Public sector outsourcings: turning back the clock?
Lindsey Hill looks at a provision in the Employment Rights Bill that could in practice see the reinstatement of the Two-Tier Code.
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As some may recall, back in 2005 the last Labour Government brought in what became known as the “Two-Tier Code.” The Code was designed to prevent disparity in employment conditions between ex-public sector staff transferring in under TUPE and existing private sector staff working on the same outsourced contract.
The Two-Tier Code was scrapped by the subsequent coalition Government and replaced with voluntary (and less onerous) “Principles of Good Employment Practice.” This was welcomed by many in the private sector.
However, one of the lesser reported provisions in the Employment Rights Bill seeks to turn back the clock, effectively reinstating and strengthening the guiding principles of the Two-Tier Code.
The Government’s plan is to amend the Procurement Act 2023 so that the Government (and devolved administrations) can create new regulations and a new Code of Practice to ensure that:
- Ex public sector workers are treated no less favourably as staff of the new supplier than they were when employed or engaged by the public authority; and
- Existing staff of the new supplier are treated no less favourably as the ex-public sector staff who have transferred in and are working on the same contract.
The Government has indicated that the regulations and new Code may set out model contract clauses – alongside an obligation on authorities to take reasonable steps to include these clauses in relevant outsourcing contracts. The exact rules could vary depending on the sector or size of the contract — but we’re still waiting on the draft regulations and code to see how it’ll all work in practice.
One key question is how “no less favourably” will be interpreted in this context. For example:
- Will the private sector supplier have to honour non-contractual benefits and perks available in the public sector that TUPE doesn’t usually protect?
- What about pensions?
- How about existing staff – will the private sector supplier need to enhance terms and benefits for its current staff to match those of the ex-public sector employees who have transferred in? Or will a package approach be acceptable?
Depending on how this all progresses it could be costly for private sector employers taking on outsourced public services.
The Government’s current plan is for these changes to come into force in October 2026. We’ll keep an eye on things and share updates as the Bill moves forward.
Lindsey Hill is a professional support lawyer at Mills & Reeve.
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