Employment issues in private finance initiative and public private partnership schemes are highly topical, highly political and, potentially, highly controversial. This much was plain at the recent Labour Party conference and in the opposition to PFI/PPP from trade unions, largely based on the two-tier workforce issue.
Proposed legislation to reinforce the applicability of TUPE - the Transfer of Undertakings (Protection of Employment) Regulations 1981 - and to address two-tier workforce issues is not yet in place and there are some fundamental legal issues about which councils need to be aware.
TUPE is relevant in the PFI context when council services are transferred to another contractor. TUPE has little effect where the project is a new build or a new function because there are few or no existing staff. A point sometimes overlooked is that such schemes often benefit the local economy through the creation of jobs in the construction, service and other industries.
Staff transfer on existing terms and conditions and with continuity of service. If either the transferor - the council in a PFI deal - or the transferee - the special purpose vehicle or sub-contractor - dismisses staff for a reason connected with the transfer, that person can seek financial recompense from the transferee. Any dismissal for a reason connected with the transfer, whether occurring before or after the transfer, is automatically unfair. Staff representatives must be informed in advance about the transfer and how it will affect the workforce.
All staff employed wholly or substantially in the undertaking transferred must be taken on by the new operator and there are constraints on the transferee's ability to make changes to their employment contracts.
A common complaint from unions and transferred staff is that, in practice, TUPE only applies for a relatively short time post transfer and that thereafter the new contractor is free to dismiss or change conditions at will. Although this is not a statement of the law, there is little doubt that protection from TUPE is eroded as time passes. Consequently, unions and councils are increasingly seeking to enshrine TUPE protection for as long as possible with the new contractor. This has led to so-called 'TUPE plus' conditions being in contracts.
One condition which has recently come into common use explicitly states the time period for which TUPE is 'agreed' between the contracting parties. There is evidence of this type of TUPE Plus condition being adopted as a matter of course in certain parts of the public sector. However, there remains some uncertainty as to what steps councils can lawfully take to protect their workforce and what legal powers they have to enshrine worker protection rights above that provided by TUPE.
Unions have long argued that contracting out staff to private sector providers under PFI leads to a two-tier workforce, where staff are employed by the contractor on different terms and conditions from each other and often on inferior pay, pensions, terms and conditions from councils in general. The contention is that, post transfer and despite TUPE, former council staff who are transferred frequently have their contracts changed detrimentally and new staff are engaged on terms inferior to those of colleagues working on similar jobs with TUPE protection or those working for councils in similar roles. Claims before employment tribunals by NHS and council staff have been made to the effect that different categories of staff are doing work of equal value but who are being paid differing amounts.
In general, new staff appointed post-transfer are appointed on rates dependent upon the local labour market. However, the unions are keen to ensure they are paid at similar rates to council staff employed to do similar work. The response of the market to these sorts of requirements will be closely monitored by all parties.
The ODPM is drawing up a code of practice on the treatment of new staff working alongside transferred staff. This will oblige contractors to offer employment to new staff on fair and reasonable terms and conditions broadly comparable to those of transferred staff that take into account the need to recruit and retain quality staff and conditions in local labour markets, and that offer reasonable pension arrangements.
Large-scale secondment is being explored by councils and the NHS as an alternative to TUPE transfers to avoid difficulties over two-tier workforce issues and opposition from unions and staff. The best-known example of council secondment option is the Liverpool City Council/ BT transaction, the subject of a recent 4Ps case study. In this deal, almost 800 staff have been seconded to a joint venture company set up by the council and BT to secure
a long-term partnership without disturbing existing employment terms. A retained employment model in the NHS is being piloted to achieve similar objectives.
Issues relating to staff affected by PFI need to be considered and addressed at an early stage and legal advice obtained on approaches to protect the workforce within the contract. In particular, councils need to be satisfied they have adequate statutory powers to enshrine protection clauses above those provided by TUPE. The Local Government Bill outlines government proposals.