Transfer trivia

Is the Code of Practice on public sector staff transfers really preventing two-tier workforces? By Greg Cain

Under pressure from the unions, the Government has tightened-up public-sector contracting exercises involving staff transfers. First came the Cabinet Office Statement of Practice on Staff Transfers in the Public Sector in 2000, followed last year by the Code of Practice on Workforce Matters in Local Authority Service Contracts and accompanying guidance. The code's purpose is to restrict suppliers' ability to recruit staff onto public-sector contracts on inferior terms to former public-sector employees with TUPE-protected terms.

The code requires that private-sector providers employ transferred staff on their existing terms and conditions (with specific protection for pension entitlements). This is already covered by the Cabinet Office Statement of Practice. In addition, new staff recruited to work alongside the transferred staff must be given terms that are "overall, no less favourable" than those of the authority's former staff. The code also requires consultation on new recruits' terms, membership of a "good quality" pension scheme, and monitoring and enforcement arrangements.

The code's impact

This raises questions, however, as to whether this has prevented further examples of the two-tier workforce developing. Or are the new rules simply adding to the costs heaped on private-sector providers, thus ensuring that as much work as possible stays in the public sector?

Do the changes go far enough?

One view is that because the code applies only while the contractor retains employees who transferred from the authority, it will never achieve "best value"; contractors and subcontractors will be free to drive down terms once they are free of former public authority staff. This is even more likely to become a reality for staff working on contracts that have been re-let to new providers. Another view is that the code is simply a sop to the unions to mollify them about the Government's wider privatisation agenda.

Anecdotal evidence suggests there is no shortage of private-sector providers queuing up for public-sector work - and nor is the public sector showing any reluctance to give it to them. Further, some contracts are undoubtedly entered into outside the strict terms of the code, particularly given that it is still relatively new.

All this suggests that the code should be strengthened to ensure that providers cannot drive down terms by sacking former authority staff. However, the Office of the Deputy Prime Minister has indicated that there are no plans to widen the code's ambit.

One obvious impact is to increase the costs faced by private-sector providers, which are simply charged back to the public authority. A problem for providers is employing new recruits on the same, or overall no less favourable, terms than employees transferred from the public sector. This may create equal pay issues between the new recruits and the provider's other employees. Providers may be able to argue that the differences are because of a material factor, not the difference in sex. Nevertheless, providers tend to be unhappy about the resulting pay structure anomalies.

Encouragingly, another effect has been to increase the prominence given to workforce issues throughout the contracting process. Previously, the focus was on a minimal level of compliance with TUPE information and consultation obligations. Now it is frequently on building workforce issues into the process as a whole. This has encouraged authorities and providers to deal properly with workforce issues. In that respect the code has succeeded.

In many cases, however, the spirit of the code may not be fulfiled, if the provider concerned no longer has any former authority staff. If this loophole is exploited, "best value" may remain an elusive objective.

Greg Cain is an employment lawyer at City law firm Field Fisher Waterhouse

Points for HR managers of private sector providers

- If the contract is being awarded for the first time, consider how to meet the requirement that the transferring employees' pensions are adequately protected, and if necessary, ensure the authority takes this up with the Government Actuary's Department.

- Ensure that new recruits are employed on terms that are "overall, no less favourable" than the transferring employees' terms.

- Ensure you are gathering the necessary information (for example, new recruits' terms and conditions) that will show you are complying with your obligations throughout the contract period.

- If the contract is being re-let, check whether there are still any former staff from the public authority: if not, the code does not apply.

The law and the Code of Practice

By the Local Government Best Value (Exclusion of Non-commercial Considerations) Order 2001, workforce matters ceased to be "non-commercial" matters to the extent that they are relevant to "best value", or to a TUPE transfer. Such matters are therefore no longer deemed to be irrelevant to the procurement process.

The Code of Practice on Workforce Matters in Local Authority Service Contracts was issued by the Office of the Deputy Prime Minister on 13 March 2003, together with detailed statutory guidance.

This was reissued with minor modifications for other best value authorities on 30 September 2003. The code requires that:

- local authorities apply the Cabinet Office Statement of Practice in contracting-out services, and in particular, that TUPE is followed even if it does not apply in strict legal terms, and pensions are protected

- the service provider recruits new staff to work alongside staff transferred from the local authority, it will offer employment on "fair and reasonable terms and conditions that are, overall, no less favourable than those of transferred employees"

- the service provider will also offer such new staff membership of the local government pension scheme, or a "good-quality employer pension scheme", meaning either a final salary scheme or defined contribution or stakeholder scheme with a matching employer contribution of up to 6%

- throughout the contract, the service provider will provide the authority with information allowing it to monitor compliance with the code, including terms and conditions for transferred and newly recruited staff

- the authority will enforce the obligations, and will not have to consider non-complying providers for future work. The contract must include an "alternative dispute resolution" process for resolving disputes about the application of the code. A model procedure has now been agreed and approved

- the contract incorporates the code.

In addition, the code was issued as part of a Circular, which contains further statutory guidance on workforce issues in contracting.

This includes detailed guidance in the area of contract procedures, covering pre-qualification, service specification and conditions of contract, invitation to tender, tender evaluation, contract management, and health and safety.

It also contains equal opportunities guidance.

The local government central bodies have developed further guidance. This contains information about the Local Government Act 2003, the code, and a number of suggested clauses designed to reflect the code and the Cabinet Office Statement of Practice.

New legislation in the form of the Local Government Act 2003 will further affect this area. The Act requires best value authorities to deal with specified employment issues, including pensions, in accordance with specific directions issued to them.

Further, where a contract is to cease and the work is to be done by the authority, it must also comply with directions requiring it to offer employment to the provider's staff.

The Office of the Deputy Prime Minister says directions and guidance may be issued in the next few months.

The Act gives statutory force to part of the code by effectively requiring that the authority oblige the provider (and any new provider where the contract is re-let) to protect transferring employees' pensions, in a way that is enforceable by the employees.

The protection given must be in accordance with directions to be issued.