Guidance

Nursery and early years sector: COVID-19 restrictions and consumer law advice

Published 28 July 2020

This advice is primarily aimed at nurseries and early years settings in relation to their agreements with parents (consumers) who privately fund their childcare places during coronavirus (COVID-19) pandemic restrictions.

The purpose of this advice is to assist businesses during the crisis by helping them comply with consumer law and reach fair agreements with parents. As such it will also be of interest to parents and carers who use the services of nurseries and early years providers.

Whilst the vast majority of businesses sought to reach fair arrangements with consumers during the coronavirus crisis, this advice was produced in response to alleged practices of concern that have come to the attention of the CMA, such as:

• providers charging high fees for nursery and early years services which they were unable to carry out
• providers relying on unfair cancellation terms in their contracts
• providers putting unfair pressure on parents to agree to make payments not provided for in their contracts

The agreements (contracts) between early years settings and parents

Nurseries and early years settings will generally be ‘traders’, and the people using their services will be ‘consumers’ under consumer protection law. The terms that specify the obligations between an early years business and parents (or carers) can be agreed verbally but will usually be expressly agreed in a standard form agreement or set of terms and conditions (the contract). These set out what each party expects from the other under the contract’s performance.

For the terms to be valid at all, the consumer(s) must have had the opportunity to read them before the contract was agreed, perhaps by signing or otherwise actively agreeing to them.

However, even where agreed, should any of these contract terms be considered ‘unfair’ under consumer law^{[footnote 1]} they will not be binding on the consumer and the childcare business cannot rely upon them^{[footnote 2]}. Where a customer has paid money because this was required under an unfair term, the business is likely to have an obligation to refund it to them.

A term may be unfair for example because it unduly favours the business, or it otherwise has an effect which is an unwelcome surprise to the consumer. Such terms are particularly likely to be unfair if they are not prominently brought to the consumer’s attention before entering the agreement. Some terms are so unfair that even actively flagging them is not enough. We identified some of these terms in our investigation and have provided advice below.

Nurseries and early years businesses also need to ensure they treat customers fairly in what they say to them, and the way they enforce their contract terms. They should not for example mislead customers about their rights or obligations, or put unfair pressure on people to pay money. Doing so may be a criminal offence and gives affected customers a right to claim compensation.^{[footnote 3]}

The rest of this advice sets out the main issues of concern we have seen, and the sorts of steps we would expect childcare providers to take to avoid breaking the law.

Issue 1: charging high or full fees for services not provided during lockdown

Due to public health restrictions during the lockdown period, the Government’s guidance was that registered early years providers (such as nurseries and early years businesses) should close to all except vulnerable children and those of critical workers^{[footnote 4]}. As a result, many settings were stopped delivering the services they normally provide for parents.

A significant number of complaints made to the CMA have been from those parents or carers - 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.

General principles

In the case of ongoing contracts such as the provision of early years childcare which is provided over a long period, 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 trader is unable to or is otherwise not providing any service is likely to be unfair and unenforceable
• consumers should be offered a refund for childcare services paid in advance which are then not provided by the business because of those restrictions, and no further demands for payment should be made until it is clear that the service can resume
• consumers should not have to pay for temporary breaks in the service, where the childcare provider is not in a position to actually provide care

In some cases, nurseries and early years providers may be seeking to rely on a term which is in their contracts already, in other cases, providers may be seeking to vary their contracts to add in a new term to require customers to pay, even though no service is being provided.

Relying on an existing term in a contract

We are aware that 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 (sometimes called ‘force majeure’ clauses).

As noted above, terms which seek to allow the business not to perform any of its obligations - yet require the consumer to continue to perform theirs substantially or in full - are likely to be unfair^{[footnote 5]}.

However, the CMA would 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 during the break, 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 and government payments^{[footnote 6]}
• there is a maximum period of liability agreed with the consumer
• the customer has the option to exit the contract completely and so avoid payment (as well as a refund of any prepayments)
• all of the above is set out very clearly in the contract

Inserting a new term into an existing contract

The CMA is aware that early years businesses and parents might both agree to revise their obligations under the contract, and some parents may also agree to suspend the contract or 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 (regardless of the parents’ wishes) – it is a term which is likely to be unfair^{[footnote 7]}. Such a term is likely to be especially open to objection where the contract does not set out in detail how the variation will operate, the trader is not required to give reasonable notice, or the customer is unable to end the contract and avoid the changes.

In addition, the customer must not be pressurised to agree to any new terms, for example by the use of emotive language, or by threats or warnings to take away the child’s place when the nursery re-opens. Such behaviour is likely to be considered to be aggressive and unfair.^{[footnote 8]}

Issue 2: Using cancellation policies as a barrier to prevent parents from exercising choice

We have 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.

Under any contract for the provision of a service by a business, a consumer should not face disproportionate sanctions for ending the contract.

