The Government risks inadvertently starting a wave of litigation by changing employment regulations governing outsourced staff, says EMW, the commercial law firm.

The Government has proposed changes to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), which protect employees from unfair dismissal, cuts in pay or changes in terms and conditions of employment if the business in which they are employed changes hands. EMW explains that TUPE currently protects staff employed by outsourcing companies from unfair dismissal or pay cuts if the organisation using that outsourcer switches suppliers (called a ‘service provision change’). Some businesses have argued that this protection is excessive, making it difficult to restructure contractor teams or improve the performance of contractor staff.

EMW says that these concerns prompted the Government to open a consultation on removing this specific protection from outsourced staff as part of its Red Tape Challenge. The consultation aims to reduce the cost and red tape for businesses that outsource services. However, EMW says that the proposed changes would actually create uncertainty over whether such changes in contractor are caught by TUPE at all. This would leave businesses in the dark over whether these workers are protected by the law or not, increasing the likelihood of litigation between businesses and outsourced employees over the matter.

Jon Taylor, Principal at EMW, explains: “At the moment, re-tendering an outsourced contract can effectively result in a business getting the same staff working in a different uniform, so that the quality of service and most of the costs stay exactly the same. Many businesses say that the law goes too far, and gives businesses far too little scope to gain improvements in performance and efficiency if they switch contractors.” “This is something that needs to change, but the proposals put forward by the Government will not solve this problem, and will create a bigger one instead. The law will give no certainty on whether businesses can freely restructure their contractor staff or not, and this legal uncertainty is likely to start a wave of litigation over the issue.”

“Ironically, the provisions on service provision changes were brought into effect in 2006 to give businesses a level of certainty over whether outsourcing was caught by TUPE because the position had been unclear prior to that. Because there is so much outsourcing in highly unionised former public sector functions, unions are likely to be drawn into the legal battle as they may well see this change as an attack on workers’ rights.” EMW says that businesses would benefit from certainty over their legal responsibilities regarding outsourced staff. Says Jon Taylor: “Given the uncertainty of the proposed regulations, no business will want to be the first to test the new legal situation. With no clear statutory guidance, the first business to use these new ‘freedoms’ regarding contractors could well find itself footing a major legal bill, and potentially a compensation claim too. It is vital that any changes to TUPE should be absolutely clear to what extent outsourced staff are protected by the law. This will result in time and cost savings for businesses, rather than a morass of litigation.”