Navigating changes to TUPE, and the Employment Rights Bill in procurement

Many commentators have focused on extensive proposals to improve employee rights within The Employment Rights Bill (the Bill). However, tucked away in the Bill are a number of proposals that may not be as publicly provocative but nevertheless are going to have an impact on public sector employers.

Currently, the TUPE regulations act to “lift and shift” the terms and conditions of an incoming employee, known as the automatic transfer principle. TUPE prohibits the harmonisation of terms, which inevitably means that employees transferring out of the public sector can be working on different terms and conditions from the existing employs they work alongside.

In this article we focus on the proposals to amend TUPE provisions in connection with public procurements.

How is TUPE changing

The current proposal in the Bill is to give a Minister of the Crown the right to amend the Procurement Act 2023 to introduce Regulations to facilitate “no less favourable treatment” for private sector workers compared to those previously in the public sector.

This would mean that, following a transfer, employers must offer any private sector employees working on an outsourced public contract, terms and conditions no less favourable than those available to transferred ex-public sector workers or vice versa. The regulations may limit the scope of this obligation to only those employees working on the public contract in question or to only contracts within a certain value, which would no doubt come as a welcome restriction.

The purported aim of this development is to avoid a “two-tier” system under public outsourcing contracts where workers are subject to different terms and rights within the same workforce. Though, unless the intention is that the same “upgraded” employment terms apply across a whole company that works on outsourced contracts, it is difficult to see how this two-tier system can be wholly avoided.

Of particular note, and concern, will be the potential application of this requirement to pensions, whereby public sector pension provisions may now be extended to private sector employees. This could mean that “closed” public pension schemes are no longer possible, and employers would be required to allow admission for private sector workers to the Local Government Pension Scheme (LGPS)[1].  This would have a significant impact on the cost of outsourcing contracts, as public pension schemes often offer substantially better benefits than private schemes, and undoubtedly such costs would be passed onto the contracting authority letting the contract.

The new ministerial powers also include the ability to create model contract clauses in outsourcing contracts and contracting authorities will have to take all reasonable steps to include these in their outsourcing contracts and to ensure that the successful bidder complies with the contractual provisions.

The Bill is currently at committee stage in the House of Commons and is yet to go through the House of Lords, so it may still be subject to amendment. If it does come into force, detailed regulations and a Code of Practice are expected to be implemented to govern its application to public outsourcing contracts.

While we appreciate that operating a two tier salary and pension system within one workforce can lead to disgruntled staff, the Government’s motive for this proposal is not currently clear as the changes would inevitably impact contracting authorities’ ability to achieve best value, particularly in the context of continuous budget cuts for local authorities. For any authorities or businesses that would like to comment on these provisions, there will be a call for evidence to examine TUPE and how these amendments could operate in practice. This is expected to be issued in 2025.

LGPS Changes

In November 2024 Rachel Reeves became the latest Chancellor to set their sights on making changes to the LGPS. The LGPS is one of the largest “defined benefit” funded schemes in the country, which means that it uses its own assets to achieve solvency to meet its benefits obligations, as opposed to a “pay as you go” scheme (e.g. the UK’s State Pension Scheme), in which benefit obligations are met by current workers’ contributions.

Currently the LGPS has 86 separate local funds within England and Wales with roughly 6.1 million combined members. These funds are overseen and administered by 86 separate authorities, usually the top-level authority in the area (county or unitary authorities), via a Local Pension Board.  The scheme is governed by the Local Government Pension Scheme Regulations 2013, and changes to these rules can only be made by Parliament.

The Chancellor has announced plans to consolidate the LGPS pension pots, including their administration and management, into eight “mega funds”. This would see the current funds delegate all powers and duties to these new mega funds. This could bring greater investment opportunities, with larger funds potentially bringing increased stability and the ability to maximise returns for its members. However, there is likely to be a large administrative burden in merging these funds and dealing with the current investments.

If these mergers do take place, it could mean that current Admission Agreements will need revamping and contribution rates may require amendment.  It could also lead to delays in obtaining evaluation and contribution figures from fund administrators on a TUPE transfer, as they will no longer be local to the authority.

This is very much a developing picture, and we should have greater detail once the anticipated Government consultation is concluded and a response provided.

If you have any questions on this topic, please do reach out to Natasha and David who would be very happy to discuss with you.

For further employment law updates join our next Employment Forum webinar on 29 January

David Leach is an Associate and Natasha Barlow is a Junior Associate at Sharpe Pritchard LLP.

This video is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published. If you would like further advice and assistance in relation to any issue raised in this article, please contact us by telephone or email enquiries@sharpepritchard.co.uk.

[1] Under Part 3 of Schedule 2 to the Local Government Pension Scheme Regulations 2013