment issues with a larger business with which the small business has a previous, current or potential supply relationship.

The Commissioner will consider complaints about payment, and make findings.

Complaints that are in the remit of the scheme

"Payments" is given a broad interpretation; a complaint need not relate to the act of paying (or failing to pay), and can include acts or omissions in respect of payment. For example, a complaint may be submitted if a larger business:

Requests a new fee.
Seeks to alter the price or fees agreed.
Requests payment of a fee which is included in the contract but has not previously been relied on.
Seeks to prevent the small business from complaining to the Commissioner.

Where relevant, the Commissioner may direct a small business with a concern about payment issues to other services that can help the small business resolve the matter.

Complaints that are outside the remit of the scheme

BEIS proposes that complaints about the following matters are out of scope of the scheme:

Disputes about prices for goods and services.
Matters going through legal or adjudication proceedings.
Matters which are within the remit of an ombudsman, regulator or adjudicator or public body, or for which the complainant has a statutory right to adjudication.
Acts or omissions that occurred before the start of the complaint scheme.
Acts or omissions allowed by a contract term which was agreed before the Commissioner’s complaint scheme starts, if the term has not been varied after the start date of the scheme.

Asking the larger business for representations

Once a small business has made a complaint, the Commissioner will, in most cases, seek representations from the respondent before reaching a view. The Commissioner can ask, but not require, either party to provide information.

Determinations made under the complaints scheme will not be legally binding

BEIS does not propose that the Commissioner's findings will be legally binding. The parties are therefore not under a legal obligation to follow any of the Commissioner's recommendations, but BEIS believes the Commissioner's determination and any recommendations should enable the parties to resolve the issue.

Statements, recommendations and reports

When the Commissioner determines a complaint, the determination may result in recommendations or it may not. The Commissioner's determination may be that it is not possible to reach a view.

Once a complaint is determined, the Commissioner must prepare a written statement which sets out the reasons for the determination, any recommendations and in the absence of recommendations, the reasons why no recommendations have been given. The statement must be given to the complainant and respondent.

The Commissioner may also publish a report of the enquiry into, consideration and determination of a complaint made under the complaints handling scheme. The Commissioner has discretion as to whether the respondent's name is included in the report.

Key consultation issues

BEIS raises several questions on how the complaints scheme should be operated. Key questions include:

How to calculate a business's headcount for eligibility purposes.
The extent to which the Regulations should list specific matters that the Commissioner must take into account in determining whether an act or omission complained of was fair and reasonable.
The extent to which the Regulations should list specific types of circumstances and corresponding additional factors that the Commissioner must take into account in determining whether an act or omission complained of was fair and reasonable.
The extent to which the Regulations should specify factors that the Commissioner must take into account when deciding whether to name the respondent in a published report.

How to calculate a business's headcount for eligibility purposes

The Act provides that the complaints scheme is only available to businesses with a headcount of less than 50. This threshold is intended to be broadly consistent with the definition of small businesses under the Small Business, Enterprise and Employment Act 2015.

The Regulations will set out the detail of how the staff headcount should be calculated, and this consultation also seeks views on this. BEIS asks whether respondents agree with its proposals for calculating a business’s staff; namely, that:

Headcount is calculated by reference to the number of individual staff, and not by reference to the number of full-time equivalent staff.
The staff headcount number should include employees, secondees, agency workers (if the business or agency determines their terms), partners (except for limited partners in a limited partnership who choose to take a passive role in return for limited liability), members of a limited liability partnership, members of an unincorporated association, and directors and other office holders. The number should not include self-employed individuals and apprentices.
Businesses must either:
- satisfy the headcount criterion on the day the business makes contact with the Commissioner;
- have had an average headcount of fewer than 50 staff for the last year; or
- have had an average headcount of fewer than 50 staff in the current financial year if it is more than six months into that year. If a business has been established for six months or less, the average should be pro rated.
Businesses seeking to make a complaint must with fall in one of the circumstances listed in the bulletpoint above, or meet the head count criterion at the point when the complainant first became aware of the issue which forms the basis of their complaint.
A small business that is part of a larger group should not be excluded. So a business whose parent has more than 50 staff would not be precluded from using the complaints handling scheme.

The extent to which the Regulations should list specific indicators of conduct, behaviour and practice that are considered unfair or unreasonable

When considering a complaint, the Commissioner must decide the complaint by reference to what he or she considers to be fair and reasonable in the circumstances of the case. Any matter specified in the Regulations as having a bearing on fairness and reasonableness must always be considered by the Commissioner.

BEIS considers that the conduct, behaviour and practice of the parties will be relevant general factors, and proposes to state these as such in the Regulation. However, BEIS does not propose to list specific indicators of conduct, behaviour and practice that are considered unfair or unreasonable, in case this proves too limited or prescriptive, and encourages businesses to take an overly limited view of what the Commissioner might consider.

What specific behaviour, conduct and practice the Regulations might identify for consideration

If respondents disagree with BEIS's view that the Regulations should not specify particular behaviour, conduct and practices that are unfair or unreasonable, BEIS suggests these might include:

Respondents' reports on their payment practices and performance.
Whether parties have acted in a transparent, honest and open manner.
Accessibility of the respondent.
Any evidence and information supplied by the parties in accordance with agreed timescales.
The willingness of the respondent to negotiate.
Reasons given by the respondent for the payment issue arising.

