new Fair Deal no Fair Deal (43)
Roderick Ramage, solicitor, www.law-office.co.uk
published on this website 1 January 2013
This article is not advice to any
person and may not be taken as a definitive statement of the law in general or
in any particular case. The author does
not accept any responsibility for anything that any person does or does not do
as a result of reading it.
While the Government is proposing to
make Fair Deal a little easier for contractors, some local authorities are
attempting to avoid Fair Deal and the 2007 Direction by “transferring” rather
than “outsourcing” services.
background (paraphrasing the
final paragraph of last year’s update)
Mainstream pension benefits for
pensions are exempt from transfer under Transfer
of Undertakings (Protection of Employment) Regulations 2006, so it was
feared that contractors bidding for public sector work would save costs on
pensions because of this exemption. Fair
Deal was intended to remedy the loss of public sector pension scheme membership
suffered by transferring employees, by requiring the transferee to provide for
them pensions, which are the same as or broadly comparable with the
transferring authority’s public sector scheme.
A weakness of Fair Deal is that it is not statutory and is
unenforceable, unless the outsourcing authority imposes a contractual
obligation on the contractor to comply with it. With effect from 1 October 2007, the Best
Value Authorities Staff Transfers (Pensions) Direction 2007 gives employees,
who transfer from a best value authority under TUPE on the outsourcing of a
service, a right to the pension benefits to which they would have been entitled
under the relevant public sector scheme.
In November 2012 the HM Treasury
published its response to its consultation on the Fair Deal policy, which,
broadly speaking, is that:
⁻ the general principles Fair Deal will be continued;
⁻ compulsorily transferred employees will be entitled to
remain in their present public sector pension schemes;
⁻ public sector schemes, including unfunded schemes, such as
the Principal Civil Service Pension Scheme and the NHS Pension Scheme, will be
opened to private sector bodies employing such employees;
⁻ the requirement to provide a broadly comparable scheme and
accept bulk transfers of past service liabilities will cease to apply; and
⁻ certain employees may be readmitted to the appropriate public
sector scheme with bulk transfers.
Much detail is still to be settled,
⁻ the treatment, on retendering, of employees, who had been
transferred out of the public sector;
⁻ how the employer’s contribution rates are to be determined;
⁻ the circumstances on which access to the public sector
⁻ “exit” charges on ceasing to have access; and
⁻ the impact on admitted body status in the Local Government
Pension Scheme and the 2007 Direction.
Further consultation will continue
until February 2013. The details and
implementation of the “New Fair Deal” are not expected before Spring 2013 and
may coincide with the progress of the Public Service Pension Bill (essentially
enabling the provision of revalued career average instead of final salary pension
schemes for public service employees).
In the meantime the existing Fair Deal remains in place.
The argument, backed in two cases of
which I know by leading counsel’s advice, is that, if a local authority
transfers a public service activity permanently to a charity or private sector business, there is no
outsourcing of the service and neither Fair Deal nor the 2007 Direction apply,
so the transferee’s obligations are limited to s257 and s258 of the Pension Act
2004 and Beckman liabilities. By this
means the local authority saves the costs of providing the service and the
costs of admitted body status in the LGPS, sometimes shared under paragraphs 68
to 74 of the December 2009 guidance (http://timeline.lge.gov.uk/Statutory%20Guidance%20and%20circulars/statguide.htm).
understanding of Fair Deal etc, contrary to this argument, is that it applies
more widely than to “outsourcing” as normally understood and extends to other
ways by which services, formerly provided by a public authority, are provided
in the private sector by the same employees transferred from the public
sector. Paragraph 7
of the Cabinet Office Statement
of Practice 2000, revised November 2007, states this.
7. The Statement of Practice covers the following types of situation
that may involve transfers of staff:
- Public Private Partnerships
(e.g. following Better Quality Service reviews). This includes contracting-out;
market testing; PFI; privatisation and other outsourcing and contracting
exercises, (paragraphs 10-16);
not every transfer from the public to the private sector is the outsourcing of
a service. If a
local authority operates, say,
a stationery shop and disposes of it, the transfer is almost certainly outside
Fair Deal etc, particularly if the sale is unconditional and (my rule of thumb)
the transferee is free to use the assets and premises as a cake shop. If however it is envisaged that the activity,
say a nursery school, will be continued by the transferee, it is arguable that
that Fair Deal etc does apply to its transfer, which is in the paragraph 7
situations and fails my cake shop test.
copyright Roderick Ramage
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