TUPE. A Guide for Schools

Transcription

1 TUPE A Guide for Schools

2 Contents Checklist/Summary Paragraph Number 1. Introduction 2. Outsourcing (and Insourcing) 3. The Decision to Proceed 4. Selecting a Provider 5. The Contract Specification 6. The Final Choice of Provider 7. Managing the Transition 8. Legal Issues 9. Consultation 10. The Client Role 11. Career Implications 12. Terms and Conditions Contracts of Employment 13. Changes to Terms and Conditions 14. Pensions 15. Employment Charter 16. Dismissals and Redundancies 17. Information Exchange Due Diligence 18. TUPE Indemnities Academies 19. Remedies 20. Conclusion Appendices 1. Template letter 2. Transfer of employment Staffing issues likely to be faced 3. Legal position of continuous service 4. Summary of changes - table

3 Checklist/Summary The guidance is written in the context of the Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations introduced on 31 January 2014 and the Cabinet Office statement of practice Staff Transfers in the Public Sector. The guide is not intended to promote outsourcing or insourcing (transferring staff onto the establishment of the school). Outsourcing will involve major procurement, personnel, financial and legal issues. Schools should adopt a collaborative approach and ensure effective contract management arrangements are in place. Schools should ensure they seek advice from their Human Resources provider and Legal Insurance provider as soon as outsourcing or insourcing is being considered. The "core organisation" (see paragraph 3) is a key consideration. Are the functions being considered for outsourcing part of the core business or are they peripheral to the core business? Outsourcing a function does not exempt the school from responsibility for the function. Market and customer research, a SWOT analysis, budget and resources, benchmarking data and the standards for the service must all be considered. What are the objectives of outsourcing the function? - Cut costs? - Improve quality? - Obtain specialist expertise? - Cope with fluctuations in demand? Produce a specification. This is a key document. The school should seek procurement, legal, human resource and financial advice when producing a specification (see paragraph 5). In considering a provider take into account :- - qualifications and experience - expected outcomes - confidentiality - codes of practice (where relevant) - health and safety - equal opportunities - resources and competence of the provider - quality systems - track record - references - a "method statement" (see paragraph.. check?) - cost

4 It is necessary to manage the transition for those staff transferring and those staff remaining. TUPE (Transfer of Undertakings (Protection of Employment) (Amendment) Regulations). Schools will need legal and human resource advice in any transfer where TUPE applies. Community and VC Schools and Nurseries should inform the HR Schools Statutory Service at the earliest opportunity upon consideration of a transfer as all employees of these categories of schools are employed by Central Bedfordshire Council. Any transfer that takes place will therefore be between The School and Central Bedfordshire Council The Transferor and the new provider The Transferee. If the transfer is governed by TUPE Regulations then:- - transferred employees retain continuity of employment - individual contractual rights (except for pensions) are taken over by new employers - any dismissal or redundancy related to the transfer is automatically unfair - the transferee must honour collective agreements - there is a duty to inform the employees. Consultation with employees and their representatives is the key to a successful transfer. There is a statutory duty to consult with the Council s recognised trade unions and this must be carried out at the earliest opportunity. The School must undertake the "client role". Transfers do not exempt the school from responsibility for the function. Key factors for employees will be :- - Pensions - Pay and terms and conditions of employment. - Continuity of Employment The pensions issue is important. Anything other than continued access to the current schemes is likely to meet resistance from the staff representatives. Schools should not underestimate the time needed to resolve such problems. (See paragraph 14) Changes to terms and conditions post transfer is complex and sensitive (see paragraph 15 and appendix 2) Schools may wish to consider an "employment charter" to protect staff at the point of transfer. Outsourcing is a potentially time-consuming, lengthy and costly process. As outlined above Schools should seek advice from the relevant providers, including the Council, where it is the employer in advance of embarking on such a scheme.

5 The TUPE Regulations apply to all schools converting to academy status. Paragraph 18 of the guidance provides more information regarding the application of the TUPE Regulations to academy conversions.

