Part 1 of our Outlook for 2015 identified a number of key issues for food and drink businesses to be aware of, including challenges facing the industry from competition amongst supermarkets and discounters and the effect on margins and profitability for manufacturers, anticipated corporate activity in the sector, conclusions from the Elliott report and the implementation of the Food Information Regulation.
Parm Singh, Head of Food and Drink Sector, discusses in Part 2 of our Outlook for 2015 other hot topics that are facing businesses for the year; from data protection to employment issues, the impact of 3D printing, as well as increased competition enforcement within the industry and the introduction of the “opt-out” procedure for class actions which forms part of the new Consumer Rights Bill.
Part 2 Outlook for 2015
There are ongoing questions on the profitability of online trade, the continued rise of social media use by FAD companies looks set to continue. Are there any data protection issues that FAD companies should be mindful of?
Through the increasing use of social media, FAD companies are collecting and processing increasing amounts of end consumer personal data, which may often be processed by a service provider using Cloud Technology. The collection and use of personal data has often developed in a quick and ad hoc manner which may not have been formalised internally, or reviewed for Data Protection compliance. FAD companies would do well to review these activities so that they are aware of (amongst other issues) how end consumer data is being collected, what it is being collected for, where it is being held and who has access to this information.
Consumer personal data is often processed by service providers using Cloud Technology. The increasing use of this technology (in the guise of HRIS, CRM or e-mail systems to name a few) to save cost within IT budgets looks set to continue. However, this comes with some tricky Data Protection compliance and contractual questions which need to be addressed, in particular, where the personal data is actually stored and the nature of the service provided within the Cloud solution, both of which are likely to change rapidly and often without a customer being aware of the change. Due diligence before contracting will be critical as will negotiation of the required Data Protection terms within the contract to ensure that control of the data remains with the FAD company. We are still seeing a number of vendor data protection terms (particularly standard terms of service) falling short of the required mark.
Having a good grip on both of the above issues will be critical as Europe gets ready for a change in Data Protection law. It remains to be seen whether the long awaited Data Protection Regulation, which is set to replace the 1995 EU Data Protection Directive, will finally be agreed later this year, or possibly in early 2016. Regardless of when this happens, the change in law will see an increase in compliance requirements for the processing of any type of personal data and regardless of the system on which that personal data is being processed. In the meantime, there are some interesting cases on the jurisdictional reach and adequacy of the safe harbour regime which will be heard during the year which may cause some waves before the revised law is agreed. As such, getting to grips now with your existing processes, systems and technology will stand FAD companies in good stead ahead of the upcoming changes.
Speaking of technology, 2014 saw the mainstream press showcase the Foodini, as a 3D food printer capable of making a wide variety of dishes. What legal issues should the industry be aware of in anticipation of further developments in 2015?
The impact of 3D printing is only set to increase this year. For those in the FAD sector, this is particularly significant, as 3D printing technology is able to not only reproduce packaging but also sophisticated food products. With this comes huge developmental scope, but also a need for businesses to understand how best to protect their brands and products.
The UK government is analysing responses to its consultation on proposed amendments to the Consumer Protection from Unfair Trading Regulations 2008. The changes could give FAD brand owners the power to seek a civil injunction to prevent lookalike products (at present this is only available to Trading Standards). A report on the outcome of the consultation is likely in 2015.
Plans for the unitary patent and unified patent court will continue to develop, and further information on the procedure and costs can be expected. The system will open its doors for business once thirteen of the EU Member States which have signed the international treaty setting up the court have ratified the UPC Agreement; five have done so, with many states indicating that they hope to ratify this during 2015.
The Copyright and Rights in Performances (Quotation and Parody) Regulations 2014 came into force on 1 October 2014, and so the FAD sector can expect to feel the effects of such changes as 2015 unfolds. The new regulations provide greater freedom to quote the copyright works of others without permission, however the regulations have been criticised for their lack of clarity, which will make navigating them challenging (at least until there is a larger body of governing case law).
There was a flurry of updates in employment law over the course of 2014. What do you see the key employment issues for FAD employers this year?
