29/05/2019

While the business and funding environment remains uncertain, organisations want to be as agile as possible in structuring their operations. For both the public and private sectors, decisions on commissioning - and the outsourcing or insourcing of contracts and services - are critical in achieving the right business model.

Within local government, severe budgetary pressure, demands for better service quality and recent high profile contractor collapses have all encouraged councils to make changes in their operations.

In particular, given that there may not be the same funding available to provide even existing services, employers have looked to new models. These include generating new sources of income and achieving greater efficiencies or productivity through commercialisation.

Further, with the highly public collapse of Carillion, which required an unplanned return of employees to the public sector and in many cases outsourcing to a new provider, we are seeing an increasing trend for ‘insourcing’, when public bodies decide to bring some services back in-house.

Sometimes this is to allow them to create new structures, including partnerships, wholly owned delivery vehicles and joint ventures.

Inevitably – with local authorities in England and Wales employing more than 1.7 million people – there are substantial implications for people management.

If the organisation in which they are working changes ownership, there are protections for employees. Moving employees and any liabilities associated with them to a new employer by operation of law is governed by the Transfer of Undertakings (Protection of Employment) Regulations 2006 – commonly known as “TUPE’ – that was introduced to conform with European law.

It can be a difficult piece of legislation to manage, and local authorities that are now actively re-aligning their services and structures need to be fully aware of its significance, virtually all service provision changes may trigger a TUPE transfer, depending on the circumstances.

Employees have the legal right to transfer under TUPE to the new employer on their existing terms and conditions of employment and with their existing employment rights protected. This means in practice parties to such arrangements must always consider how best to apportion liabilities around staff appropriately and this usually entails negotiations or provision of suitable indemnities between incoming and outgoing organisations.

The complexity of any transfers can also lead to any incoming employer of transferred staff having to carefully consider the impacts and possible risks to their overall workforce. For local authorities in particular this may also mean carefully evaluating risks around equal pay associated with any such TUPE transfers.

TUPE also places obligations to inform and consult with representatives of the employees affected by the transfer, with stiff penalties for employers who fail to comply. 

Finally, a key right conferred on employees subject to a TUPE transfer is protection from unfair dismissal. So any proposals involving relocations; restructures and harmonisation by an incoming employer will all need to be carefully managed such that associated TUPE risks can be properly navigated without the prospect of unexpected costs arising from litigation.

A thorny question that sometimes arises when a workforce is transferred under TUPE, is whether the incoming employer can dismiss a ‘difficult’ employee because it anticipates problems with the working relationship post-transfer. Is the “sole or principal reason” for that dismissal the TUPE transfer itself and, therefore, automatically unfair – or is the dismissal because of the anticipated difficulties and therefore unconnected with the transfer? 

There are also special provisions dealing with public sector pension schemes, so that they are protected even when their rights would not be under TUPE. Authorities should also be aware that consultations are ongoing on the introduction of further pension protection for employees of the Local Government Pensions Scheme (‘LGPS’) employers who are compulsorily transferred to service providers.

Disputes and litigation involving TUPE occupy substantial amounts of time in the courts and tribunals. Authorities wanting to avoid difficult legal situations should therefore plan ahead carefully, and take expert legal advice.

 

Bevan Brittan LLP will be presenting at EM Lawshare on TUPE strategies covering all these issues and more on July 17 (London).