6 1. Introduction 1.1. The purpose of this guide is to assist schools in identifying the key issues, both strategic and operational, involved in outsourcing (and insourcing ) and TUPE The most likely scenario where TUPE arises is when a school considers outsourcing a support function. This guidance is not intended to promote outsourcing as a universally desirable practice nor to provide more than outline information about the principles and processes involved in the tendering, letting and staff implications of outsourcing should the governing body wish to consider this option. Decisions about outsourcing are for individual schools to take in the light of their own service delivery needs. Insourcing occurs where a school decides to take onto the school establishment a function previously outside the direct employment of the school (for example, bringing catering services in-house or taking management responsibility for a pre and after school care club or ) The effectiveness of any outsourcing or insourcing is strongly influenced by the way in which the relevant people management processes are handled and the extent to which factors such as the compatibility of client and supplier cultures and values are taken into account so, although decisions about outsourcing or insourcing is a strategic decision by the governors, there is a major personnel and development component. It is important that there is full and proper consultation with the staff and their representatives. This must be taken into account in determining the possible timetable for an outsourcing venture. The issues involved in managing any transition from inhouse to external provider (or visa versa) for a function are the focus of this guide rather than the long term management of the contracted out service. It is recognised that it will be necessary to plan for an effective ongoing client role if the outsourcing is to be successful. This guide deals mainly with the role of the school although mention is made of the issues that will concern the external provider and which may need to be addressed jointly by the client (the school) and the provider Effective outsourcing through the management of contracts requires a collaborative, not a confrontational, approach which will have many partnership qualities - but the school will be, in effect, the senior partner and will have ultimate authority over what is done 1.5. Schools will wish to take this guidance into account where TUPE applies in the context of a change of employer when, for example, a school moves from a community school to a foundation school or, more importantly, where the school is to become an academy. In this context the transfer will take place within the public sector. Both the Acquired Rights Directive and the TUPE regulations make it clear that a reorganisation of a public administration, or the transfer of administrative functions between public administrations, is not a relevant transfer within the meaning of the legislation. Such transfers are, however, covered by the Cabinet Offices statement of practice Staff Transfers in the Public Sector which in effect guarantees TUPE

7 equivalent treatment for the employees affected. The Government has confirmed that this will continue to be the position under the 2014 Regulations. 2. Outsourcing 2.1. Outsourcing has included many practices that have long been normal ways of working for almost all schools. For example, office furniture and equipment is bought from a specialist supplier (not made in-house) while advertising for posts is likely to be carried out through an advertising agency. Other services such as grounds maintenance, catering and property management, are often purchased from outside providers. More recently there has been some growth in the incidents of outsourcing of other functions such as cleaning, office administration, information technology and caretaking and site agent activities Outsourcing across most services is normally on a long term basis governed by contracts of a specifically agreed length. The biggest single cause for the increase in outsourcing has been the concept of the core organisation which focuses on its in-house expertise (the provision of education) and purchases any necessary support functions from a range of sources at its periphery (such as payroll, finance and personnel support) Another argument for outsourcing is obtaining access to a level and type of skill and expertise which it is often difficult to develop within the school. Again, the above examples would apply and many of these service providers can deliver a range of professional know how which is not available to many schools In any outsourcing exercise the school will be mindful of the need to achieve the best value and most effective use of the public funds involved. Some schools have embraced the core and periphery concept and have voluntarily outsourced a range of support functions as a matter of school policy. A decision to outsource a particular function does not exempt the school from responsibility for the performance of that function. 3. The Decision to Proceed 3.1. From an overall school perspective, effective outsourcing decisions are derived from answers to questions such as :- What core business are we in? What are the aims and objectives of the school? What impact will outsourcing have on pupils, parents, staff, governors and the community? How are the needs of the customer group changing? What are we best at and what are our key skills?

8 Is our ability to deliver the best for our client group being diluted by involvement in other activities? Are we spending too much in resource time and managerial effort on peripheral functions? What are the full and unit costs of the support functions? Are there aspects of our activities which might more effectively be provided by an external supplier? What alternative sources are there? Do we need to gain access to new skills or new technologies? 3.2. Lying behind these questions will be market and customer research, a SWOT analysis (strengths, weaknesses, opportunities and threats) projections of budget and resource forecasts, together with a cost analysis. Outsourcing decisions may also be strongly influenced by benchmarking data which indicates whether the school standards and overheads on the functions to be outsourced compare favourably or otherwise with other schools. An equality impact assessment (EIA) will be a valuable tool in determining whether to proceed. A template EIA is available at (insert web link to schools portal) There may be indirect but valuable information about the organisation s image within the local community through sources such as:- The recruitment process (comments from applicants and agencies). Exit interviews. Staff experience with parents, governors, the community and pupils. Professional contacts (through groups of Head teachers or professional associations) In considering which services to outsource, the school will probably wish to define those aspects of the service which are likely to be retained in-house. There are two key issues to consider. The first is any strategic input to the organisational development of the school in line with the school s vision and values. The second is areas of work which are unpredictable in their incidents and which may lead to immediate action when they arise, such as responding to a particular staffing crisis within the teaching group. It is likely to be very difficult to specify the tasks involved sufficiently precisely to contract out management of unpredictable incidents (especially on a long term basis) to an external provider and guarantee that the external provider would provide the necessary instant and informed response Because cost effectiveness is a major outsourcing criterion it is important to quantify the cost of any function under consideration. Schools are likely to consider the factors such as the per capita cost of delivery, the number of

