14 Oct 2010

Lawyers warn that quangos fate is complicated

Helga Breen, employment partner, Lawrence Graham LLP

Following earlier announcements to reform public bodies, the government has announced today that it has ditched 192 quasi-autonomous non-governmental organisations ('quangos') out of a total 750 plus. As part of a massive governmental spending cut exercise, a further 118 quangos will be merged and others are still under consideration for continuation, with 380 being retained.

Employment partner Helga Breen at international business law firm Lawrence Graham LLP offers the following comments: "The government's proposals do not directly answer the question of what are the implications for the hundreds of thousands of employees working in the public bodies and indeed whether or not affected employees lose their jobs will depend on the fate of their employing body.

The employment law and HR issues involved in reorganising, merging and disbanding public bodies are hugely complicated. It's not just a case of switching off the funding (as the Conservative party originally believed). It remains to be seen whether the government will use this opportunity to act strategically to maintain the efficiencies, economies and savings already made by some of the bodies under review or whether it will simply add cost to the public purse."

Where the affected employees transfer to a new body or government department, the main employment law issue will be whether they retain their existing terms and conditions of employment. This question in turn will depend on the legal means by which the transfer is effected. The Transfer of Undertakings (Protection of Employment) Regulations 2006 (the TUPE Regulations) normally protect the employment rights of employees transferring in these circumstances. However, the TUPE Regulations contain a key exemption in relation to certain Government-sponsored reorganisations.

The Government has promised to introduce a Public Bodies Bill empowering government departments to cut or change the functions of statutory bodies. It remains to be seen whether this Bill will also include provisions for the transfer of employees and employment liabilities (such as redundancy costs) to the new employing body.

"There is also the thorny issue of comparability of terms and conditions. In many cases the quango under threat will have the equivalent of private sector employment terms, remuneration policies and pay levels. Many will have moved away from final salary pension schemes and introduced lower cost pension arrangements. Most will not operate generous redundancy policies. By contrast, Civil Service pay rates have now moved much closer to their private sector counterparts (and in some cases are higher) and are supplemented by a final salary pension scheme and generous redundancy rights. Although both Civil service pension and redundancy rights are actively under review, inevitably there will be discrepancies between the terms of transferring employees and the public sector employees currently working in the relevant department or newly merged body.

Will departments take the opportunity to ring-fence the less generous terms and conditions of the transferring employee until such time as the disparity is evened out or will they opt to level up? Experience has shown us that central Government departments do not always make the commercial decisions which are second nature in the private sector. We know of a number of cases where the assumption has been made (apparently without critical analysis) that the transferring employees will be offered the more generous pension and redundancy rights of their new colleagues even though this will result in increasing the operational cost base of the function which has transferred," added Helga.