new Fair Deal no Fair Deal (43)
by Roderick Ramage, solicitor, www.law-office.co.uk
first 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.
new Fair Deal
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, including:
⁻ 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 scheme ceases;
⁻ “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.
no Fair Deal
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).
My 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);
Clearly 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
click below to