The contract hire industry is broadly united in its view that new consumer rights legislation will not have an impact on salary sacrifice car and employee car ownership (ECO) schemes, although dissenting voices have emerged suggesting that certain types of scheme will need to be reappraised.
The legislation, which is expected to become law in late 2014 or early 2015, is designed to clarify consumer rights and provide better protection when taking delivery of goods, services and digital content.
Under the terms of the legislation, there is a belief in some quarters that employers which provide cars to employees via salary sacrifice or ECO schemes could be termed ‘suppliers’ and therefore impacted by the legislation with employees classed as ‘consumers’.
However, even if that is the case some suppliers are arguing that it changes nothing as such schemes are already compliant with consumer legislation giving employees cancellation rights.
Jay Parmar, legal and policy director at the BVRLA, summed up the diverse opinions of suppliers spoken to by Fleet News when he said: “Due to the different structural arrangements of salary sacrifice and ECO products it is impossible to give a general answer as to the impact of the Consumer Rights Bill on leasing companies, employers and employees.
“The BVRLA will be alerting its members to the new legislation once it has completed the Parliamentary process and leasing companies will review the impact of any changes required for salary sacrifice or ECO products,” he added.
Employers must ensure plans are compliant with Bill
HR consultancy Aon Hewitt has held discussions with Government lawyers and representatives on the Bill, but is not prepared to give definitive guidance while it remains in draft form.
However, Martha How, principal at Aon Hewitt, said: “Interpretation is difficult but there is enough in the Bill as written to suggest consumer rights apply to employees when employers give them the chance to buy a benefit via flexible benefits or salary sacrifice. It is therefore best practice for employers to ensure their plans are compliant.”
She added: “We also believe that the prime responsibility for ensuring employees ‘get what they pay for’ is the ultimate benefit vendor, however the employer as an intermediary may have some responsibility to facilitate this. We anticipate that employers may seek to review their contractual terms with vendors.”
How advised employers and their salary sacrifice providers to review terms and conditions for the supply of vehicles, ensuring that the range of charges relating to early termination, mileage penalties and damage were highlighted.
Andrew Leech, director of Fleet Evolution, said the key issue in respect of whether or not the new legislation applied depended on the terms of the salary sacrifice agreement.
“Traditional salary sacrifice arrangements such as our own relate to an employee agreeing to forego a proportion of their salary in exchange for a benefit from their employer,” he said.
“The employee is not entering into a direct agreement for the supply of a vehicle, more exchanging salary for a benefit. As such it’s just a normal company car with no more legal complication than that you would have with a traditional company car.
“The agreement for the supply of the vehicle is between the employer and the leasing provider.
New law will affect some schemes
“However, under the terms of some salary sacrifice schemes, for example a novated lease arrangement where the employee leases a vehicle from a contract hire company and the employer makes the monthly payments on behalf of the employee having deducted them out of the employee’s pre-tax income, the new law will apply,” said Leech.
“It applies also because if the employee ceases to be employed by that employer, or the lease agreement ends, the employee retains the vehicle with all obligations assumed by the employer under the novation agreement reverting to the employee.”
David Fernandes, managing director of salary sacrifice provider SG Fleet, which structures its scheme via a novated lease arrangement, countered by claiming the new consumer rights legislation “changed nothing” because salary sacrifice schemes already came under the scope of existing consumer legislation.
He said: “We have always taken the view that, under salary sacrifice, there is at minimum an implied contract between the employer and employee to provide the vehicle. Consequently, the Consumer Credit Act applies, as does the new legislation.”
Fernandes added the structure of the salary scheme used by the employer to fund the vehicle wasn’t relevant.
The Bill, he said, related to the relationship between employer and employee, not the leasing structure used.
“Car salary sacrifice schemes in the future will be covered by two pieces of consumer-related legislation, but we are already compliant under both,” added Fernandes.
“We don’t see any issues where employers have recognised their employees as consumers.”
Asked if the introduction of the Consumer Rights Act would impact on the popularity of salary sacrifice schemes, he said: “Nothing changes. We have always treated salary sacrifice as a consumer product so it is not a grey area.”
David Hosking, chief executive of salary sacrifice provider Tusker, said the Bill has “limited impact on salary sacrifice car schemes”.
He highlighted that salary sacrifice was a “supply of services by the employer to the employee” and the draft Bill contained an express exemption for employment contracts in respect of supply of services. Legal advice was that salary sacrifice was part of an employment contract.
Tiered remedies may apply
Nevertheless, the Bill implies that obligations to the quality of goods in a contract of hire may apply between the employer and the employee even if they had validly been excluded in the agreement between the leasing company and the employer, because that part of the overall arrangement was not a consumer contract.
“Salary sacrifice car schemes in the way that they are provided in the UK, by all but two providers who structure their schemes using a novated lease agreement, do not fall under the jurisdiction of the Consumer Credit Act,” said Hosking.
“However, the definition of contract of hire in the Bill is very wide – wider than the ordinary law and wider than the Consumer Credit Act.
“Therefore, a salary sacrifice arrangement can be a supply of goods for the purposes of the Bill even if it doesn’t fall under the Consumer Credit Act. This may mean that the tiered remedies under the Bill in respect of these implied obligations may apply.”
But, he added: “We do not need to do anything that we do not do at the moment in terms of the supply of goods to drivers.
“If a driver makes a claim under the proposed provisions their employer will expect the leasing company to sort it out, which we do at the moment anyway.
“Effectively the Bill as written changes nothing, but it is some distance short of finishing its Parliamentary progress so changes could be made before it becomes law.”
Andrew Hogsden, senior manager, strategic fleet consultancy at Lex Autolease, also predicted no problems with its salary sacrifice arrangements.
“Our salary sacrifice proposition already involves a regulated hire agreement between employer and employee and affords some of these rights, such as cancellation rights to drivers of cars provided under the arrangement.”