9 staff engaged, the annual cost to the school of providing the service, the ratio of personnel to other employees within the school (particularly when these factors are compared against similar and / or neighbouring schools) and the percentage of the school budget that will be committed to a specific contract Obtaining this information may entail a substantial amount of effort particularly where operational and day to day management has been devolved to heads of department. This does not imply that this work should not be done. Indeed, it may be vital to the success of the exercise although none of the costs or ratios will be sufficient by itself to justify outsourcing or retention inhouse. This may have implications for the workload of the staff involved It will be necessary to consider the extent to which alternative sources for the service exist in the market place. For well established service areas such as cleaning, facilities management, payroll and so on, this is likely to be comparatively clear. Details on these suppliers can be found in the relevant trade directories and from existing users. For smaller or more specialised functions, however, particularly where demand has not yet been sufficient for a widely established market to develop, then options may be less clear. Schools may wish to publish advertisements in the appropriate trade press inviting initial expressions of interest from potential providers. This method is widely used in the public sector as a preliminary to formal tendering and there are particular procedures relating to invitations to tender for any potential outsourcing to which the EU Services Directive applies. Schools may wish to contact the procurement officers of Central Bedfordshire Council for further advice in this area.

10 4. Selecting a Provider 4.1. The choice of provider is influenced by the nature of the function of the project concerned and by the outsourcing objectives. Is the primary objective to:- Cut costs? Improve quality? Obtain a specialist expertise? Cope with fluctuations in demands? 4.2. If there are multiple criteria, which should be given most weight? Providers vary in the way they operate in their experience of different types of activity and in their understanding of the organisation and cultural differences of various types of client. A key feature of almost all outsourcing is that the client organisation (the school) is still seen by its customers and other stakeholders as ultimately responsible for the quality of the outsourced activity With the overall objectives in mind, it is necessary to define the parameters of the outsourced function more closely. There are two approaches to this (see below), though in both cases, the results should be a clear, mutual understanding between the school and the provider about the service to be provided, its costs and the quality standards will be vital. (i) (ii) Particularly for specific projects the school may find it helpful to produce broad terms of reference and then discuss with each of the shortlisted potential providers how they would handle the project. A detailed project plan can then be evolved and agreed on a joint basis with the provider whose proposed approach is considered the most acceptable. For large scale or long term duration contracts (such as facilities management or IT services), a more formal tendering process will almost certainly be needed particularly where the EU Services Directive applies The school then needs to produce a detailed specification or service level agreement. This is an important document as the contract itself will state that work must be undertaken in accordance with the specification and it is essential that all the school s requirements are clearly set out. It is important that the precise detail of the goods and / or services to be supplied should be negotiated and explicitly stated in the contract. The assumption should be that if the detail is not stated then there is a risk it will not be provided (or will be provided at additional cost). Schools are likely to be viewed by their "customers" as responsible for any difficulties which may arise as a result of outsourcing. Specialist advice may need to be brought in to assist with the production of a particularly complex or highly technical specification while legal advice is also advisable in drafting of major contracts. This is likely to cost money and must be budgeted for at the beginning of the process. The legal, procurement, financial and human resource implications of outsourcing

11 may be significant and failure to seek adequate advice and guidance may result in liabilities accruing which would otherwise have been avoided. 5. The Contract Specification 5.1. A range of matters will need to be included in the specification, such as:- Activity volumes Response times Duration Frequency Methods or procedures (for example how a piece of training might be delivered) Joint working arrangements Facilities to be provided (for example, which party will provide and pay for any specialist equipment)? Liaison and reports Monitoring arrangements (ie the school monitoring the delivery of the contract) 5.2. Other matters which are likely to be included in the tender documents will be an indication as to the contracts duration, each parties termination rights, penalty payments for default, an arbitration clause and a procedure for dealing with any variations. It will also be necessary to define those quality standards which, from the school s point of view, are essential for the satisfactory operation of the contract. These are likely to include:- The provider s qualifications and experience The outcomes expected by the school Confidentiality clauses where appropriate Codes of best practice (for example, schools will want to see relevant codes or professional standards in place for the relevant activity). Health and safety Equal opportunities (see paragraph 3.2 above)

