Small Business, Enterprise and Employment Bill European Convention of Human Rights
Summary of the memorandum by Department for Business, Innovation and Skills
Small Business, Enterprise and Employment Bill European Convention of Human Rights
Summary of the memorandum by Department for Business, Innovation and Skills
The memorandum addresses issues that have arisen under the European Convention of Human Rights (ECHR) in regards to the Small Business, Enterprise and Employment Bill. This memorandum deals only with areas that raise ECHR concerns.
Overview of the Bill The Small Business, Enterprise and Employment Bill was created in order to deliver a number of Government priorities. The provisions in Part 1 of the Bill are designed to help businesses and in particular small businesses, by making the payment practice much more transparent, incentivising improvements in payment culture, and helping small businesses to agree fair payment terms. Part 1 also aims at increasing the availability of investment for small businesses and a faster clearing cycle. Part 2 is aimed at improving regulatory reform through making it easier for companies to set up online, improving the process of appeals and complaints against regulators, and a new statutory definition of small and micro business for use in future secondary legislation. Other parts of this Bill are aimed at streamlining public procurement, amending various aspects of registration required for the provision of childcare, and a greater sharing of student information, to enable monitoring of their progress from education and then into the labour market. There are also amendments to UK Company Law, Insolvency Law, The Pubs Code, Education and Training, and Employment Law provisions which is especially targeted at deterring employers from breaking the National Minimum Wage legislation.
EHCR Issues in the Bill Part 1: Access to Finance – Credit Information (clauses 4 and 5) Clause 4 Gives the Treasury the power to make regulations, which impose obligations on certain banks to provide information about small businesses to certain Credit Reference Agencies (CRA’s). Another obligation that the Treasury can impose is for these CRA’s to provide such information to financial providers. The aim of this clause is to remove a discrepancy in the ability of various financial providers from obtaining information to judge the creditworthiness of a small businesses. The potential sharing of this private information can be a potential issue. However the UK Government believes it can be justified under Article 8(2) as it is in the interests of the economic well-being of the country. Also a requirement of these small businesses to share this information would be proportionate. As a result of this the requirement will only apply where businesses have agreed to share information, and any personal data shared will be subject to the Data Protection Act 1998. Much of this information is already shared lawfully between banks and CRA’s. This requirement will only make sure that the information is made available to all finance providers on a fair and equal basis.
Clause 5 Gives the Treasury the power to make regulations that impose obligations on CRA’s to provide the Bank of England with the information that is provided by Banks under the regulations of Clause 4(1). The ECHR concerns are the same as for Clause 4 with the potential to share personal information, hence the justification is the same as well. It is justified because the Bank of England’s assessment of credit conditions inform monetary and macroprudential policy, and thus improve the understanding of a small business market. Like Clause 4 personal data would be protected under the Data Protection Act 1998, the requirement to provide information would only apply where businesses have already agreed to share information with CRA’s by a bank and Clause 5(5) requires that the regulation must have a provision protecting the confidentiality of the information.
Part 1: Exports: Powers for the Secretary of State under section 1 of the Export Investments Guarantees Act 1991 commitment limits under that Act (clauses 9 and 10) Clauses 9 and 10 amend the existing provisions in the Export Investment Guarantees Act 1991 (“EIGA”) in which the Secretary of State has powers to support exports. Clause 10 amends the limits which apply to the Secretary of State’s ability to incur liabilities when supporting these exports. These amendments do not specifically engage Convention rights, but there are some general arguments advanced by some NGO’s concerned with the practices of the UK Export Finance in terms of human rights, such as the acquisition of land from local residents. The UK Export Finance follows the OECD recommendation on these issues.
Part 2: Regulatory Reform - Exemption from liability for bodies concerned with accounting standards Clause 32 repeals section 18 of the Companies (Audit, Investigations and Community Enterprise) Act 2004 and has inserted section 18A into that Act. Section 18 sets out that where the Secretary of State has paid out a grant to a certain body that deals with matters set out in Section 16(2) of the 2004 Act (financial reporting and the regulation of accountancy, audit and actuarial services). That the body will not be responsible for damages in the year since the grant was paid. Section 18 does however allow for exemptions from this, if the act or omission is shown to have been in bad faith or unlawful. The new Section 18A is similar to Section 18, except that instead of an exemption from liability on the face of the legislation, the Secretary of State can by regulation or by order exempt specific individuals or bodies. The exemptions from this are the same, that if an act or omission is shown to have been in bad faith or illegal under section 6 of the Human Rights Act.
