Changes to regulation of outsourcing and employment transfers

The UK coalition government announced plans in May 2011 to include the Transfer of Undertakings (Protection of Employment) Regulations 2006 in its review of employment regulation. The TUPE Regulations have been crucial in protecting the rights of public sector workers faced with outsourcing and organisational change. Any review is likely to have particular consequences for public service reform and the proposed transfer of service provision from the public sector.

On 11 May 2011, the UK coalition government announced additional areas of legislation for inclusion in its ongoing review of employment regulation (UK1104049I), including the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). Reform of TUPE is likely to have particular consequences for public service reform and the proposed transfer of service provision from the public sector.

Background

The TUPE Regulations have been central to the framework of protection for public sector workforces faced with outsourcing and organisational change. They implement in the UK the EU Acquired Rights Directive (ARD) and ensure the right for workers to transfer to employment by the new service provider with their contract of employment intact.

The government’s review of the regulations needs be seen in the context of its determination to open public services further to private and third sector providers. The Green Paper, Modernising commissioning (256Kb PDF)PDF, published in December 2010, canvassed ideas about expanding the roles of voluntary, community and charitable organisations in public service procurement. These ideas were developed further in the White Paper, Open public services (589Kb PDF)PDF, published in July 2011.

Ministers see employment regulation as a potential barrier to innovation in the UK economy and to public service reform in particular. Elements of the framework of employment protection governing public service reform have already been withdrawn. In December 2010 the Cabinet Office abolished the Code of practice on workforce matters (published in February 2003; UK0302107F), which required that pay and conditions for new staff on civil service and National Health Service (NHS) contracts should be no less favourable overall than those enjoyed by the existing workforce.

Employers’ objectives

In a report published in June 2010, Making Britain the place to work: an employment agenda for the new government (700Kb PDF)PDF, the employers’ organisation, the Confederation of British Industry (CBI), identified two areas of TUPE it would like to see reformed.

First, employers have long wanted greater scope to harmonise the terms and conditions of employment for transferred staff to bring them more into line with existing workforces.

Second, since their revision in 2006, the TUPE Regulations have been widely applicable to business transfers covered by the ARD as well as to ‘service provision changes’. The latter group includes contracting activities that were previously decided on a case-by-case basis such as second-generation contracts and those where services are brought back ‘in-house’. Because such provision goes beyond the explicit terms of the originating directive, it has been criticised by the CBI as ‘gold-plating’.

Case law

Recent case law developments may prompt a third area for debate. On 15 June 2011, in Parkwood Leisure Limited v Alemo-Herron and others (79Kb PDF)PDF, the UK Supreme Court upheld the appellants’ claim that TUPE provided continuing rights to collectively uprated pay and conditions several years after transfer and even where their new employer was not party to the negotiations. In relying upon the UK regulations to reach its decision, the Court noted that TUPE was more generous than the originating directive in this regard and referred the case to the European Court of Justice for a view as to how far this is permissible. With TUPE already in the policy spotlight in the UK, it is highly likely that this aspect of the regulations will also be contested.

Commentary

The appetite for deregulation among ministers of the UK coalition government is evident in this initiative. Yet it remains to be seen how far reform will extend in practice. Preceding Labour governments had already tested the flexibility of the originating directive by allowing new employers to vary employment contracts subject to economic, technical or organisational factors – the so-called ‘ETO’ defence. It is difficult to see how much further permission for harmonisation would be possible without fundamental change to the ARD.

Reform may also prove counterproductive. British trade unions have become expert and determined litigants in this area, as demonstrated by the Alemo-Herron case which was supported by the public service trade union, Unison. The notion of ‘service provision changes’ was developed principally to take arguments about the application of TUPE out of the courts and to provide certainty in the procurement process for employers as much as employees. Litigation over such issues has declined markedly since then, but any change in statutory scope may risk reigniting such adversarial approaches. Policymakers at all levels will have to consider how far this prospect serves their broader reform agenda.

Trevor Colling, IRRU, University of Warwick