Clause 39

Local Transport Bill [Lords] – in a Public Bill Committee at 12:00 pm on 6th May 2008.

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Quality contracts: application of TUPE

Photo of Stephen Hammond Stephen Hammond Shadow Minister (Transport)

I beg to move amendment No. 224, in clause 39, page 35, line 22, leave out from first ‘is’ to end.

Let me say at the outset that this is a probing amendment and I think that the Minister will see fairly quickly where my argument is going. The clause is important because one of the great concerns about quality contracts is to ensure that staff will be treated fairly during and after the crossover period to the provision of services under a quality contract. The Minister knows that the clause provides that such a change shall be treated as a relevant transfer under the Transfer of Undertakings (Protection of Employment) Regulations 2006.

The clause has evolved during the Bill’s pre-legislative scrutiny and during its passage through the other place. The Lords had a very interesting debate on the matter, and the Minister will remember that the Government tabled amendments both on Report and on Third Reading in the other place.

As I understand it, one of the main issues arising from the original wording of the clause was that protection might only be available to employees taken on by a new employer that had won a quality contract. It would not provide protection for those in existing schemes and existing services transferred to a new operator. I think that amendment was moved by Lord Bassam, and it was right and proper.

On Report, it was also proposed that the incumbent operator be required to provide information to the local traffic authority about its current work force, which could be used as a basis for tendering. The successful tenderer would be obliged to employ that work force, provided they were willing or it was looking for new employees. I do not see anything wrong with that either.

Third Reading added a further element, which was to make it an offence for an operator to provide information that is false or misleading in a material way, if the person providing the information knows that it is false or is reckless as to whether it is. Again, I have no problem with the intent of that Government amendment. It makes sure that there is adequate protection.

What I am trying to find out through amendment No. 224 was not answered by Lord Bassam in another place on behalf of the Government, and I hope the Minister will be able to answer. It relates to the word “reckless”. In addition to providing false information, an operator will be breaking the law if it is “reckless” about whether that information is false. Will the Minister clarify the precise meaning of “reckless” with reference to this behaviour, how the definition of “reckless” behaviour will be set out in guidance, and who will set out that guidance? It was on that point, when asked directly, that her colleague in another place could not answer.

Photo of Ann Winterton Ann Winterton Conservative, Congleton 12:15 pm, 6th May 2008

I understand the hon. Gentleman’s questions and I hope I can be of some help. I will set out a little of the background and purpose of the requirement in subsection (5)(c).

In normal circumstances, when a local authority is providing a public service that is to be contracted out, it would, as part of the tender process, provide anonymised details of the members of staff who would  be likely to be available for transfer to the contract on TUPE terms. Similarly, if a contract is re-tendered, the outgoing contractor can be obliged, as a contractual duty, to provide this information for the benefit of any other employer that wins the new contract. Without information of that sort, it would be very difficult for a new company to make a realistic bid for the work, as an important cost element would be missing from the calculation.

However, where a commercial bus service falls to be replaced by a contracted service, the existing operator would not be under any form of contract with the local authority that could oblige him to provide the information. Our TUPE provision therefore includes a regulation-making power under which operators could be placed under a statutory obligation to do so.

If all the operators in an area are keen to bid for contracts, and recognise that they could be winners as easily as losers, it is likely to be in their interest to provide the local authority with accurate information about staffing, but in some cases, that will not be so. An operator that has little prospect of winning a contract, does not intend to put in a bid, or is even so opposed to the whole idea of the scheme that he would like to cause mischief, may have no incentive to provide correct, complete and accurate information, and might not bother to check the facts and assumptions. It is also possible that an incumbent might provide deliberately false information to mislead competitors into bidding higher than necessary, either with the prospect of undercutting them, which would obviously be fraudulent, or simply with the hope of wrecking the scheme by making it unaffordable. The offence could therefore cover a wide variety of behaviours, from mere carelessness to deliberate attempts to deceive. It would be for the courts to determine the severity of the behaviour and the appropriate penalty, if any, on a case-by-base basis.

If a court is satisfied that an operator simply made an innocent mistake, it might decide not to impose any penalty at all. However, there could be instances where it is clear that an operator has not correctly represented the facts available to him, but it is difficult or impossible to prove a deliberate intention to deceive. That is where the question of recklessness becomes important, for if it were necessary to prove knowing deception beyond reasonable doubt, many negligent or irresponsible operators would go unpunished.

