Neil Grant and Joanna Dirmirkis warn that changes to the CQC’s fit and proper person regulations will have major implications for trust directors

People at a board meeting

The list of unfit directors has huge implications and could prevent people from ever working in the health sector again

The new Health and Social Care Act 2008 (Regulated Activities) Regulations 2014, which as at the beginning of September are still awaiting approval by Parliament, have huge implications for directors of trusts and other healthcare providers. In this article we explore the following:

  • how the fit and proper person test has changed (in particular the new test for NHS directors);
  • the implications for Trusts when CQC raises concerns about directors;
  • how individual directors might challenge decisions made under the new regulations;
  • the implications for individual directors facing such decisions; and
  • the employment law questions which arise from all of these factors.

Present regulations

The current 2010 regulations state that activities regulated by the CQC must not be carried out by providers (whether sole traders or partners) unless they are ‘fit’ to do so (regulation 4).

The same requirement applies to registered managers (regulation 6) and to the ‘nominated individual’ of an organisation regulated by the CQC who is responsible for supervising the management of the regulated activity (regulation 5).

“Fit” is defined as being someone who is:

  • “of good character”;
  • “physically and mentally fit to carry on the regulated activity”; and
  • someone who is able to supply the material set out in schedule 3 of the 2010 regulations.

This material includes, proof of identity, a criminal record certificate, satisfactory evidence about conduct in previous employment relating to the provision of health and social care or children and vulnerable adults, satisfactory verification of the reasons why positions of employment (relating to children or vulnerable adults ended) came to an end, documentary evidence about qualifications, a full employment history and satisfactory information about relevant physical and mental health conditions)

Future regulations

The new 2014 regulations share some similarities with those described above.

The requirements for providers (whether individuals or in a partnership) to be ‘fit’ still apply (regulation 4), as does the requirement for both nominated individuals (regulation 6) and registered managers (regulation 7) to be fit.

However there is now an added requirement that each of these categories of persons have ‘the necessary qualifications, skills and experience.’

‘The new CQC regulations will introduce a category specifically for trust directors’

But the most striking difference is regulation 5. This creates an entirely new category for directors of NHS trusts. This provision applies to all directors and not just nominated individuals.

The usual requirements of good character, physical and mental fitness and the need to produce the material in schedule 3 still apply. However the individual has to also have the qualifications skills and experience which are ‘necessary’ for the relevant office or position or work for which they are employed.

There are also some specific factors which have to be borne in mind when assessing good character. For example, it is a requirement that the person not be an undischarged bankrupt or the subject of an interim bankruptcy order or be on the children’s or adults’ barred list.

‘Regulatory requirements for trust directors are both vague and potentially very wide ranging’

There is also a requirement that certain factors be considered by a trust when considering good character (namely the existence of previous convictions or the fact that the director has been struck off from a register of a professional health or social care register).

The really significant change comes with regulation 5(3)(d) though.

This is the requirement that the director has not “been responsible for, been privy to, contributed to or facilitated any serious misconduct or mismanagement (whether unlawful or not) in the course of carrying on a regulated activity.” These definitions are both vague and potentially very wide ranging.

It is not clear what would constitute “serious misconduct or mismanagement” or how providers would be expected to assess this. Moreover, terms like “privy to” are extremely open-ended.

Technically this might include situations where the director was merely aware of someone else’s misconduct.

‘Definitions for directors in the private sector will differ slightly’

Regulation 5 just applies to directors of NHS trusts. However, according to the eighth report by the parliamentary committee considering the regulations, a second statutory instrument will follow soon which will bring into play the fitness of directors for the private sector.

This should be in force in around April 2015 and will use “slightly different definitions.” It is not clear why there should be any difference between the requirements for the NHS and the private sector.

The implications for trusts

Under regulation 5(2) of the 2010 regulations, “unless the individual satisfies all the requirements set out in paragraph (3), the service provider must not appoint or have in place an individual…”

CQC will be able to take enforcement action, as usual, for breach of this regulation.

