This article looks at the implications for a retailer of being a "commercial participator", what this means in practice and the implications for retailers which get it wrong.
Retailers joining forces with charities to raise money or awareness of a cause is a common sight. You will see promotions all over the high street, an common example in supermarkets being the long-standing Innocent Smoothies Big Knit - a joint project with Age UK where knitters are encouraged to make hats for Innocent Smoothie bottles, which are worn by the bottles and 25p of every drink sold goes to Age UK. This type of arrangement, and other promotions including affinity cards and lotteries, results in the company in question raising its own profile by its association with the charity. This makes the company a "commercial participator" and brings with it a set of rules and regulations that both the company and the charity must comply with.
Does the nature of your charity partnership make you a commercial participator?
The relevant legislation that governs this area is the Charities Act 1992. Section 58 of the Charities Act 1992 sets out what is meant by the term "commercial participator" and "promotional venture" – in essence a person who carries on for gain a business other than a fundraising business, but in the course of that business engages in any promotional venture (which means any advertising or sales campaign or any other venture undertaken for promotional purposes) in the course of which it is represented that charitable contributions are to be given to or applied for the benefit of the institution.
In a lot of cases it will be clear that an arrangement falls within the legislation – however, it isn't always clear cut and care must be taken to ensure that you don’t inadvertently fall foul of the rules. For example, in charity of the year arrangements you may find that one of the fundraising activities you have planned brings you within the commercial participator arena, and while it may not be the main thrust of the arrangements, you still need to comply with the rules in relation to that element.
Is your agreement with your charity partner legally compliant?
Commercial participators must have a written agreement in place with the recipient charity which ticks all the boxes required by the Act and associated regulations. Charities will very often have standard agreements that they will provide you with as a starting point, and very often charities will run such relationships via their wholly owned trading company (to ensure that the charity does not inadvertently incur corporation tax from any trading activity involved in the arrangement) so you may be contracting with an entity that is not the charity.
Some of the requirements are obvious (such as the requirement that the agreement contains the name and address of the parties) but others are more specific, and relate to how the promotion is to be run, when funds are to be paid across to the charity from the commercial participator and what remuneration, if any, the commercial participator is entitled to be paid from the funds raised. You may also need a licence to use the charity's name and logo, and comply with their branding requirements. In addition, under the Charities (Protection and Social Investment) Act 2016, there are additional requirements for charities and commercial participators to include provisions dealing with how they intend to protect members of the public from unreasonable intrusion of their privacy, unreasonably persistent approaches and placing undue pressure on them to give money or other property. This relatively new development arose after considerable press interest in aggressive fundraising practices.
The agreement should be in place before the promotion starts, and should not be entered into as an afterthought – hence the importance of establishing whether you are in fact a commercial participator at an early stage.
Is the amount of the donation sufficiently transparent to customers?
You also need to ensure that you make the necessary statement to your customers, which highlights the contribution you are making to charity.
The legislation sets out in some detail what such a statement must contain - it has to include the name of the charity (or indeed charities if there is more than one, and if so the proportions in which the institutions are respectively to benefit) and the "notifiable amount", which in essence is the amount donated per item sold (the 25p per bottle in the example mentioned above) or the total amount to be donated as a result of the promotional venture. There is no magic formula to this disclosure statement – as long as whatever you say covers everything required by section 60(3) of the Charities Act 1992, then you can use whatever tone suits your usual communications style. The key is to ensure that your customers can quantify the amount - “10% of net profits” will not meet the requirements.
The requirement is there to ensure transparency for members of the public, who need to be clear where their money is going, and to ensure that you are accountable for your donations. The requirements of the Charities Act 1992 also match those of the CAP code (the UK Code of Non-broadcast Advertising, Sales Promotion and Direct Marketing ) and the BCAP code (The UK Code of Broadcast Advertising), again designed with consumers in mind. Breach of these requirements is an offence under the Charities Act 1992 and can result in a fine. However any resulting adverse publicity is likely to be more damaging to the reputation of you as the retailer and to the charity involved. The Advertising Standards Agency can also impose sanctions for breach of both the CAP and BCAP codes – hence the importance of being alive to the requirements and ensuring compliance from the start of your relationship with a charity partner.
How we can help
Raising funds for charity has been under increased media scrutiny for the past few years so it is important from a reputational perspective that retailers ensure arrangements with their charity partners are legally compliant and are transparent to customers.
Womble Bond Dickinson's specialist charities team has substantial experience of assessing whether the way in which a retailer and their charity partner wish to conduct their partnership falls within the above rules and would be delighted to talk to you about the ways in which we can help.