RETAIL & CONSUMER JANUARY 2016 THE RETAIL AND CONSUMER HUB: December's highlights & what does 2016 have in store? Happy new year to everyone: I hope you managed to find some time to relax and enjoy the festive break during such a busy time of the year! Welcome to our first newsletter of 2016: now that Christmas is behind us, I'm sure that you are all looking forward to another year which will doubtless bring new opportunities and challenges. Fast-evolving consumer behaviours, continuing price and cost pressures, new entrants and disruptive strategies and technologies will continue to characterise the retail and consumer market. Ever-increasing political and regulatory intervention will continue to change the shape of our business organisations – national living wage and apprentice levy requirements, business rates and data protection reform, enhanced consumer rights, plain packaging for tobacco products, sugar quota regime change and maybe even a sugar tax and minimum alcohol pricing all lie ahead of us. In order to help you to anticipate and plan for the year ahead, we have created our horizon scanner for you, flagging specific diary landmarks and also monitoring various ongoing sector themes across the year. We will update it as the year unfolds and will also be planning various events and further knowhow around each topic through the year, both to help you to plan for change and to take stock once it has happened. If there are other areas that you would like to see covered, please do not hesitate to ask: if we can help, we will! I hope you find this month's newsletter useful and we very much look forward to engaging with you and your businesses during the coming year. December's Retail Week We are exclusive legal contributors to the sector's most authoritative publication. In this month's article, we look at how to get the balance right on customer data. How can businesses drive interaction with consumers, without them feeling like you're invading their privacy? Here is the full article International News We have a number of contributions this month from our international friend firms, click below to read their articles: International Spotlight: Cash withdrawal limits in Italy International Spotlight: Privacy Flash: The Dutch Data Protection Act International spotlight: EU Commission on guarantee rights December Newsreel Retailers tap into social networks The FT takes a look at how retailers are using social media to help attract customers. Read the article here. Are the EU data protection rules imbalanced? The FT takes a look at the response to the new EU regulations. Click here for the full article Our events Online Competition and Distribution Wednesday 27 January 2016, London Investigations into 'anti-competitive' activity in online markets are underway from many different angles as authorities focus their sights on this space. Join us and our panel of experts as we delve deeper into this topic. For details of panellists please click here. National living wage, zero hours contracts and Sunday trading Tuesday 8 March 2016, Manchester Following our event on 1 December, we will be hosting a second roundtable on these employment-related issues for our Northern clients in our Manchester office. Please click here to see the infographic produced following the December event. Digital Masterclass series March onwards Digital engagement is the critical landmark in our changing landscape: watch this space for a series of masterclasses covering digital and data in retail and consumer. Please download our full events schedule for Jan-Mar 2016 here to view full details including dates, times, locations – and how to register Andrew Rosling Head of Retail & Consumer +44 207 880 5613 email@example.com THE YEAR AHEAD: AT A GLANCE We've put together a diary of some of the dates and topics that we will be tracking over the coming year. Click on a topic to read more. JANUARY FEBRUARY MARCH APRIL MAY JUNE ODR regulation update Consumer Rights Act Christmas 2015 – winners & losers International Spotlight: Privacy Flash: The Dutch Data Protection Act 27 January – Online Competition Event in London, Leeds and Manchester H&S Sentencing Guidelines GSCOP: the GCA investigation into Tesco The Budget 8 March – National Living Wage seminar in Manchester TBC: Building, protecting and managing your brand Modern Slavery Act National Living Wage comes into force Pensions updates Digital developments EU referendum? Apprenticeship levy Commodity prices Extinguishing distinguished products Online Competition developments Business rates reform Data Protection regulation Fulfilment and its costs Plain packaging for tobacco products International Spotlight: Cash withdrawal limits in Italy Equal pay claims "Hourglass" consumers Taxation changes to termination payments Changes to holiday pay International spotlight: EU Commission on guarantee rights Minimum alcohol pricing VAT on pension schemes Childhood obesity and the sugar debate The evolving threat of cyber security Mobile payment developments Zero hours contract ( ZHC) regulations Keep an eye on these ongoing issues… £ The year ahead: further details 1. Christmas 2015 – winners & losers While the official figures are yet to be released, all indications are pointing to this year being a record breaker for Boxing Day sales. It is estimated that consumers spent £3.7bn on Boxing Day, further boosted by a 21% rise from last year in online sales on Christmas Day itself. More than £10bn is expected to have been spent in store and online by New Year's Eve, contributing to a £40bn total spend figure for December. However, it is also estimated that around £207m worth of goods will be returned to stores across the UK in the form of unwanted gifts – a 5.1% increase in footfall from 2014 was seen on "take back Tuesday", however the impact on sales figures still remains to be seen. Ever more sophisticated consumer engagement is evident, the latest example being "hedge spending" whereby consumers are returning items purchased at full price once they become available at a discount in the post-Christmas sales. This is a triple hit for retailers as they lose out on the higher profit from the full-price sale, they may incur costs in taking an item back, and can then only resell the item at the discounted price. This trend may be exacerbated by the traditionally longer return periods allowed over Christmas – many retailers extend the returns period to the middle or end of January, which means "hedge shoppers" can wait until an item is reduced further and further before returning their full-price item to receive the biggest discount possible. Amazon are expected to have come out on top for 2015 – their share price hit an all-time high on Tuesday 29 December, and they reported that they shipped 200m more packages through its Prime membership programme than in 2014, with Christmas Eve proving the "biggest day ever" for its 2-hour delivery service. Notonthehighstreet.com also reported a 25% increase in sales year-on-year over the four weeks to Christmas Eve, with a £28m boost in annual turnover compared to 2014. Both of these are online retailers, and this is consistent with the overall growth being seen across online retail offerings. John Lewis, who also offered sales discounts online on Christmas day, reported a 10.7% increase in revenues on that day compared to 2014. On analysis, 75% of John Lewis's online traffic was via mobile phones, which is a further reflection of the shift to omnichannel buying patterns among consumers. Selfridges also reported that their online sales on Christmas Day itself had doubled from last year, and Dixons Carphone saw a 17% year-on-year revenue increase on Boxing Day from customers shopping via mobile devices compared with 2014, as well as a raft of online shoppers on Christmas Day. Bonmarche and Game Digital were showing signs of strain before Christmas, and Marks & Spencer reportedly saw a fall in clothing sales over the festive period. Does the shift to starting online sales early mean that less people are venturing out to the high street? It appears there are still plenty of consumers willing to make the trip to their favoured stores, with a reported 11.7% rise in footfall across high street stores compared to Boxing Day in 2014, along with a 7.8% increase in footfall in shopping centres and a 3.2% increase at retail parks. The shift to increased online shopping may also affect the logistics of delivering customer purchases – see the piece below on Fulfilment and its costs to read more on this. For further food for thought on this topic, click here to read an article from Helen Dickinson, director General of the British Retail Consortium. For further information, pelase contact Nicola Bowkett: firstname.lastname@example.org 2. Consumer Rights Act The principal provisions of the Consumer Rights Act (CRA) came into force on 1 October 2015. It is important for businesses to take positive steps to ensure compliance with these provisions, as failing to do so could have serious consequences. The CRA can be enforced both by individual consumers and by the Competition and Markets Authority ( CMA) and it is important that businesses which sell goods, services or digital content directly to consumers have reviewed their terms and conditions and any policies relating to refunds and returns in order to ensure that they are compliant with the CRA. We therefore expect to see the first claims being brought during the early part of 2016. Whilst some concerns have been voiced about potential 'floodgate' claims risks, we believe that for many retailers, which have reviewed and updated their standard policies and complaints procedure, the changes may actually prove beneficial in terms of clarity of how to address consumer complaints. However we are aware that some retailers of high value products are concerned about the possible increase in the number of rejections or returned products and will be keen to see how such cases are treated by the courts. We will keep you informed of any developments as and when they arise. Below, we provide a quick reminder of the dangers associated with non-compliance and some of the ways in which the CRA may be enforced. ► The CRA allows consumers to bring or resist court proceedings on the basis that a business's terms and conditions are unfair. If a consumer's challenge is successful, the offending terms will be unenforceable. In addition, where any proceedings are brought which relate to a term in a consumer contract, the court is under a duty to consider whether the term is fair, even if this issue is not raised by the parties ► Consumers can also take concerns regarding the fairness of terms and conditions to the CMA or another body with the power to enforce the law on unfair contract terms and notices. The CMA and other regulators can, amongst other things, seek an injunction to stop the use of unfair terms or notices, or ask a business to provide an undertaking in lieu of court proceedings ► In addition to their powers of enforcement, the CMA and other regulators have various powers of investigation. They can require businesses to provide information necessary to identify whether, for instance, unfair terms and notices are in use, or whether a business is complying with an undertaking or injunction ► Further, the CMA has the ability to arrange for the publication of details of any undertaking or injunction that it, or another regulator, has obtained under the CRA. Therefore, there is clearly a risk of reputational damage arising from enforcement action by the CMA or other regulator, in addition to that which would be expected from any court proceedings. 