12 6. The Final Choice of Provider 6.1. Making a final choice of provider has similarities to the selection of a candidate for a job. The outsourcing equivalent of the person specification is the set of criteria to be used in choosing the successful tender. The degree of importance placed on pricing is similar to the weight which may be given in recruitment to the salary levels sought by the shortlisted candidates. Issues to consider for all types of outsourcing are likely to include:- The resources of the potential provider The competence of the potential provider The quality systems used by the potential provider The track record of the potential provider A statement of methods of the potential provider. (This document would enable a provider to state how they would achieve the outcomes and standards required by the contract). References Interviewing the potential providers In making the final selection decision it is often necessary to strike a balance between cost and quality. The lowest price tender may not fully meet the desired quality standard any more than it can be assumed that the highest price equates to the highest quality. Schools may use a point score assessment to ensure a systematic approach to this decision. An alternative approach is to give a potential provider a small, short duration contract for a small sample of the whole activity and then assess their suitability in the light of experience. It should be noted, however, that this can work for both parties. A provider might decline to renew a contract or only be willing to do so on terms less advantageous to the school. In either scenario the school will need to secure continuity of service. 7. Managing the Transition 7.1. Once a decision has been made to transfer the delivery of a function from an in-house unit to an external provider, then management of the people aspects of the transition assume major proportions. It will be vital to manage the fears and expectations not only of the group of staff transferring into or out of the school but, also, those left behind and those receiving the new group of staff. It is important to gauge the attitudes of staff and assess their morale so that communication can be targeted effectively and the transition managed in the best way possible. The core function of a school is to provide education and, in considering a potential outsourcing, it will be necessary to consider the potential impact on teaching and learning There are three main variances to the transition process :- (i) A complete function may be transferred to a provider who takes over the functions management team, all the employees and the relevant plant, equipment and property. The function may continue to operate

13 on a largely unchanged basis though its ownership has passed from the school to the provider. Such transfers are almost always subject to the Transfer of Undertakings (Protection of Employment) Regulations This will be the situation if the school converts to academy status and it will be necessary for governors and senior leaders to invest time in the process to ensure a successful transfer. (ii) (iii) The provider is able to supply the function entirely from its existing resources and, consequently, there is no transfer or other resources. In these circumstances, there may be redundancies unless the school can find alternative work for the employees whose work has been replaced by the brought-in function. (There will be a need to manage the redundancy issues carefully in order to avoid protective awards). Hybrid situations in which some staff and resources may be transferred to the provider but others become surplus. In these cases, it is likely that TUPE will apply but this will need careful review and the external provider may not share the view of the school as to whether it is necessary to apply TUPE. 8. Legal Issues 8.1. In almost all outsourcing cases except, perhaps, time-limited projects, an essential issue to resolve at the earliest possible stage is whether or not TUPE applies. The purpose of the Regulations (which comply with the European Acquired Rights Directive) is to provide employment safeguards for staff involved in business transfers but the legal definition of what constitutes a relevant transfer is not sufficiently definitive to prevent differences of view in individual cases as to whether or not the Regulations apply. The essential criterion is whether the transferred function is an economic entity which does essentially the same things after the transfer as before. Related factors include whether tangible assets are transferred and whether all or most of the staff are taken on by the new provider. No one factor is conclusive and, in every case, all of the circumstances of the transfer need to be considered. Schools should take expert advice when considering if TUPE applies before taking any further action.

14 The importance of resolving the issues stem from the obligation imposed by the Regulations on both the school and the provider. Under the TUPE Regulations the following apply :- Transferred employees retain continuity of employment Transferred employees individual contractual rights (except for pensions) are automatically taken over by the receiving organisation Any dismissal or redundancy related to the transfer is automatically unfair ( see paragraph 16 below) The transferee is responsible for any legal penalties resulting from such dismissals even if these are made by the client organisation (the school) before the transfer takes place. Any collective agreements applying to the transferred employees at the point of transfer (the date the transfer occurs) must be honoured by the transferee There is a duty on both the school and transferee to inform and consult with employees affected by the transfer (see paragraph 9 below on consultation) There are exceptions to the ban on dismissals where these are made for economic, technical or organisational reasons resulting in changes in the workforce. The case-law on the practical interpretation of ETO provisions is still evolving and certainly cannot be taken as providing an easy way of avoiding the principal TUPE obligations. Again, expert advice is likely to be required in these circumstances. (See paragraph 16 for more information) In some examples of outsourcing, because of the uncertainty applying to TUPE, external providers agree with the client organisation (the school) to apply the TUPE terms to transferred employees whether or not TUPE would have been judged to have applied had this been tested at law. Guaranteeing transferred continuity of employment and their existing contractual terms can contribute significantly to obtaining employee s acceptance of what may otherwise be feared as a change for the worse. 9. Consultation 9.1. The Regulations place a duty on both the school (transferor) and the new employer (transferee) to inform and consult representatives of the employees who may be affected by the transfer or measures taken in connection with the transfer. The affected employees might include:- Those individuals who are to be transferred; Their colleagues in the school who will not transfer but whose jobs might be affected by the transfer; or Their new colleagues in employment with the transferee whose jobs might be affected by the transfer.

