Commission chairman resigns after guilty plea

Government aims to head off criticisms of a two-tier workforce in the NHS by
putting staff on long-term secondment. But this could create more problems than
it solves, argues Jim Young

seems that nothing can dampen the Government’s enthusiasm for private sector
investment in public services. In a recent speech reaffirming New Labour’s
commitment to the Private Finance Initiative, deputy prime minister John
Prescott said it remained "central to the modernisation of public services".
He added that private investment in public sector projects had increased from
£3.5bn in 1997 to more than £14bn today.

there is continuing unease about the effects on the workforce of Public Private
Partnerships. The public sector unions have been vociferous in their insistence
that this flagship government policy will do irreparable damage to the quality
of public services.

June 2001, it was accepted practice that the TUPE Regulations applied where a
service function was contracted out to the private sector as part of a PPP
project. This was confirmed by the Cabinet Office Statement of Practice, Staff
Transfers in the Public Sector issued in January 2000.

in June 2001, the Government announced a new proposal, which provided that
facilities management employees would not transfer to the private sector. They
would remain employed by the public sector and be seconded to the private
sector for the duration of the project. This is called the Retention of
Employment Model (REM).

change came as a result of pressure on the Government from trades unions,
Unison in particular. Unison believes staff transfers from the NHS
"threaten the terms and conditions of staff and risk damaging morale and
the quality of service in the Health Service" and that they are creating a
two-tier health service workforce.

a result, four NHS Private Finance Initiative projects are piloting REM at
Walsgrave, Stoke Mandeville, Queen Mary’s Roehampton and Havering.

– how does it work?

new policy, formalised by the Government last November, works as follows:

Under REM, the private sector remains responsible for the provision of
facilities management services

Blue-collar staff in cleaning, catering, laundry, portering and security (if
this includes portering) remain with the NHS but are seconded to the private

Supervisors and above in these sectors and staff in other occupations, such as
IT, transfer as normal under TUPE

If employees are promoted to supervisor level, they become employed by the
private sector

The private sector managers will have a limited role in disciplinary procedures
for seconded employees. For example, they will be able to issue a verbal
warning, but not a final written warning. Only the NHS has the power to dismiss

The NHS, private sector and unions will discuss output specification and
staffing levels. Any changes to working practices will be negotiated under
local procedures

NHS staff remain on existing terms and conditions. Changes are bargained and
agreed by the NHS

The private sector will participate in recruitment of new staff

The private sector will administer payroll and in limited circumstances be able
to employ staff as agreed at local level

On second-generation market testing, NHS-retained employees remain retained

union pressure, this model is now being promoted in other areas of the public
sector, such as schools and even in some private sector deals.

it work in practice?

are many employee relations and legal questions which remain to be answered.
Critics of REM argue that it breaks up teams and inhibits promotion prospects
by creating a split between operatives and supervisors. It could also severely
restrict employers’ ability to introduce innovation, multiskilling and other
efficiency measures. Norman Rose, director general of the Business Services
Association which represents some of the private sector players in the PFI
arena, has called it a "political fix to buy off trade union opposition".

apart from these concerns, does REM work as a device to avoid TUPE? Could
employees who are seconded for 25 years argue that they are in fact employed by
the private sector under the ‘control test’? Does REM eliminate the two-tier
system? Does it offer value for money? Is it workable? Many of these questions
will only become clear once the first pilot schemes are implemented. It is
anticipated that the first pilot scheme (Havering) will come on line in June
2005. However, some of them can be discussed now.


provides that where there is a transfer of undertakings (for example,
contracting out of a service) the employees providing the service automatically
transfer to the new service provider. The REM Model seeks to overcome the
principle of automatic transfer by retaining the staff. The rationale is that
Regulation 5(1) provides that only contracts of employment "which would
otherwise have been terminated by the transfer", transfer. Thus Regulation
5(1) allows the NHS to keep the staff as long as it does not intend to dismiss
them. However, this provision is not contained in the Acquired Rights Directive
and case law on the interpretation of Regulation 5 (1) is fairly inconclusive.
Therefore it may not be prudent to rely on this.