3. International Spotlight: Privacy Flash: The Dutch Data Protection Act Introduction A lost, unprotected USB-stick, a stolen laptop or a website hack. As of 1 January 2016, all security incidents that unintentionally result in the disclosure of personal data to third parties now have to be reported to the Dutch Data Protection Authority and, in certain cases, even to the person whose personal data has been disclosed. Failing to report such an incident to the aforesaid parties may lead to fines of up to EUR 820,000 or 10% of the company’s net annual turnover. The consumer and retail market has moved from in store to online, which makes retailers an easy and attractive target for hackers. The protection of personal data should be on top of the priority list. The Data Breach (Notification Obligation) Act The “Data Breach (Notification Obligation) Act and the extension of the power to impose fines” came into force in the Netherlands on 1 January 2016. This Act inserts into the Dutch Data Protection Act an obligation to report a data security breach. The introduction of this obligation anticipates the European General Data Protection Regulation, which is expected to introduce a similar obligation. Furthermore, the violation of various provisions that are included in the Dutch Data Protection Act can be fined more heavily. The number of provisions in the Dutch Data Protection Act for which an administrative fine can be imposed have also been increased. What and when to notify? The obligation to notify a data security breach is closely connected to the obligation to implement adequate technical and organisational security measures to protect personal data against loss and any form of unlawful processing (as specified in article 13 of the Dutch Data Protection Act). When a breach of the required security measures is discovered that is associated with possible severe negative consequences for the protection of personal data , the data controller (the party that determines the purpose and means of the data processing) should immediately report this to the Dutch Data Protection Authority (as from 1 January 2016 the “Personal Data Authority” (Authority). A security breach can take many forms: from a person entering a building and accessing or even taking personal data, to the more infamous example of a hacker. A lost phone, laptop or USBstick can also be regarded as a breach of the required security measures. If it is likely that a security breach will negatively affect the privacy of the data subject (i.e. the person whose personal data was disclosed), that individual should be notified of the data breach immediately. As a general rule, the decision whether or not to notify the data subject is up to the data controller. However, if the Authority disagrees with the decision of the data controller not to notify the data subjects, the Authority can force the data controller to notify them nonetheless. The obligation to notify the data subjects does not apply when the data controller has taken technical security measures that make personal data either unclear or inaccessible to anyone who does not possess the right to access the data. For example, if a lost USB-stick is encrypted, the data controller is not obliged to notify the persons whose personal data was saved on the USB-stick. Furthermore, financial institutions that are subjected to the Dutch Financial Institutions Act are excluded from the obligation to notify the data subjects: these institutions only have to notify the Authority. Who? We can help you to mitigate the risk of non-compliance by drafting and reviewing contractual terms and conditions, refund and return policies and by advising on your legal obligations under the new legislation. If you would like to discuss this further or have any queries relating to the CRA, please do not hesitate to contact Louise Dobson: email@example.com or Andrew Carter: firstname.lastname@example.org. The parties that are obligated to notify a personal data breach are organisations in both the private and public sectors that qualify as a ’data controller’ under the Dutch Data Protection Act. How to report? The notification of a personal data breach needs to include the following information: ► the nature of the data breach ► the authorities where additional information about the data breach can be obtained ► recommendations on how to limit the consequences of the data breach ► a description of the probable consequences of the data breach for the processing of personal data and the measures that the data controller has taken or proposes to take in order to remedy these consequences. The data subjects should be notified in a manner that guarantees sufficient and accurate provision of information. Furthermore, the data controller is required to keep a record of all personal data breaches. Penalties Previously, the maximum administrative fine for non-compliance with the Dutch Data Protection Act was EUR 4,500, and the Authority had limited power to impose a fine. However, since 1 January 2016, the Authority are able to impose fines for noncompliance with a substantial amount of provisions of the Dutch Data Protection Act. Also, the maximum amount of the possible fine has increased substantially: non-compliance with the obligation to notify can result in a fine up to a maximum of EUR 820,000 or even 10% of the annual net turnover of a company, per violation. The Authority is generally required to give a binding instruction before imposing a fine. What does this mean for you? When a data security breach is discovered, your organisation has to immediately notify the Authority and, in certain situations, notify the data subjects concerned. As the notification has to be done immediately (as soon as reasonably possible), it is too late to draw up a plan of action at the moment that a data security breach is discovered. Therefore, as of 1 January 2016, each organisation now needs to have an action plan in the event of a data breach. Also, businesses are required to make sure that any data processors you use are contractually required to inform you immediately of any data security breach they become aware of in the performance of their services. 4. ODR regulation update What do I need to know? ► The UK government has published the principal legislation that will implement the ADR Directive and the ODR Regulation, both of which are designed to promote the use of ADR schemes in order to resolve disputes across the EU (both domestic and cross border) between consumers and businesses ► There is a concern that consumers are discouraged from purchasing cross border goods and services in the EU due to worries over how disputes with non-domestic businesses can be resolved. This is largely due to the legal costs and time involved in pursuing a dispute, as well as a lack of consumer knowledge regarding existing ADR schemes in place for certain sectors ► It is hoped that by providing consumers with quick, easily accessible and low cost ADR mechanisms via the ADR Directive and ODR Regulation, consumers will have greater confidence that any problems they encounter with businesses based abroad can be resolved. The aim is that this will lead to consumers being more willing to purchase goods and services from across the EU, driving competition and economic growth. In practice it is likely to require a review of consumer-facing terms and conditions and also preparatory thought about whether and if so how to engage with a consumers through an ADR processes and with a potential increase in requests to do so. Click here to download our full briefing on the ODR Regulation updates. For more information, please contact: Kim Lucassen: email@example.com +3110 224 6416 or Joanne Zaaijer: firstname.lastname@example.org +31 10 224 6164. For more information, please contact Louise Dobson: email@example.com. 5. GSCOP: the GCA investigation into Tesco In February 2015 the Groceries Code Adjudicator (GCA), Christine Tacon, launched her first investigation into Tesco, over concerns that the supermarket chain had breached the Groceries Supply Code of Practice ( GSCOP). The GCA joined the SFO and FRC in investigating Tesco, following accounting irregularities and accusations of supplier mistreatment. Tacon has "reasonable suspicions" that Tesco breached GSCOP in two areas: reasonable payments to suppliers, and a prohibition on payments to gain better shelf positions that were not as part of a promotion. In its annual report in May 2015, Tesco stated "there have been a number of instances of probable breaches of the code which fall short of the high standards we expect to uphold in our dealings with our suppliers”. From April 2015, the GCA gained new powers to impose fines of up to 1% of UK revenue on supermarkets who breach GSCOP. However, the power to fine supermarkets in breach does not apply retroactively, so for historic breaches the GCA can only publish her findings rather than impose a hefty fine. The GCA has delayed publishing the final report into Tesco until the New Year – it appears that evidence gathering from suppliers may have proved more challenging than the GCA had hoped. Meanwhile the SFO continues its own investigation into Tesco's conduct, a process that is likely to require supplier engagement, and one which may have significant implications for Tesco. The results of both processes are eagerly anticipated and it will be very interesting to see how they are received by the industry and press, particularly given the high profile nature of Tesco's conduct and the fact that the GCA will be unable to impose a fine. Will they also result in any changes in supermarket-supplier relationships, either on a voluntary basis or through changes to GSCOP? Watch this space. 6. The Budget In what was the Chancellor's third budget speech of 2015, the announcements in the Autumn Statement were relatively tame with no real 'showstopper' changes. However, there were a number of important notifications and confirmations for retail and consumer businesses – mostly around the business rates reforms, employment-related legislation and proposed changes to the taxation system (both in terms of tax reporting frequency and the HMRC system itself.) Read our retail and consumer analysis of the Autumn Statement here The Chancellor takes to the stage once again on Wednesday 16 March this year and there will be particular interest in the much-delayed outcome of the business rates reforms consultation. After assurances these would be concluded in the Autumn Statement, the Chancellor only announced that universal rates were to be scrapped in favour of a devolved system – laying the responsibility at the feet of local councils and encouraging regional competition in attracting businesses. Further clarification is anticipated in March when the Government will divulge the full details of how they are making the system fairer, more efficient and effective. Employment costs have become a bone of contention for many retail and consumer business with a double-whammy of the National Living Wage (NLW) and the Apprenticeship Levy announced last year. Whilst compulsory NLW will be introduced from April, the Levy will come into effect next year – further details of how this will work are anticipated before or in the Budget this year. 7. Modern Slavery Act With effect from 31 March 2016, all companies with a business operating in the UK and a turnover of over £36m will be required to make a slavery and human trafficking statement setting out the steps which the company is taking in order to ensure that slavery and human trafficking are not present in its own organisation or supply chain. Parent companies are not able to publish statements which cover all of their subsidiaries, rather, it is a requirement that each company within a group that operates a business in the UK and has a turnover of at least £36m, publishes its own statement. For more information, please contact Rona Bar-Isaac: firstname.lastname@example.org. For more information, please contact Katie Brown: email@example.com The Government expects most organisations to publish the statement within six months of the organisation's financial year end and the statement must be published online with a link included in a " prominent place" on the organisation's home page. The Modern Slavery Act itself does not prescribe the form of slavery and human trafficking statement and it is possible to comply with the strict letter of the law simply by stating that a company is doing nothing to ensure that slavery and human trafficking are not present within its organisation or supply chain. Government guidance suggests that organisations should consider including information on the following areas: ► the organisation's structure, business and supply chains ► any policies relating to slavery and human trafficking ► any due diligence processes which are in place to tackle slavery and human trafficking ► any areas of its business or supply chains which are at particular risk of slavery and human trafficking and the steps taken to assess and manage that risk ► the effectiveness of any measures in place to combat slavery and human trafficking with comparisons against appropriate benchmarks; and ► any training on slavery and human trafficking available to the organisation's staff. Organisations should consider what steps they are currently taking in relation to slavery and human trafficking and whether those steps are likely to be considered sufficient by interested parties (such as campaigning groups and newspapers). Organisations may wish to consider: ► increased supply chain due diligence ► adopting policies on slavery and human trafficking (including minimum labour standards); and ► amending contracts in order to require suppliers to comply with minimum reporting and training obligations and providing a right of termination if these are not complied with. We will be tracking emerging practice, and particularly whether organisations choose to follow a base level approach to compliance or choose to make a virtue of it and use it to demonstrate their commitment to supply chain diligence and fair trade. We are able to provide training, model contract clauses, checklists for procurement and HR personnel and assistance in drafting statements if required. 