ECHR issues: The power by the Secretary of State to issue a statutory Code – “the Pubs Code” The Statutory Code applies to all pub owning businesses, except for those covered by micro-business exemption. This code broadly reproduces the current industry code that is signed up to by the majority of pub-owning businesses. The Government does not believe that this code engages with Article 1 Protocol 1 as it is the same as the existing voluntary code and the costs of compliance are low, costing only £40 per pub per year. The Government acknowledges that only the cost of complying with the Parallel Rent Assessment (PRA) in the code engages Article 1 Protocol 1. Even though it is engaged with the right the Government believes it is justified as it ensures a fair share of risk and reward between all parties concerned. ‘The Government considers that the additional costs of the PRA and the interference with ordinary commercial practices are proportionate and strike a fair balance between the general interest and the protection of the pub-owning businesses’ property.’ The provisions of the Statutory Code are considered as an imposition of controls on the exercise of property rights. This is to help tenants in negotiations and put them in a better position to conduct these negotiations. This is deemed necessary after evidence showed tenants were unable to secure fair deals. The Governments interference is aimed at putting everyone on an equal playing field in these commercial negotiations. The interference in the property rights of public owning businesses is justified and proportionate and ECHR rights will be considered when the Code is implemented through secondary legislation. The Pubs Adjudicator, Arbitration, Levy Funding and Investigation Powers are all considered to be human right compliant by Ministers under the Groceries Code Adjudicator Bill 2013, which successfully passed through Parliament.
Part 6: Education and Training - Assessments of Effectiveness, Qualifications andDestinations (clauses 67 to 69) Clause 67 Enables the sharing of information between HMRC, the Secretary of State and a devolved authority. This is to allow the evaluation of the effectiveness of education and training provisions and assessing policy in relation to this provision. This clause also allows the Secretary of State and a devolved authority to share personal data with HMRC for the same purposes. This clause engages with and possibly interferes with Article 8(1) as it extends the scope of HMRC data sharing powers. Again the Government believes that any interference would be justified under Article 8(2) as they see it as being a necessary interest to the economic well-being of the country. As it improves knowledge and information pathways through learning and outcomes, it improves information, learning and guidance on learning outcomes and it improves the ability of these organisations to carry out their functions. The sharing of information is appropriate under the restrictions imposed by the Data Protection Act 1998 that apply to personal data. Some of the data being shared may already be held by some organisations, which limits the amount of new information sharing. The information that is being shared can only be used in connection with specific functions of the Secretary of State or the devolved authority. ¹Small Business, Enterprise and Employment Bill: European Convention on Human Rights (ECHR) memorandum, London, Department for Business, Innovation & Skills, 2014, p. 8. Available at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/336758/bis-14-991-SBEE-Bill-ECHR-Mem orandum.pdf [accessed 25 July 2014] ²Ibid, p. 8
Clause 68 Enables a person to share student information with the Secretary of State, Welsh Ministers, an information collator, a prescribed person or a person falling within a prescribed category. The clause also allows the Secretary of State and Welsh Ministers to make regulations that will define the circumstances in which this information can be shared. This is in order to limit the scope of data sharing between private providers of qualifications. This also potentially interferes with Article 8(2) and the same justification as in Clause 67 is used here because it allows the Secretary of State and Welsh Ministers to receive a more complete picture of attainment data for Ofqual accredited qualifications, and to more effectively measure progress. The restrictions of the Data Protection Act 1998 apply and the receiver of student information will not be allowed to publish anything that identifies individuals.
Clause 69 Similar to Clause 68, except it deals with former students and details of their next destination, with their further education institution. The justification for any interference with Article 8(2) remains the same as it allows further education institutions to have more belief in the Department’s aggregate destination data, to help support their own self-evaluation and improvement, and to make more informed decisions. The Data Protection Act 1998 and limits of sharing restrictions also apply here.