As with all criminal offences, the purpose is to deter rather than to punish. A responsible or prudent operator, weighing up all the odds, is not likely to behave in such a manner that could lead to a criminal prosecution, but if there were no obvious remedy in criminal law, the temptation to cheat might well be too great. I hope that explains that explains the thinking behind the term “recklessness” and that the hon. Gentleman will withdraw his amendment.

Photo of Stephen Hammond Stephen Hammond Shadow Minister (Transport)

I want to probe the Minister a little more, because it seems to me that all the circumstances she described were covered by the fact that it is an offence for an operator to provide such information that is

“false or misleading in a material particular”.

I understand entirely what she is trying to cover, but it is already covered by that provision. What she is saying is that in this situation, recklessness—the test of which we have discussed under previous Bills—is a lower test of deception. Is that what she is saying to us?

Photo of Ann Winterton Ann Winterton Conservative, Congleton

It is a failure to take due care to provide accurate information. That is the difference between a deliberate intention to mislead and not taking due care to provide accurate information.

Photo of Stephen Hammond Stephen Hammond Shadow Minister (Transport)

The problem with what the Minister is saying is that someone could be reckless without any intention to mislead. The Minister has spoken about an intention to mislead, and that is already covered. I am still not clear that reckless is anything other than a lower test that might catch a number of people who may have provided false information, but did not necessarily intend to do so and had no intention to deceive.

I hope that the Minister will ensure that in any guidance she produces she gives a very tight legal definition to the word “reckless,” because I think that the provision is open to an extraordinary number of misinterpretations. I am glad we have had the chance to explore it today; I hope the Minister will take on board my concerns about the meaning of “reckless” and that she will consider tightening the definition to avoid unintended consequences. For now, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Photo of Ann Winterton Ann Winterton Conservative, Congleton

With this it will be convenient to consider new clause 8—Quality contracts: application of TUPE—

‘(1) After section 134A of the TA 2000 insert—

“134B Quality contracts: application of TUPE

(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 contracts scheme is made.

134C Quality contracts: compliance with guidance

(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;

(c) must provide for the involvement of recognised trade unions in the tender preparations and the evaluation process in accordance with any guidance issued by the appropriate person;

(d) shall comply with guidance issued to it by the appropriate person on matters that must be taken into consideration in the award of a quality contract, which shall include any earlier failure to comply with the safeguards provided for employees under these provisions, including those contained in the Transfer of Undertakings (Protection of Employment) Regulations 2006.

(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: pensions

(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 provide for any employee working on services governed by a quality contract to be eligible to join the Local Government Pension Scheme;

(b) that, for those employees who are not members of the Local Government Pension Scheme, otherwise require the new operator to secure pension protection for each transferring employee;

(c) 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)—

(a) “transferring employee” means an employee whose contract of employment becomes, by virtue of section 134B(1), a contract of employment with the new operator.

(b) “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—

(i) are the same as, or

(ii) 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) provide for any employee working on services governed by a quality contract to be eligible to join the Local Government Pension Scheme;

(b) require the subsequent operator to secure pension protection for each transferring employee;

(c) 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.

134E Quality contracts: consultation

(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 is seeking to introduce a quality contract scheme or to introduce a quality contract with a new operator, it will, at the earliest opportunity, consult with recognised trade unions as to the tender preparation and evaluation process.

(2) The appropriate person shall, in further exercise of his power to give directions under section 134C(1), provide guidance to local transport authorities contemplating the award of a quality contract with a new operator as to the matters that shall be taken into consideration, which shall include any earlier failure to comply with the safeguards provided for employees under these provisions.”’.

Photo of Graham Stringer Graham Stringer Labour, Manchester, Blackley

To refer back to the previous debate, a wide variety of bus operators operate in the private sector in this country; some of them have the greatest integrity and provide a good service, and some of them are cowboys. It is as well to be prepared for reckless intentional and unintentional behaviour, given the statements of Brian Souter, who said that he would withdraw all services if he lost a contract, leaving the people of South Yorkshire without service. That is the real world in which we operate.

