Short summaries of each article are shown below. If you would like to view the full article, click on the underlined links. To return to the start, click on the "Go back" link.
STRATEGY, STUDENTS AND GOVERNANCE
De-regulation of governance – converting HECs to companies
Following on from the government's White Paper proposals to deregulate areas of university governance, a sub-group of AHUA has been looking at reform of the governance arrangements of higher education corporations. We have been involved in the group's work and explain here a proposal which would allow HECs (optionally) to improve their powers by converting their status to that of companies limited by guarantee. Read more
Charities Bill
NEWS UPDATE:The Charities Bill received its second reading in the House Of Commons on 26 June 2006. The debate contained some mention of universities and private hospitals (not much) and also independent schools (more). Debates can be found at
It has now been committed to a Standing Committee. Proceedings in the Standing Committee must be brought to a conclusion on Thursday 13th July 2006.
Some amendments have been tabled to the Charities Bill for consideration in standing committee in the House of Commons. Full text: http://www.publications.parliament.uk/pa/cm200506/cmbills/083/amend/60626a01.htm
FINANCE, TECHNOLOGY AND INTELLECTUAL PROPERTY
Countdown to the EU's Seventh Framework Programme (FP7): Part 1
The European Union's Framework Programmes for Research and Technological Development have traditionally been important sources of research funding for research universities in the UK. With the current Sixth Framework Programme (FP6) due to expire on 31 December 2006, to be replaced by the Seventh Framework Programme (FP7) on 01 January 2007, this is the first of a series of articles looking at the proposed legal regime for FP7, and in particular exploring how this regime differs from FP6. This month we look at proposed changes to the rules regarding the information and rights that universities participating in FP projects are obliged to share with fellow project participants.
Email and Internet Policies: time for a review
Our article offers a reminder of the legal principles in the area of regulating use of university email and internet facilities, and a summary of the key points to consider if you review your policies.
ESTATES
New Fire Safety Requirements in Halls of Residence
From 1 October 2006 a new Fire Safety Order will replace the old Fire Certificates regime with a requirement that fire risk assessments are carried out and their recommendations implemented. The Order will apply to halls of residence, as our note explains. Read more
HUMAN RESOURCES
Age Discrimination laws force changes to pensions schemes
The new Regulations coming into force on 1 October 2006 apply to age discrimination by employers or trustees of occupational pension schemes in relation to contributions paid or rights accrued after that date, and to employer contributions to personal pension schemes. Our article explains the implications, the exemptions which allow pension schemes to continue to operate, potential pitfalls, and what you need to do now. Read more
Full Article
STRATEGY, STUDENTS AND GOVERNANCE
De-regulation of governance – converting HECs to companies
In the February 2006 edition of Universities Legal Briefing, we reported on the government's proposals for deregulation of universities' governance arrangements by removing all but "core issues of public interest" from the purview of the Privy Council. We explained how an optional process would allow both chartered and statutory universities to gain more control over their own governance arrangements for the future.
In this follow-up article, we look at a proposal worked up by an AHUA sub-group on the governance of higher education corporations (HECs), with input from DfES advisers, SCOP, CMU, and ourselves, to offer HECs the option of improving their limited statutory powers by exercising the option of conversion to the status of company limited by guarantee.
This article is specifically relevant to English HECs, but may well be of interest also to those in other jurisdictions and to universities with different constitutions.
Problems with the limited powers of HECs
The powers of HECs are limited to those laid down in the statutory provisions of the Education Reform Act 1988 (ERA) under which they were set up. These are obscurely drafted and often difficult to interpret. The rules of statutory interpretation are strict, and acts beyond a HEC's powers are ultra vires and risk being found void. Problems in practice regularly arise in our experience in relation to major schemes and novel projects, often because a lender or other partner may question the HEC's power to enter into a particular structure. This can delay or even derail projects at a critical stage.
In respect of their powers, HECs are in a weaker position than universities incorporated by Royal Charter or conducted by companies limited by guarantee. Bill Rammell, the Higher Education Minister has recognised this and expressed his concern that HECs should not have lesser powers, and given his support for exploration of proposals to level the playing field.