alternative is to accept that TUPE applies, but allow staff to exercise their
right to object to the transfer. This has the effect of terminating the
contract of employment and means that the staff do not transfer. The staff can
then be immediately re-employed by the NHS and their continuity of service

TUPE is found to apply then the risk is that contrary to the model, the private
sector inherits all employee liabilities. The private sector will want to be
indemnified against this risk but it is not clear that the NHS will agree to
such demands. It may be that the likelihood of claims is low as the employees
will be content to remain NHS employed – even so, it cannot be ignored.

approach currently being adopted by bidders for the pilot projects is to insist
that all retained employees object to the transfer and that the NHS re-employs

or employee?

of the tests applied by employment lawyers when determining who is the legal
employer of a worker is the control test. If a person has control over a worker
in respect of the way in which work is carried out, when it should be carried
out and what work is carried out then they may be found to be the legal
employer of that person.

suggest that an NHS employee who is seconded to work for the private sector for
the period of the project may become an employee of the private sector as a
result of the control test. However, this is only one of the tests applied, and
recent agency cases (such as Esso Petroleum v Jarvis, EAT 18 January 2002 – see
Case Round-up, May 2002) suggest that what the terms of the agreement say is
more significant.

it seems the private sector will only have limited control over the retained
employees, particularly in relation to disciplinary procedures. If the retained
employees are clearly employed by the NHS under their contracts of employment,
it will be difficult to argue otherwise. In any case, the risk of employees
bringing claims is likely to be low.


seems that REM replaces one two-tier health service with another. Private
sector staff may be provided with bonuses, share options and other incentive
schemes not open to public sector employees and may have their terms and
conditions changed over time. New staff may be employed on different terms and
conditions from those of transferring staff such as supervisors and from the
retained staff.

make matters worse, transferring supervisors will be managing employees who are
retained by the NHS and the danger is that the split in terms and conditions
will be even more marked. If this creates unrest and a breakdown in staff
relationships, it will not produce value for money.

conclude that the only way to overcome this problem and to avoid equal pay
claims is for all employees to be employed on terms equivalent to the NHS
Whitley terms and for all employees to participate in broadly comparable
pension schemes.

way forward

are differing views on whether REM will become the norm in PFI. Some
consider  the Government is likely to
apply REM to all future NHS projects. However, Norman Rose of the BSA believes
that the practical difficulties of implementing REM mean it will not extend
beyond the pilots. After all, as the employees would remain within the public
sector, then all risks in relation to employment would remain with the public

would include employment tribunal claims, redundancy, losses arising from any
union dispute, public liability claims, and employer’s liability claims.

the public authorities really want to retain these liabilities when one of the
core elements of setting up a PPP is the transfer of risk?

European Court view

arguments about alleged inequality and treatment of transferring staff have now
reached the European Court of Justice. The Advocate-General’s opinion in a
recent case referred from the Court of Appeal to the ECJ could have
implications for the Government’s proposals on contracting out. Lawrence v
Regent Office Care [Opinion of the Advocate-General, 14 March 2002 – see Case
Round-up, April 2002] involved a group of dinner ladies and cleaners
transferred from the local authority to a private contractor.

question was whether female employees could bring a claim for equal pay brought
against their present employers using male workers who worked for their
previous employer as comparators. The workers believed there had been a
transfer of an undertaking and the work was of equal value to the jobs of their
chosen comparator.

A-G was of the opinion that for there to be discrimination under Article 141 of
the EC Treaty (equal pay for men and women), the regulation of terms and
conditions on employment must be traceable to one source. If differences in pay
arise between undertakings or establishments in which the respective employers
are separately responsible for the terms and conditions of employment, they
cannot possibly be held individually accountable for any differences in the
terms and conditions between those undertakings. Thus he would reject the
claim. The ECJ is now expected to rule on this case within the next few months
– it usually follows the A-G’s decision.

decision will have to be considered in the Government’s proposals for the
future of contracting out of services and achieving equality in employment.

whether the REM model solves a problem or just creates the same one under a
different guise is open to debate. One thing is for sure: the debate is by no
means over.

Young is national head of employment at McGrigor Donald Scotland, member of
KLegal International

out more…

on the Government’s policy on staff transfers in PPPs

on the Business Services Association’s policies

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