New clause 8 deals with how TUPE could apply. In one sense, TUPE normally applies to a business or occupation—grass cutting, or whatever—which continues, and the employees are protected doing a similar job with a new company. That could happen in the bus industry. If a bus operator—not Stagecoach, but some operator with integrity—applied for a quality contract, lost it, and carried on its operations until a transfer of undertakings, its employees could transfer to a new bus company if there was an exact match between the previous scheme and the new scheme.

I suspect that that situation will be rare indeed, and that two things will happen. There will be people such as Brian Souter, who take their bat and ball home, damaging the service. Protection is needed for employees in that situation. There will also be confusion, which I suspect will apply in all metropolitan areas where a small number of bus companies and one or two large bus companies operate across boundaries. The purpose of the new clause is to protect employees who operate services in such areas by allowing them to transfer to the new operator—the winner of the contract. It also provides that if such people are contracted to provide public services, they should be able to join and have the benefit of the local government pension scheme.

Photo of Ian Stewart Ian Stewart Labour, Eccles

First, I declare that I am a member of the union Unite. I spent 20 years as a regional officer for one of the unions that merged into Unite, the Transport and General Workers Union.

Trade unions are needed to protect vulnerable workers. Workers and their families are vulnerable in times of redundancy and uncertainty. New clause 8 would provide protection for bus workers, security of employment and pensions for bus workers employed in an area that becomes subject to a quality contract. Proposed new sections 134B, C and D of the Transport Act 2000 are intended to strengthen the application of TUPE and allow trade union involvement in the quality contract process. Proposed new section 134B would protect the pensions of bus workers who transfer to a quality contract.

There are three hurdles that local and transport authorities must cross before a quality contract is made. Quality contracts will give specified areas such as routes, timetables and fares to local authorities. That power would be welcomed by my constituents in Pendlebury, Swinton, Eccles, Irlam and Cadishead, and by people throughout the country. Once the three hurdles—consultation to determine whether people want a quality contract for their area, approval from traffic commissioners and, should an operator not agree about the contract, an appeal to the traffic commissioners—are cleared, an operator under a quality contract effectively becomes a monopoly provider. Although that type of regulation of bus services will result in greater control over the services than is possible under complete deregulation, which is the system outside London, important employment matters need to be dealt with. That is the purpose of new clause 8.

One clear benefit of quality contracts is that once one is in place there will be stability of bus service provision and—I hope—of employment. The difficulty, which the Bill has not yet adequately addressed, is in ensuring stability of service and employment during the transition to quality contracts. Unless protections are forthcoming, the process of introducing quality contracts has the potential to result in significant redundancies among bus workers, as my hon. Friend the Member for Manchester, Blackley mentioned. That is surely not what the Government intend to result from what is clearly a good-news measure. Fortunately, the Government will, I hope, table their own amendments either in Committee or on Report.

The potential threat to jobs stems from the fact that there is no legislation providing for staff transferring from a wholly private company—any bus operator outside London, for example—to a company regulated through quality contracts. Under the current arrangements, therefore, there is nothing to stop service operator employers terminating the service on learning of the intention to introduce quality contracts. There is nothing, apart from the 56-day notice requirement, to stop such a service provider simply walking away from the service in question at any time.

The intention of proposed new section 134B is, therefore, that persons being transferred to quality contracts will come under the provisions of TUPE—the  Transfer of Undertakings (Protection of Employment) Regulations 2006—whether TUPE applies or not. The proposal is that TUPE protection should apply as early as possible and should be assumed to run from the date on which the quality contract was made. The provision would give the entire protection afforded under TUPE to all cases in which the introduction of quality contracts meant the transfer of employees from one employer to another. That implies that variations to terms and conditions, and/or dismissals arising by reason of the transfer, would be void and/or rendered automatically unfair, with liability vested in the transferee. That protection would relate back to any prior changes or dismissals made by the transferor, provided that they were made by reason of the impending quality contract.

Importing the protections of TUPE would ensure that the transferee had an interest in the continued employment of the staff in question and in the protection of their terms and conditions, given that it would stand to pick up any liability for dismissals and so on relating to the quality contract.