Part 7: Companies: Trust and Transparency - Register of people with significant control (clause 70 and Schedule 3) This clause introduces a new Part into the Companies Act 2006 that requires companies to identify and obtain information on people with significant control over the company (PSCs) so that the company can put them on a register, which is in turn made available for inspection. This clause requires an individual who is a PSC or knows a PSC to notify companies with personal details. The Government believes that the requirements of this register are justifiable under Article 8(2) as it is in the economic interest of the country and to help prevent crime. The register allows law enforcement agencies and tax authorities to identify and sanction those who control companies for criminal purposes. This transparency reduces economic risk and increases trust. There are also measures to prevent this information from becoming public. Clause 70 could also be argued to engage Article 6, as it enables a company to restrict the rights of an individual, effectively allowing a company to determine a person’s civil rights. In order to safeguard the freedom guaranteed by Article 6(1) there is a provision in the clause that allows an individual to apply to the court for an order to overturn or relax the restrictions.
Part 7: Abolition of share warrants to bearer (clause 73 and Schedule 4) Clause 73 provides that no share warrant may be issued after this provision. The clause also brings into effect Schedule 4 which sets out a mechanism to convert existing share warrants into registered shares. This clause engages Article 6, 8 and Article 1 Protocol 1. The criminal sanctions of Schedule 4 can only be imposed by a court and there is a right of appeal in the judicial system, which means that it is Article 6 compliant. In regards to Article 8 the Government believes that the conversion of share warrants to registered shares which stop anonymity, are necessary for the prevention of crime and the economic well-being of the country. This is because it prevents money laundering and evasion, avoidance or the delay in payment of taxes. Article 1 Protocol 1 is engaged as the abolition and cancelation of share warrants interferes with the right of peaceful enjoyment of one’s possessions. This is interfered with on the basis that it is in the public interest to secure the payment of taxes and control the use of property.
‘The interference is necessary. Transparency in share ownership is necessary to ensure that taxes are paid, that the purchase of shares cannot be used to enable money laundering, and that the UK complies with its international obligations to share information on share ownership. The UK committed to action to tackle bearer shares in the UK’s G8 Action Plan at the Lough Erne Summit in June 2013.’
Part 7: Corporate Directors (clause 76) Clause 76 makes provisions that require company directors to be natural persons, except in cases prescribed in secondary legislation. This kind of legislation that prevents legal persons being company directors potentially engages Article 1 Protocol 1. The interference for this case transmits to the economic or commercial interests of the corporate director. ‘The prohibition does not deprive natural persons who are directors of the corporate director from becoming directors in their own right.’ An interference would therefore mean a control of the use of the economic or commercial interests of the corporate director. The restrictions of legal persons holding directorships are justified by the Government to improve transparency and trust as it stops obstruction to people who control companies that have the potential for criminal activities and poor corporate governance.
Part 8: Company Filing Requirements - Company registers (clause 82 and Schedule 5) Clause 82 amends the Companies Act 2006 to allow private companies the opportunity to remove certain private registers. If a company decides to use this option they will have to provide the registrar of companies with all the information that would have been available on the private register. This amendment allows the government to address the issue in Article 8 as it gives them the option of not having a private register.
Part 8: Registered Office disputes (clause 87) Clause 87 inserts a new section into the Companies Act 2006, this new section gives the Secretary of State power to make regulations that allow the registrar of companies to change the registered address of a company if it is not authorised to use that current address. If this power is exercised it may engage Article 6 but as there is an option of appeal to the registrar’s verdict there is no violation of Article 6.
Part 8: Director disputes (clause 90) This clause amends section 1095 of the Companies Act 2006 by providing a new procedure for removing material about company directors from the public register that is inaccurate. This is done by the person or the person acting on their behalf applying to the registrar stating that the person did not consent to act as a director. If the company does not respond to the registrar in the specified time frame with evidence proving that they did consent, the registrar will then remove the information. ³Ibid, p. 18 �Ibid, p. 19
This clause potentially interferes with Article 6 right to a fair and public hearing by an independent tribunal. However the Government believes that the decision to remove a person from the public register if proof is not provided, is in fact a judicial or quasi-judicial decision on whether they are a director of the company or not.