The proposal – "successor companies"
Rather than try to amend section 124 of ERA (the statutory powers of HECs), which would be a cumbersome process involving either primary legislation or at least a Regulatory Reform Order, it is suggested that HECs may wish to take advantage of section 128. This in effect allows them to convert their status from a university conducted by a statutory corporation to a university conducted by a company. As with the other governance deregulation proposals, it would be an entirely optional step.
The change of status would be achieved by seeking an order of the Secretary of State to dissolve the HEC and transfer its assets, rights and liabilities to a company established for the purpose. The Secretary of State may designate such a company as eligible to receive HEFCE funds subject to its fulfilling certain criteria, including: being a company limited by guarantee with exclusively charitable objects including the conduct of the institution formerly conducted by the HEC; that all its members at the point of formation were members of the former HEC and constituted a majority of the HEC's members; and the Secretary of State's approval of the memorandum and articles of association.
The "successor company" would retain the HEC's status as an exempt charity under Schedule 2 to the Charities Act 1993, left unchanged by the Charities Bill.
Form of governing instruments
Having freed themselves from the constraints of section 124, universities conducted by "successor companies" would have the ability to choose and draft their own objects and powers. As noted above, the memorandum and articles must have the initial approval of the Secretary of State, and future amendments will require Privy Council approval. However, there is no obligation to follow the same form as the standard HEC instrument and articles, as long as provision is made for the constitution of the governing body and for the conduct of the institution. (The same applies to existing "designated institutions" conducted by companies, although we note that many have apparently chosen to adopt the standard form HEC instrument and articles even though they are not obliged to). We would not recommend adopting the standard form of instrument and articles which is excessively prescriptive and is now widely regarded as outdated.
Advantages of a change of status
There are a number of advantages to conversion that we can see. We initially pointed out the defective powers of HECs compared to other institutions, which would clearly be remedied, putting HECs on a more level playing field. In addition, company status is likely to be perceived as more "business friendly" and generally understandable by commercial and international partners. HECs at present have no objects or ability to embody their objects in their constitutions. This is anomalous as institutions increasingly seek to specialise and differentiate themselves, and would be dealt with by incorporation and drafting their own constitutions. Finally, while a HEC can be dissolved by order of the Secretary of State and have its assets transferred, the way a university conducted by a company would achieve, say, a merger, would be by passing the appropriate company law resolutions. Although at some point Privy Council approvals would be needed for changes of name or to the memorandum and articles, it seems to us that the destiny of the university is held more closely in the hands of the members/directors when it is conducted by a company.
There will be a certain amount of extra administration in connection with Companies House and Companies Acts requirements, but apart from that, we consider that change of status brings no obvious significant disadvantages.
Why has nobody thought of this before?
It appears that they have, and it was originally envisaged that as they matured HECs would apply for incorporation as companies limited by guarantee. At the time of ERA's introduction, the Minister explained the rationale for including the option as follows (in an extract from Hansard researched by DfES legal advisors):
"Some concern has been expressed by the directors of polytechnics about the legal form in which polytechnics may be incorporated. There has been concern about whether they should be able to proceed via the route of incorporation or by means of companies limited by guarantee. The Government has tabled the amendments because directors of polytechnics think it desirable to have an option. Some wish to be incorporated as companies because that would be more understandable to business governors. However, as others argue differently, they should have an option. I emphasise that it is an option and not a compulsion. It is certainly not the prefiguring of a sinister plot as the Hon Member for Yeovil seems to think."
The Minisiter was asked if this would take institutions further away from Government accountability and he answered:
"A polytechnic that is registered as a company will be subject to the exact same controls as other institutions designated as eligible for PCFC funding."
After the incorporation of HECs in 1989, it looks as if nobody took up the option. However, as HECs have evolved and matured, and now engage in complex major projects where powers are an issue, it has re-emerged as a sensible solution both to the powers question and to the wish to have a modern system of governance run along business lines and compatible with, and understandable by, business partners.