8. National Living Wage The National Living Wage (NLW) is essentially a higher rate band of the existing National Minimum Wage for those aged 25 and over. The precise rate is yet to be announced, and will be subject to recommendation by the independent Low Pay Commission. However, it is expected to be £7.20 per hour when it comes into force in April 2016, rising to £9.00 per hour by 2020. Confusingly, the NLW is not the same as the "Living Wage", which is a voluntary scheme piloted by the pressure group, the Living Wage Foundation. The Living Wage aims to reflect what the Foundation feels workers need to be paid in order to maintain a normal standard of living. Certain employers, such as Barclays, British Gas, and Oliver Bonas pay the Living Wage. The current rate of the Living Wage is £7.85 per hour outside of London, and £9.15 per hour within London. The penalties for not paying the NLW are planned to be more severe than the existing penalty regime for the National Minimum Wage. Under the National Minimum Wage regime, offending employers are required to pay a fine reflecting the underpayment itself, plus a 100% penalty on top, up to a maximum of £20,000 per worker. The Department of Business, Industry and Skills also "names and shames" offending employers. The planned NLW regime will introduce a similar fines system, as well as "naming and shaming", but with a 200% penalty as well as the underpayment itself, it will also up to a maximum fine of up to £20,000 per worker. An additional deterrent is the power to disqualify offending company directors for up to 15 years. Furthermore, a specialised unit of HMRC is planned to be established in order to track down offending employers. For more information, please contact Katie Kinloch: firstname.lastname@example.org or Andrew Carter: email@example.com. There are growing concerns about the impact of the NLW on the retail sector, and particularly small and medium-sized companies. Some businesses have announced they may have to increase prices, cut staff numbers and/or wages or cancel investments to offset the increasing wage burden, whereas some will just weather the NLW through reduced profits. This is reinforced by the prediction that the number of employees on the minimum wage will double by 2020, as employers plan to deal with the introduction of the NLW by bringing more people down to this level. Nonetheless, supermarkets have responded particularly positively with Lidl, Aldi and Morrisons announcing new pay rates in excess of the proposed NLW rate of £7.20 per hour. Sainsbury's has already increased wages by 4%, over and above the NLW. Practical steps employers may consider taking with a view to mitigating the effect of the NLW could include: ► reducing (but not below the statutory minimum), or freezing, the wages of those between the age of 21 and 25 who are not yet at the £7.20 per hour threshold ► working out how much the introduction of the NLW will cost the business, and then: ► raising prices to off-set this cost; and/or ► reducing the value of the benefit package offered by the company by an equivalent amount ► moving staff members onto zero-hours contracts, where there is no obligation on the employer to provide a certain amount of hours per week ► increasing the use of genuinely self-employed individuals who offer their services at a rate below the NLW ► seriously considering the effect that the change will have on the business, and whether this will lead to a redundancy situation. 9. Pensions updates End of contracting-out for defined benefit pension schemes The state pension currently consists of two elements: a basic pension and an additional component known as "S2P" (previously SERPS). At the moment, employers can reduce their NICs bill by opting out ("contracting-out") of S2P and providing alternative, broadly equivalent pension benefits to employees. In return for doing this, employers and employees pay lower NICs. The ability to contract-out of S2P is being abolished with effect from 6 April 2016 in line with broader government reforms to introduce a single-tier state pension. This means DB pension schemes will no longer be able to contract-out, and the NICs rebates will disappear. The increased NICs bill for some employers could be significant if they currently have a large contracted-out workforce. There are three main options to mitigate this: ► increasing employee pension contributions ► reducing future service benefits to offset the additional employer NICs cost using a special statutory power that allows employers to do this unilaterally provided certain conditions are met, or ► reduce benefits under the scheme in some other way to offset the cost, to the extent this is possible under the pensions scheme's amendment power. Impacted employers should plan how they will address this, including: ► the need to plan for any scheme rule changes and discussions with scheme trustees ► identifying whether mandatory staff consultations would be triggered by scheme changes ► identifying any employment contract issues ► the process and timing of member communications. Where staff consultations are required, bear in mind timing constraints: increased NICs will be payable from 6 April 2016. For more information, please contact Sally Hulston: firstname.lastname@example.org. Changes to pension tax relief Also with effect from 6 April 2016, changes to the regime for tax relief on pension savings will come into force: ► the annual allowance (the maximum amount of tax-relieved pension saving which an employee can make each year) will reduce on a gradual or "tapered" basis for high earners with "adjusted income" deemed to be more than £150,000 – unless their "threshold income" is less than £110,000. Adjusted income includes the value of any employer pension contributions, but threshold income generally does not ► the lifetime allowance (the limit on the value of all of an employee's tax approved pension benefits which can be built up during their lifetime without incurring a tax charge) will reduce from its current level of £1.25m to £1m. However, it will then be index-linked from 6 April 2018, rising in line with inflation (using CPI, the "consumer prices index"); and ► two new forms of protection against the lower lifetime allowance will give those who have already got pension savings worth £1m or more an opportunity to protect their benefits. "Fixed protection 2016" and "individual protection 2016" are similar to the fixed and individual forms of protection introduced in 2014 when the lifetime allowance was last reduced. Employers may want to think about ways to mitigate the impact of these changes and how best to communicate them to pension scheme members, particularly any high earners and senior staff that might be impacted. Auto-enrolment thresholds One pension cost that won't be increasing from April 2016 is the cost of auto-enrolment. The earnings trigger for when staff must be auto-enrolled will remain at £10,000, the same as in the 2015/16 tax year. The lower and upper levels for the qualifying earnings band will also remain in line with the NICs lower and upper earnings limits of £5,824 and £43,000 respectively. 10. EU referendum Whether the UK departs from the EU and strikes up an alternative arrangement, or whether it remains as it is, the possibility of a "Brexit" means that there is much uncertainty. What is clear is that there will be a number of potential legal challenges that retail and consumer businesses may need to address. Areas that could have a significant impact on businesses include: Data protection The UK would no longer be an automatically "safe" destination for EU personal data. The implications on data transfers in the EU in the event of a "Brexit" may affect a business’s online operation. The draft Data Protection Regulations, currently on the table, may not be adopted, depending on when it is due to be implemented and the timetable of a referendum. Health & safety If a business can no longer rely on compliance with a standardised EU Directive to be confident that its product is suitable for sale everywhere within the EU then this could be problematic. Potential changes to the tax regime Withdrawal from the Customs Union would affect the VAT position of cross border supplies and could lead to the imposition of the Common Customs Tariff on goods exported from the UK, while UK withholding tax at 20% may apply to interest/royalties paid by UK companies to associated companies based elsewhere in the EU. Businesses outside the Eurozone could be subject to discriminatory taxation policies imposed by EU countries. Free Movement of workers There may be restrictions on migration, which may impact an organisation’s ability to move staff between its businesses. This would also affect online businesses who perhaps rely on flexible labour for their distribution. Commercial Contracts EU contracts would likely be interpreted on a case-by-case basis, taking into account the specific language. Contracts have territorial elements to them (e.g. exclusivity and scope of agency agreements) which will be impacted. Some EU contracts may expressly state that the territory is the EU as fixed at the time of signature only, whereas others may define the territory more fluidly. A "Brexit" may make parties less able to perform their contractual obligations and commercial parties may seek to rely on specific clauses (like "force majeure" or "material adverse change") to seek to re-negotiate the contact’s terms. For more information, please contact Jade Murray: email@example.com. Employment issues All employers are likely to be significantly affected if the UK left the EU. All EU derived laws that have been introduced in the UK via secondary legislation (i.e. regulations) would fall away unless they were reintroduced as new, UK law. This would include TUPE and the Working Time Regulations. For those EU derived laws that have been introduced in the UK via primary legislation (i.e. Acts of Parliament), those laws would remain in force unless the UK chose to repeal the relevant primary legislation. This would include the Equality Act which covers anti-discrimination legislation. If we take the example of the Equality Act, the anti-discrimination laws have become widely accepted and entrenched in the UK and it seems very unlikely that a UK Government would seek to repeal those laws entirely. There is of course other employment legislation that has nothing to do with the EU (e.g. laws governing unfair dismissal rights) and so these would be unaffected if the UK left the EU. Trade On the one hand, British businesses could be faced to pay large sums of money to comply with EU regulations and get access to the single market. On the other, the UK could rely on immediate continued preferential trade deals being negotiated with European countries who import to the UK. Indeed there is debate that it would be in the best interest of some countries in the EU, such as Germany, to retain favourable agreements as they export twice as much to the UK as is exported to them. It may be that the retail and consumer sector could potentially benefit from an independent UK trade policy. If a "Brexit" were to happen, there would