Part 8: Strike off (clause 91) Clause 91 amends Chapter 1 of Part 31 of the Companies Act 2006. This clause decreases the period after which a registrar can strike off a company from the register of companies, the time will be reduced from 6 to 4 months. The lengthy time period required to strike off companies, are mainly to protect the companies themselves by giving them plenty of time to object. Without this protection, the right of creditors to enforce their debts may be jeopardised. The shortening of this time frame would increase this risk and potentially engage Article 1 Protocol 1 though the Government does not consider the article to be engaged. The Government believes this because the 4 month time period is still sufficient for creditors and the company themselves to oppose this striking off. It is also in the general interest of the Government to slim down the amount of companies on the register.
Part 9: Directors’ Disqualification - Directors disqualification (clauses 92 to 104) Article 6 Clauses 92 to 104 amend the Company Directors Disqualification Act 1986 (CDDA). The directors’ disqualification engages Article 6(1) a right to a fair trial as the disqualification of an individual from being able to act as a director of a company is a ‘a determination of a person’s civil rights.’ There is case law that states that any action which restricts or grants permission to engage in commercial activity or to practice a profession falls under Article 6(1). The Government does not believe that this clause infringes on Article 6(1) as the changes to CDDA does not affect a person from having their disqualification proceedings heard at a public trial. Clause 92 allows disqualification proceedings to be brought if an individual has been convicted of a serious offence concerning the management of an overseas company. This potentially infringes on Article 6(1) as the overseas conviction may not have been made in compliance with this Article. This potential infringement is safeguarded by the fact that courts have the discretion to disqualify.Therefore they can take into account any issues arising from an overseas conviction, such as the standard of the judicial system. Another safeguard is that the Secretary of State must first decide whether the disqualification of the individual is in the public interest and the decision of disqualification is also subject to appeal. Clause 97 deals with the issue of information passed from regulators that might include information that is gained by compulsion. Which may engage Article 6 over the right to not self-incriminate. Nevertheless disqualification has been held to a civil procedure and hence the full extent of Article 6 does not apply, therefore the Government is not engaging Article 6. Clause 96 increases the time period for which an application for disqualification proceedings against a director of an insolvent company may be brought from 2-3 years. This possibly engages Article 6 and the right to have a hearing in reasonable time. However the Government believes that 3 years is a reasonable time and therefore it does not engage with Article 6.
Article 7 Clause 92 allows disqualification if an individual has been convicted of committing a serious offence concerning the management of an overseas company may engage Article 7. This article protects individuals from retroactive criminal offences and punishment. Yet the Government believes that is not the case as Article 7(1) limits the Article to where an individual is held guilty of a criminal offence. Article 7(2), which forbids ex post facto penalties, is limited to criminal penalties. Article 7 is not infringed, as case law has proved that disqualification proceedings are not criminal in nature.
Article 8 and Article 1 Protocol 1 Disqualification proceedings may affect both of these Articles in general as they can affect an individual’s ability to enjoy his property, in this case their profession. The changes to the disqualification proceedings are likely to result in more directors being disqualified. The Government justifies any interference of these Articles as necessary for the economic well-being of the country due to the protection the public is afforded by disqualification of bad directors. Ibid, p. 22
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Article 7 Clause 92 allows disqualification if an individual has been convicted of committing a serious offence concerning the management of an overseas company may engage Article 7. This article protects individuals from retroactive criminal offences and punishment. Yet the Government believes that is not the case as Article 7(1) limits the Article to where an individual is held guilty of a criminal offence. Article 7(2), which forbids ex post facto penalties, is limited to criminal penalties. Article 7 is not infringed, as case law has proved that disqualification proceedings are not criminal in nature.
Article 8 and Article 1 Protocol 1 Disqualification proceedings may affect both of these Articles in general as they can affect an individual’s ability to enjoy his property, in this case their profession. The changes to the disqualification proceedings are likely to result in more directors being disqualified. The Government justifies any interference of these Articles as necessary for the economic well-being of the country due to the protection the public is afforded by disqualification of bad directors.
