Local Transport Bill [HL]

moved Amendment No. 59: 59: Clause 38, page 34, leave out lines 4 to 13 and insert— ““(1) Where subsection (2) applies, the cessation of the provision of local services to which a quality contract relates by one person and the commencement of the provision of those services by another (““the new operator””) shall be treated for all purposes as a relevant transfer within the meaning of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (whether or not those Regulations would apply apart from this section). (2) This subsection applies where, immediately before the date of the making of a quality contract, one or more persons were employed by a person other than the new operator in the provision of local services in the area to which the relevant quality contracts scheme relates (““the old operator””). (3) The date on which the relevant transfer shall be deemed to take effect is the day on which the quality contract scheme is made. 134C Quality contracts: compliance with guidance and directions on TUPE (1) Where section 134B(2) applies, a Local Transport Authority, in making a quality contract scheme— (a) must deal with matters affecting the terms and conditions of employment of the employees of the old operator as at the date of the relevant transfer, or the arrangements for their pensions, in accordance with any directions given to it by the appropriate person; (b) shall comply with guidance issued to it by the appropriate person on matters relating to the terms and conditions, or arrangements for their pensions, of the employees of the old operator as at the date of the relevant transfer. (2) In subsection (1), references to employees of the old operator are references to persons to whom section 134B(2) relates. (3) The date of the relevant transfer referred to in subsection (1) shall be determined in accordance with section 134B(3). (4) The ““appropriate person”” shall be the Secretary of State. 134D Quality contracts: TUPE directions (1) The appropriate person shall exercise his power to give directions under section 134C(1) so as to secure that where a local transport authority concludes a quality contract with the new operator, it does so on terms— (a) that require the new operator to secure pension protection for each transferring employee; (b) that, so far as relating to the securing of pension protection for a transferring employee, are enforceable by the employee. (2) For the purpose of subsection (1)— ““transferring employee”” means an employee whose contract of employment becomes, by virtue of section 134B(1), a contract of employment with the new operator. ““pension protection”” is secured for a transferring employee if after that change in his employer he has, as an employee of his new employer, rights to acquire pension benefits and those rights— (a) are the same as, or (b) under the directions count as being broadly comparable to or better than, those that he had as an employee of the old operator. (3) The appropriate person shall exercise his power to give directions under section 134C(1) so as to secure that where— (a) a quality contract between a local transport authority and an operator (““the incumbent operator””) governs the provision of services by an operator; (b) the local transport authority concludes a subsequent quality contract under a quality contract scheme with an operator (““the subsequent operator””) other than the incumbent operator; and (c) the application of the TUPE Regulations results in one or more employees (““transferring employees””) of the incumbent operator becoming employed by the subsequent operator in relation to its operation of the subsequent quality contract; the local transport authority concludes the quality contract with the subsequent operator on terms satisfying the requirements of subsection (4). (4) Those requirements are that the terms— (a) require the subsequent operator to secure pension protection for each transferring employee; (b) that, so far as relating to the securing of pension protection for a transferring employee, are enforceable by the employee. (5) For the purposes of subsection (4) ““pension protection”” is secured for a transferring employee if after that change in his employer he has, as an employee of his new employer, rights to acquire pension benefits and those rights— (a) are the same as, or (b) under the directions count as being broadly comparable to or better than, those that he had as an employee of the old operator.””.”” The noble Lord said: The amendment seeks effectively to replace the existing Clause 38, which is inadequate to achieve the objectives that I hope it was intended to achieve. I reiterate that I am not a lawyer, but what I want to say about this issue seeks to reflect a legal opinion that I have seen. Clause 38 inserts a new Section 134B into the Transport Act 2000. There are three main problems that the clause as drafted appears not to address; namely the application of the Transfer of Undertakings (Protection of Employment) Regulations, the issue of the two-tier workforce and pension protection. Clause 38 gives no guarantee that the Transfer of Undertakings (Protection of Employment) Regulations will apply in any circumstances relevant to the introduction of a quality contracts scheme. That is obviously important, as TUPE will generally provide the basis of any protection of any employee’s terms and conditions of service. TUPE protects the employment and terms and conditions of existing employees in two circumstances: first, in the context of a business transfer; secondly, in the context of service provision change. In order for there to be service provision change, there must be some end client in place before and after the putative transfer. It is hard to see how the introduction of a quality contracts scheme could meet that requirement. Although there would certainly be a change in the provision of service, there would be no continuing client. Before the change, bus services would be provided on a straightforward private basis by the former operator, not on behalf of the local authority. After the change, the services would be provided by a private bus operator, but now on behalf of the local authority. It is unlikely that the change in service provision in that context would amount to a relevant process for the purpose of the Transfer of Undertakings (Protection of Employment) Regulations 2006. The possibility of there being a business transfer will depend on the circumstances of each case. The definition requires that there is, "““an economic entity that retains its identity upon the transfer””." Although it seems likely that there would be a pre-existing economic entity, the real question