The extent to which the Regulations should list particular impacts of an act or omission that the Commissioner must consider when considering what is fair and reasonable

The Regulations may require the Commissioner to take account of the impact of an act or omission, because, where an act or omission has a particularly adverse effect on one party, this may be relevant to considering whether it was reasonable.

BEIS considers that general relevant impacts include:

Whether the Commissioner considers the actions of the respondent are reasonably necessary to protect their own interests.
The adverse effect of the payment matter on the complainant, and the respondent's knowledge of this.
Any impact of the payment matter on third parties, including other parties with which the parties have a relationship, and the ultimate consumer.

BEIS does not, however, propose the Regulations should list specific impacts, as it believes this to be too prescriptive. BEIS seeks confirmation of its view from respondents, and alternatively invites them to specify the particular impacts that should be listed in the Regulations.

Whether the Regulations should specify additional factors that must be taken into account in certain specified circumstances when assessing what is fair and reasonable

As well as setting out matters that the Commissioner must always take into account when assessing what is fair and reasonable, the Regulations may provide for the Commissioner to take additional factors into consideration in certain specified circumstances. For example, the Regulation could specify certain factors that the Commissioner would have to consider in relation to a specific payment practice, if a complaint about that practice was submitted.

BEIS does not propose to specify any such circumstances in the Regulations and seeks confirmation of its approach. Respondents who disagree are asked to specify what the relevant circumstances should be, and what additional factors should be taken into account in determining what is fair and reasonable in those circumstances.

What factors the Commissioner should take into account when deciding whether to name the respondent in a published report

When the Commissioner has decided a complaint, he or she will have the discretion to publish a report on it, which may also include recommendations about what could be done to resolve the dispute and how to avoid similar disputes arising in the future.

The Commissioner may also choose, in appropriate cases, to name the respondent in the published report. BEIS considers this will be a powerful incentive for respondents to cooperate with enquires and take the decisions and recommendations of the Commissioner seriously. However, BEIS sees this as not just a potential opportunity to ‘name and shame’ respondents, but also to ‘name and praise’ good practice.

Before publishing a report, the Commissioner will allow both complainant and respondent reasonable opportunity to make representations about the proposal to publish. If the Commissioner proposes to name the respondent, he or she must give the respondent an opportunity to make representations about this too. The decision to identify a respondent in a published report will be taken on a case by case basis.

The Commissioner will have already considered whether the conduct of the respondent has been fair and reasonable when making a determination, prior to considering whether to publish a report and name the respondent.

The Regulations will set out a list of non-exhaustive factors for the Commissioner to take into account when deciding whether to name the respondent in a published report. BEIS proposes the list of factors set out below. It seeks respondents' views on them and on whether there are any other factors that the Commissioner should take into account:

Any representations made by the respondent or the complainant as to whether the respondent should be named.
Any information or evidence that the respondent knowingly or deliberately misled the complainant.
Any information or evidence that the respondent knowingly or deliberately misled the Commissioner.
Any information or evidence that the respondent used undue influence or pressure or intimidation tactics.
Any information or evidence as to risk of personal harm to any staff of the respondent.
Any information or evidence as to the seriousness of any harm caused to the small business by the respondent.
Any information or evidence as to the respondent’s knowledge of any harm caused to the complainant.
Whether naming the respondent is likely to deter similar acts or omissions in the future.
Whether naming the respondent is likely to encourage more businesses to follow good practice of a respondent.
Whether naming the respondent is likely to have adverse consequences for the supplier.
Whether the respondent has helpfully engaged with the Commissioner’s complaints process

As well as setting out general factors for the Commissioner to take into account when considering whether to publish the name of a respondent, the Regulations may set out additional factors to be taken into account in specified circumstances. As before, BEIS does not propose to set any such specified circumstances out in the Regulations, on the basis that it does not want to limit the Commissioner. Respondents who disagree are asked to specify what the relevant circumstances should be, and the additional factors that the Commissioner should take into account when deciding whether to name the respondent in those circumstances.

Next steps

The consultation closes on 7 December 2016.

Comment

This initiative forms part of a wider drive by the government to combat payment issues that beleaguer small businesses. Other initiatives include:

The Reports on Payment Practices Regulations, which (probably with effect from 6 April 2017) will require large companies and LLPs to publish annual reports on their payment practices and policies for suppliers (see Practice note, Reporting payment practices and policies for large companies)..
A BIS consultation dated October 2015 proposing to expand the powers of trade bodies to challenge grossly unfair payment terms and practices (see Legal update, BIS consults on enhancing the right to challenge grossly unfair payment terms and practices. According to the BEIS website, a consultation response is still pending.

There is no public timetable for introducing the Regulations. However, larger businesses need to be aware that small business suppliers can in future expect to have additional means of holding them to account over payment issues. They should familiarise themselves with BEIS's complaints scheme proposals, so that they are prepared to respond to complaints submitted by such suppliers.

Source

BEIS: Small Business Commissioner: consultation on policy for secondary legislation, 13 October 2016.

End of Document

Also Found In

Resource ID w-004-0608

Published on 20-Oct-2016

Resource Type Legal update: archive

Jurisdiction

United Kingdom