15 9.2. Consultation must take place long enough before the transfer to enable the employer to consult with employee representatives and inform them:- That the transfer is going to take place, approximately when and why; The legal, economic and social implications of the transfer for the affected employees; Whether the employer envisages taking any measures (for example, reorganisation) in connection with the transfer which will affect the employees, and, if so, what action is envisaged; Where the previous employer is required to give the information he or she must disclose whether the prospective new employer envisages carrying out any action which will affect the employees and, if so, what. The new employer must give the previous employer the necessary information so that the school is able to meet this requirement If action is envisaged which will affect the employees the school must consult the representatives of the employees affected about that action. The consultation must be undertaken with a view to seeking agreement of the employee representatives to the intended measures. During these consultations the employer must consider and respond to any representations made by the employee representatives. Where representations are rejected it is necessary to state the reasons why Where employees who may be affected by the transfer are represented by trade unions or professional associations then there is a duty on the school to inform and consult the authorised officials of these unions. (A list of the recognised trade union and professional association representatives can be found on the Schools Portal Regardless of any legal requirements the importance of informing employees about any outsourcing proposals and providing the opportunity for full consultation cannot be over emphasised. In the absence of adequate information and explanation, rumour of job losses and concern about enforced changes in employment will generate fear and uncertainty among the workforce which may even result in threats of industrial action to prevent the outsourcing occurring, or the loss of valued employees who have contributed to the school's success All communication channels need to be considered, including newsletters, general staff meetings and team briefings by senior staff. It is particularly important that managers are kept fully in the picture so that accurate information can be given consistently across the school. In addition, and especially when only a few employees are involved, staff need to be seen individually so that personal concerns can be addressed Information and consultation are best organised jointly between the school and the prospective provider. It is particularly helpful for employees who are to be transferred to meet the management representatives of the new provider in advance of the transfer and, if relevant, to be given an opportunity of visiting any new work location. The emphasis should be on the provision of

16 maximum information to reduce, if not wholly eliminate, the fear of the unknown. Some organisations have also included employee representatives on the panel which has interviewed shortlisted tenderers or arranged for employees to indicate which of the tenderers they would most wish to transfer to. This is widely regarded as good practice and may help to overcome some of the staff concerns. It may even prove to be helpful in the event of any claim made as a result of the impact of the outsourcing upon employment For TUPE transfers there is a legal requirement on both the transferor (the school) and the transferee to inform the representatives of the employees of the reasons for the proposed transfer and the various employment arrangements. Information should be provided in writing and given in good time. Attached at Appendix 1 to this Guide is a letter which can be sent to the relevant trade unions and professional associations at the earliest opportunity to begin the consultation process. Also attached is a list of issues which are likely to emerge in the course of consultation and which senior managers and governors in the school will wish to address A similar requirement to consult trade union representatives in good time applies where redundancies are envisaged for ETO reasons. Failure to consult sufficiently early may result in the school being taken to tribunal and having to pay significant compensatory sums known as protective awards It is common for all the attention and consultation to be focussed on those transferring out of the school. This overlooks the possibility that outsourcing can undermine the morale of employees who are not transferring. Some may feel that they were not perceived as good enough to go while, on a wider basis, many may worry about their job security and speculate as to whether they might be the next in line. It is important, therefore, that all employees, whether transferring out or not, understand what the organisation is doing even though the more intensive consultation occurs with those who are directly involved. There should be careful consideration of the impact on the workload of remaining staff particularly matters such as capacity where, for example, a team of employees is broken up as a result of the outsourcing. 10. The Client Role Outsourcing does not mean that the client organisation (the school) gives up control, or responsibility for, the functions involved. The school will determine the scope of the outsourced function and set its standards through the contract. The contract will include a specific service level agreement and the school has an ongoing responsibility to ensure that the specification is adhered to, that problems are resolved, changes to the specification are negotiated, that contract completion is monitored and, potentially, that the penalty clauses are activated. Accordingly, the client role does not stop at the point where the contract is let it starts. It will be difficult for a school to undertake the client role effectively unless the level of expertise within the school matches that of the provider as some organisations have discovered to their cost when lack of know how has been exploited by a more knowledgeable contractor. This indicates the desirability of retaining at least a

