Changes to TUPE and Pensions: the impact on contracting with Local Authorities. Amanda Harvey Partner Devonshires

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1 Changes to TUPE and Pensions: the impact on contracting with Local Authorities Amanda Harvey Partner Devonshires

2 Contracting with Local Authorities: Problem Areas Lack of certainty: does TUPE apply or not? Lack of information, warranties or indemnities Equal pay Pensions Post transfer restructuring TUPE or no TUPE on termination Pricing unquantifiable and unknown risks

3 The risks in context National Provider: one contract accrued equal pay liability of 4million, ongoing 500k per annum Regional Provider: cost of ill health retirement for one employee 130,000 Regional Provider: liability for pre-transfer discrimination 50,000 Regional Provider: 900,000 estimated exit liability on a three year housing management contract

4 When does TUPE apply? TEST 1: Transfer from one entity to another of an undertaking or business or part of an undertaking or business where there is a transfer of an economic entity which retains its identity (a Business Transfer) TEST 2: A service provision change where there is an organised grouping of employees which has as its principle purpose the carrying out of the activities concerned on behalf of the client (a Service Provision Change) Transfers from the public sector also governed by the Cabinet Office Statement of Practice: Staff Transfers in the Public Sector

5 What does this mean? Business transfer The identity of the Employer must change More than a transfer of assets Service Provision change Outsourcing, re-tendering or insourcing The same client Similarity of activities before and after the change

6 Service Provision Changes Whole concept was going to be repealed Instead, contract activities must be fundamentally the same as those carried out by previous provider Codification of existing case law Government consultation: providing the services in a novel or innovative way may mean no SPC??

7 Service Provision Changes: practical problems Fragmentation of services Need for an organised grouping of staff that has as its principal purpose the carrying out of the activities for a particular client Who is assigned to the organised grouping? No specific % of time that an employee must devote to the activities Time is only 1 factor

8 Lack of Information: Warranties and Indemnities ELI 28 days before transfer Incomplete and inaccurate information Transfers from existing providers Reliance on due diligence Questionnaires Meeting staff

9 Equal Pay Single status Effect of equality clause Liability for pre-transfer unequal pay Ongoing liability Indemnities and price adjustment?

10 Local Authority Contracting and Pensions Best Value Authorities Staff Transfers (Pensions) Direction 2007 Fair Deal 2013 LGPS 2012 and 2013 What does this all mean?

11 Pensions Direction applies: Birmingham CC TUPE TUPE RP as Existing Provider TUPE Devonshires RP new Provider

12 Pensions Direction doesn t apply: Birmingham CC No TUPE No TUPE Wolverhampton CC Existing Provider TUPE Devonshires RP new Provider

13 Local Government Pension Scheme: Overview LGPS is a funded pension scheme Administered by 99 separate administering authorities Apply to become admitted through an admission agreement Underfunding on entry Triennial valuations to assess deficit Exit liability Ill health retirement costs, early retirement and redundancy risks Bond Employer discretion statements Recent changes Understand the risks

14 Post Transfer Restructuring Harmonisation is unlawful Changes permitted where unrelated to the transfer or for an ETO reason Changes permitted by the contract Variations arising from a change of location Varying collective agreements 12 months after the transfer Manchester College case

15 Collective Consultation and TUPE Collective consultation obligations: new S198A and 198B TULR(c)A Permits pre transfer consultation No obligation to allow this to happen Dependant on written notice and cooperation between transferor and transferee No special circumstances defence if transferor does not provide information Timing, delay and cost implications

16 No TUPE on Termination Redundancy costs LGPS costs Capital payments Augmentation payments and employer discretions Pension deficit: exit liability? Redeployment of staff LGPS or contractual change?

17 Assessing Risk: Minimum clarifications Employment: All information required to cost bid is provided Confirmation that equal pay audit been undertaken Indemnities provided for pre-transfer liabilities Indemnities if no TUPE on termination Pensions where LGPS is required Approach to funding at outset and on termination Current employer contribution rate linked or not? Level of bond Policy on discretions

18 Mitigating Risk: Employment Assessing workforce information and identifying the risks: challenging TUPE Use assumptions where you can Indemnities and warranties Price adjustment mechanism Staff Transfer Agreement Managing risk pre TUPE transfer Buy out of terms and conditions? Management of contract post transfer Protection on termination

19 Mitigating Risk: LGPS Admission agreement linked to contract for services Align employer contribution rate to that of transferring authority or cap and collar? Full funding on entry and termination Employer discretions to be funded by Authority Ill health retirement indemnity Redundancy indemnity Cost of bond recovered

20 Going Forward Formulate a future strategy for future transfers in, managing your existing TUPE workforce and transfers out taking account of: Risks at the start of a contract Risks during a contract Risks at the end of a contract

21 Action Points Review existing contracts Consider liabilities at the start, during the contract and on exit Assess risk: negotiate changes where possible implement changes to staffing structures and terms Consider your approach to contracting