is whether there was a retention of identity on the introduction of a quality contracts scheme and the change from a service provided by one or more companies to a service provided by a different operator. It is very hard to predict with any certainty whether the circumstances of a particular quality contracts scheme would constitute a relevant ““business transfer””, especially given the possible delays in the introduction and implementation of a quality contracts scheme, which we have already discussed, and the very different approaches that may be taken by local authorities in that regard. What seems most likely is that there will be cases where different operators will tender for a quality contract on a different basis—whether or not TUPE will apply—and that disputes on that issue would have to be resolved by the employment tribunal. Indeed, the less scrupulous operator might even try to evade the consequences of TUPE—the need to take on the staff of the unsuccessful transferor or transferors on their existing terms and conditions—by refusing to employ existing employees of other companies and relying on that fact as evidence in itself of there being no relevant transfer. Clause 38 does not reduce that uncertainty. Indeed, it may be argued that it positively encourages those bidding for the quality contract to do so on the basis that they will not take on the staff of the unsuccessful operator. After all, it is only if the successful bidder takes on existing staff that it will be bound to maintain their previous terms and conditions. If the successful bidder wished to reduce terms and conditions, it would plainly be entirely against its interest to take on the staff of previous operators. That approach should be contrasted by that adopted by the Government in respect of staff transfers in the public sector, whether at national or local level. Clause 38 does not provide greater certainty for the workforce, nor does it give them any assurances of any value. By failing to deem that TUPE should be taken to apply or that quality contracts might be tendered out by local authorities on that basis, Clause 38 encourages ambiguity, inconsistency and uncertainty as to the application of TUPE and singularly fails to provide any assurance of continued employment to members of the existing workforce. It is likely to lead to complex and lengthy litigation that may bring clarity only through a tribunal court ruling after several years. As for the two-tier workforce issue, although the most immediate concern must be for the current employees, who may be refused employment or offered employment under less favourable terms and conditions by the successful bidder for the quality contract, in the medium to long term, issues will also arise about those subsequently recruited into service by the operator in question. Subsequent re-tenders of the quality contract would inevitably fall under the protection of TUPE and the local authority code, because they would be service provision changes in which the end client would remain the local authority. But that protection would be to no avail if the initial introduction of the quality contracts scheme permitted new recruits to be employed on less favourable terms and conditions, thereby diluting the standard of entitlement of the workforce over time. Clause 38 does nothing to address that issue. The only obligation on a successful service provider under a quality contracts scheme will be to employ the current staff, but it is not obliged to do so on their existing terms and conditions. It is silent on the treatment of any new recruits, and it can only be assumed that the operator in question would be free to employ staff on the least favourable terms and conditions that the free market permits. Once that has happened, any subsequent protection that might be afforded under TUPE or the local government code would effectively be rendered academic. The concern about pension provision arises in respect of employees currently employed by a service operator that is unsuccessful in its bid or because it does not bid for a quality contract, but is then taken on by the successful bidder. Pension provision is an exception to the normal TUPE rule, whereby rights and obligations under a contract of employment continue in force for the transferee, and any variation by reason of the transfer is rendered void. To ensure that anticipated benefits under occupational pension schemes were to be continued on a ““no less favourable basis””, separate provision is necessary. The privatisation of rail services provides a precedent for such guarantees, and further, the local authority code provides similar guarantees when employees are transferred from the public to the private sector. A Fair Deal for Staff Pensions, annexed to the local authority statement, shows that the terms of a transfer should specify that transferred employees must have access to a scheme certified as ““broadly comparable”” by a professionally qualified actuary unless exceptional circumstances apply. The protections afforded in the local authority code of practice would serve to meet the concerns I have expressed, and would offer a consistency of approach with which local authorities are already familiar in other contexts. My amendments would achieve that goal. To summarise, as drafted, Clause 38 provides little, if any protection for existing employees’ terms and conditions. It leaves it entirely uncertain whether TUPE will apply in any given case. It is likely to encourage tenders on different bases by service operators, and may even encourage a refusal by those seeking to evade the application of TUPE to take on current staff of other unsuccessful operators. Clause 38 also discourages the maintenance of the existing level of terms and conditions as new recruits may be offered the least favourable terms that the free market will permit. That will, first, encourage the successful operator to seek to avoid taking on employees currently working on the service, but for different bus companies. Secondly, to the extent that such staff might be taken on, it will lead to the creation of a two-tier workforce. Thirdly, it will bring about the lowering of standards recognised by the code of practice on workforce matters in local authority service contracts before that code can have direct application to quality contracts schemes, thereby rendering its subsequent effect academic. Finally, Clause 38 provides no protection in respect of existing pension provision either on a no-less-favourable basis or even, at least arguably, on the minimum standards required under the Pensions Act 2004. My amendments would rectify the inadequacies of Clause 38. I beg to move.