be huge amounts of uncertainty, which, although disliked by business, could potentially be followed by far freer trade agreements and lower levels of regulation. Impact on consumers through a reduction in prices, as well as new export opportunities afforded to UK businesses, also need to be put on the table for consideration. There is debate over whether a "Brexit" would permit the UK to set its own rules and regulations for all domestic trade and all trade with countries outside the EU, like India, China and America and take a place at the world table or whether Britain would lack the weight to do this once it’s outside the EU. 11. Apprenticeship levy On 21 August 2015, the Government consulted on a proposal to introduce an "apprenticeship levy" which would be collected from larger public and private employers in the UK. Employers would then receive vouchers to pay for apprenticeship training for apprentices of 16 years of age or older. On 25 November 2015, the Government responded to the consultation and also announced (in the Autumn Statement) that the apprenticeship levy will come into force in April 2017. Legislation to allow the imposition and collection of the apprenticeship levy will be introduced in the Finance Bill 2016. The levy will be payable by employers across all sectors, including the retail sector, in the UK at a rate of 0.5% of an employer's total gross pay bill (excluding benefits in kind). All employers will receive an annual allowance of £15,000 against the levy, which, in practice, means that the levy will only be payable to the extent that the pay bill exceeds £3 million per year. However, groups of companies, will only receive one allowance. It is predicted that fewer than 2% of employers will be required to pay the levy. However, the Office for Budgetary Responsibility has predicted that where an employer is obliged to pay the levy, the costs will largely be passed on to employees (e.g. by way of pay and benefits cuts or freezes). That said, employers will, to some extent, have their hands tied by the new National Living Wage rate effective from April 2016 (and predicted to rise year on year until 2020). Retail businesses will need to consider how they will absorb the cost of the levy and consider alternative options such as: increasing prices, reducing staff numbers, cutting staff benefits packages and/or simply accepting reduced profits. Funding for training will be accessible to all employers in England and employers who pay the levy will be able to access more funding than they have put in, although if the funding is not used within two years it will expire. Employers will need to consider how they wish to use the funding and institute an action plan to ensure the funding is utilised effectively before access expires. 12. Business rates reform HM Treasury is due to report back on its wide-ranging review of business rates which, as it states in the foreword to its Terms of reference and discussion paper, is "in response to concerns from many business ratepayers that business rates are in need of reform to make them fit for purpose in a 21st century economy". For more information, please contact Sally Hulston: firstname.lastname@example.org. The Government often talks of steps it has taken to help the retail sector, in particular, when it comes to business rates, but makes clear that the Treasury review will centre on "whether the tax is sustainable, fairly targeted and sufficiently flexible to respond to both changing patterns of property usage and conditions in the wider economy" . This suggests an acceptance on their part of an unfairness in the current system. The retail sector will wait with baited breath to see what is reported back following the review; a bold Treasury would grasp this nettle fully and propose fundamental changes to the basis on which business rates are levied if the aim of making them fit for purpose is to be achieved. The plans, set out in the Chancellor's Autumn Statement, to devolve the setting of business rates to local authorities have caused some concern that this might be the extent of the reform, but more, surely, is needed. A number of national retailers, who have large property portfolios (and therefore large business rates bills) will be hoping for something radical, for example basing the liability on economic output (as per the French system, which is linked to business turnover) or on number of employees rather than purely on rateable value of properties. There is a clear disparity between contributions to business rates between those bricks and mortar retailers and their purely online competitors. The hope is that the review will be ambitious in its findings and help ease a huge financial burden on the retail sector; the fear is that the opportunity for reform will be missed and nothing much will change. Let's see what 2016 brings… 13. International Spotlight: Cash withdrawal limits in Italy Cash withdrawal up to EUR 3,000.00 in Italy: pros and cons Article 49 of the Italian Legislative Decree no. 231 dated 21 November 2007 (a.k.a. the Italian anti money-laundering law) currently provides a maximum limit of EUR 999,9 for payments in cash in Italy. This law has been enforced since 6 December 2011. As a consequence, for payments higher than the limit, it is still necessary to use a means of payment that leaves a paper trail. New public financial measures (a.k.a. “Legge di Stabilità 2016”) are presently under examination in the Italian Parliament. One of the regulations, whose approval is upcoming, provides for an increase of the cash limit to EUR 3,000.00 from 2016 onwards. What impact will the new legislation have in practice? Establishing a higher limit for cash payments may encourage people to spend more money thereby helping the retail and consumer sector. Payments in cash are indeed very popular in Italy and constitute around 82% of the overall transactions, compared with the European average of 60%. The provision could also determine, an incentive for consumers, the correlative boost in the retail businesses as well as, the economic recovery of the whole country. On the contrary, the decision to increase the threshold of cash payments up to EUR 3,000.00 could involve the risk of facilitating tax evasion. Indeed, the containment of cash use is one of those measures put into place in order to avoid tax evasion, given that a lower maximum threshold allows a greater control of payments. The government's decision to raise the limit to EUR 3,000.00 would consequently involve the risk of providing retailers with the chance of receiving cash payments without issuing receipts. 14. Changes to holiday pay A continuing area of uncertainty in calculating holiday pay has been how variable components of pay should be treated for these purposes. Previous case law had established that workers who earned a basic salary plus additional sales-based commission were only entitled to holiday pay based upon their basic salary. However, the ECJ subsequently held that workers should receive their "normal remuneration" whilst on holiday and this includes any variable remuneration payments which are "intrinsically linked" to the performance of the tasks which a worker is contractually required to perform. In the case of Lock v British Gas Trading Ltd Mr. Lock was employed as a sales consultant and was remunerated by way of a basic salary payment, plus a sales-based commission payment which accounted for approximately 60% of his total pay. The commission payment was variable and was paid several weeks or months after the sale to which it related was achieved. For more information, please contact Joe Maitland: email@example.com. For more information, please contact Angelo Monoriti: Angelo.firstname.lastname@example.org. When Mr. Lock was on holiday, he was unable to make any sales. This, in turn, meant that he was unable to accrue any sales-based commission payments to be paid in the subsequent weeks or months. Consequently, his income was reduced in the weeks or months following a period of holiday. Mr. Lock brought an Employment Tribunal claim for unpaid holiday pay in respect of the lost holiday commission payments. Given the conflicting domestic and ECJ case authorities on this area, the Tribunal elected to refer a number of questions to the ECJ. In essence, the ECJ was asked whether annual leave should include commission payments that Mr. Lock would have accrued had he not been on annual leave. In May 2014 the ECJ ruled that the EU Working Time Directive requires that during annual leave workers must receive their normal remuneration. The purpose of holiday pay is to put the worker, during that period of rest, in a situation which is comparable to periods of work. It ruled that where pay is made up of different components and a component is "intrinsically linked" to the worker's contractual duties, then holiday pay should be calculated to include such payments. In February 2015, following the ECJ's ruling, the case returned to the Employment Tribunal to decide whether our domestic Working Time Regulations 1998 could be interpreted in line with the ECJ’s decision. If it could not, then employees of private sector employers would not be able to enforce their rights to have such payments included in their holiday pay and the Government would be required to amend the regulations. Unsurprisingly, the Tribunal decided that the WTR could be interpreted so as to be consistent with European law. In recent years the Courts and Tribunals have not held back from stretching the wording of our domestic legislation to comply with European law. Indeed, the EAT took a similar step in Bear Scotland Ltd v Fulton and Baxter, Hertel (UK) Ltd v Wood and others, Amec Group Limited v Law and others (Bear Scotland) which concerned the inclusion of overtime within holiday pay You can read our report on the Bear Scotland decision here. However, British Gas went on to launch an appeal of the Tribunal's decision on two grounds: ► The Tribunal was wrong to conclude that the EAT's recent decision in Bear Scotland had any bearing on the Lock case. Commission and non-guaranteed overtime are dealt with under different provisions and should be treated differently ► In any event, even if it was appropriate to approach overtime and commission in the same way, the EAT in Bear Scotland had been wrong to decide that the Working Time Regulations 1998 could be read purposively. This is the more significant ground of appeal, since if it is successful then it would conflict with the EAT's position on the inclusion of non-guaranteed overtime in holiday pay. This would make a further appeal to the Court of Appeal seem highly likely. The appeal hearing took place on 8 and 9 December 2015 and the EAT's decision is likely to be handed down in the early part of 2016. Employers should remember that the position at EU level is unchanged by this appeal: UK law must provide for holiday pay to be based on normal remuneration, which may include commission payments. However, if British Gas's appeal succeeds then the Government would need to rewrite the Working Time Regulations 1998 before private sector employers would be obliged to comply with this requirement (and any changes would not retrospective). Whatever the outcome of the appeal, it seems likely that there will be a further appeal to the Court of Appeal, which could mean waiting until the latter part of 2016 or early 2017 for a definitive ruling. Given the ongoing litigation concerning the calculation of holiday pay, some employers may wish to take a more robust stance when it comes to making adjustments to holiday pay. Many will prefer to wait for a definitive ruling from the Courts. On the other hand, some employers, including retail businesses, have decided to proceed with adjusting holiday pay calculations despite the continuing uncertainty. For example, in January 2015, the John Lewis Partnership announced that it was changing its holiday pay practices in response to the Bear Scotland decision. At the time, Tracey Killen, the Partnership’s Director of Personnel, said: “The John Lewis Partnership has acted promptly to change its pay practices in response to the Employment Appeal Tribunal ruling. We believe our approach is a fair and practical outcome for our partners in light of this decision”. The company said that it expected the adjustment would result in additional costs of £12 million every year and that this could negatively affect the annual profit-related bonus given to workers. 