17 small core of expertise within the client organisation (the school) and an adequate status level to deal influentially with the provider s management For many managers the transition from managing their own employees to managing through a contract is difficult. Managers are used to deciding what to do and then instructing their staff accordingly. If they now have a client responsibility for the management of an outsource contract, a different range of knowledge and skills will be required. The managers, as well as the provider, are bound by the terms of the contract and changes to the requirements will have to be negotiated on a formal basis. Acquiring the necessary understanding of contractual principles, and the ability to develop a constructive working relationship with an external organisation, can be aided by obtaining training in client side management. 11. Career Implications Some staff due to transfer to an external provider may have concerns about the effect on their careers. It is often the case, however, that career opportunities with an external provider are greater particularly where the outsourcing has been of a support activity rather than a primary function. Individual specialists within small firms can feel isolated and, once they are part of a larger organisation, there may be an enhanced career prospect. In effect, staff involved in such transfers are moving from the periphery of the old organisation to the core of the new employer where their skills are now central not simply supportive to the new business. This is one of the issues which should be included in the consultation period prior to the transfer as it is to the benefit of the school and the provider if the potential transferees see outsourcing as an opportunity to enhance their career development. It should be noted that in the current employment climate the former employees of the school will not necessarily be dedicated to, or even involved with, the future provision of the service to the school Information about the provider s career patterns, including an explanation of the organisation s training and development policies, needs to be given by the provider if it is to have credibility with the transferring employees. It is as necessary to avoid creating unrealistic expectations as to dispel concern about career damage. 12. Terms and Conditions Contracts of Employment When a transfer takes place the position of the school and the new employer in respect of the contracts of the transferred employees is as follows:- The new employer (the transferee) takes over the contracts of employment of all employees who were employed in the organised grouping of resources or employees immediately before the transfer. The transferee employer cannot pick and chose which employees to take on. It follows that the transferee employer cannot terminate contracts and dismiss employees just because the transfer has occurred. However, the new employer does not take over the contracts of any employees who are only temporarily assigned to the organised grouping. Whether an assignment

18 is temporary will depend on a number of factors such as the length of time the employee has been there and whether a date has been set by the school for his/her return or reassignment to another part of the school. The transferee employer takes over all rights and obligations arising from the contracts of employment except for criminal liabilities and some benefits under an occupational pension scheme (see below). This means that the transferee employer will inherit any outstanding liabilities from the school. An employee may make a claim to a court or an employment tribunal against the transferee employer for, say, breach of contract, personal injury or sex discrimination even though the breach of contract, injury or discrimination occurred before the transfer took place. It is normal practice for transferee employers to seek some form of indemnity in the transfer agreement with regard to potential liabilities which arose prior to the transfer. In circumstances where the transfer is out of the school to an external provider of services it would be prudent to negotiate a time limit and a financial cap to any potential liability. The transferee employer takes over any collective agreements made by or on behalf of the school in respect of any transferring employees and enforce immediately before the transfer. Where the employer of the school based staff recognise trade unions or professional associations in respect of some or all of the transferred employees then the transferee employer will also be required to recognise that union or professional association to the same extent after the transfer takes place. However, this requirement only applies if the organised grouping of transferred employees maintains an identity distinct from the remainder of the transferees business. If the undertaking does not keep its separate identity, the previous trade union recognition lapses and it will then be up to the union and the new employer to renegotiate a recognition agreement As indicated above, it is a common practice for transferee employers to require the school to indemnify them against any losses from such pretransfer breaches of contracts in employment law. In addition, the Regulations require the transferor (the school) to inform the transferee in advance of the transfer about such liabilities. (See paragraph 17 below) When a relevant transfer takes place the position of employees is as follows:- Employees employed in the organised grouping immediately before the transfer automatically become employees of the transferee. However, an employee has the right to object to the automatic transfer of their contract of employment if he/she so wishes as long as they inform either the transferor (the school) or the transferee that he objects to the transfer of his contract. In that case the objection terminates the contract of employment and the employee is not treated for any purpose as having been dismissed by either the transferor or the transferee. Moreover, the employee is considered to have resigned and would therefore not be entitled to a redundancy payment. The transferor (the school) may re-