If you are interested in exploring a change of status for your institution…
We are already advising one HEC which is proposing to convert its status, and this is likely to be followed by a small group of other HECs doing the same thing. We would of course be delighted to assist, whether you wish to join the vanguard or follow on behind. Go back
nicola.hart@pinsentmasons.com
FINANCE, TECHNOLOGY AND INTELLECTUAL PROPERTY
Countdown to the EU's Seventh Framework Programme (FP7): Part 1
UK universities and their academic research staff are likely to be familiar with the European Union (EU) Framework Programmes for Research and Technological Development (Framework Programmes). Since 1984, the Framework Programmes have been used by the EU as a vehicle to fund research and innovation projects and drive economic growth and competitiveness in Europe through its research base.
In short, the Framework Programmes provide funding for research and development projects. The projects must involve a consortium (generally at least 3) of participants and be transnational (involve participants from more than one member country). Universities play an integral role as willing participants in the Framework Programmes.
The present Framework Programme, FP6, will continue to run until 31 December 2006 and its successor, FP7, will commence immediately thereafter on 01 January 2007. First calls for project proposals under FP7 are expected around the end of 2006. Traditionally, Framework Programmes have lasted for a period of 5 years. However it is proposed that FP7 will continue for 7 years expiring in 2013.
At present, the precise rules for participation in FP7 are not finalised but the European Commission has signalled that emphasis will be placed on increasing flexibility and refining the rules relating to funding and participation whilst still maintaining certain consistencies with the present FP6 rules. At this stage, the European Commission has proposed some key rule changes in its proposals for FP7 which, if implemented, will impact on the provisions of the contracts that participants in FP7 will have to sign up to.
This article is the first in a series leading up to implementation of FP7 which will explain the key changes from FP6 that are of significance to universities which participate in the Framework Programmes. This month we look at proposed changes to the rules regarding the intellectual property and information that participants may be obliged to make available to other participants in the relevant Framework Programme.
FP6 – the Pre-existing know-how conundrum
A key facet of Framework Programmes has been that project participants share amongst themselves not only the results of the project (described in FP6 as "Knowledge"), but also (in certain prescribed circumstances) information and related intellectual property rights developed outside of the project (described in FP6 as "Pre-existing know-how").
The wide definition of Pre-existing know-how and the extent of the obligation to grant access rights to such Pre-existing know-how in FP6 has caused universities a degree of concern. The main cause of this concern is that Pre-existing know-how has been defined by the Commission to include all information and related IP rights that are held by a participant prior to the conclusion of the funding agreement between the Commission and the project participants (known as the "EC Contract") and any such information or rights acquired by the participant in parallel to the project (so called "sideground" information).
In FP6, participants must grant "access rights" in favour of fellow project participants to Pre-existing know-how in certain prescribed circumstances. In general, this will be where access rights are needed by the requesting project participant to either carry out the project or to use their own Knowledge.
Prior to the EC Contract entering into force a participant has to submit a list of any Pre-existing know-how that it wishes to exclude from access. This requirement causes significant difficulties for universities in particular, given that the volume and variety of research carried out within a large research university means that, both before and during the project other faculties or research groups within the university may carry out research in the same or a similar technical field; and, accordingly, it can be very difficult for that university to identify all information and related rights that it would wish to exclude from Pre-existing know-how. Accordingly, it is entirely possible that under FP6 a university might be obliged to allow access to information and rights that were created entirely independently using other funding and that were never intended for use in the FP6 project.
Some participants in FP6 have tried to avoid the problem of identifying the Pre-existing know-how that they wish to exclude by restricting access rights to only pre-existing know-how developed by the research group/individuals within the university that are actually involved in the research project, or by stipulating the Pre-existing know-how that it will bring to the project to the exclusion of any other information or rights controlled by it. However, the European Commission has indicated that these are not valid exclusions of Pre-existing know-how in terms of the EC Contract.
FP7 – back to the future
In light of the problems experienced by universities in this context under FP6, they will be pleased to note that under FP7 proposals the position on access to Pre-existing know-how is subject to what, on the face of it, appears to be favourable amendment.
