All change for TUPE?

The application of TUPE in the public sector is a complex issue. Gemma Brown reviews the current state of play.

The concept behind the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) has been subjected to scrutiny and change frequently since its debut in the Acquired Rights Directive 1977 (ARD).

In light of the Government’s recent call for evidence on the effectiveness of TUPE, the introduction of the Localism Act 2011 and the progress through Parliament of the Health and Social Care Bill 2010 now would seem an appropriate time to stop to review the current position and consider what the future may hold in relation to TUPE in the public sector.

A Brief Outline

The purpose of TUPE is to protect employees’ rights in the event of the transfer of the whole or part of a business or undertaking to the effect that the rights and liabilities arising from contracts of employment of employees assigned to the original employer (the transferor) will transfer to the new employer (the transferee) on the date of the transfer. There are two types of transfer:

• A “standard transfer” comprises the sale of all or part of a business or undertaking where there is a transfer of an economic entity that retains its identity;
• A “service provision change” covers outsourcing, change of contractor or retendering and bringing services back in-house.

It is the latter form of transfer that tends to dominate the headlines. There is no requirement for the economic entity to be profit making and consequently TUPE covers many transfers in the public sector. There is an exception in Regulation 3(5) of TUPE which states that “an administrative reorganisation of public administrative authorities is not a relevant transfer”. An example of this exclusion is the case of The Law Society of England and Wales v (1) Secretary of State for Justice (2) The Office for Legal Complaints [EWHC] 352 (QB) where the Legal Complaints Service was replaced by the Office for Legal Complaints and TUPE was held not to apply.

TUPE in the Public Domain

The development of TUPE in the public sector has faced some curtailment of late with the withdrawal with immediate effect of the Code of Practice on Workforce Matters in Public Sector Service Contracts and its counterpart the Code of Practice on Workforce Matters in Local Authority Service Contracts in December 2010 and March 2011 respectively. These codes were introduced to address the “two tier” workforce which had been developing as a consequence of the outsourcing of public sector services resulting in former public sector employees working alongside those in the private sector on more favourable terms and conditions. Briefly, the codes required employers taking on public or local authority service contracts to maintain terms and conditions of transferring staff and offer no less favourable terms to any staff recruited subsequently. The codes remain relevant to contracts in existence prior to their withdrawal or subsequently extended.

So what is the position following the withdrawal of the codes? The Cabinet Office Statement of Practice on Staff Transfers in the Public Sector (COSOP) was introduced in January 2000 and remains the main reference point for public sector transfers. COSOP, revised in November 2007, sets out a framework which should cover all public sector organisations where the public sector is the employer or the client in a contracting situation. COSOP is placed on a statutory footing by section 101 of the Local Government Act 2003 (LGA 2003) which deals with matters relating to staff transfers generally. As such local authorities must have regard to the guidance but it is not legally binding on them. Among the guiding principles of COSOP are that public sector organisations should ensure that TUPE applies except in truly exceptional circumstances and that where TUPE does not apply, its principles should still be followed.

COSOP sets out the exceptional circumstances where TUPE will not apply. These essentially mirror the general position in relation to TUPE. Circumstances where TUPE has been held not to apply include where the activity has become so fragmented after the transfer that it is no longer identifiable and where there is a change in the activity provided. The case of Enterprise Management Services v Connect-Up [2012] All ER (D) 15 provides a good example of both. The claimants were employed by Enterprise Management Services (EMS) which was contracted by Leeds City Council to provide administrative and curriculum IT support to schools. The Employment Appeal Tribunal (EAT) found that even though only 15% of the activities done after the transfer were different from those done before, the activities carried out by Connect-Up were not essentially or fundamentally the same as those carried out by EMS. Furthermore, the services formerly provided by EMS were so spread out amongst other providers as well as Connect-Up, that no service provision change had taken place.

Another situation where TUPE will not apply is where the arrangements between a client and contractor are wholly or mainly for the supply of goods, as specified in regulation 3(3)(b) of TUPE. In Pannu and others v Geo W King and others [2012] All ER (D) 79 the claimants worked for Geo W King (GWK) which provided commercial vehicle parts for IBC. After GWK went into receivership, IBC entered into a contract with Premier for the assembly of parts formerly manufactured by GWK. The EAT held that GWK's activity was the supply of finished goods to IBC and the activities consisted wholly or mainly of the supply of goods rather than services to IBC, consequently TUPE did not apply.

Collective conundrums

The status of collective agreements post-transfer has been the subject of ambiguity for some time now. Doubt exists over whether transferors should be bound by any subsequent changes to collective agreements (the dynamic approach) or whether the terms of the collective agreement transfer only as at the point of transfer (the static approach).

The Supreme Court has referred the question to the Court of Justice of the European Union (CJEU) in the case of Parkwood Leisure Ltd v Alemo-Herron and Ors [2011] UKSC 26. The case turns on whether the terms of the National Joint Council for Local Government Services, to which the original council subscribed, continue to apply to the Claimants in the case. Decisions in the UK tribunals seem to favour the dynamic approach but we await the outcome of the referral.

Building on existing guidance for public sector transfers is what is known as TUPE Plus which refers to agreements that enhance the basic legal rights provided by TUPE and is advocated largely by the bigger unions in seeking protection for their members particularly where services are outsourced from the public sector. Where local authorities have introduced a fair wages policy, TUPE Plus agreements are a means of effecting the policy in procurement procedures.

Pension points

The Government introduced the Fair Deal for Staff Pensions in 1999 (Fair Deal) to address the problem of employees transferring out of the public sector with no protection in relation to their pension entitlement.

The Fair Deal provides that future benefits must be “broadly comparable” to the public sector scheme, assessed by the Government Actuary’s Department (GAD). Employees should have the option to transfer the accrued benefits which they have built up to the new arrangement. Consequently where private contractors are not eligible or do not apply to be admitted into a public sector pension scheme they must ensure that any pension provision provided is broadly comparable and that staff are given the option to transfer their accrued benefits to the new scheme.

As with COSOP the principles set out in Fair Deal are placed on a statutory basis by sections 101 and 102 of the 2003 Act which also led to the introduction of the Best Value Authorities Staff Transfers (Pensions) Direction in 2007 (the Direction). The Direction is broader than the Fair Deal in that it applies to outsourcing that took place prior to its introduction.

These provisions go beyond the standard provisions of TUPE which limit the application of the regulations in relation to occupational pension schemes.

What lies ahead?

Results from the call for evidence have uncovered a number of concerns with TUPE. Amongst other comments, the requirement for a transferor to provide employee liability information to the transferee just 14 days prior to the transfer is considered by many insufficient in practical terms. In the majority of transfer situations this information is sought some months earlier, for instance at the point of tender.

The ARD allows for more flexibility to vary terms and conditions of employment following a transfer. It is suggested that TUPE could be amended to make use of this and other areas where the ARD has been gold-plated explored.

Considering the results of the call for evidence, and the European Commission’s proposal to modernise European public procurement legislation to encourage access to procurement exercises for SMEs, it seems highly likely that we shall see TUPE tweaked again in the near future.

Gemma Brown is a solicitor at TPP Law. She can be contacted at This email address is being protected from spambots. You need JavaScript enabled to view it..