15. Childhood obesity and the sugar debate Childhood obesity is an increasing issue in the UK, with around 10% of children aged 5-6 and 19% of children aged 10-11 being classed as obese. To date, the Government's main approach to tackling childhood obesity has been through advice schemes such as Change4Life — a voluntary scheme which provides advice and tips for families to encourage lifestyle changes. The Government says that since the Change4Life scheme was set up in 2009, more than 2.7 million people have signed up, and it now has more than 200 national partners. However, there has been an increased public discussion of the adequacy of such measures in 2015. Bodies such as the Royal Society for Public Health have recommended implementing alternative proposals, including giving healthy eating vouchers to families with overweight or obese children, arranging cookery skills workshops, and introducing after-school activities. Celebrity chef Jamie Oliver has also weighed in on the discussion, suggesting that the Government should introduce food standards for packed lunches, and a 20% levy on sugar-sweetened beverages. In November 2015, Mr Oliver commenced an online petition for the introduction of the tax, which reached over 150,000 signatures and was debated in Parliament. The Department of Health's response was that it has no plans to introduce a tax: " The government has committed to a tax lock to avoid raising the cost of living and to promote UK productivity and economic growth… the causes of obesity are complex, caused by a number of dietary, lifestyle, environmental and genetic factors, and tackling it will require a comprehensive and broad approach. As such the government is considering a range of options for tackling childhood obesity ". The Government's revised strategy for addressing childhood obesity was expected before the end of 2015, but has now been delayed until January 2016. Malcolm Clarke, co-ordinator for the Children's Food Campaign, has predicted that the revised strategy is likely to include a crackdown on the 9pm TV watershed, more voluntary reformulation (with a threat of legislation absent progress) and controls on retail price promotions. Spotlight on Sugar In 2015, we saw a continued focus on the role of sugar in public health. This appears to have been triggered by various reports and studies which have sought to link consumption of sugar to various health issues such as obesity, diabetes, heart disease, fatty liver disease, dental caries and certain cancers. In June 2015, the Scientific Advisory Committee on Nutrition (SACN) produced a report entitled 'Carbohydrates and Health'. The SACN report made various recommendations, including that the population's intake of sugar should not exceed 5% of total dietary energy. The Government has adopted this recommendation, and integrated it into official dietary policy. In October 2015, Public Health England (PHE) published a report entitled 'Sugar Reduction: the Evidence for Action'. The PHE report concludes that a range of factors (including marketing, promotions, advertising, and sugar levels in manufactured food) are contributing to a national increase in sugar consumption. The PHE report also recommends a series of correspondingly broad measures to combat this increased consumption, such as reducing: the volume and number of price promotions in retail and restaurants; the marketing and advertising of high sugar products to children; and the sugar content in, and portion size of, everyday food and drink products. As part of the Change4Life advertising campaign, Public Health England have kicked off 2016 by launching a "sugar smart" app for parents which scans product barcodes and reveals the total sugar content of the product, either in cubes or grams. Over 75,000 product barcodes can be scanned, allowing parents to weigh up potential purchases. We are currently awaiting confirmation as to whether the Government will implement the measures recommended in the PHE report, or any other measures. 16. Commodity prices Oil and gas Various macro-economic and political factors are likely to keep downward pressure on various commodity prices, particularly oil and gas and iron ore and base metals for steel production. These include both supply-side issues, such as Opec's continued refusal to cut crude oil production to support prices in the face of potentially increased supply from Libya and Iran and non-Opec producers such as Russia and US shale operators, and demand-side issues such as the manufacturing and construction slow-down in China (previously the world's biggest consumer of raw materials). Major oil producers have moved quickly to cut their costs and capex budgets, and this is likely to cause significant volatility in oil and gas markets over the next few years as exploration and infrastructure development lags behind future spikes in demand. In retail terms, diesel prices have dropped below £1 per litre for consumers across the UK this January for the first time since May 2009, and some retailers are saying that any future further wholesale price decreases will also be passed on to the consumer. Sugar Food and drink businesses in particular will be closely watching the continuing fall of sugar prices as the European quotas are removed. While the quotas will actually be abolished on 30 September, 2017, 2016 is likely to see continuing preparatory For more information, please contact Louisa Caswell: email@example.com. activity as suppliers prepare for the lifting of current restrictions. Consolidation (such as the acquisition by the French agribusiness Tereos of Napier Brown in 2015) may well continue as scale becomes critical. While the price of sugar within Europe has already fallen over the past three years from £500 to £300 per tonne, prices are expected to fall further once quotas are lifted, to align with world sugar prices which are at a seven-year low. The EU reforms are expected to result in a 20% increase in production after 2017, as the current limit for EU-grown sugar for human consumption is set at 13.5m tonnes, with the UK accounting for around 1m tonnes of this total. Export restrictions will also be lifted, opening up a much wider market to EU sugar producers, which may well have adverse implications for smaller producers in emerging markets. The reforms will of course have a material impact on businesses that produce, refine or sell on sugar products and also on those that manufacture sweeteners and all businesses that use sugar or sweeteners in the manufacturing of other products. In addition to pricing, export and production considerations, there is also concern that the ongoing attempts to curb sugar consumption (such as proposed sugar taxes and marketing restrictions on sugary junk foods) could be undermined by manufacturers taking advantage of the cheaper cost of sugar, as it becomes more economically viable to add sugar and sugar products to processed foods. Read more on the proposed sugar tax in our piece on Childhood obesity and the sugar debate For more information, please contact Louisa Caswell: firstname.lastname@example.org 17. Data Protection regulation Our Data and Information team have been closely following the EU draft General Data Protection Regulation's ( "Regulation") legislative history. Multiple drafts of the Regulation will be negotiated before a final version is agreed upon. On 15 December 2015, the European Parliament and the Council reached agreement on the EU data protection reform package, concluding trilogue negotiations between the Commission, Parliament and Council. The current patchwork of data protection rules and four years of reform-related debate are expected to end in early 2016, by formal adoption of the data protection reform package. However, the Regulation will not come into force until 2017-2018, allowing organisations to adjust their compliance practices in light of the new law. While the Council has made it clear that 'nothing is agreed until everything is agreed', the Regulation will significantly change the landscape of EU privacy and data protection in several key areas, including: ► substantial new penalties ► more stringent requirements for obtaining valid consent to the processing of personal data ► mandatory data breach reporting obligations with no de minimise provisions ► increased territorial scope, which will capture businesses that do not have compliance obligations under current EU data protection laws ► restrictions on profiling and targeted advertising ► direct legal compliance obligations for “data processors;” and ► enhanced data protection rights for individuals, including the “right to be forgotten/right to erasure.” In order to assess readiness for the Regulation it would be a good idea for organisations to invest in a data audit to assess areas of non-compliance and deficiencies with current privacy legislation. As the Regulation builds upon existing principles, this groundwork will provide a solid basis to spring board into the additional compliance requirements imposed by the regulate in a more streamlined way, to avoid minimal business interruption and medium uptake across the organisation. The team have produced a comprehensive guide for in-house lawyers (“ Guide”), to assist them in identifying key areas likely to impact their business, which can be accessed here: http://www.addleshawgoddard.com/cdc/asset_store/document/dp_regulation_briefing_note_104656.pdf. For more information, please contact Laura Scaife: email@example.com 18. Equal pay claims In 2008, around 300 female Asda workers brought equal pay cases in the Employment Tribunal, arguing that they should be paid the same as male workers working in its distribution centres on the basis that their jobs were of equal value. The claims were initially brought by the GMB trade union. These claims were stayed and in 2013 an agreement was reached between GMB and Asda, whereby the GMB agreed not to pursue the claims in return for a four year "working party" with Asda about equal pay. Following this, the law firm, Leigh Day, took over the cases. In April 2014, The Guardian newspaper reported that a further group of (mainly female) employees had initiated test cases for equal pay. These additional cases have now been joined with the original 2008 cases. Following the announcement that Leigh Day were managing these cases it was reported that they had been approached by a further 19,000 people interested in pursuing claims. Leigh Day have warned that the implications of these legal claims were: "…enormous for Asda and many other supermarkets in the UK", noting that in supermarkets: “…the check-out staff and shelf-stackers are mostly women. The people in the warehouses are pretty much all men. And, as a whole, the group that is mostly men gets paid more." Leigh Day reported that their investigations suggest that the job roles are broadly equivalent. Warehouse staff are responsible for taking items off shelves, putting them on pallets and loading them into lorries. Whereas, in the supermarket, the staff do the reverse: taking the pallets off the lorries, unstacking them and putting the items on the shelves. However, the warehouse staff were paid anything from £1.00 to £4.00 more per hour than the store staff. A hearing is expected in the course of 2016. This case will be of particular interest to supermarkets and other retailers who own distribution centres. If the employees are ultimately successful, they could be entitled to up to six years' back pay for the difference in earnings. For further information, please contact Sally Hulston: firstname.lastname@example.org 19. International spotlight: EU Commission on guarantee rights The EU Commission wants to further harmonise guarantees under consumer sales law. The plans for refunds of “payments” with consumer data are likely to encounter resistance, explains Bärbel Milsch of Noerr LLP. Please click here to read Noerr's full briefing on the EU Commission's plans. 