It is proposed that FP7 will see the return of the expression "Background", last seen in the FP4 Programme, in place of references to "Pre-existing know-how". More substantively, the Commission appears willing to address some of the problems encountered under FP6 with regard to the all-encompassing nature of the rules governing what is included within the ambit of Pre-existing know-how.
First, the Commission are seeking to address some of the issues that have arisen under FP6 by excluding sideground information from its new definition of Background. This means that only information and rights in existence prior to conclusion of the EC Contract, not that which is created in parallel to the project, will included in the Background that will be subject to the access rights regime.
Secondly, the ability to exclude specific Background will still be available to project participants. However, it remains to be seen whether this will be on the same basis as under FP6 or whether a more satisfactory system will be adopted, such as allowing a university to restrict Background to that emanating from a specific research team.
The proposals suggest that project participants will be able to explicitly identify the Background which they are bringing to the project. What is not entirely clear yet is whether, in turn, it will be possible for a participant to simply identify the Background it will bring to the project, and exclude all other Background owned or controlled by it from access rights. Such an approach would, in the main, be welcomed by universities given the current difficulties faced by them under FP6 in explicitly listing Pre-existing know-how that they wish excluded from access rights.
Managing Pre-existing know-how and Background in practice
Depending on how far they go in final form, the proposed changes to the regime that governs access to information and related rights generated outside of the project may make the intellectual property aspects of FP7 projects easier for universities to manage. In any event there are practical steps that universities can take to manage and control what is included within the ambit of Pre-existing know-how / Background for the purposes of FP6 and FP7 projects respectively.
A key point is to put in place procedures for identifying any information or rights that may exist within the university and be relevant to the project. Identifying relevant information and rights is the first step to specifically excluding them from the project – the clearest way in which to ensure that such information and rights are not subject to access rights under the project.
Of course the tricky part is identifying information and rights that might be relevant to the project. Internal procedures should include a check requiring the principal academic on the project to identify information or rights created by his research that should be excluded from the project in question.
In addition, the principal academic could also be required to confirm whether he is aware of any of his peers within the university working on research in the same or a related technical field to the project. If that is the case further investigation may be required to confirm if there are any other information or rights within the university that require to be excluded.
By building as clear a picture as possible (resources permitting!) of existing information and rights in a relevant field a university should be able to minimise the risk of such information and rights being inadvertently made available through a FP6 or FP7 project. Go back
joanne.stewart2@pinsentmasons.com and chris.martin@pinsentmasons.com
Email and Internet Policies: time for a review
Email and the internet have quickly become an essential feature of modern universities and are a useful tool for staff and students alike. However, without clear rules and guidelines in place, these valuable resources may be left open to abuse. In order to ensure that your email and internet facilities are used appropriately, it is important to have a clear policy in place detailing what you expect from your users. The following points provide a useful summary of the key issues to consider (for all universities in the UK):
• What should you include in your policy?
Your policy should clearly set out the circumstances in which the email and internet system can be used - and should include specific guidelines relating to personal use. It should specify restrictions on what types of material can be viewed or copied, for example racist or pornographic material. It is also important to outline how the policy will be enforced and what the penalties for breach will be.
• How should you communicate your policy?
You should make reasonable attempts to ensure that all staff and students are aware of the policy, for example you may include it in staff/student handbooks and post a copy on your intranet. Many organisations are now providing the policy as a mandatory screen before a new user first logs onto the system. In this way there can be no dispute that it has been seen. You should also take reasonable steps to inform third parties of the policy and what will happen to their information, the easiest way to do this being including the policy on your website and using email disclaimers.
• How can you ensure that your policy is enforced and enforceable legally?
Enforcing such a policy will usually involve some form of systematic monitoring, such as randomly opening emails or using automated checking software. Whilst you are permitted to use monitoring to ensure compliance with your own policies and procedures, you must do so fairly and in compliance with any relevant legislation. The Regulation of Investigatory Powers Act 2000, the Lawful Business Practice Regulations, the Data Protection Act 1998 and the Human Rights Act 1998 all have an impact on this area. However, this legislation is complex and the Employment Practices Code, published by the Information Commissioner, offers a useful statement of good practice in this area.
