TUPE plus – the latest position

Graham Richardson provides an update on the application of the so-called "TUPE plus" regime to local government.

The application of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) to transfers from the public sector was commonly known as “TUPE plus” on the basis that it was more onerous to employers and offered more protection to staff than the normal requirements of TUPE. In line with its aims to open up Government procurement and reduce costs, the Coalition Government has gradually set about withdrawing and watering down much of the TUPE plus regime. As it stands, the regime has not been removed in its entirety, leaving local authorities with a lack of clarity as to what extent TUPE plus should be taken into account in decisions to award services to external providers.

Key provisions of TUPE

Before looking at the TUPE plus regime in detail, it is worthwhile reminding ourselves of some of the key provisions of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”). TUPE applies to protect employees’ rights on the transfer of an undertaking where there is a transfer of an economic entity which retains its identity. There is no requirement for an economic entity to be profit making, and the definition would encompass many functions carried out in the public sector. A new type of TUPE transfer was introduced by the 2006 Regulations. With certain exceptions, TUPE typically applies where a client engages a contractor to do work on its behalf, reassigns such a contract, or brings the work back in-house (a “service provision change”). A key issue is whether the service or the activity that constitutes the service continues.

In brief summary, and subject to some exceptions which are outside the scope of this article, some of the main effects of TUPE are as follows:

• the transferor (old employer) and transferee (new employer) are required to inform and, where necessary, consult with representatives of their employees who will be affected by the transfer;
• the contracts of employment of all employees employed by the transferor and “assigned to the organised grouping of resources or employees that is subject to the relevant transfer” are automatically transferred to the transferee along with almost all existing employment liabilities;
• if any employees of either the transferor or transferee are dismissed because of the transfer then the dismissal will be automatically unfair (unless the dismissal is for an economic technical or organisational reason entailing changes in the workforce (known as an “ETO reason”));
• the transferee takes on the transferring employees on their existing terms and conditions of employment and with continuity of employment;
• the transferor is required to notify the transferee of certain “employee liability information” specified by TUPE.

Background to TUPE plus

The main source of guidance on TUPE plus is the Cabinet Office Statement of Practice on Staff Transfers in the Public Sector (revised 2007) (“COSOP”) which stipulates among other things that where a public sector body is outsourcing, or in the case of transfers between different parts of the public sector, in all but exceptional circumstances, staff should transfer on the basis that TUPE will apply, even where TUPE does not strictly apply as a matter of law. Its principal application is to central government departments and agencies and the NHS (and to local authorities where adopted) but it has never had statutory force.

Annex A to COSOP, Staff Transfers from Central Government: A Fair Deal for Staff Pensions: Guidance to Departments and Agencies (the “Fair Deal”) also states that outsourced staff of public sector employers should have the right to acquire pension benefits that are broadly comparable to those they had as employees of the public sector.

The Code of Practice on Workforce Matters in Local Authority Service Contracts (2003) (the “Local Authority Code”) had partial statutory force in England and Wales by virtue of the Local Government Act 2003, such that it was necessary for Local Authorities to apply the Local Authority Code (for the benefit of transferring staff only) where services were contracted out to the private sector. The Local Authority Code also advised (but did not make it compulsory) that new employees of the contractor working on the contract who were recruited to work alongside the Local Authority-transferred staff would be offered fair and reasonable terms and conditions that were overall no less favourable than those of the transferred staff (which included “reasonable” pension arrangements). The purpose of this was to avoid what was known as the “two tier workforce”.

The Best Value Authorities Staff Transfers (Pensions) Direction 2007 made under section 101 of the Local Government Act 2003 (the “Staff Pensions Direction”) then made it compulsory for best value authorities in England to ensure that after the change in the employer, the transferring Local Authority staff (on a first or second generation transfer) had the right to acquire pension rights which are the same as, better than or broadly comparable to the pension rights they had as Local Authority staff. On 6 March 2012, the Welsh version of the Staff Pensions Direction came into force. Both directions apply to contracts entered into with any person for the provision of services, including contracts with other public bodies. Consequently, this could give rise to a situation where a TUPE transfer of staff from one public service pension scheme to another triggers a test of broad comparability. Not all public service pension schemes are comparable with each other.

The Code of Practice on Workforce Matters in Public Sector Service Contracts (2005) (the “Public Sector Code”) applied COSOP and the Fair Deal to central government and the wider public sector, including the Civil Service and maintained schools, with certain exceptions. It was very similar to the Local Authority Code.

The changes

The Coalition Government saw the Public Sector Code as a hindrance, both in terms of cost and increased red tape, to small and medium-sized businesses entering the public sector market. It withdrew the Public Sector Code with immediate effect on 13 December 2010 (although it was clarified that while the Public Sector Code would not be applicable to new contracts, it may remain applicable to existing contracts which had incorporated the Public Sector Code).

The Public Sector Code was replaced by the Principles of Good Employment Practice, which is voluntary guidance not specifically written with local authorities in mind. The document outlines six principles of good practice for Government, contracting authorities and suppliers.

The Government subsequently withdrew the Local Authority Code on 23 March 2011, although again it may remain applicable to existing contracts which incorporate the Local Authority Code.

The current status of TUPE plus

The Government has yet to indicate an intention to withdraw COSOP, although it is perhaps to be anticipated that it will review its status in future. COSOP continues to be lacking in legal force. On a note of caution however, in the case of Law Society v Secretary of State for Justice and Office for Legal Complaints [2010] IRLR 407 the Court did not directly address the question of whether COSOP applied but it indicated that there could potentially be judicial review consequences for public sector bodies making ministerial decisions in relation to the transfer of staff which fail to take COSOP into account.

As an Annex to COSOP, Fair Deal also continues to apply. Following a consultation in 2011, the Government announced its intention to retain Fair Deal as part of its package of agreed heads of terms reached with trade unions in late December 2011. A formal response to the consultation on Fair Deal is expected later this year, which should bring greater clarity to the Government’s position, although whether the principle will be given more concrete legal status is yet to be seen. It remains possible that the Government may change its position on Fair Deal if it fails to reach what it considers to be an acceptable final agreement with the trade unions on public sector pension reform.

The English and Welsh Staff Pensions Directions also continue to apply to best value authorities within the meaning of the Local Government Act 2003.

More broadly, TUPE was in the spotlight between 10 and 30 October 2011 when members of the public were given the chance to post comments and discuss their views on it on the Department for Business Innovation and Skills (BIS) website, as part of BIS’ so-called “Employment Red Tape Challenge”. The outcome of this is that the Government has said it will “publish a call for evidence on proposals to simplify TUPE”. This is perhaps not the decisive clarification on TUPE that many would have desired, and it remains to be seen what position the Government will take.

Conclusion

The obligations of local authorities in a TUPE transfer are no longer entirely clear; TUPE plus has been significantly eroded but not removed altogether. In any future outsourcing situation a local authority risks being caught in the crossfire between prospective contractors and trade unions. On the one hand, prospective contractors are likely to be reluctant to incur costs offering generous employment benefits which go beyond the normal requirements of TUPE. On the other hand, the trade unions are likely to push for full-scale TUPE plus protection, or as close to this as they can realistically achieve for their members. Any such situation is likely to need careful handling to minimise any potential exposure and legal advice should be taken wherever necessary.  

Graham Richardson is a Director in employment law at national law firm Dickinson Dees. He can be contacted on 0191 279 9456 or by email at This email address is being protected from spambots. You need JavaScript enabled to view it.. 

This is an updated version of an article first published in October 2011.