20. The evolving threat of cyber security With the increased rise in the volume of online sales, data is now at the heart of many retail and consumer businesses. It is being utilised in a number of ways, from providing intelligence and insight into products and services trends, to collecting personal customer data such as address, bank and credit card details for delivery and payment purposes. Businesses dealing in customer data need to have appropriate security measures in place to protect this data and these measures need to be airtight. Breaches in cyber security can see people's personal data spilled across the internet (such as in the Ashley Madison case), or their financial information in the hands of hackers, putting their personal data such as their identity, bank balance and credit scores at risk. Over the course of 2015 we have seen a number of high profile cyber security breaches in the retail and consumer sector, including a website error at Marks & Spencer's and breaches at Morrisons, as well as the high profile Ashley Madison and BBC iPlayer hacks. In the Marks and Spencer case, customers who logged in online to shop were able to freely view other customers personal details including names and addresses. This issue highlighted a serious flaw in the security of the website and its functionality. These and other breaches have served to highlight the importance of having strict cyber security policies and processes in place. This type of data breach carries real reputational risk for a business causing not only great embarrassment but potentially causing businesses to lose customers. They also raise thorny questions around potential customer compensation. Aside from these potential costs, it is estimated that the average cost to rectify a cyber security breach is between £600k – £1.15m for large businesses and £65k – 115k for SMEs. As seen above in the special data report by Loyens and Loeff, which spotlights the mandatory breach reporting being introduced in the Netherlands as well as the draft Data Protection Regulation, the issue of reportable security failures in not going to go away and will be on an increasingly formal basis across Europe, which has a very strong privacy legislative culture led centrally by the EC. Customers have become more aware and alert to issues surrounding security breaches. With the advent of social media customers often turn to a variety of mediums such as Facebook and Twitter to express their concerns and views about breaches that have affected them, their friends or family. This trend in customer behaviour is on the rise and businesses need to consider the potential backlash they might face on these platforms which serve to add to the reputational damage. Retailers need to provide a much higher level of reassurance to keep customer loyalty and their brand image intact. Indeed often a comprehensive breach management response plan is key to ensuring that, if a cyber attach does strike, it need not mean that a fall in share price or a loss of customer confidence are inevitable. For more information, please contact Bärbel Milsch: email@example.com. So what can you do? It is vital to protect your business as far as possible. Retail and consumer businesses need to dedicate budget and resource to making sure they get things right, so they aren't putting their customers and their own reputations at risk. This will mean investing in reputable and robust online security measures and adequate protections suitable for the type of data you are handling. While existing insurance policies such as commercial property, business interruption or professional indemnity may provide some cover against cyber risks, businesses are increasingly buying specialised cyber insurance policies to supplement their existing insurance arrangements. You need to keep on top of changes to the law, including the proposed introduction of the Network and Information Security Directive, which aims to bolster the security of critical infrastructure in the EU; the General Data Protection Regulation, which looks to offer a new perspective on protecting user data; and the possible extension of Section 7 Bribery Act 2010-type offences, to make it an offence for a “relevant commercial organisation” to fail to prevent financial crime generally. Regular audits, compliance modelling, risk assessments and even controlled "live hack" demonstrations to test your security can all aid businesses in keeping ahead of the threat. Testing your security at regular intervals will help ensure that customer data is being protected in real time. Regularly updating your online capabilities is key, installing the latest security updates and keeping on top of the latest malware should ensure you know what potential weaknesses there may be in your site. Cyber should be seen as a 360 degree holistic risk management review of the whole of your business rather than an IT, legal or PR issue: each and every business stakeholder has a part in ensuring that as many weak links in the security chain are identified. Arguably there is also a certain level of acceptance in the market that data breaches are now a fact of life. Often it will be simple practical steps that will determine how a business will fare in the eyes of investors, regulators, customers and the press, eg timely and well-informed press statements by the CEO, ensuring that staff do not leak technical details of the breach to the media and active efforts to contain the breach. Of course this must all still be backed up by robust security, in particular encryption, which is also a major selling point for personal devices like iPhones. Used effectively, it is a key tool in the security kit but also a hallmark of trust with consumers. So, while prevention is key, you should also have a breach management plan in place including insurance, communications and customer care. You should have established procedures and personnel who can ensure quick and fast damage limitation in case of a data breach. For more information, please contact Laura Scaife: firstname.lastname@example.org Mark Pring: email@example.com or Nichola Peters: firstname.lastname@example.org 21. Extinguishing distinguished products What do "hoverboards", smartphone chargers, tumble dryers and cars, all have in common? Worryingly, these are all products which have been recently identified as posing a fire risk. Amazon, John Lewis and Argos are amongst the retailers to have stopped selling a range of "hoverboards", after it was found that the products had non-compliant electrical components, including faulty cables, plugs without fuses, and failed cut-off switches which "could catch fire or explode". Such is the concern, that Trading Standards officers have seized 88% of all "hoverboards" examined since 15 October. Household white goods don't escape the spate of recent fire risks in the public eye, as tumble driers manufactured by Hotpoint, Indesit and Creda have also been identified as being at risk of bursting into flames as a result of excess fluff touching a heating element in some machines. It has been reported that a faulty tumble drier may have contributed to the deaths of two men in 2014, however formal inquests are yet to take place. Vauxhall Zafiras join the extending list of unsafe products recently identified after a common fault has caused numerous Zafira B vehicles to catch fire. Despite claiming the fires being caused as a result of "improper repairs", Vauxhall are conducting inspection and repairs to all 234,938 Zafira B vehicles, for free. In light of the alarming number and range of products being identified as posing safety risks and the subsequent financial and reputational implications that can follow as a result, including the need to recall products, retailers are urged to consider their policies and procedures for dealing with similar issues. Addleshaw Goddard's Safety Team are experienced in advising international retailers regarding product safety issues and product recalls and are able to advise you as to your responsibilities and liabilities. . If you require further information, please contact: Erin Shoesmith: email@example.com, Lee Hughes: firstname.lastname@example.org or Eddie Whittingham: email@example.com. 22. Fulfilment and its costs As online sales surge, particularly over the festive season, retailers are continuing to bear the cost of fulfilment to offer faster and cheaper delivery options to consumers. Even "click and collect" offerings (a low cost fulfilment alternative) can still pose significant costs for the retailer in terms of logistics, warehousing and staff. Ocado were heavily criticised for their introduction of a £9.99 delivery charge in the week before Christmas, particularly as the charge was applicable to those already paying a monthly delivery fee. John Lewis has started charging £2 on "click and collect" delivery for orders under £30, commenting that free deliveries across the board are unsustainable. John Lewis invested over £80m in its supply chain in 2015 and £100m in its IT functions, testament to the growth they've seen in online sales in recent years – 6m orders per year were made in 2014 compared to 350,000 orders in the first year of online sales. Amazon offers a one hour delivery service to its "Prime" service subscribers on selected items within London, Birmingham and the northeast for only £6.99, which is unlikely to cover the costs of fulfilling an order. Passing on increased fulfilment costs to customers could prove damaging to customer loyalty, however this risk must be weighed against balancing the burden of the huge increase in online shopping and delivery demands. Analysts suggest that fulfilling an online order from acceptance to delivery costs supermarkets an average of £15 per order, and on average, large grocers typically charge £1-6 per delivery, which means they lose out on around £9-14 per order. It will be interesting to see how retail and consumer businesses deal with the costs of fulfilment in an increasingly omnichannel environment - whether they seek to transfer the burden of fulfilment costs by only offering free delivery to members, as we have seen with Amazon's "Prime" service or Ocado's monthly delivery subscription; or increasing the cost threshold at which delivery becomes free, such as John Lewis's £2 "click and collect" fee on orders under £30. The impact of the costs will have to be carefully considered to ensure keeping up with the competition is worth the investment. 23. "Hourglass" consumers 2015 saw the characterisation of the "hourglass consumer". In an hourglass consumer economy, we see a dramatic rise in the popularity of high-end luxury items and discounted everyday goods and brands, as typified by the rocketing fortunes of Aldi and Lidl. The caricature version of this consumer is someone who drives their Range Rover to shop at Lidl. The issue for retailers in 2016 is whether they can encourage a premiumisation for every day products. Many retailers, including the main large format grocers, have introduced and maintained premium own brand lines to attempt to capitalise on consumers looking for luxury. Why is this an issue? Consumers are increasingly expecting retailers to provide everyday goods at heavily discounted prices, to compete with the low-cost models popularised by Aldi and Lidl. The emergence of a "price war" between the big four supermarkets has increased this pressure, resulting in price match guarantees on branded goods and even discounts on petrol. Cutting costs clearly affects profit margins but also puts pressure on supplier relationships. We have only to look at the effect of falling milk prices on farmers to see that the constant price slashing is not sustainable across the breadth of the supply chain. If the "hourglass" trend continues, we may see retailers increasing the variety of products marketed under their luxury own brand lines as well as their basic low-cost ranges to meet the simultaneous demands for discounts and luxury. What can you do? Consumer prices fell into deflationary territory in 2015, with inflation set at -0.1%, the lowest level seen in the UK since 1960. The lack of inflation combined with the highest real wage growth since the 2008 financial crisis should stabilise prices for retailers and consumers alike. Falling commodity prices should also ease the burden on retailers and their suppliers. Many retailers are expected to invest in their "luxury" branded products as well as in online sales to alleviate the burden of discount wars. 24. Minimum alcohol pricing Having concluded that alcohol consumption in Scotland is so problematic that ground breaking measures were required, the Scottish