- The legislation requires that any adverse impact of monitoring on individuals must be justified by the benefits to the organisation and others. To satisfy this you should identify a clear business purpose behind your monitoring and consider the issues that you are trying to address (for example ensuring that working time is being used effectively).
- You should consider what level of monitoring is appropriate, especially in relation to personal communications. This will involve an assessment of how far intrusion into staff and students' personal lives can be justified. You are unlikely to be able to actively set out to monitor personal communications other than in extreme cases although you may come across them incidentally while monitoring communications that form part of the business of the organisation.
- You should consider the most appropriate method of monitoring, bearing in mind the extent to which personal or sensitive information may become available to those who do not have a business need to know (such as IT workers). A minimalist approach is preferable and automated processes should be used wherever possible. Any decision to physically intercept communications should be taken cautiously, particularly where the emails concerned are personal or private.
- Finally, you should ensure that you are aware of your security obligations in relation to personal data, making certain that the information is held securely and kept only for as long as is necessary.
• How can you ensure that your policy is fair?
In order to be fair, you must ensure that all staff and students are aware of the nature, extent and reasons for your monitoring. You should make users aware of how their personal data may be used and who will have access to it. Once you have communicated this information you must only use the information for these specified purposes.
Once the policy is in place, you should ensure that it is enforced consistently to avoid confusion and to avoid arguments of discrimination between users. You should draw attention to any particular aspects of the policy which may contradict historic practices. In a similar way, if you already have a policy in place that has not previously been strictly followed, this may be a good time to consider a review! Go back
louise.townsend@pinsentmasons.com
ESTATES
New Fire Safety Requirements in Halls of Residence
The Department for Communities and Local Government ("DCLG") has released its sector guidance notes on new fire safety laws affecting all non-domestic premises in England and Wales, which come into force on 1 October 2006 pursuant to the Regulatory Reform (Fire Safety) Order 2005 (the "Order"). From 1 October the Order replaces the old Fire Certificates regime with a requirement that fire risk assessments ("FRA") be carried out by all persons responsible for the repair or maintenance of premises and that thereafter the recommendations of the FRA be implemented.
Importantly the new fire safety regime which applies to non-domestic premises will also apply to the common parts of some residential developments. The DCLG have produced a specific guide on "Sleeping Accommodation" which states that the Order applies to, amongst others, halls of residence.
The DCLG has provided some generic advice on how to make premises safe from fire. Guidance notes are available which provide detailed practical advice on what needs to be done in order to comply with the new fire safety regime. In particular, they offer specific guidance on how to carry out an FRA and how to identify the general fire precautions that must be in place from 1 October. Whilst the intention is that these notes will help people carry out their own FRAs, more complex premises will inevitably need to be assessed by an experienced person with relevant training.
The Guidance Notes neatly summarise the fire safety duties that universities amongst others must comply with. These include:
- Appointing a competent person to carry out preventative and protective measures required by the Order, including a fire risk assessment;
- Providing employees with clear and relevant information on the risks to them identified by the fire risk assessment, and adequate training where necessary;
- Informing non-employees, such as residents, of the relevant risks to them and provide them with information about fire safety procedures for the premises;
- Co-operating and co-ordinating with other responsible persons at the premises;
- Considering the presence of any dangerous substances and the risks they present; and
- Ensuring that all fire safety equipment is adequate and all emergency exit routes are suitable.
david.bowman@pinsentmasons.com
HUMAN RESOURCES
Age Discrimination laws force changes to pension schemes
New legislation coming into force on 1 October 2006 will target discrimination by employers or trustees of occupational pension schemes in relation to contributions paid or rights accrued after that date. Employer contributions to personal pension schemes will also be subject to the new legislation.
The Employment Equality (Age) Regulations 2006, which apply to the whole of Great Britain (separate regulations will apply to Northern Ireland), will outlaw age related discrimination unless it can be objectively justified or it falls within one of a number of exemptions.
Direct and indirect discrimination
Direct and indirect discrimination on the grounds of age are prohibited whether the discrimination is against young or old. Direct discrimination occurs where a worker is treated less favourably than others because of his age. Indirect discrimination is less obvious; it occurs when a policy applies to a whole workforce but results in a certain age group being put at a disadvantage. For example, the provision of enhanced benefits to senior executives might constitute indirect age discrimination as senior executives tend to be older than other employees.
