Come to terms with Tupe

Public-private partnerships offers huge opportunities for the sector but are far from straightforward and employment law in particular can trip up unwary FMs

by Nicola Ithnatowicz

26 February 2009

Although the knowledge and experience of transferred employees can be an invaluable resource, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (Tupe) are a potential stumbling block. Tupe operates to transfer employees on their existing terms of employment from the existing provider to the new provider. The new provider also inherits liability for employment claims against the old employer. In a typical Building Schools for the Future (BSF) project, employees transfer from the local authority, the schools and existing FM sub-contractors.

Equal pay claims represent one of the largest risks for any organisation contracting with the public sector. The potential for claiming six years' back pay and the many historic gender-based pay inequalities revealed by the implementation of the single status agreement have resulted in a dramatic increase in equal pay claims in recent years. A difficulty faced by lots of FMs with transferred employees is the discrepancy between the protected terms and conditions of the employees who have transferred and the terms and conditions of the FM's existing employees. The situation can get worse if transferring employees are protected by the Code of Practice on Workforce Matters (or Two-tier code).

The code protects employees who were originally employed in the public sector. It tries to stop a two-tier workforce developing by requiring that staff employed to work alongside transferred employees are given terms which are "no less favourable" overall.

In other words, less generous sick pay may (for example) be compensated for by more holiday. Unfortunately, equal pay law operates on a term-by-term comparison so if a male facilities assistant gets more holiday than a female catering assistant, a claim could arise. A recent tribunal looked at two key questions: what happens if a new contractor perpetrates a pay inequality it has inherited from a transferor employer; and can a transferred employee still compare themselves with employees at the transferor? The recent case of Sodexho v Gutridge and others (see box) has confirmed that transferee employers are liable for pay inequalities which begin at a transferor and are continued by the transferee, and that transferred employees can compare themselves with employees at the transferor in order to bring an equal pay claim.
As a means of risk managing the potential equal pay liabilities, extensive due diligence is generally not practicable in a BSF project which will usually involve multiple transfers from a variety of sources over a long period of time. Instead, FM providers should focus on ensuring the employment indemnities from the Local Authority include protection for equal pay claims. The BSF standard form contracts do anticipate these liabilities and FM providers should be wary of any attempt to qualify that protection.

To minimise the risks of equal pay claims further, incoming FMs have sometimes tried to harmonise the terms and conditions of existing and transferring staff. Under Tupe, changes made to transferred employees' terms because of a transfer are generally invalid. The only defence in such cases is for the employer to show it had an "economic, technical or organisational reason (ETO)" for the changes which also entailed a change in the workforce. Generally, an attempt to harmonise terms and conditions will not be an ETO reason.

The situation has also got more complicated following another recent case. There is now the possibility that transferred employees can "cherry pick" terms and conditions from their Tupe terms and varied terms, to get the more beneficial ones from both sets. Some areas of the law remain untested and what is clear from the recent cases is that consulting with and getting an employee to agree in writing to a variation manages but does not eliminate this risk.

But in practical terms, what is essential is that if incoming FMs take the risk of making changes to Tupe terms, they ensure that the managers of transferred employees are aware of the changes and do not undermine the new terms by trying, for example, to rely on the old terms instead.

Nicola Ihnatowicz is a solicitor at law firm Trowers and Hamlins

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Tupe facts

• Tupe only protects employees and does not apply to agency work or independent consultants
• A new employer takes the employees on their existing terms and conditions and inherits liability for any claims against the old employer
• Tupe protection lasts indefinitely
• Employees dismissed for a reason connected to a transfer will have claims for automatic unfair dismissal unless the employer has an ETO defence
• The old employer has to inform and consult affected employees, and provide the new employer with information about the transferring employees
• The new employer must notify the old employer of any "measures" that will affect the transferring staff