Government passed The Alcohol (Minimum Pricing) (Scotland) Act 2012, prohibiting the sale of alcohol at a price below a minimum price, to be fixed at 50p per unit of alcohol under the draft Alcohol (Minimum Price per Unit) (Scotland) Order 2013. The Act is not yet in force. It has been held up by a legal challenge brought in the Scottish Court of Session by three producer organisations, led by the Scotch Whisky Association. They argue that the legislation is incompatible with EU law, as it would amount to a restriction on the trade of alcoholic beverages between Scotland and EU member states, could distort competition between alcohol producers, and that fiscal methods such as excise duties on alcoholic beverages (which preserve freedom to determine selling prices) could equally meet the aims of the legislation in a less restrictive manner. The Scottish Ministers seek to justify the legislation on grounds of protecting human health, a justification provided for under EU law. They also argue that a minimum price per unit (MPU) would target prices of the alcoholic drinks most purchased by harmful drinkers (those that are very cheap relative to their strength) in a way that fiscal measures could not replicate precisely. The Court of Session asked the European Court of Justice (ECJ) whether the introduction of MPU is compatible with EU law - whether it amounts to a restriction on trade and whether it can be justified on health grounds where the member state is free to take less distortive fiscal measures which would meet the wider aims of the measure, though not necessarily the more specific ones. On 23 December 2015 the ECJ, in a ruling that broady followed the opinion of the Advocate General given in September, concluded that MPU does amount to a restriction on trade in the EU because it deprives suppliers based in other member states of the commercial advantage they may obtain from their lower cost prices. The measure may be justified on health protection grounds only if it is proportionate to the objective pursued. The ECJ noted that an increase in taxation of alcoholic drinks is likely to be less restrictive than an MPU measure, because traders retain the freedom to determine their selling price. It also noted that the Scottish legislation pursues a twofold objective - to reduce hazardous consumption of alcohol and to reduce the Scottish population’s consumption of alcohol more generally - and that a taxation measure that entails a generalised increase in the price of drinks, and contributes to achieving the objective of combating alcohol misuse more generally, would justify that taxation measure being preferred to MPU. However the ECJ stated that it is ultimately for the national court to determine whether measures other than that provided for by the MPU legislation are capable of protecting human life and health as effectively, while being less restrictive of trade in those products within the EU. The ECJ' s decision has been welcomed by First Minister Nicola Sturgeon who considers MPU the most effective way of tackling aclohol misuse. The Scotch Whisky Association has also welcomed the judgment for confirming that MPU is a restriction on trade and that it is illegal to choose MPU where there are less restrictive ways of achieving the same end. The case will now return to the Court of Session which must determine whether the MPU legislation is compatible with EU law. The ECJ confirmed that the Court of Session must have regard to all the information and evidence available to it when it gives its ruling and is not confined to examining only the information that was available when the legislation was passed. The stage is therefore set for vigorous argument before the Scottish court on the merits of the MPU legislation versus alternative measures, such as increased taxation, for tackling alcohol misuse without breaching EU law. It seems unlikely that the Court of Session's judgment will be the final decision – a further appeal to the UK's Supreme Court is very much on the cards, whichever way the Court of Session rules. Alcoholic beverage labelling A new EU level strategy for the reduction of alcohol-related harm is also being developed. On 7 December the Employment, Social Policy, Health and Consumer Affairs Council called on the European Commission to adopt, by the end of 2016, a comprehensive EU strategy dedicated to the reduction of alcohol-related harm. The Council also asked member states and the Commission to consider the possible introduction of mandatory labelling of ingredients and declaration of nutrition values (in particular energy value) of alcoholic beverages. Alcoholic beverages were exempted from the labelling obligations laid down in EU Regulation 1169/2011 on the provision of food information to consumers, pending a Commission report, due in December 2014 but delayed, on whether alcoholic beverages should be covered. However in March 2015 the European Brewers Association announced that the brewery sector was committing itself voluntarily to providing more consumer information on the calorie and nutritional content of alcoholic drinks. The Commission has responded to the Council, confirming that it will report on the mandatory labelling of alcoholic beverages and continue to work closely with member states in preventing and addressing alcohol misuse. 25. Mobile payment developments Since the announcement of Apple Pay in autumn 2014, mobile providers and technology companies have been racing to adopt this latest development in payments. Paying in store using a mobile device is becoming increasingly widespread, although an estimated 85% of transactions are still made using cash - likely due to the requirement for retailers to invest in payment technology upgrades and the initially limited number of banks offering the service to customers. Most recently, £ If you require further information, please contact: Adrienne Wilson: firstname.lastname@example.org MasterCard, Wal-Mart and Google (Google Wallet/Android Pay) have announced that they are developing mobile payment options to rival Apple Pay, whereas the future of smaller, existing providers such as Pingit and Zapp looks uncertain - indeed Barclays have announced that they will be launching an Apple Pay service early 2016 possibly signalling the end of Pingit. Whilst Apple Pay remains the big fish in the UK payments pond, many predict that Samsung Pay will have the last laugh. Currently only available in the US and South Korea, this mobile payments service is rumoured to be launching in the UK, Spain and China in 2016 - and it is smarter than Apple Pay, which only works with NFC enabled devices. Samsung Pay works with NFC and mag-stripe swipers (which are in nearly all UK retailers already) meaning merchants won't need to upgrade their payment terminals. The popularity of these mobile payment services looks set to outstrip 'contactless' cards, as the fingerprint protection required on most devices allows for higher value transactions than those currently allowed using contactless card payments. Crypto/virtual currencies such as Bitcoin and Decred have also garnered a fair amount of press coverage. These decentralised digital currencies have advantages over 'normal' transactions as they are not processed through a bank, substantially lowering fees and they work across every country so bank accounts can't be frozen. Some see these as a real future contender to the payments crown, as they are, in theory, even more secure and are not reliant on banks to operate. These could cut costs for many businesses and early adopters may benefit from a captive audience of Bitcoin/Decred consumers who have decided to move away from traditional payments platforms. 26. Online Competition developments During 2015, the AG Competition team have been monitoring the developments in the online retail sector, an area of fastdeveloping law: ► In the UK, the CMA opened an investigation into suspected anticompetitive agreements between online retailers of licensed sportswear and recently carried out searches of Trod Ltd, in conjunction with the US Department of Justice's existing inquiry into online price fixing algorithms ► Twenty five authorities across Europe closed their investigations into online hotel booking, having accepted Expedia and Booking.com's proposals to drop certain price parity clauses, but continue to monitor the effects of the changes. However, there is still no EU wide consensus, with France and Germany in particular taking a more restrictive approach e.g. a French law outlawing all forms of price parity clause is now being challenged by online booking companies ► The European Commission launched an inquiry into barriers to entry in online cross-border trade, focussing on electronics, clothes and shoes where e-commerce is most common, and also digital content. It is also currently investigating price restrictions in the online cross-border trade of electronic products, alleged geo-blocking of online video game sales and TV licensing contracts between US film studios and online pay-tv services ► As one of the first initiatives in its Digital Single Market Strategy, the Commission published proposals for a new Regulation on the cross-border portability of online content services, a Directive on contracts for the supply of digital content, and a Directive on aspects of e-commerce and distance selling of goods. ► There is a tension between those who favour regulation of e-commerce and those who advocate a more pro-competitive approach. The Chief Executive of the CMA, Alex Chisholm, recently said that regulation should not be imposed on a blanket basis, as there is no "digital one size fits all", and the minister for digital issues (Baroness Lucy Neville-Rolfe) said regulators should "judge carefully" before intervening strongly against dominant online platforms. Illustrating this tension to full effect is the High Court battle between TFL and Uber, with Sajid Javid describing the " dramatic detrimental impact" of proposed regulation on consumers, and Boris Johnson accusing Uber of " systematically" breaking the law. In 2016, we expect the online retail sector to remain in the spotlight: ► The Commission will continue to advance its Digital Single Market Strategy. Its roadmap for the initiative includes measures in the area of parcel delivery and reviews of the Regulation on Consumer Protection Cooperation and the e-Privacy Directive in 2016 ► As part of the same EU Strategy, the House of Lords EU Internal Market Sub-Committee launched an inquiry into online platform regulation, and has heard evidence from Amazon, Etsy, Google and Airbnb amongst others. It plans to publish its report in Spring 2016 If you require further information, please contact: Nicola Bowkett: email@example.com. ► The Commission will publish its initial report on the e-commerce sector for consultation in mid-2016, and final report in 2017. ► One of the CMA's aims in its Annual Plan for 2016-17 is to "develop its work in the digital sphere". The next year or so may well dictate the regulatory approach to e-commerce in the retail sector, so we will be sending out updates as appropriate. For more information on recent competition updates in the retail and consumer sector, click here for our latest R&C Competitive Edge publication. 