19 engage the employee on whatever terms they agree, although the continuity of employment would be broken. An employee s period of continuous employment is not broken by a transfer and, for the purposes of calculating entitlement to statutory employment rights, the date on which the period of continuous employment started would usually be the date on which the employee started work with the old employer (the school or potentially another school) if the employer was the same (for example, Central Bedfordshire Council). The continuous service date should be stated in the employee s written statement of terms and conditions. As indicated in the above bullet point continuous service is protected at the point of transfer. In circumstances where a member of staff moves to a different academy or to a school maintained by a local authority it is likely that there will be a break in continuous service for certain employment rights. Attached at Appendix 3 is a summary of the legal position with regard to continuous service when staff move between academies and maintained schools. To be entitled to a redundancy payment an employee must have two years continuous service with an employer body covered by the Redundancy Payments Modification Order. Academies and all maintained schools (including foundation and voluntary aided schools) are covered by the RPMO. In normal circumstances a change of employer means that an employee must accumulate 24 months service before accruing an entitlement to make a claim at Employment Tribunal for unfair dismissal. It must be noted, however, that Section 218(7) of the Employment Rights Act 1996 provides that where an employee moves between any type of school maintained by the same local authority then the continuity of service for the purpose of unfair dismissal is maintained. This means that moves from academies to maintained schools (or vice versa) will start the 24 month qualifying period once again. With regard to matters such as sickness and maternity entitlement schools have the right to exercise discretion and employees considering a change of employer will wish to inquire as to the school policy. Transferred employees retain all the rights and obligations existing under their current contracts of employment and these are transferred to the new employer. This means that their previous terms and conditions of employment carry over to the transferee employer. The main exception to this rule concerns the treatment of occupational pensions. (See paragraph 14 below). 13. Changes to Terms and Conditions The Regulations ensure that employees are not penalised when they are transferred by being placed on inferior terms and conditions. Not only are their existing terms and conditions transferred across on the first day of employment but the Regulations also impose limitations on the ability of the transferee employer (and the employee) to agree a variation to terms and conditions thereafter. In particular, the transferee must never vary contracts where the sole or principal reason is:-

20 The transfer itself; or A reason connected with the transfer which is not an economic, technical or organisational reason entailing changes to the workforce The same restrictions apply to the school where the school contemplates change in terms and conditions of those employees who will transfer to the new employer in anticipation of the transfer occurring Where an employer changes terms and conditions simply because of the transfer and there are no extenuating circumstances linked to the reason for that decision then such a change is prompted by the transfer itself and would be rendered void by the Regulations. However, where the reason for the change is prompted by a knock on effect of the transfer (for example, the need to requalify staff to use different machinery) then the reason is connected to the transfer. If the reason for the change is connected to the transfer then it will need to be an economic, technical or organisational reason, otherwise the variation would be rendered void by the Regulations There is no statutory definition of economic, technical or organisational reasons but it is likely to include:- A reason relating to the profitability or market performance of the transferee s business (ie an economic reason); A reason relating to the nature of the equipment or production processes which the transferee operates (ie a technical reason); or A reason relating to the management or organisational structure of the transferee s business (ie an organisational reason) The Regulations also provide some freedom for a transferee or transferor employer to agree with an employee a variation to an employment contract before or after a transfer. The employer and employee can agree to vary an employment contract where the sole or principal reason is:- A reason unconnected to the transfer; or A reason connected with the transfer which is an economic, technical or organisational reason Regulations introduced from January 2014 provide more flexibility for employers. One year after the transfer the restrictions on variations to contracts will no longer apply to terms and conditions derived from, or incorporating, collective agreements provided that the change is no less favourable overall. This could impact on employees transferring out of a maintained school (perhaps to an academy) where collectively agreed terms and conditions are the norm. It must be remembered that any such change would still need to be agreed by employees (or their representatives) on either a collective or individual basis.