Part 9: Compensation awards (clause 98) Clause 98 amends the CDDA to allow the Secretary of State to apply to the court for a compensation order or to accept an undertaking to pay compensation from a director who has been disqualified, or from someone who has caused a director to behave in an unfit manner. This potentially engages Article 6 and Article 1 Protocol 1. Article 6 is engaged because the creation of a compensation order, or the acceptance of a compensation undertaking are most likely to be determined by civil obligation. Therefore the policy must ensure that there is a fair and public hearing within a reasonable time period. The inclusion of the right to review by the court is needed so as not to break Article 6(1). On review of this proceeding, the court may order the removal of the requirement to pay or reduce the amount of compensation due. Therefore safeguarding Article 6. Article 1 Protocol 1 is engaged as the payment of compensation is a clear deprivation of an individual’s possessions. This however is a qualified right so States can enforce laws that can deprive people of their possessions, if it is in accordance with their general interest. If directors have to pay compensation then they are more likely to comply with their duties and legislation. Therefore this compliance is in the public interest as well as creditors receiving financial redress for their loss. These all help to improve economic investment without breaching Article 1 Protocol 1.
Part 10: Insolvency - Insolvency practitioner regulation (Clauses 125-134) Clauses 125 to 134 amend Part 13 of the Insolvency Act 1986, to help improve the regulation regime for insolvency practitioners. The amendment also allows the Secretary of State to sanction a recognised professional body which fails to meet specified regulatory objectives.
Article 6 The decision of the Secretary of State to direct, reprimand or to revoke recognition of an RPB is a ‘determination of the RPB’s civil rights and obligations’ consequently engaging Article 6. The decision will be made after a quasi-legal procedure which is designed to give a fair hearing. The Government considers the combination of a judicial review, which allows the court to review and examine the evidence and legality of the decision. As well as the fact that the process in which the Secretary of State has to follow to make his decision, are enough to meet the requirements of Article 6.
Article 1 Protocol 1 These clauses allow a court provision to make an insolvency practitioner pay a contribution or proportion of his fees to creditors of an insolvent estate. If the loss that they have experienced was as a direct result of the practitioner’s misconduct. This may interfere on Article 1 Protocol 1 the practitioner’s right to enjoy their possessions. However the Government believes that such an interference is justified in the public interest, as well as being proportionate. Clauses 132 to 134 can revoke the recognition of all seven RPBs and designate a single regulator. This will potentially interfere with the RPB’s rights under Article 1 Protocol 1 as it means the RPB’s would no longer be able to continue with this part of their business. The Government says that this action is justified as it is in the public interest and proportionate. This type of action will only come about after there has been a review and consultation that comes to the conclusion that the regulatory system is not achieving their objectives.
Article 8 Clause 130 enables the Secretary of State to investigate a suspected failure by an RPB to act within the regulatory objectives and determine whether proceedings against the RPB should go ahead. The Secretary of State can also require specific individuals to provide information that is relevant. This engages Article 8 in regards to not respecting the rights of their private lives by the collection and storage of information without their consent. The Government believes the interference is to be justified as the information will be collected in accordance with the law, ‘pursuant to a statutory power, in pursuit of a legitimate aim which would be to investigate a suspected failure by an RPB.’ If the information is to be shared with other agencies it will be done in accordance with Article 8 and the Data Protection Act 1998.
Part 11: Employment - Employment Tribunals, Financial penalty for failure to pay Employment Tribunal awards, etc. (clause 136) Clause 136 which amends the Employment Tribunals Act 1996 creates a new financial penalty system to address non-payment of Employment Tribunal awards. The ECHR provisions that may be engaged are Article 6 and Article 1 Protocol 1. Article 6(1) is relevant as imposing financial penalties involves the ‘determination of employers’ civil obligations’ the procedure allows for a fair and public hearing and therefore the obligations of Article 6(1) are met. The Government has considered that Article 6(2) and (3) which require additional safeguards for those being charged with a criminal offence may be engaged. The law in England, Wales and Scotland does not classify the financial penalty regime as a criminal offence. However the financial penalty regime is to put pressure on employers to comply with legal obligations, this could be enough to engage the criminal provisions of Article 6. The Government however does not believe that it is likely to be considered criminal in accordance with Article 6. Article 1 Protocol 1 is relevant in this clause as these financial penalties lead to the loss of possessions by a natural or legal person. However as it is in the public interest and subject to conditions that are imposed by law it does not breach Article 1 Protocol 1. The Article even states that ‘there is no objection in principle to penalties imposed by States.’
