In this second alert in our series regarding the European Parliament’s formal endorsement of a new collective action legislation titled the “Directive (EU) 2020/1828 of the European Parliament and of the Council of 25 November 2020 on Representative Actions for the Protection of the Collective Interests of Consumers and Repealing Directive 2009/22/EC” (“Collective Redress Directive” or “Directive”), we analyze what this means for companies doing business in the EU with a focus on the threshold issue: Who or what constitutes a “trader”?
The Collective Redress Directive defines a “trader” in Chapter 1, Article 3. Under the Collective Redress Directive, a trader:
means any natural person or any legal person, irrespective of whether privately or publicly owned, who is acting, including through any other person acting in that person’s name or on that person’s behalf, for purposes of relating to that person’s trade, business, craft or profession.
This definition is the full extent to which the Collective Redress Directive addresses who or what constitutes a trader. The legislative history of the Collective Redress Directive provides little insight regarding how this definition was developed. While it is likely who or what constitutes a “trader” will be disputed and litigated come June 2023 when EU Member States begin to enforce the Directive and collective redress lawsuits commence, in the meantime, one point is clear from the plain language of the Collective Redress Directive: the definition of a “trader” is broad.
According to the plain language of the definition, a trader may be a person or an entity that constitutes a person under the law. This indicates that both individuals and, more likely, companies will be on the defense side of the “v.” in these collective redress lawsuits. If the trader is an entity, it is immaterial whether that entity is publicly or privately held; either may qualify as a trader under the Directive. What is material is whether this natural or legal person is acting for purposes relating to that person’s “trade, business, craft or profession.” Such action may be direct, or through any other person acting on the trader’s behalf or in the trader’s name. Such action needs to be in furtherance of the person’s trade, business, craft or profession; a mere relation to these interests is sufficient.
Some EU Member States already have substantially similar definitions of “traders” on their proverbial books. For example, article L-010-1 of the Luxembourg consumer code defines a “trader” as “any natural person or any legal person, irrespective of whether privately or publicly owned, who is acting, including through any other person acting in his name or on his behalf, for purposes relating to his trade, business, craft or profession in relation to contracts covered by this Directive.”
Trade, Business, Craft or Profession
The latter portion of the Collective Redress Directive’s definition of “trader” — acting for purposes related to the person’s “trade, business, craft or profession” — uses language seen in other EU Member State (and former EU Member State) laws. The phrase is, put simply, a common one.
For example, the United Kingdom’s Consumer Rights Act 2015, a pre-Brexit act of Parliament, defines a trader as “a person acting for purposes relating to that person’s trade, business, craft or profession, whether acting personally or through another person acting in the trader’s name or on the trader’s behalf.” This legislation also employs this language to define a “consumer,” who is “an individual acting for purposes which are wholly or mainly outside that individual’s trade, business, craft or profession.” Notably, the Consumer Rights Act 2015 puts the onus on the trader to establish that one was acting outside of the scope of its trade, business, craft or profession, providing that “[a] trader claiming that an individual was not acting for purposes wholly or mainly outside the individual’s trade, business, craft or profession must prove it.”
The EU Misleading and Comparative Advertising Directive (2006/114/EC), which required EU Member States to harmonize laws regarding comparative advertising, also uses this string of terms. This law defines “advertising” as representations made to promote the supply or transfer of products by a person carrying on a “trade, business, profession or craft.” The phrase has even made its way across the pond — Google’s current Terms of Service define a “consumer” as an “individual who uses Google services for personal, non-commercial purposes outside of their trade, business, craft, or profession.”
Despite usage in numerous laws and contracts, the phrase “trade, business, craft or profession” is largely undefined, in the Collective Redress Directive and elsewhere. On its face, the list is likely to encompass both businesses supplying services, those supplying goods, and those engaged in a combination thereof. It is difficult to conceive of a business engaged in any activity for profit that is unlikely to qualify as one of these four endeavors. And, if the Consumer Rights Act 2015 is any indicator, it is possible that traders, seeking to argue they were not acting for purposes related to their trade, business, craft or profession as a means of escaping liability in a collective redress action under the Directive, may bear the burden of proving so.
Traders and Targets
While the Collective Redress Directive provides only a single definition of “trader,” what is clear from the Directive is that persons or entities that qualify as “traders” will be the targets of collective redress lawsuits once implemented in EU Member States in 2023. While the Collective Redress Directive seeks to “contribute to fairer competition and create a level playing field for traders operating in the internal market” both at European “Union and national levels,” the vast majority of mentions of “trader” in the Directive discuss the remedies to be sought from traders that have committed infringements as defendants in these lawsuits. In fact, the Collective Redress Directive “only protect[s] the interest of natural persons who have been harmed or may be harmed by those infringements if those persons are consumers under this Directive.” “Infringements that harm natural persons qualifying as traders under this Directive should not be covered by it.”
It is possible that EU Member States will provide additional clarity regarding who or what constitutes a “trader” as they translate the Collective Redress Directive into national laws between now and the December 25, 2022, deadline to do so. In the meantime, if you are assessing whether you or your business will fall subject to the Directive when these laws take effect in 2023, the most conservative approach is to assume that if you are doing business in the European Union, then you constitute a trader.