The new clause would not only improve on the Government’s clause in relation to when TUPE should apply; it would make an important improvement with respect to which people it should apply to. Proposed new section 143B provides for TUPE to apply to one or more persons—that is, all workers involved in the operation of bus services in the area to which a quality contract scheme related would transfer to the operator who won the quality contracts bid. That would provide operators with a disincentive to run down resources, with the consequent redundancies and effects on passenger services. It would also create a level playing field for operators that tendered, because they would all understand the possible TUPE consequences. The information and consultation provisions of TUPE would apply, so those who tendered would understand where they stood and what the proper employment costs were.

The importation of TUPE might not, however, address the concern that former service operators and employers could simply terminate the service early on learning of the intention to introduce quality contracts. I would therefore like local transport authorities to have the power to act as providers of last resort in that respect. Proposed new sections 134C and 134E would mitigate such an effect by providing local authorities with a sanction and allowing them to take such behaviour into account when awarding future quality contracts. Similar practices are provided for in other local government contracts, such as the code of practice on work force matters in local authority service contracts.

The new clause provides further protection for the work force by allowing for consultation with trade unions, and for trade union involvement in the tendering preparations and the evaluation process in accordance with any guidance issued. That would allow, at an early stage, the employment implications of introducing quality contracts to be fully factored into the preparation of invitations to tender and into consideration of whether bids would adversely impact on employment.

I turn to the serious issue of pensions. The new clause highlights the aspiration of trade unions and workers that bus workers who transfer to quality contracts should be eligible to become members of the  local government pension scheme by virtue of the fact that they will be employed under a local government contract. That would not only provide them with obvious benefits, but tackle one of the biggest challenges facing the bus industry—high staff turnover and poor recruitment and retention. All the evidence has shown that a secure and fair pension secures stability in employment.

Furthermore, the new clause would protect the existing pension benefits of employees who transferred to a quality contract. That is necessary because TUPE does not provide full protection for existing pension benefits. I therefore hope that the Government will amend the Bill to ensure that bus workers who transfer from the deregulated market to a quality contract have their pensions protected. As the Conservative Front-Bench spokesman, the hon. Member for Wimbledon, said, the proposal received cross-party support during the Lords debate. The Government have also given a commitment to give serious consideration to providing such protection.

Pension rights and benefits are not protected by TUPE. Occupational pension schemes are not transferred by reason of a relevant transfer. Sections 257 and 258 of the Pensions Act 2004 require that where there is a relevant transfer within the meaning of TUPE, a transferee must offer a transferring employee the opportunity to participate in an occupational pension scheme following the transfer if they were eligible to participate in such a scheme before the transfer. The new scheme must meet a minimum statutory standard, but it need not be as favourable as the scheme provided by the transferor.

The amendments tabled by Lord Rosser in Committee in the Lords would have had a beneficial effect on protecting pension rights. When the Government responded on Report, they recognised that that was an important issue and were sensitive to the fact that pensions should be properly preserved. The need to protect existing pension benefits attracted cross-party support in the Lords.

The Government have previously introduced legislation to protect existing pension benefits in other reorganisations of the transport sector—the privatisation of British Rail and the public-private partnership for the London underground, for example. The Department for Transport and the Department for Communities and Local Government have, as I understand it, recognised that pensions protection is important not only for employees affected by quality contracts, but for companies, as it provides a level playing field.

Will the Minister table an amendment on Report to protect existing pension provision? I hope that those two issues, which can be among the most devastating parts of a family’s life—they affect not just the workers, but the whole family—will be addressed and that this good legislation, which is good news for passengers, will also be good news for workers.

Photo of Ann Winterton Ann Winterton Conservative, Congleton 12:30 pm, 6th May 2008

I am extremely grateful to my hon. Friends for their explanation of their new clause. As they said, substantial improvements were made to the Bill in another place to ensure that some of the concerns about the potential effect of quality contracts schemes on bus workers have been addressed.

In preparing those improvements, we wanted to ensure that there was the right degree of protection for workers—in particular, by ensuring that the TUPE regulations apply while also ensuring that we do not prevent quality contracts schemes from being a realistic option for local authorities. I appreciate that the period of transition to a quality contracts scheme may not be easy for local authorities to manage. There are some measures that we can take in regulations to help with that. In particular, there is already a power to change, in specific circumstances, the period of notice that an operator must give before he may stop running existing services. Increasing that notice period during the transition to a quality contracts scheme might make a substantial difference, giving local authorities more time to make plans for filling any gaps in service that might arise.