The new shared parental leave system will apply to parents of babies due or children placed for adoption from 5 April 2015 and will allow a woman who is eligible for statutory maternity leave and statutory maternity pay to bring both her leave and pay to an end and share it with her partner. Leave can be taken in blocks and both parents can be off work at the same time which raises a whole host of operational and administrative issues for employers.
The cost of sickness absence puts a significant burden on employers with the average cost being £609 per employee. The introduction of the Government’s Fit For Work service for GPs, employers and employees will be welcomed by many. The service is set to be fully operational by May 2015. Employers will need to consider any recommendations made by the service when considering the future employment of absent employees (even if they have their own occupational health service), as a failure to do so could result in claims for unfair dismissal and disability discrimination.
The issues of holidays and holiday pay will, no doubt, continue to dominate the employment spectre in 2015 notwithstanding the government’s attempts to limit employers’ exposure to backdated claims to two years for all claims commenced on or after 1 July 2015. Employers need to seek advice as to their exposure and consider the timing of any settlements with employees and/or unions.
Finally, this is a General Election year and the current Government is under pressure to complete its employment reforms before the Election. Notably, the Small Business, Enterprise and Employment Bill impacts on zero hours contracts and legislation is expected within the next few months, which will require companies to ensure their zero hour contracts do not contain exclusivity clauses.
The other political parties are also putting forward their manifestos. Labour are proposing to increase the National Minimum Wage (NMW) to £8 by 2020 and to introduce tax breaks to employers paying the living wage; they are also promising to reform the tribunal system, in particular, addressing fees and remission such that justice is “affordable”. The Liberal Democrats are keen to introduce four weeks’ paternity leave and propose to increase the NMW for apprentices, in addition to removing the names of jobseekers during the recruitment process in the public sector to reduce the risk of discrimination. The Conservatives would seek to renegotiate its relationship with the EU, repeal the Human Rights Act and replace it with a British Bill of Rights, which would see the European Court of Human Rights become an advisory body only. Meanwhile UKIP’s employment law proposals have been few and far between although they have promised to repeal the Agency Workers Directive and leave the EU.
What are the key themes for 2015 in competition law?
We expect to see increased enforcement across all sectors, but especially the food and retail sectors, and the potential for greater numbers of third party “follow-on” claims following the introduction of the new Consumer Rights Bill.
After a number of quiet years for enforcement and dawn raids in the UK, prior to the introduction of the Competition and Markets Authority (CMA), we are expecting to see increased enforcement against suspected anti-competitive activity following a period of transition for the new UK regulator. In its Annual Plan for 2014/2015, the CMA stated that the current economic climate continues to give rise to risks to consumers.
This focus on the FAD sector by the UK regulator reflects the approach adopted by the European Commission (EC) which has engaged in increased cartel enforcement activity in the sector during the last year. Shortly after a statement by the director of cartels in the EC’s antitrust department that the food sector in Europe will see increased scrutiny, the Commission fined two producers of canned mushrooms a total of €32.2 million for participation in an illegal price-fixing and customer allocation cartel. This active approach to enforcement in the sector looks set to continue in 2015 on both a national and EU-wide level, and organisations with a presence in the FAD sector must ensure that their commercial practices are compliant with both UK and EU competition law.
This will be especially crucial once the Consumer Rights Bill comes into force. The Bill, which will be implemented on 1 October this year, introduces an “opt-out” procedure for class actions, a collective settlement regime as well as a framework for voluntary civil redress for competition law actions. Whilst it has been possible for some time in the UK for third parties to bring claims for damages suffered as a result of anti-competitive activity in both the High Court and the Competition Appeals Tribunal (including on an “opt in” collective claim basis), the number of follow-on claims brought has historically been low when compared to the number of public enforcement decisions. It is anticipated that the changes to be introduced as a result of the Consumer Rights Bill, particularly the introduction of “opt-out”, rather than “opt in”, collective damages procedure, will make it easier for third parties to bring action and will help to address the uneven balance between public and private enforcement of competition law.