The Employment Rights Bill has hit the headlines with the substantial changes to employment law contained in it.  

But one measure that has gone under the radar is the re-introduction and strengthening of the two-tier code of practice first seen under the last Labour government.  

This will require contractors to offer all staff working on an outsourced contract the same terms as staff employed by the contracting public authority.  This in turn could lead public authorities to re-evaluate whether out-sourcing is still an attractive option.

The Employment Rights Bill, if passed into law in its current format, would introduce a new section into the Procurement Act 2023. This would give the Government the power to make regulations and a code of practice about preventing two-tier workforces in public sector outsourcing contracts.  

This would apply where services are outsourced (or have been outsourced and are being re-tendered) and staff originally employed by the contracting authority (Original Employees) transfer to the new contractor to carry out the same kind of work.  The Bill would give the Government the power to require the contracting authority to ensure (by way of contract) that:

• Those Original Employees are treated no less favourably than they were when employed by the contracting authority; and
• Other employees of the contractor are treated no less favourably than the Original Employees.

In practice, this could mean that all employees working on the contract have to be on terms of employment which are the same as or equivalent to those of the contracting authority.

The detail won't be clear until the regulations and code are made but points to note are that:

• Most provisions in the Employment Rights Bill are expected to come into force in 2026 and it will be a little longer before the regulations and code of practice are made;
• The code would cover transfers to private and third-sector contractors but also to other public-sector organisations;
• It is expected to cover outsourcing both by public authorities but also their subsidiaries;
• It isn’t yet clear how the Government intends to strengthen the previous two-tier code.  It could mean that the contractor would be required to ensure that all terms (including pensions) are no less favourable than those of the contracting authority.  This would be a change to the previous two-tier code where the position in relation to pensions was different for staff who worked alongside Original Employees, as they were entitled to less generous pension provisions;
• It isn’t clear which staff of the contractor would qualify for the no less favourable treatment.  If it mirrors the previous code, then it would be both the Original Employees and those working alongside them on the outsourced contract but not those staff who don't work on the outsourced contract.

Overall, this would mean that contracting authorities would need to look more closely at the justification for outsourcing contracts, as there may be little or no savings on staffing costs through outsourcing.  

It could well accelerate a trend towards insourcing contracts back to the contracting authority.  Where there is outsourcing and the code applies, ensuring that the right provisions are in the contract will be important.

For help with navigating this, contact Doug Mullen.