End of two tier workforces in public sector contracting out

On 13 February the Government announced measures on the contracting-out of local services that aim to ensure that all employees working on local public services get treated fairly, whether they are employed directly or by a service partner. The measures provide that private sector contractors will no longer be able to employ new recruits on substantially different terms and conditions from transferred employees, thereby reducing its ability to compete with the public sector on price. The measures were also announced the daybefore the Government's statement on TUPE. See article Government announces improved rights for transferred employees

The Code follows the intention expressed by the Deputy Prime Minister last autumn to end the existence of the two-tier workforce. The purpose of the Code will be to ensure that new joiners to either a private or voluntary sector partner will be offered terms and conditions which are, overall, no less favourable than those of staff who have transferred from the local authority. This requirement does not apply to pensions, but the Code provides that new joiners should be offered a reasonable pension provision, which may be either membership of the Local Government Pension Scheme, membership of a good quality employer pension scheme or membership of a stakeholder pension scheme with an employer contribution, based on a matching contribution of up to 6% of pay.

The Code will apply to all local authority contracts in England which are first advertised for tender following publication of the Code in statutory guidance, which is likely to take place in March this year, so it will not be retrospective. It will be a requirement that the provisions of the Code are included in the terms of any contract between a local authority and their private or voluntary sector partner and local authorities will be required to confirm that individual contracts comply with the requirements of the Code in their annual Best Value Performance Plans. Employers who breach the Code could ultimately find themselves in front of an independent adjudicator.

The Code has not been welcomed by business leaders who have described it as a 'climb down' by the Government. Business leaders had anticipated a much vaguer voluntary Code and had wanted a reference to 'broadly comparable' terms and conditions. In response to the Code the Confederation of British Industry has said that this will make it even harder for the Government to achieve its own objectives on public service reform. By contrast, UNISON sees the Code as a major breakthrough and expects it to force private companies to compete on quality rather than price. It also intends to campaign for extension of the application of the Code throughout Britain's public sector, as well as demanding that existing contractors follow the principles out lined in the Code.

For further information please contact Simon Jeffreys at [email protected] or on +44(0)20 7367 3421 or Anthony Fincham at [email protected] or on +44(0)20 7367 2783.