Objective justification
Discriminatory practices, both direct and indirect, are allowed if they can be objectively justified. A practice can be objectively justified if the discrimination constitutes a proportionate means of achieving a legitimate aim. Examples of legitimate aims given by the DTI include business needs, efficiency, reducing staff turnover or providing promotion opportunities to retain good people. However, a discriminatory provision will not be proportionate if an alternative exists that is less discriminatory. The objective justification test (and in particular the concept of "proportionate means") will need to be applied on a case by case basis.
Exemptions
Pension schemes by their very nature discriminate on age grounds; benefits are generally only payable to older members. Accordingly, a large number of exemptions apply. This is so as not to discourage employers from continuing to provide occupational pension scheme benefits.
The following is just a sample of some of the provisions in an occupational pension scheme that will remain permissible (i.e. without the need for objective justification under the Regulations):
- Minimum or maximum ages for admission to a scheme
- Minimum level of remuneration for admission to a scheme or for treatment as pensionable pay (provided the minimum level is no more than the lower earnings limit)
- Age criteria for entitlement to benefits (eg actuarial adjustments to take account of early or late retirement)
- Remuneration-related contribution rates or benefits (even though older workers tend to earn more than younger ones)
- Age-related contributions to money purchase schemes (provided the aim is to provide more equal emerging benefits than would result from equal contributions for all ages)
- Equal rates of contributions to money purchase schemes, irrespective of age (despite any inequality in the emerging benefits)
- Age-related contributions to final salary schemes (provided that the aim is to meet the cost of benefits provided)
- Minimum age for entitlement to receive benefits
- No actuarial reduction is applied, or additional pensionable service is awarded, on early retirement (but only in respect of members who joined the scheme before 1 October 2006)
- Upper limit on remuneration or length of pensionable service used to calculate benefits
- Minimum pensionable service requirement for eligibility to certain benefits (provided the minimum service is no more than two years)
- Closure of schemes to new members (even though this will be detrimental to new joiners, who tend to be younger)
Unfortunately, the exemptions are not broad-brush; each exemption is quite precise. Trustees and employers will need to check with their advisers whether their scheme's benefits and contribution rates fall within the exemptions. They will also need to factor into their agendas the time it may take to implement any changes that might be required.
Potential pitfalls
One tricky area is early retirement. Schemes will not be able to provide any form of enhancement to early retirees. Members retiring early on the grounds of ill-health may be awarded additional pensionable service but their pension will need to be subject to an actuarial reduction. Although these new requirements do not apply to members who joined the scheme before 1 October 2006, many occupational pension schemes will need to change their early retirement provisions for new joiners (usually by providing less generous early retirement benefits for them) unless they can be objectively justified.
Another tricky area is late retirement. The rules of many occupational pension schemes stipulate that members cease to accrue benefits on reaching normal pension age. Although schemes will be able to provide for cessation of accrual on a member completing a certain length of pensionable service, they will not be able to do so on a member reaching a particular age. Again, many schemes will need to change their rules.
Next steps
So what will trustees and employers have to do? All occupational pension schemes will be treated as including a provision requiring trustees to refrain from doing anything that is unlawful under age discrimination legislation. This does not, however, mean that trustees and employers can sit back and do nothing. Where a discriminatory rule is identified then it must be removed or altered unless it can be objectively justified.
The changes that could be brought about by inaction could prove expensive for the employer. Just when you thought pension provision was getting simpler…..
simon.laight@pinsentmasons.com
We welcome your feedback, criticism and suggestions
If you have any comments, or if you would like further advice or assistance with any of the issues covered in this briefing, or for information about Pinsent Masons' National Universities Team, please contact
Nicola Hart, Head of Education at Pinsent Masons.
Email: nicola.hart@pinsentmasons.com
Tel: 0121 260 4050
While our Universities Legal Briefing is copyright, you are welcome to copy or forward it to colleagues within the institutions, and to quite from it as long as the source is acknowledged.
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