21 13.7. Transferred employees are entitled to the terms of a collective agreement as they stand at the point of transfer (the so called static approach). Changes to collective terms agreed after the transfer through a collective mechanism of which the new employer is not a part will not apply. This will include matters such as pay awards. For school based staff transferring to an academy, for example, this will mean the NJC Green Book and the School Teachers Pay and Conditions Document will apply as at the point of transfer. In these circumstances The School Teachers Pay and Conditions Document ceases to be a statutory entitlement for teachers but becomes a contractual obligation subject to consultation and dialogue between employee and employer. 14. Pensions In October 2013 the Government published The Fair Deal policy with regard to public sector pension schemes and the implications for employees compulsorily transferred out of the public sector. The guidance on The Fair Deal makes a distinction between best value authorities (as defined by the Local Government Act 1999) and other parts of the public sector. In respect of schools it should be noted that the Fair Deal will apply to schools where the employer is not a best value authority. Accordingly, the Fair Deal will apply to academies, free schools, foundation and voluntary aided schools because staff in such schools are directly employed by the governing body (not the local authority). Staff in community and voluntary controlled schools remain covered by the Best Value Authorities Staff Transfers (Pensions) Direction 2007 rather than the Fair Deal. Under the Direction a contractor must provide the transferred employees (who are in or eligible to be in) a relevant scheme (Teachers Pensions or the LGPS) with continued access or access to a broadly comparable scheme and this protection carries on for those originally transferred staff at each subsequent TUPE transfer. Under the Fair Deal, however, staff compulsorily transferred from the public sector will be offered continued access to a public service pension scheme rather than a broadly comparable alternative scheme. It must be remembered that in the case of a TUPE transfer applying at the point of an academy conversion all staff will retain their entitlement to access the relevant pension scheme (see paragraph 14.5 below) The pensions issue is key particularly given that the public service pensions are currently defined benefit schemes whereas many alternatives provided by the private sector employers are likely to be money purchase schemes. It is possible for the external providers to seek admitted body status to the Local Government Pension Scheme and function provider status to the Teachers Pension Scheme. It should be noted, however, that anything other than a continuation of entitlement to access the public service pension schemes is likely to meet with resistance from the staff and their trade union or professional association representatives. Both schemes are likely to require the providers to underwrite the risk to the scheme of the transfer by providing a bond. Each scheme has its own way of calculating this bond and it is likely to depend upon the level of risk involved in the transferring group of staff. For example, the age profile of the staff and their health records may well be factors which would be taken into consideration. This work will involve actuaries working both on behalf of the school and the new provider to try to determine an appropriate pension arrangement for the staff group. It is

22 inevitable that there will be costs involved and the timescales for resolution of this issue can be lengthy The obligation on the new provider is to offer a pension scheme which is broadly comparable to the scheme currently available to the staff. It will be work in this area by the actuaries, comparing the two schemes and seeking amendments which is likely to occupy the time and cause the expense. Schools will need to budget carefully to ensure that this is taken into account in the overall benefits of seeking to outsource a particular function Dealing with the pensions issue will need expert advice and it will probably involve calculations of the cash value of existing pension entitlements for transfer to the new employer s fund or options involving money purchase schemes or subsidised personal pensions. There is no simple or single answer except for recognising that transferred employees pensions options and entitlements need to be given early and serious attention With regard to academies, schools will wish to note that the Teachers Pension Scheme and the Local Government Pension Scheme will continue to be available to staff post transfer to the academy employer. Once the academy trust becomes an employer under the relevant regulations it will be required to make employer contributions to the schemes at the rates imposed under the regulations In the case of the LGPS any deficit on the fund at the point at which the academy trust accepts the transfer of the relevant workers must be taken into account by the actuary in fixing the contributions and in that way the academy trust succeeds to the liability which was previously the local authority s. The position of DfE appears to be that the transferring local authority is not obliged to meet the deficit and that while the academy must recognise the deficit in its balance sheet, the deficit is spread over time and will, therefore, be affected by investment performance and actuarial factors in the future. The DfE grant received by academies, which is based on the local authority funding formula, should take account of the deficit existing in the local authority pension scheme. However, there may be variation between the local authority employer rate and the academy rate dependant upon staff profiles. Academy trusts do not receive additional funding to take account of this potential issue with regard to a deficit in the LGPS With respect to the Teachers Pension Scheme, the DfE recognise that this is a defined benefit scheme and therefore it could be expected that employers would have potential exposure to investment performance and actuarial principles. The guidance states that as an academy is unable to identify its share of the underlying (notional) assets and liabilities of the Scheme, the academy has taken advantage of the exemption in Financial Reporting Standard 17 and accounted for its contributions to the Scheme as if it were a defined contribution scheme. The Teachers Pension Scheme is not funded; there are only notional underlying assets. The assets are assumed to provide an annual return of 8%. If the hypothetical rate of return were to be reduced from 8% then it is possible this could have implications for the costs (and benefits) of the scheme.