27. Plain packaging for tobacco products A transition to plain cigarette packaging seems likely in the near future, with various related legal actions also currently underway: the outcome is bound to be of interest not just to the cigarette industry but to all brand businesses and IP lawyers (especially those which own brands which carry any health sensitivities). The UK Government introduced standardised tobacco packaging legislation with a vote in the House of Commons in March 2015, with measures planned for introduction in May 2016 and full roll out by 2017. The powers to introduce standardised packaging were included in the Children and Families Act 2014, and only needed approval from Parliament before being introduced, as the packaging regulations are not primary legislation. Packaging will be required to conform to a standard size, shape and design, with only the brand name (in a standardised font) and a graphic health warning image permitted on the front of the pack. The hope is that plain packaging will decrease consumption of tobacco products in the same way that similar measures introduced in Australia coincided with a fall in smoking rates of 12% In the year between December 2013 to December 2014. The plain packaging measures follow the 2012 ban on openly displaying tobacco products in supermarkets and large shops, and the phasing out of active advertising and marketing of tobacco products almost a decade ago across 2003-2005. Four of the world's biggest tobacco companies, Philip Morris International, British American Tobacco, Imperial Tobacco and Japan Tobacco International, have filed lawsuits against the UK Government over the planned legislation. The claims put forward are that the measures deprive them of property in the form of trademarks, and that the measures violate European intellectual property laws. They are seeking compensation that could extend to billions of pounds should their lawsuits be successful. They may also be hoping to delay the implementation of the plain packaging policies, or deter other countries from introducing similar measures. The Government claims that the new legislation is compliant with European law and appear to be confident of victory. The case was heard in a six-day hearing at London's Royal Courts of Justice, with a verdict expected in early 2016. A similar lawsuit in Australia's High Court following the introduction of standardised packaging in that country was unsuccessful, however further legal challenges were made via the World Trade Organisation by the Ukraine, Honduras, Dominican Republic, Cuba and Indonesia arguing that plain packaging law breaches the WTO’s General Agreement on Tariffs and Trade (GATT), Agreement on Technical Barriers to Trade (TBT Agreement) and Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS Agreement) because plain packaging is discriminatory, more trade restrictive than necessary, and unjustifiably infringes upon trademark rights. The WTO ruling is expected in late 2016. 28. Taxation changes to termination payments The Government launched a consultation on reforming the income tax and national insurance exemptions for termination payments during July 2015. The consultation had the stated aim of giving employees certainty about the amount of money they will receive when they lose their jobs whilst, at the same time, simplifying the current position making it easier for employers and HM Revenue & Customs to administer. We were expecting any changes to take effect during 2016 – although we understand that the Government received a large number of responses to its consultation, very few of which were in support, and it is possible that this may result in the proposals being substantially revised and/or delayed. Current position For more information, please contact Rona Bar Isaac: firstname.lastname@example.org or Phil McDonnell: email@example.com. For more information, please contact Emma Armitage: firstname.lastname@example.org When an employer makes a termination payment to an individual, broadly speaking, the elements of the payment that are from the employment (for example, payments in respect of accrued but untaken holiday) or that the individual is contractually entitled to (for example, a payment in lieu of notice (PILONs) under the terms of the employment contract), are subject to income tax and national insurance contributions (NICs). In contrast, the elements that are not from the employment are only liable to income tax in respect of any amount exceeding £30,000. No employer's or employee's NICs are payable on these elements whatever the amount. In addition, there are various other exemptions which apply to termination payments. These include payments made on termination of employment due to death, injury or disability, payments made under a tax exempt pension scheme, payments made to a registered pension scheme, payments made where the employee has a certain type of foreign service and payments by the employer of certain legal costs incurred by the employee. Proposed changes: In summary: ► The distinction between the income tax and NICs treatment of contractual and non-contractual payments should be removed ► A new exemption from income tax and NICs should be introduced. This will increase proportionately with the number of years' service with the exemption applying only once the employee had completed 2 years of service ( Termination Exemption) ► The Government is also considering that, rather than the Termination Exemption applying to all termination payments, it should only apply to termination payments made where the employee is made redundant ► In respect of the existing exemptions, the Government intends to retain the exemption in respect of payments made on termination of employment due to injury or disability (although it does not specifically refer to retaining the exemption in respect of payments made on termination of employment due to death) but to remove the foreign service exemption. It is seeking stakeholders' views on whether any of the other exemptions should be retained ► If the Government proceeds with the proposal to link the exemption from income tax and NICs to payments made where the employee is made redundant, it intends to introduce two new exemptions in respect of payments made in connection with wrongful or unfair dismissal and in respect of compensatory payments made in cases of discrimination. It is consulting on whether these exemptions should be subject to a financial cap and whether payments that have been settled by a tribunal should be treated differently to those made under a settlement agreement between an employer and the employee. There will certainly be both winners and losers under the proposed changes. Employees with less than 2 years' service will not benefit from the Termination Exemption and, potentially, payments made to those who lose their jobs for reasons other than redundancy will be taxed in full. The consultation gives no clue as to the rate at which the Termination Exemption will apply or the amounts by which it will increase depending on service – much will depend on the actual rates set in determining the extent to which the proposed changes are merely a cost saving measure by the Exchequer. The proposal to exempt payments made in connection with wrongful or unfair dismissal is helpful but much will depend on the amount of any financial cap and whether this will include payments made under a settlement agreement as well as those settled by a tribunal. In our experience, the current position is relatively straight forward and readily understood by clients. The only areas of uncertainty tend to be those where HMRC policy or practice is unclear or has been subject to change; policy in respect of PILONs being a good example of this. We are therefore cautious about changing this area of law for a number of exemptions which, at best, do not appear to lead to greater tax simplification. Addleshaw Goddard LLP worked with the GC100 group on formulating the GC 100 response to the proposals. 29. VAT on pension schemes 31 December 2016 – End of transition period for employers to reclaim VAT on certain pension scheme costs HMRC is currently reviewing how VAT is claimed in relation to UK pension schemes. This has been a long drawn out and somewhat vexed issue as employers have waited for clarity (or at least, less confusion) from HMRC on this, following earlier court rulings that called into question the way the UK approached this. For more information, please contact Nicky Griffin: email@example.com. One of the main issues is that HMRC has removed the concession that has been in operation for many years, under which certain costs, including administrative costs, of running a pension scheme, can be reclaimed by the scheme employer as part of its VAT returns. This is subject to a transitional period which ends on 31 December 2016. This change leaves schemes facing a possible 20% increase on their running costs from January 2017. There are potential options for maintaining the ability to make these VAT reclaims at the end of the transitional period. However, none of them are straightforward and all have different pros and cons. Which option is best will vary between organisations and employers and trustees will need to carefully consider these and take tax and legal advice before implementing any changes. However, we recommend waiting for further HMRC guidance before making any final decisions. 30. Zero hours contract (ZHC) regulations Over the last twelve months the Government has focussed on regulating the use of ZHCs. Such contracts have attracted controversy following the working practices adopted by organisations such as Sports Direct. For example, in February 2015, it was confirmed that nearly 300 current and former employees of Sports Direct were proceeding with claims following the retailer's decision not to grant them a share of a £160 million bonus pool because they were employed on ZHCs. On 26 May 2015 a ban on the use of "exclusivity clauses" in ZHCs came into force. Exclusivity clauses provide that the worker is not entitled to work for another employer, even when their primary employer has no work available for them. CIPD research published in November 2013 had found that 9% of individuals engaged on ZHCs were subject to exclusivity clauses. The ban was followed in October 2015 by new guidance on how ZHCs should be used. The guidance is aimed at employers and includes information on employment rights, appropriate use, best practice and exclusivity clauses. The guidance provides that: ► ZHCs are only appropriate in certain situations, for example, when the employee is engaged in seasonal work, a start up business or, a one-off special event. These contracts are not appropriate for individuals who are contracted for permanent work, with regular hours, over a continuous amount of time ► When recruiting for a ZHC, employers should clearly advertise the job as such and the individual should be informed that hours are not guaranteed ► When offering a ZHC, employers should consider including specific information such as, whether the individual is an employee or worker, what employment rights they are entitled to, the process by which work will be offered and, how the individual's contract will be terminated ► Cancelling work at late notice is not acceptable unless truly unavoidable and employers should give employees as much notice as possible when work is, or is not, offered ► Exclusivity clauses are prohibited, meaning that employers cannot stop zero hours workers from looking for work with, or accepting work from, another employer. Looking ahead to 2016, it is expected that the Government will introduce further legislation designed to protect zero hours workers. The Government has previously consulted on the potential ways in which employers might seek to avoid the ban on exclusivity clauses and concluded that further measures were required. In October 2015, the Government published the draft Exclusivity Terms in Zero Hours Contracts (Redress) Regulations 2015 . The regulations were laid before Parliament on 19 October 2015. It is not yet clear when they will come into force, although it is expected to be some time in 2016. The draft regulations provide: ► A right for zero hours workers not to be unfairly dismissed if the reason, or principal reason, is that they have failed to comply with an exclusivity clause. There is no qualifying period of employment needed to bring such an unfair dismissal claim ► A right for zero hours workers not to be subjected to any detriment because they have failed to comply with an exclusivity clause ► Where an employer breaches these rights, the worker may issue a claim in the Employment Tribunal and seek a declaration and/or compensation. For more information, please contact Jade Murray: firstname.lastname@example.org. Although ZHCs are most commonly associated with the public and voluntary sector, they are used by 17% of private firms. All employers, regardless of their size or sector, must pay attention to the BIS guidance and how the new regulations will work in practice to avoid unintended consequences. For example, following the ban of exclusivity clauses, employers should review their employment contracts and ensure they are adequately protected in relation to confidentiality and competition issues, without falling foul of the regulations. For more information, please contact Sally Hulston: email@example.com.