Part 11: Introducing criteria on the granting of postponements in Employment Tribunals (“ET”) (amendment to section 7 of the Employment Tribunals Act 1996) and changes to cost rules in relation to late postponements of hearings in the ET (amendments to section 13 and 13A of the Employment Tribunals Act 1996)(clause 137) The amendment to this section provides that the power for making Employment Tribunal procedural regulations can now include provisions about postponements of hearings, which sets a cap on the number of postponements available to a party. The Government does not believe that there are any issues with Article 6(1) as the rule will be subject to judicial discretion so the Employment Tribunal can give applications in exceptional circumstances.
Article 7 The clause also amends section 13 and 13A of the Employment Tribunals Act 1996. That in any making of regulations on cost and time preparation orders, the Secretary of State must also make regulations to require the Tribunal to make a cost order, when a party has made a late application for postponement. There will be judicial discretion to ensure that everything is ECHR compliant.
Part 11: National Minimum Wage, Penalties (clause 138) Civil and criminal penalties for NMW underpayment Clause 138 amends section 19A of the National Minimum Wage Act 1998 (NMWA) so that the maximum penalty per worker is £20,000 as regards arrears owed under a Notice of Underpayment (NOU). This means that there will be no overall limit to the maximum penalty.
Article 6 There are arguments that payments above £20,000 may be considered criminal penalties under Article 6 and that the safeguards for employers to satisfy criminal procedural requirements under this article are not sufficient. There are higher safeguards for Article 6(2) and (3) as it applies to criminal charges. The categorisation of whether a penalty is civil or criminal under ECHR depends on ‘the categorisation of the allegation in domestic law, the nature of the offence and the severity of the penalty.’ The penalty that section 19A imposes is categorised as civil, but it is open to debate if the nature of the offence is civil or criminal. The higher the penalty the more likely that the penalty is criminal for ECHR purposes. However even if the penalty is characterised as criminal if the HMRC assumes the burden of proof in an appeal, therefore the NOU can continue to be imposed without the HMRC having proved its case as under criminal law you are innocent until proven guilty. Another reason why this is a civil penalty is that there is no need to establish culpability. Therefore the Government does not consider Article 6(1) to have been breached and that Article 6(2) and (3) have no application here as it is a civil not criminal case. However if the ECHR believes the penalty is criminal the Government considers that the enforcement procedure of HMRC meets the requirements set out in Article 6(2) and (3).
Part 11: Staff exit payments in the public sector Power to make regulations in connection with public sector exit payments (clause 140) Clause 140 gives the Treasury the power to make regulations that introduce provisions which allow public sector bodies to recover some or all of an exit payment from a worker who returns to work in the public sector before a defined period. With different provisions for different purposes.
Article 1 Protocol 1 This Article provides that every natural or legal person is entitled to the peaceful enjoyment of his possessions and that no one shall be deprived of these possessions, unless it is in the national interest. The Government understands that under Article 1 Protocol 1 that an employee’s exit payment would be considered their property in this article, and that this right is affected by the payment recovery provisions. The Government acknowledges that any interference with Article 1 Protocol 1 has to be lawful and proportionate. The Courts principles on deciding whether interference with possessions are lawful are the principle of lawfulness, the principle of a legitimate aim and the principle of fair balance. The principle of lawfulness presumes that the provisions of domestic law are easily accessible, precise and foreseeable in the application. Primary and secondary legislation will set out provisions should any issues arise that interferes with Convention rights. The principle of a legitimate aim presupposes that a general interest exists in the community which is inherent in the need for a fair balance. The Government believes that this is a legitimate aim as it stops people from enriching themselves from taxpayers money if they find employment quickly and it will help reduce costs in the public sector as in 2011-12 £2.7 billion was paid to employees leaving the public sector. The principle of fair balance requires an investigation to ascertain if this provision has been carried out in a fair manner that follows a legitimate aim. It also allows for exceptions in specific cases where normal rulings may not be appropriate.
Article 14 The Government does not believe that Article 14, which secures against discrimination of any kind is affected by the payment recovery provisions. This is because the payment recovery provisions will operate in exactly the same way, regardless of gender, sex ethnicity, age or any other relevant characteristics. The ability also exists to create general and specific exceptions in appropriate cases, including cases that may come under Article 14.