‘The CQC will be able to pressure trusts into dispensing with directors who do not meet approval’

However, since breaching this regulation does not constitute an offence, CQC will need to go down the route of raising this as a possible breach in inspection reports, warning notices and notices of proposal to impose conditions (such as conditions not to employ a particular person as a director because they have been responsible for misconduct), notices of proposal to suspend or to cancel a provider’s registration with the CQC.

There will also still be the urgent provision to impose or remove a condition under section 31 of the Health and Social Care Act 2008. They will thus be able to exert a lot of pressure on trusts to dispense with directors who do not meet with CQC approval.

‘The Department of Health have suggested that there will be a move to unlimited fines’

If the condition not to employ a particular individual was imposed and the trust did not remove them then technically this would constitute an offence and the trust would be liable to prosecution.

Under the current regulatory framework there is a maximum fine of 50 thousend per offence for breaching a condition of registration. However, the DH have suggested that there will be a move to unlimited fines.   

Challenging decisions under new regulations

According to the July 2013 Department of Health consultation on Strengthening Corporate Accountability in Health and Social Care, the DH was considering how best to provide a right of appeal for directors against the CQC’s decision where they are removed by the provider because they are deemed to be unfit by the CQC.

‘Individuals will have the right to appeal the CQC’s descision’

Section 87 of the Care Act 2014 now deals with this. Where the CQC decides to impose a condition on a registered provider requiring removal of an individual director who is not considered to be a fit and proper person to fulfil their role, the individual has a right of appeal against the CQC’s decision.

The DH have indicated to us that these appeals will be to the first tier tribunal of the health and social care chamber. Normally hearings are held in public with witnesses called and cross examined. The press would therefore be able to attend and there could be consequent media coverage.

For directors facing a decision

This new requirement for directors to be fit and proper persons could have huge implications for them. First, there may be issues surrounding the merits of any concerns raised by CQC about directors.

‘The new requirement for directors to be fit and proper persons could have huge implications’

This is particularly the case when one considers how broad the definitions in regulation 5(3)(d) are (the requirement that the individual has not “been responsible for, been privy to, contributed to or facilitated any serious misconduct or mismanagement (whether unlawful or not) in the course of carrying on a regulated activity.” )

There seems to be no concept of misconduct ever becoming spent so even historic concerns could become relevant (the July 2014 CQC consultation states “there is no time limit for considering such misconduct or responsibility”).

‘The CQC’s guideance on how to meet the fit and proper person test does not correspond with regulations’

Moreover, serious misconduct or mismanagement that has occurred outside the UK can also be taken into consideration.

The CQC’s draft guidance for providers on how to meet the fit and proper person test appears to depart from the wording of the regulations, because it indicates that it covers situations that could have led to serious misconduct or mismanagement. This does not appear to follow the strict wording of the regulations.

Furthermore, according to the July 2013 guidance, the CQC could choose to put a director onto a list of directors deemed unfit to work in the sector, if it satisfied itself that the director was not a fit and proper person. This has huge implications for the director and could prevent them from ever working in the health sector again.

Employement law issues

The above also raises interesting employment law questions:

  • Will providers feel under pressure to dismiss directors because of concerns raised by the CQC about their alleged serious misconduct or mismanagement (whether in the past or the present)?
  • Will there be an influx of claims from NHS directors against trusts for unfair dismissal?

If so, trusts will no doubt seek to rely on the “some other substantial reason” defence.

Implementation and next steps

The secondary legislation scrutiny committee of the House of Lords has approved the regulations. There are two more debates the follow before a committee of the Commons (on 16 October) and a committee of the Lords (on 23 October). The DH has indicated to us that this regulation will be coming into force in November 2014.

NHS providers will need to give urgent attention to the new requirement, both in terms of existing directors and their equivalents and new recruits to such senior positions.

If checks are done thoroughly this will be a significant additional task for the HR departments of hospital trusts. Action will need to be taken if evidence comes to light that an individual director is or may be unfit under the new fit and proper person test. In cases of uncertainty legal advice should be obtained.   

Neil Grant is partner at Ridouts LLP and Joanna Dirmikis is a barrister who advises on health and social care law for the firm