The Bill also provides a power to make regulations modifying or disapplying the usual tendering requirements that apply when a local authority wishes to enter into a subsidy contract with a bus operator. There may be scope within the constraints of EU law to make some changes that streamline the process to give authorities a better opportunity to fill short-term gaps in service provision during the transition to a quality contracts scheme.

I can assure my hon. Friends—particularly my hon. Friend the Member for Eccles—that we have had quite detailed discussions with the trade unions and with some members of Unite, and I pay tribute to the work of the all-party group in pressing those cases. The discussions with the trade unions have been fruitful and led to some of the changes that we made in the other place.

With respect to the changes to the regulations modifying or disapplying the usual tendering requirements, I would like to consult on the proposals for regulations in those areas later in the year. I can assure my hon. Friends that I will involve the trade unions in those discussions.

In relation to the application of TUPE during the transitional period, my hon. Friend the Member for Eccles expressed very strongly the points that were made during some of the discussions with the trade unions. In the light of his arguments, I am prepared to consider further whether we can move in the direction that he and my hon. Friend the Member for Manchester, Blackley seek.

Important questions were raised about the degree of pension protection that should be afforded to bus workers. Difficult issues need to be considered here, such as the potential costs to local authorities. I will have to give the matter a good deal of further thought. The Minister for Local Government has been involved in some of the discussions. He and I have written to Jack Dromey of Unite regarding the agreement that a quality contracts operator will be eligible to apply for admitted body status, but, as in other local government contracts, there will not be an automatic right to join. The decision on whether to join will rest with the operators. I have had discussions about that and they will continue.

The new clause would also ensure that trade unions were duly engaged in the process of moving towards a  quality contracts scheme. It is right that trade unions should be consulted when a local authority is working up proposals to make quality contracts schemes. The obligation on local authorities to consult appropriate persons on proposed schemes is already comprehensive and includes a general requirement to consult

“such other persons as the authority or authorities think fit.”

I cannot imagine a situation in which representatives of the appropriate trade unions would not fall into those categories. I am happy to reassure my hon. Friends that that is something we will consider reinforcing in the statutory guidance.

Photo of Ian Stewart Ian Stewart Labour, Eccles 12:45 pm, 6th May 2008

Will my right hon. Friend ponder on the distinction between when a contract is made and when it is implemented? Will she also be mindful of the fact that we are keen for her to understand that we want the protections in place when the contract is made?

Photo of Ann Winterton Ann Winterton Conservative, Congleton

As I said, those are all matters on which we hope to give some reassurance.

We were also asked what we will do about bus operators that fail to provide the employment protection to which employees are entitled. It has been suggested that we should specify it in the Bill that such failure should be taken into consideration when that operator bids for other quality contracts in the future. I have some sympathy with the suggestion made by my hon. Friends, who seek to ensure that operators who successfully tender for quality contracts have a good record in honouring their commitments to employees. However, I am not convinced that the matter should be dealt with in the Bill itself.

Obviously, when a local authority is considering tenders for quality contracts, it must take into account a wide range of factors, not least the reputation and standing of the operator submitting the bid. The authority must also act in accordance with procurement legislation. Where such legislation applies, it specifies the criteria on which a contracting authority either must or may reject a tender. Obviously, the appropriate procurement legislation is the right place for such restrictions. I think it would wrong for us to apply different restrictions in the Bill.

That said, I am prepared to consider whether it would be appropriate to include references on that point in the next draft of the quality contracts scheme guidance. I am certainly happy to explore that further.

I hope that I have indicated a number of steps that we might be able to take in future regulations to help to manage the period of transition to a future quality contracts scheme. I will very carefully consider the points made about the application of TUPE during the transitional period and the need to secure a fair degree of pension protection. While I cannot guarantee it, I am happy to see whether there is anything that we need to bring back on Report with regard to this and also to look at regulations and guidance in relation to some of the other points that have been made. I hope that, with those reassurances, my hon. Friends feel able not to press their new clause.

Question put and agreed to.

Clause 39 ordered to stand part of the Bill.

Clause 40 ordered to stand part of the Bill.