As set out above under Issue 1, businesses should not use terms requiring notice to be given or payment of cancellation fees where it is the business itself that is unable or unwilling to provide the service as agreed in the contract. Nor should they be relied on where the business wants to increase the price, or the business is itself in breach of contract (for example by having failed to carry out its care duties with reasonable care and skill).

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. In particular:

• the notice period should be no longer than reasonable for the business to find a replacement child, based on its actual experience. Therefore, 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,
• where 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)
• the above must be clearly and prominently set out in the contract, and appropriately brought to the customer’s attention

Where a term is not fair, it is unenforceable, and seeking to rely on such a term is also likely to be considered an aggressive commercial practice and a breach of professional diligence^{[footnote 9]}.

Issue 3: Applying unfair pressure on parents to continue to pay

Unfairly threatening that the child’s place will be lost

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, even if the early years setting re-opened.

No payments should be demanded unless there is an existing, clear and fair, contractual basis for them. Any agreement to make payments where there is not a term already in place must be arranged with care, to avoid unfairly pressurising customers.

Parents are likely to be invested in their child continuing to attend the nursery or early years service they have chosen. The choice is likely to be based on its availability, location, cost and reputation - with work and home lives becoming integrated to the nursery/daycare schedule. For the child too, the early years setting may become a familiar location where they enjoy positive relationships with other children and their nursery teachers or carers. Settled relationships and arrangements are likely to be of great value to the parents (who are also then unlikely to shop around for alternatives or change service providers). Under such circumstances the business holds a significant influence over the parents, especially where places are limited and alternatives scarce.

The CMA’s view is 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 consumer law, given the influence the provider has over parents or carers.^{[footnote 10]} Making such statements is likely to significantly impair the parent’s decision whether to continue to pay the early years setting - potentially causing them to pay (or to pay a greater amount) when they would not otherwise have done so.

Such practices could also be contrary to the requirements of professional diligence^{[footnote 11]}, which means the standard of special skill and care which a trader may reasonably be expected to exercise towards consumers which is commensurate with either:

• honest market practice in the trader’s field of activity
• the general principle of good faith in the trader’s field of activity

Unfairly suggesting that the business or livelihood will be lost if parents do not continue to pay^{[footnote 12]}

The CMA is aware of examples 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.

The business should also make clear to the consumer if there is a risk that even with their continued payments, the business may ultimately not be in a position to re-open. The CMA also views that such requests should not be made unless the business is facing a clear risk of insolvency, based on the advice of an accountant.

Where a voluntary agreement between businesses and consumers is made (either as a new deal or as a substantial variation to their current arrangements) it should be mutually agreed - without undue pressure being placed on the consumers through inappropriate moral weight or influence. In particular, the customer must have the ability to exit the contract without incurring any further liability for payments.

As noted above under Issue 1, any term that allows the business to unilaterally vary the terms of the agreement is at risk of being challenged as unfair.

Further information

For further advice please visit our guides on consumer protection law or contact your local trading standards service.

If you wish to redraft your contracts in light of this advice, please refer to our unfair contracts terms guidance and in particular our guidance for businesses on how to write fair contracts.

Please be aware that parents (consumers) affected by unfair practices may also pursue their rights through complaints and/or private rights of action in court for claims such as breaches of contract, the applicability of allegedly unfair terms, or certain infringements of the Consumer Protection from Unfair Trading Regulations 2008.

1. Part 2 of the Consumer Rights Act 2015 (CRA) (section 62) requires terms in consumer contracts and notices to be fair. Terms are unfair if their wording tilts the rights and responsibilities between the consumer and the business too much in favour of the business. ↩

2. CRA section 67 ↩

3. The Consumer Protection from Unfair Trading Regulations 2008 (CPRs) prohibits misleading actions, misleading omissions, aggressive practices, breaches of professional diligence, and a range of specific practices. Currently consumers have a private right of redress for misleading actions and aggressive practices, although enforcers such as the CMA can also pursue businesses to obtain redress for a group of consumers, where appropriate, under Part 8 of the Enterprise Act 2002. ↩

4. Press release: Schools, colleges and early years settings to close ↩

5. CRA – sec 63 and part 1 of Schedule 2 -18 ↩

6. These unavoidable direct costs include mortgages/rents, where relevant holidays could not be agreed, utilities, insurance premiums, costs associated with ongoing staff training and salary costs where not covered by things like furlough. ↩

7. CRA – sec 63 and Part 1 of Schedule 2 - 11, 15 and 18 ↩

8. CPRs Reg 7 ↩

9. CRA – sec 63 and Part 1 of Schedule 2 – paragraphs 2, 5 and 6; CPRs Reg 7; CPRs – Reg 3 ↩

10. CPRs - Reg 7 ↩

11. CPRs – Reg 3 ↩

12. CPRs – Schedule 1 - Commercial practices which are in all circumstances considered unfair - 30 ↩